April 20, 2016
In a world seemingly inured to financial scandals, the Panama Papers leak has reminded us of their capacity to shock. This huge document dump, which has revealed thousands of offshore accounts held in the tax haven of Panama by the world’s new superwealthy class, has already shaken British Prime Minister David Cameron, pointed to Russian President Vladimir Putin and led to the resignation of Iceland’s prime minister. At its core, the affair provides a window into something we knew existed, but whose scale we couldn’t always imagine: offshore zones of total lawlessness that fuel kleptocratic governments and undermine the rule of law across the globe.
This kind of high-stakes tax evasion might appear to be a product of the new global economy, but at its heart, the problem is actually astonishingly old. Tax avoidance has a deep history, one as ancient as taxation itself—after all, whenever a tax is created, someone creates a way around it. And what this long history reveals is that the way in which societies confront tax evasion is integral to their survival: Large amounts of untaxed national wealth inevitably lead to income inequality and higher government deficits, in turn stirring popular discontent. Eventually, these ineffective tax systems can lead to violent revolutions and complete societal collapse. Given the recent economic and social instability in the European Union and Brazil, financial transparency and accountability are things the United States must be careful to consider.
Story Continued Below
Taxes have been around since ancient Mesopotamia. Over time, as tax systems grew more sophisticated, so too did the tools to avoid paying them. In Renaissance Florence, where modern banking was in part invented, government inspectors determined how to tax citizens and businesses by individually auditing their (often highly technical) account books. In reaction, citizens—particularly the wealthy ones—often kept two books: a libro segreto, or “secret ledger,” for internal use and a libro mastro for government audits and for public business.