By: Evan Cooper and Julian Mueller-Kaler

What is the kernel of the issue?

Upwards of $36 trillion is hidden in various offshore financial centers (OFCs) to avoid taxation.

Why is the issue important?

The United States and other countries lose out on hundreds of billions of dollars in tax revenue each year. Increased financial transparency could allow the US and partners the means to appropriately tax otherwise hidden wealth, thereby generating revenue to tackle rising inequality, reduce debt levels, and support necessary public investments in education, infrastructure, and innovation.

What is the recommendation?

The Biden administration should significantly expand on the effort begun under the Obama administration to crack down on OFCs and tax avoidance by pushing for an even stronger version of the Foreign Account Tax Compliance Act (FATCA) and work with partners to punish those who shelter funds. By expanding FATCA to allow information sharing with others, a comprehensive monitoring regime could be established. Such reforms would enable countries to track where capital is being stored and identify where revenue was initially generated, providing the reliable reporting needed to appropriately tax entities. Additionally, penalties should be applied by the US to corporations that predominantly use low-tax jurisdictions, as President Biden has previously suggested.

Related Experts: Evan Cooper and Julian Mueller-Kaler