Panama Papers leak reveals system that helps the rich but hurts the rest of us

The rich are, indeed, different from the rest of us — not just because they have more money but because of the lengths they’ll go to keep it.

The Panama Papers — a massive leak of 11.5 million files from the Panama-based law firm Mossack Fonseca — demonstrates some of those lengths, especially ones involving offshore tax havens. The files show billions of dollars stashed away by the wealthy elite, including several world leaders.

One real revelation of the Panama Papers is that international and domestic laws so often are written to facilitate hoarding great wealth, at a tremendous cost to the rest of us.

President Barack Obama, who has been calling for efforts to close offshore tax havens since he first ran for his office in 2008, used the leak as an opportunity to highlight the issue.

“There is no doubt that the problem of global tax avoidance generally is a huge problem,” Obama said at an unscheduled White House briefing. “The problem is that a lot of this stuff is legal, not illegal.”

When the wealthy hide their income to avoid taxes, it has a big effect on the people left to pay the bills for public services.

It robs us of the resources to make necessary investments in education, infrastructure and other areas while shifting a greater portion of the burden of financing a stable society onto the backs of the middle class.

It’s occurring at a time when middle-class incomes are stagnating and the lion’s share of gains from the economic recovery have flowed into the pockets of the 1 percent.

Allowing such tax avoidance to continue unchecked is unconscionable.

The publication of the Panama Papers — which stripped away the anonymity that usually shields such schemes — already is having an effect on international affairs.

The prime minister of Iceland stepped aside after his ties to firms involved in the 2008 financial collapse, which hit Iceland especially hard, were published.

Some despots came under fire, too. Russian President Vladimir Putin, though not named in any of the records, was pulled into the growing scandal. The documents show that a circle of his friends and family have somehow come into huge sums of money — about $2 billion, including significant financial stakes in a number of Russian companies.

That the world’s elite do everything they can to avoid paying their fair share of taxes on what the rest of us consider unimaginable wealth is hardly shattering news.

But the number of politicians, including at least a dozen national leaders, revealed by the breach is, if not surprising, disappointing — especially in a mature democracy like Iceland.

As Vox’s Matthew Yglesias explains, Mossack Fonseca had one major specialty — “helping foreigners set up Panamanian shell companies to hold financial assets while obscuring the identities of their real owners.”

While this is not always done for nefarious reasons, such shell companies set up in tax havens make it easy for the very wealthy to shelter income and assets from taxation — or divorce settlements.

Offshore tax havens aren’t the only problem. As The Guardian noted, “Nevada, Wyoming and South Dakota have been promoted as new hot markets to avoid tax and stash cash secretly because the U.S. has been resisting international disclosure reforms.”

Rectifying this situation won’t be easy, especially considering the power of those profiting from the current system.

But this extraordinary disclosure, the result of an unprecedented yearlong investigation by more than 100 news organizations, should help create the pressure to bring about real change.

This story was originally published April 7, 2016 at 2:29 PM with the headline "Panama Papers leak reveals system that helps the rich but hurts the rest of us."