Donald Trump

Panama Papers Previews What Donald Trump's Jacksonian Economics Would Look Like

When the biggest economy on the block gets to write the global rules, foreigners and regular Americans get screwed, elites skate, and hypocrisy rules the day.

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You can't unsee. ||| PanamaVanHalenTribute.com
PanamaVanHalenTribute.com

For years we have been warning you about the odious 2010 Foreign Account Tax Compliance Act (FATCA), which has been driving Americans to renounce their citizenship in record numbers because of the law's incredibly onerous disclosure requirements on U.S. citizens who have the bad manners to maintain financial accounts abroad, and because foreign banks in most halfway decent countries no longer want the hassle of serving any of the estimated 7.6 million American expatriates, since doing so essentially gives the IRS carte blanche to investigate the bank's innards and seize assets. For the dubious prize of shaking a paltry $1 billion extra in annual tax receipts, the United States has been systematically destroying the notion of international financial privacy.

Except in the United States itself.

The massive Panama Papers reporting project, which the world is still trying to digest this morning, puts one idea in sharp relief: America is benefiting greatly from exempting itself from the rules it is imposing on the rest of the world. Here's how The Economist describes it, in a piece headlined "The biggest loophole of all":

America seems not to feel bound by the global rules being crafted as a result of its own war on tax-dodging. It is also failing to tackle the anonymous shell companies often used to hide money. The Tax Justice Network, a lobby group, calls the United States one of the world's top three "secrecy jurisdictions", behind Switzerland and Hong Kong. All this adds up to "another example of how the US has elevated exceptionalism to a constitutional principle," says Richard Hay of Stikeman Elliott, a law firm. "Europe has been outfoxed." […]

No one knows how much undeclared money is stashed offshore. Estimates range from a couple of trillion dollars to $30 trillion. What is clear is that America's share is growing. Already the largest location for managing foreign wealth, it has picked up business as regulators have increased information-exchange and scrutiny of banks and trust companies in Europe and the Caribbean. Money is said to be flowing in from the Bahamas and Bermuda, as well as from Switzerland.

Or as Bloomberg Businessweek put it in January, "The World's Favorite New Tax Haven Is the United States." It's a good deal for Miami luxury real estate developers, Delaware corporate lawyers, and for people of any nationality who can afford to shop for favorable (and favorably complex) financial jurisdiction. The rest of us schmoes have to continue bending over for the IRS.

The FATCA/Panama Papers state of international financial hypocrisy falls squarely on the shoulders of President Barack Obama (with assists from drug warriors and their enablers from both parties, stretching back to Richard Nixon). But it's fair to consider it as the model excretion of Donald Trump's international economic ideas. Why? Because this, at long last, is a deal that America has unquestionably "won." To the extent that we can decipher Trumponomics, the constant through-line is that America doesn't win anymore because we negotiate terrible deals, so dealmaker extraordinaire Trump will get in there to make sure that America wins again. He will threaten Mexico and China with steep tariffs in an attempt to halt U.S. companies from opening new production facilities in those two countries, discourage China from manipulating its currency, and (presumably) to get more favorable terms for American exporters. If in the process he has to rip up international treaties or disband multilateral institutions (or at least threaten to do both), well, that's the price of doing better business.

We normally use the term "Jacksonian" to describe belligerent, go-it-alone foreign policy, and "mercantilist" to characterize nationalistic economics, but I think the former word better captures the spirit of the latter concept in 2016. Trump's attacks on Mexico, China, Iran, Muslims, and other concentrations of foreigners are viscerally personal, as is the constant complaint (of dubious accuracy) that Americans are singularly getting screwed in every transaction with outsiders. So what would Jacksonian economics look like in practice?

A lot like FATCA, only more open about how the system is deliberately rigged in Washington's favor. Regular Americans, just like the middle-class dual citizens in Canada being screwed over by the new tax rules, would take it in the shorts, by having to pay considerably more for their consumer goods. The super-rich, as per usual, will be able to buy their way out of jurisdictional hassles. Accountants and lawyers will not be harmed in the process. There might be some temporal, zero-sum nationalistic victories, and there might also be punitive backlashes and the unpredictable unraveling of liberal international norms.

The Economist reported that:

Frustration with America has grown in Europe, which forms the core of the [Common Reporting Standard]. A group in the European Parliament argues that, if America refuses to reciprocate fully, it should be hit with a reverse FATCA: a levy on payments originating in the EU that flow through American banks. "We don't want a tax war, but nor can the US have it all its own way," says Molly Scott Cato, one of the MEPs.

For now, no one need quake in their boots at the discomforts of European parliamentarians. But even without the open-faced America-firstness championed by Trump, Washington under the allegedly genteel Obama is breeding resentment around the world with its exceptionalist policies. Which, as these things almost inevitably do, hurt Americans first of all.