The pitchforks are out. The question is: Whose heads belong on the forks?

One reason for the intense anger and thirst for revanchism in our society may be the sustained growth of economic inequality since the 1980s. What is missing from current discussions is the fact that inequality is far more dramatic than generally recognized. Given that it is broadly understood that extreme inequality and democracy are not bedfellows, this means that we face a political challenge the magnitude of which is greater than generally thought.

Two realities of inequality in this country are far from widely acknowledged. First, middle-class wealth has declined—wealth, not incomes, although incomes have essentially stagnated. And secondly, inequality has increased via the global financial secrecy system, sometimes referred to as “offshore”—the network of tax havens and secrecy mechanisms that not only hide wealth from governments and tax authorities, but also shield this stealth wealth from being included in economic statistics.

These two concerns haven’t really been part of the “middle-out” agenda. But any economic strategy focused on returning prosperity to the middle class must address them. This is especially true of the latter issue, offshore wealth, because it involves a truly mind-bending amount of money—and billions of dollars in potential tax revenue—that is hidden from the government.

The Decline of Middle-Class Wealth

Discussions of inequality almost invariably focus on incomes, but middle-class wealth has been eroding since the Reagan era, a process accelerated by globalization and deindustrialization and culminating in the 2008 financial crisis, which wiped out in a short period of time middle-class savings that had been accumulated over decades. Despite a relatively healthy job market since the recovery from 2008, middle-class wealth has only marginally recovered. (By wealth we mean assets minus liabilities, or what is termed “net worth.”)

The economist John Weicher documents these trends in middle-class wealth in his landmark study, “The Distribution of Wealth in America, 1983-2013,” with follow-up reports covering the period through 2019. The numbers speak for themselves: In 2007, the average wealth of “middle-wealth” families (that is, the 60 percent between the bottom 30 percent and the top 10 percent) was $306,000. It then dropped precipitously in the next few years to $238,000 in 2010, before recovering to $297,000 in 2019.

In other words, in 2019, average middle-class wealth had still not recovered to the levels of 2007. Meanwhile, the average wealth of the top 10 percent went from $4.6 million in 2007 to $5.7 million in 2019, an increase of 24 percent.

It’s perhaps no accident that this period has delivered a series of political shocks: the Tea Party in 2009, Occupy Wall Street in 2011, and then MAGA and the election of Donald Trump in 2016. The correlation might just be a factor in the increasing numbers of pitchforks that have been out, brandished with rising anger and a growing appetite for revanchism.

The Staggering Scope of Financial Secrecy

A second neglected fact about inequality is the invisible trillions missing from economic statistics due to financial secrecy. This financial secrecy system is in fact no secret: It has been well documented by the Panama Papers and Paradise Papers—engineered by, among others, the International Consortium of Investigative Journalists and the Organized Crime and Corruption Reporting Project—and much other reporting.

In terms of U.S. participation in this system, the most spectacular and illustrative example was the UBS case in 2007, when a whistleblower revealed that about 50,000 Americans had accounts with the Swiss bank, unbeknownst to the Internal Revenue Service (IRS). And that was just UBS.

One needn’t even go as far as Switzerland. Then-Treasury Secretary Janet Yellen suggested a few years ago that the United States was the best place in the world to conceal money, and indeed, we rival the Swiss as a destination. Notoriously, our hedge funds and private equity funds have no obligation to disclose the identities of their investors.

The economist James S. Henry estimated that globally in 2010, between $21 trillion and $32 trillion was missing from official economic statistics, hidden in this financial secrecy system with its web of “offshore” financial centers, shell companies, tax havens, anonymously owned companies, anonymously owned real estate, and hedge funds that don’t need to disclose their investors or cash and that deal increasingly in the opacity of cryptocurrencies. This $21 trillion to $32 trillion estimate is considerably higher now given organic growth and increased capital flight. In 2020, Henry updated his estimate to at least $50 trillion. Today, five years later, that number is perforce even higher. To give some context, the total current market value of the U.S. stock market is approximately $63 trillion.

Given that this is a global situation, the percentage of the “invisible” $50 trillion attributable to the United States can only be guesstimated—no study has pinpointed this. But we do know from anecdotal evidence, such as the aforementioned UBS case, that U.S. persons have been substantial and willing participants in the financial secrecy game. Given the United States’s outsized share of the global economy, we’re talking about a significant amount of unmeasured wealth at the top of our society.

A large portion of this unmeasured wealth is the result of illegal tax evasion and contributes to the so-called “tax gap”—that is, the difference between taxes actually collected and all taxes that are due. This gap is a huge figure, estimated at almost $700 billion. The desire to reduce it was the Biden Administration’s motivation for dramatically increasing the budget of the IRS.

Apart from the immorality of a substantial percentage of wealthy people cheating on their taxes—which certainly warrants some pitchforks being brandished—the loss of tax revenue increases our fiscal deficit and reduces our ability to pay our debts and to fund public services, infrastructure, and programs that benefit the middle class and less fortunate. Meanwhile, lower-income people cannot shield their wealth in such a manner and are saddled with whatever taxes they owe, apart from marginal evasion via cash and barter.

We saw from the reactions to the Panama Papers and subsequent exposés that bringing this system to light can generate outrage. After the Panama Papers revealed the activities of Panamanian law firm and offshore services provider Mossack Fonseca, the prime minister of Iceland was forced to resign, and many others suffered consequences for their use of the firm to hide their wealth. Numerous revelations in the papers, including the billions “owned” by “Putin’s cellist” Sergei Roldugin, clarified the breadth of what this system enables—everything from petty tax evasion to the safekeeping of the kleptocratic wealth of the world’s leading autocrats.

The general tenor of the behavior we see here reflects contempt for the rule of law. It is common among the wealthy to distinguish between the rule of law in general (desirable) and the rule of law when it comes to taxes (not so desirable). In such a context, how can one argue for the legitimacy of capitalism? Liberal democracy has failed to police it. It should be no surprise that trust in government and institutions is at a low point when the public sees that the wealthy are avoiding social responsibility.

How We Got Here

The premise of the financial secrecy system—that is, secrecy—has allowed it to grow insidiously and exist, for the most part, off the radar. This may seem a trivial, obvious point, but it is crucial to understanding why so little has been done to curtail this system until recently, why ignorance of its existence is still widespread, and why policy professionals have not been able to react to its malevolence. It’s been like an invisible gas.

There has simply been no one to say no to it: no cops to enforce the law, and no social stigma attached to the cheating. Exposure of the system has been driven primarily by whistleblowers and data leaks (LGT Bank of Liechtenstein, Panama Papers, etc.) rather than law enforcement.

It is possible that one key enabler of financial secrecy has been the general global context since 1989 and the fall of the Berlin Wall. With capitalism and liberalism reigning supreme, Western elites may have thought they could get away with this: Given that the foundations of the polity were immutably solid, a bit of cheating on the margins for a bigger yacht wouldn’t crash the system. And, of course, the whole “Greed is good” creed from the 1980s wasn’t concerned about financial secrecy and growing inequality.

Since 1989, we have also seen the rise of kleptocrats—Russian kleptocrats, in particular—who use the same system of financial secrecy as Western tax evaders to hide and safeguard their loot. The aforementioned “Putin’s cellist” is an example of this. The sums have been huge and have expanded demand for financial secrecy.

Needed: Awareness, Action, Vision

To attack the scourge of financial secrecy, a few things need to happen. First, investigative journalism needs to maintain its steady drumbeat of exposing the system in action. More awareness is essential for opposition to grow and multiply. This must be abetted by an equally steady drumbeat from columnists, opinion makers, influencers, and policy experts communicating to the public that the financial secrecy system is morally indefensible, and that it is undermining capitalism and what’s left of the notion of a social contract.

Second, think tanks, investigative economists, and NGOs need to continue feeding ideas to reform-minded politicians, and politicians need to act on them. This has happened to some extent already, with Democratic Senator Sheldon Whitehouse and others from both sides of the aisle playing a leadership role in passing the Corporate Transparency Act, the Foreign Extortion Prevention Act, and measures targeting anonymity in ownership of real estate. But despite the passage of these exemplary laws, implementation lags due to a lack of political support for the “regs”—the regulations arduously produced by government agencies but so far, for the most part, desolately unenforced. This is another reason that raising public awareness is crucial.

Third, current efforts would be enhanced by the formulation of a master plan for dismantling the financial secrecy system—an overall vision that could be communicated clearly and viewed as achievable within the so-called “Overton window.” This vision for reform would aim not at curtailment, but at abolishing the system as a whole. Since the system is international, reform would involve working with allies to shut down secrecy mechanisms, coercing recalcitrant jurisdictions, and if necessary simply severing reluctant jurisdictions from the international financial system, which, at least for now, we and our allies control.

A Target for the Pitchforks

It is no secret that many Americans regard our economic system as rigged, unfair, and biased toward favored “elites.” Could this energy and emotion be turned toward the constructive end of building an informed constituency that would make dismantling the financial secrecy system a populist goal?

This is less far-fetched than one might think. Reform legislation such as those laws mentioned above has advanced on a solidly bipartisan basis, demonstrating the wide political appeal of this issue. So the precedent exists. In addition, in the United States, we have the proposed ENABLERS Act, which would penalize the lawyers and financial professionals who set up shell companies and “enable” other financial secrecy arrangements. The act passed the House in July 2022 with support from Democrat Maxine Waters and Republican Joe Wilson; in the Senate, Democrat Whitehouse and Republican Roger Wicker led the charge. By targeting our professional “enablers,” it gets at the heart of the system’s engine room.

What better target for popular rage than wealthy people cheating on their taxes and leaving the rest of society holding the bag? And what of the deficit? The right is alarmed about that, and collecting taxes that are due virtually rhymes with debt reduction and law enforcement. There is a political opportunity here to harness anger about unfairness and inequality and point it toward the goals of debt reduction and saving capitalism’s legitimacy. The pitchforks are out: They need a constructive target. It seems hard to imagine a juicier one than trillions of dollars of hidden wealth.