No one dodges taxes like the super-rich | News, Sports, Jobs
Part of President Biden’s big plans for America rest on his plans to pay for them by raising taxes on the rich. He wants the top marginal rate to be reduced to 39.6%. He wants households earning more than a million dollars a year to pay the same rates on capital gains that ordinary people pay on labor income. He wants to close a loophole that allows valued assets to pass tax-free to heirs.
It’s hard to dispute the president’s emphasis on the rich. The tax choices are second to none, and polls show Americans strongly support his approach. They are very supportive of equal capital gains taxes, and a strong majority do not think the rich are paying their fair share.
There is just one big problem. Whatever tax hikes Biden manages to push through, some of America’s wealthiest families stand a good chance of getting around them somehow. They expect no less from their “Militia of tax lawyers, asset managers, accountants, fiduciary lawyers and other advisers …”
The militia has its own special name (The Wealth Defense Industry), its own special shorthand (WDI) and its own special work: “To create and enrich hereditary dynasties of wealth and power”. The players and the tools of their trade are the subject of an infuriating new book by Chuck Collins, The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions.
The grabbers have perfected acts of disappearance that make Houdini look like a novice. The details differ, but the goal is always the same, to cover up and downplay what the rich are really making.
Let’s look at where the trillions are hiding and some of the documents that hide them, including an instrument mistakenly created by Congress.
The list of tax havens is extra long, heavy in islands but including large countries and cities: British Virgin Islands, England, Switzerland, Bermuda, Luxembourg, Liechtenstein, Seychelles (a group of islands of the Indian Ocean), Cyprus, Gibraltar, Malta, the Marshall Islands and their coral island neighbor Nauru, Samoa, Mauritius, the Cayman Islands, the Channel Islands, the Isle of Man, Taiwan, Singapore, Sweden, Denmark, Austria, London, the Netherlands, Germany, Ireland and Puerto Rico.
The Wealth Hoarders argues, however, that the friendliest hideaway of all is here at home: “Over the past 10 years, a number of converging factors have led the United States to become the world’s No.1 destination for hidden wealth and kleptocratic capital. The United States is the new Switzerland ”, long the gold standard to protect wealth from taxes.
A particularly notable American paradise is New South Dakota, “Which has discreetly made itself the first haven of peace in the world, crushing the old must-see refuges …” Of course, he has a lot of company: “Nevada, Alaska, Delaware and other states are also participating in this race to the bottom”, regularly hiding wealth and reducing taxes for the super-rich.
A Popular Refuge stems from a congressional misstep in 1990, replacing GRITs (income trust dealers) with FREEs (retained annuity trust dealers). The change closed one loophole but, in the end, created a bigger one:
Attorney Richard Covey, featured member of the Wealth Defense Industry, intelligently understood that FREEs actually allow the wealthy to avoid inheritance and gift taxes in “Rapidly changing assets in and out of trusts”. The IRS attempted to terminate the accounts in 2000, but lost the case to Audrey Walton, a Walmart heiress.
Covey’s flair for tax evasion is matched only by his honesty. The FREEs, he admitted, mock the Tax Code.
There is no shortage of other hiding places, including FLPs (Family Limited Partnerships) and IDGTs (Intentionally Flawed Trust Grants). Miserable millions have to go elsewhere; to create shelters like these, individuals need a net worth of $ 5 million or more and couples twice as much.
Democrats often speak out against abuse in shelters, but the idea of cracking down has its own catch-22. Big party donors are happy to use them, and even more excited to have a group of tax professionals keeping them on the books.
The late Herman Wouk won the Pulitzer Prize for his 1951 novel The Caine Mutiny. He deserves another award for a single sentence he also gave us, “Tax returns are the most imaginative fiction written today.”
The same kind of fiction wraps the pages of the infuriating new book The Wealth Hoarders.
Gerald E. Scorse is a former staff member of Post-Journal.