When President Joe Biden made cracking down on tax cheats a priority, including new funds for the IRS in the infrastructure bill making its way through Congress, it was a stab at tackling the broader phenomenon of sophisticated tax avoidance—some legal and some not—that author Chuck Collins describes as “the wealth defense industry.”
- The uber-rich rely on a “wealth defense industry” to conceal their assets from taxes and other financial obligations, author Chuck Collins, an heir to the Oscar Mayer fortune, details in a new book.
- To help clients hide their money, armies of accountants, trust fund managers, and other professionals have created extremely complex financial mechanisms—some legal, some illegal, and some in a gray area—that are hard for tax collectors to investigate.
- The ultra-wealthy have used their hoarded fortunes to influence politics, tilting the legal landscape in favor of even more wealth accumulation, Collins argues.
In his recently published book—”The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions,” Collins outlines how ultra-high net-worth individuals—commonly defined as those with around $30 million or more—rely on armies of accountants, wealth managers, estate planners, foundations, lawyers, political lobbyists, and a baffling array of arcane financial maneuvers to avoid paying taxes, legal penalties, and other obligations.
Collins spoke with The Balance about “The Wealth Hoarders,” published in April.
“There’s one set of rules for this $30 million-and-up group and another set of rules for the rest of us, you and I,” Collins said. “We get our paychecks, and our taxes are taken out of our paychecks, and there's not a lot of wiggle room there. Whereas these folks have created complicated transactions and dodges and are really in another category.”
It’s not just an abstract issue of fairness: The IRS recently estimated tax cheats cost the U.S. $1 trillion in lost revenue every year—a burden that Collins pointed out must ultimately be borne by those who pay their fair share. The true size of the problem, due to its nature, is unknown, with estimates of global hidden wealth as high as $36 trillion.
Tackling wealthy tax cheats is a top priority for President Biden, who proposed giving the IRS $80 billion to chase them down. The money would be used to modernize the government’s technology, which is currently unequal to the task of ferreting out increasingly sophisticated tax-dodging schemes developed over the last decade. The IRS would also be able to beef up its staff, which has declined by 20% over the same timespan, according to the Treasury Department.
But conservatives have pushed back against this approach. Republicans kept an IRS funding increase out of the bipartisan infrastructure bill after pushback from anti-tax pressure groups who insisted the spending plan not include any new funding for the agency. Increasing tax enforcement would empower the IRS to “audit and harass millions of American families, self-employed people, and small businesses,” Americans for Tax Reform, one of the letter’s signatories, argued.
A Peek Behind the Curtain
The world of the ultrawealthy is one that Collins once knew. In his book, Collins describes his peek behind the curtain as an heir to the Oscar Mayer processed meat fortune. As a young man in the early 1980s, Collins was taken aside by family members and educated on the most important rule of old money: Never give away the principal.
That rule ensures that the working capital, if preserved, can continue to generate enough interest to fund luxurious lifestyles for future generations.
But Collins had other ideas. Instead of shepherding his fortune for the benefit of family members to come, he decided in his twenties to give it away. Collins donated all of his inheritance—some $500,000 (about $1.2 million in 2021 dollars)—to charitable foundations and became a crusader against wealth inequality.
Today Collins is the director of the Program on Inequality and the Common Good at the Institute for Policy Studies, a progressive think tank. While much has changed since Collins’s firsthand look at the wealth defense industry, his new book provides an up-to-date look by bringing together previously published research and tales of his own experiences, as well as interviews with experts on the methods of wealth concealment.
“The Wealth Hoarders” details how the uber-rich sometimes use illegal tactics, but also set up perfectly legal, albeit complex mechanisms like trusts and shell companies and how they take advantage of offshore tax havens to hide millions. The secrecy allows them not only to dodge tax collectors but also to avoid other potential financial obligations, like those that could result from lawsuits or divorce.
A favorite way to hide wealth is by using limited liability corporations registered in Delaware, Panama, or other tax havens, where it’s easy to set up a shell company. In the book, Collins recalls the Panama Papers scandal of 2016, when an anonymous whistleblower leaked millions of financial documents to the press, providing details of one law firm’s efforts to help wealthy clients hide assets. Collins writes that in one specific incident, a single employee of the law firm, a Panamanian woman who was paid only $4,800 a year, served as the so-called legal director of at least 25,000 different shell companies.
Other popular hiding places include charitable trusts and foundations, anonymously owned assets, and even sham business transactions designed to look like they lose money. An entire “alphabet soup” of different types of trusts aids in wealth concealment, including grantor-retained annuity trusts, charitable annuity trusts, and other similarly abstruse arrangements .
If it all sounds very complicated, that’s because it is, Collins said.
“Complexity is the bread and butter of the wealth defense industry,” Collins said. They want you to just beg them to stop talking because you're so bored or just confused. I don't know about you, but when people start talking about grantor-retained annuity trusts and blah, blah, blah, blah, all I hear is chickens crowing or something. There's a reason for that. It's deliberate. It's to discourage the light from shining in.”
The consequences are felt by the rest of us, Collins argues. Tax evasion shifts tax obligations onto those with fewer resources, and financial secrecy empowers criminals, deadbeats and kleptocrats who plunder the wealth of poor nations. Plus, it supercharges income inequality.
An especially insidious aspect of this is that the ultrawealthy are able to use their hidden money to wield political power, lobby politicians, and get financial laws changed in their own favor, creating loopholes and undermining the efforts of democratic governments to crack down on tax cheats, Collins argues.
Collins pointed to the efforts of rich families in the U.S. who have lobbied to repeal state and federal estate taxes, a campaign that’s met with some success. Virginia, for example, repealed its estate tax in 2007, and at the federal level, wealth exemptions were raised significantly in 2017.
Conservatives argue that estate taxes harm family-owned businesses such as farms.
But Collins says preserving dynastic wealth has allowed three of the richest families in the U.S.—the Waltons (Walmart), the Kochs (energy), and the Mars family (candy)—to accumulate combined wealth of some $440 billion. Collins said that that is more than four million times the net worth of a typical American family.
What Can Be Done?
Solving the problem isn’t easy. Collins says it will take international cooperation; changing laws to increase financial transparency and end money laundering; closing various loopholes that allow wealth to go untaxed; and improving IRS enforcement of existing tax laws—as Biden has proposed—among other things. For example, Collins would like to see the IRS shift its enforcement focus from auditing ordinary working people to scrutinizing the kinds of transactions that the ultra-wealthy use to hide assets. Biden’s proposal “is a bold step in the right direction,” Collins said in an email. While there is still a lot of international money that the IRS can’t touch—that will require global cooperation to fix—bolstering the IRS is key, he said.
“The IRS capacity to follow the financial shell games of the very wealthy has been decimated over the last decade,” he said. “And I think the administration understands that they need to rebuild the ‘wealth squad’ and hire the skills to follow the money, the complex transactions, and the dodges.”
The pandemic has highlighted the importance of fixing these problems and might prompt some lasting changes. While some people lost everything, Collins pointed out, billionaires grew vastly richer during the crisis.
“I think we've gotten … a wake up call about how inequality plays out and that it has life and death consequences,” Collins said. “I think it'll ultimately lead to some real political realignment. People will see it's not in their interest to just keep going down this road.”
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