We know that the 1 percent don’t pay their fair share of taxes. But they don’t avoid these taxes on their own. Their efforts at avoidance have given us a vast global industry of tax attorneys, accountants, wealth managers, and consultants, which my guest on this week’s WhoWhatWhy podcast, Chuck Collins, calls the “wealth hoarders.”
Collins is the author of The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions.
This hoarding is a business that Collins points out has been around since the beginning of taxation. A whole industry serves to help the super-wealthy escape taxation and pass on wealth to their offspring with no economic costs.
These highly educated financial magicians make taxes disappear. They take advantage of existing loopholes and are helping to write new legislation, on both the state and federal level, to create even more tax avoidance mechanisms — and weaken oversight.
Collins reminds us to think anew about all of this: The old notions of hiding money in places like the Cayman Islands or Switzerland are passé. Today, globalization gives the “wealth hoarders” a network of new opportunities to hide and launder money.
This trend is happening within both the corporate and individual world, and is, in his view, adding to anti-democratic behavior, as well as to the wealth gap.
He outlines a range of solutions, many of which he feels are truly doable within our current political context.
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Full Text Transcript:
Jeff Schechtman: Welcome to the WhoWhatWhy podcast. I’m your host Jeff Schechtman. Scott Fitzgerald got it right, ‘The rich are different.’ And one of the key ways they’re different is in their approach to taxes. Not just avoidance, but participation in an entire and very expensive industry built around the loopholes to keep dollars out of the public treasury.
While some of us would argue that wealth creation and investment, no matter how big, is the key to a healthy and prosperous society and that those that succeed are a net plus, it also requires that those who benefit pay their fair share. Today a secret army of tax attorneys, accountants, and wealth managers have been evolving and enhancing a wealth defense industry. They’re paid big money to hide and protect the fortunes of the richest 1%.
In his new book, The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions, my guest, Chuck Collins, offers an insider account of how this industry is doing everything it can to create and enhance hereditary dynasties and sequester wealth. Chuck Collins is a senior scholar at the Institute for Policy Studies in Washington where he directs the program on inequality and co-edits inequality.org. It is my pleasure to welcome Chuck Collins back to this program to talk about the wealth hoarders. Chuck, thanks so much for joining us once again here on the WhoWhatWhy podcast.
Chuck Collins: Thanks for having me and having the conversation.
Jeff: Well, it’s great to have you here. This wealth defense industry that you talk about that’s the core of what you write about in the Wealth Hoarders, how long has that industry been evolving? What was the key tipping point in creating something as large and monolithic as the industry we see today?
Chuck: In some ways, Jeff, it’s probably as old as the hills. As old as there’s been taxation, there have been courtiers and servants and butlers, financial helpers who’ve helped the rich reduce their taxes. But I would say we’re entering a new chapter as we’ve seen these growing inequalities of wealth and power. In the last 15 years, we’re seeing not only is the wealth flowing up, but the expansion of the tax attorneys, estate planners, accountants, family offices that are all devoted to helping billionaires hide trillions. The pace has picked up.
Jeff: Talk about it as the chicken or the egg proposition, the degree to which this industry is enhancing the inequality you talk about or the inequality is driving the industry.
Chuck: Yes, it is sort of a symbiotic relationship. As wealth concentrates, more people get into the idea of investing and defending their wealth and rigging the rules to get more wealth and power. And so that that then further concentrates wealth. The role of this wealth defense industry is enabling, fixing, and providing the tools and the capacity to hide all this money. And they themselves have become a class of workers with their own power and agenda as well. It all I think feeds on itself.
Jeff: In many respects though, it really exists around the tools that were created by government, tools that really are these loopholes in the system.
Chuck: Yes, what these folks will say is, ‘Hey look, we’re just obeying the law.’ But what I try to show in this book is that the wealth defense industry is writing the law. They’re writing the rules and laws in countries like the British Virgin Islands and the Cayman Islands, or in states like South Dakota and Wyoming, and Delaware. They’re rigging the rules to help these wealthy folks hide their money. They’re lobbying to weaken oversight and to fend off any regulation. They’re not just standing there saying, ‘Well, we’re just obeying the existing rules,’ they’re writing the rules.
Jeff: That really then shows that the tools are in the hands of policymakers more than in the hands of this wealth defense industry.
Chuck: Yes, except that our political system has been captured by big money interests. Captured doesn’t necessarily mean that the wealthy always get what they want, but often it means that they have the power to block changes. If you look at a tiny state like South Dakota or Wyoming, or a small country, these wealth defense industries are very powerful. They can encourage and entice politicians to write the rules in their favor. That’s essentially what’s happening.
Jeff: One of the things that has changed, and it’s reversed a lot of trends that we used to see many years ago, is that the traditional hiding places for money, the Cayman Islands, the Swiss bank accounts that we used to hear about, those have disappeared but yet there’s a whole new strata of places where money is hidden.
Chuck: Yeah, one of the things that — it’s important to update our concept. We often think of offshore tax havens as the Caribbean Islands and that’s where the money is parked, and that is still true at the global level. But for wealthy people in the US, there are reforms now where the United States has entered into treaties with places like Switzerland where Switzerland now discloses the names and deposits of US citizens.
What’s happened is the US has become the weak link. We are not enforcing oversight. We have weak transparency laws and so global capital is coming here. If you’re a Russian oligarch or a Chinese billionaire and you need to get the money out of China, or you’re a dictator and you’ve plundered your country of all of its natural resource wealth, where do you take your money? Well, you bring it here to the United States where it’s way easier to hide it than many other places in the world now.
Jeff: Talk about money laundering and the way that is part of this industry.
Chuck: A portion of this you could call it kleptocratic capital, or money laundering. Somebody has plundered wealth from their home country, they open up a bunch of anonymous bank accounts in some of these offshore tax havens, but pretty quickly they move the money to a place like the United States where they can buy luxury real estate, they can incorporate a Delaware shell company and don’t have to disclose any information, they can create a trust in South Dakota. So more and more of that money is moving into our local economy, and in some cases, disrupting housing and the local economies.
Jeff: Expand on that, how it’s impacting local economies.
Chuck: Well, there are trillions of dollars of global capital now flowing into US cities, buying up luxury real estate, buying up condos, and encouraging the construction of these large residential buildings where, in many cases, no one is living in these buildings, they’re just wealth storage units for the global rich. So you’re seeing local housing markets being completely upended by huge amounts of money coming in. Yes, they’re driving construction, they’re using a lot of energy, they’re bidding up the cost of land and having an adverse effect on local communities that are trying to address their affordable housing problems.
Jeff: They’re also bringing jobs to the community. I mean, there’s the construction of these buildings, people that are still working in the buildings. I mean, there is some benefit to the communities. We shouldn’t overlook that.
Chuck: Yes, and they pay property taxes and they probably don’t drain services. So there is an upside, but I think more and more we’re seeing a downside which is they’re fueling these already intense inequalities in local cities, they’re pushing the cost of housing further out of reach for people who live in these communities. Maybe one remedy is, well okay, if global capital is touching down, let’s tax luxury real estate transfers and put it into a fund to help first-time homebuyers from a community buy a home. Maybe there’s a way to capture some of this global money as it touches down in our neighborhoods.
Jeff: In terms of the domestic money, how much is this industry engaged in hiding money versus simply working around the existing loopholes in our current tax system?
Chuck: It is a combination of both. There’s both hiding it and then there’s what I would call sequestering it, just putting it outside the reach. So right now as Congress debates the possibility of raising taxes on the wealthy to pay for COVID relief or infrastructure, lots of wealth planners, lots of these wealth defenders are helping their clients create what are called dynasty trusts which are aimed at putting the money into a trust that’s outside the reach of taxes. Or they’re creating transactions and loopholes that are simply going to game the taxes down and make these very wealthy people look on paper like they have a lot less money.
That is a lot of the cat and mouse game that’s going on. A lot of that could be fixed by just increasing better enforcement on the super-rich tax filers, of which there’s very little enforcement going on right now.
Jeff: And that would require additional funding for the IRS, essentially.
Chuck: Yes, it could be reallocating the resources. I mean, right now, you’re four times more likely to be audited if you use the earned income credit, which is for working families, than if you’re a billionaire using a complex tax loophole. Yes, it certainly would help to rebuild the IRS’ capacity to follow the money, have the expertise to sort of flesh out these shell games, and effectively close them down.
Jeff: When we hear the debate that’s taking place now about additional taxes on the rich — some kind of a wealth tax, talking about carried interest, capital gains increase, etc. etc., is that really just tinkering around the margins or would that have a significant impact?
Chuck: Well, after 50, 60 years of the tax code becoming more and more regressive, meaning that the wealthiest people in the society are paying less of a percentage of their income and wealth and taxes, these changes are meaningful. Restoring a progressive income tax, fixing the estate tax that is very porous, levying a new annual wealth tax — all those taxes would actually both raise meaningful revenue and they would also slow that democracy-distorting concentration of wealth at the top. So they are meaningful. It also means that instead of shifting taxes on to working people who already I think are paying enough, the rich can start to pay their fair share again.
Jeff: When we look at those changes, those things that are getting talked about now, in fact, even for the very wealthy, they amount to a very small amount of their wealth.
Chuck: Yes, I mean, the wealth tax proposal that Senator Warren put forward is a 2 percent tax on wealth over $50 million. So, Jeff, you should know, your first $50 million is tax-free in terms of wealth, but then 3 percent on wealth over a billion. While it wouldn’t alter the lifestyles of the rich and famous, it would raise substantial money because these folks have so much wealth. Here’s an interesting thing, Jeff, these proposals are popular — 70, 80 percent of voters, the majority of Republicans and all voters, support a wealth tax along the lines of what we’re talking about.
Jeff: Talk a little bit about the estate tax and this $11 million exclusion that exists and what needs to be addressed in that regard.
Chuck: What’s happened with the estate tax, and the estate taxes are essentially our inheritance tax, is it’s a levy on wealth when it transfers from one generation to the next. Sometimes derided as the death tax, but yes, at this point, it’s almost an individual can pass on up to $11 almost $12 million, and a couple almost $24 million, before they pay an estate tax. But it has become optional for the super-rich.
In fact, one Trump cabinet member said only morons pay the estate tax. What they mean by that is the super-rich have planners, they create these trusts, they create this alphabet soup of loopholes, and they’re not paying the estate tax. So it needs to be fixed. Some of the loopholes just essentially need to be outlawed and shut down and then it could be a more meaningful inheritance tax as a way to slow that buildup of wealth concentration.
Jeff: To what extent can these changes be made within the existing tax structure? By that, I mean, can we just tinker with it and make these changes, perhaps bring in more revenue? Or do we need to really pull out the whole tax code from its roots and essentially start over again?
Chuck: You know, there’re some pieces that I think don’t require a full house renovation if you will. For instance, we could have a millionaire surtax, an income tax on incomes over three million, just a 10 percent surtax, whether the income comes from capital gains or whether it comes from wages. That’s like essentially building on the existing tax system. The wealth tax would require creating a new tax regime. We don’t tax wealth on an annual basis, so that would require building up a new ability there.
Then some of what we’re talking about, we just need to shut down these hidden wealth systems. Again, it doesn’t require massive restructuring. It’s a combination of enforcement, banning certain transactions that have no real economic or business value, and transparency — disclosure of what people are already doing — that could go a long way toward fixing the system.
Jeff: Talk about those transactions that arguably, as you say, have no real business value because that really is part of the counter to the argument that a lot of these changes would impact growth.
Chuck: Yes, a lot of what the wealth defense industry does is they design these incredibly complex transactions that are made to look like business transactions. Okay, my subsidiary in Luxembourg is selling these products to my other subsidiary. It’s essentially kind of a financial shell game. It has no real economic value. It is simply to avoid and reduce taxes, so it doesn’t add anything to economic health or economic growth. In fact, it undermines fairness for main street businesses in the local economy who don’t take advantage of these shenanigans.
There is a proposal to have a global corporate minimum tax. Fed Chair, Janet Yellen, proposed this recently. That would go a long way toward creating the level playing field where companies aren’t competing over who has the biggest tax dodges, but they’re competing over who’s creating the best products. That would be good for the economy and for economic activity.
Jeff: Is it your view that that has any chance in hell of ever becoming effective?
Chuck: I think it can because the other European Union countries and the UK are all further along than we are. In fact, they’re hoping that the US will rejoin the family’s nations when it comes to fixing this global tax system which everyone is manipulating, particularly US companies. I think a lot of what we’re talking about is very attainable and I think the momentum is in the direction of trying to fix this right now.
Jeff: You mentioned states like Delaware and South Dakota and Wyoming which have become havens for various tax loopholes. Within the system that we currently have here, how do we address that?
Chuck: A lot of that will have to be just addressed at the federal level. Delaware, half of their revenue comes from the fact that they are the bordello for global capital. Basically you can incorporate a limited liability company and not have to disclose who you are. And Congress actually passed at the end of 2020 something called the Corporate Transparency Act which does require companies to report to the Treasury Department who their real owners are. And so we’re sort of bypassing these weak link states. Now, there are still some loopholes in that federal law, but that’s moving us in the right direction.
It’s the same with trust law. South Dakota has this advantage, which is they have so eliminated any kind of regulation of trusts, including the requirement that the trust eventually wind down. That could be fixed again, at the state level or in terms of tax law and regulation. There are a couple of things that could be done at the federal level that just take those state loopholes off the table.
Jeff: Do you find that the biggest obstacles to this are coming from the corporate world, or the individual world of the wealthy?
Chuck: It really is both. Within the corporate world, I estimate, there’s probably 250,000 wealth defense industry workers — accountants, etc. — all sort of moving money around in this fictional world that leads to these tax dodges. There’s probably 100,000 people working with wealthy individuals. That’s a pretty big vested interest group lobbying to keep the status quo.
The more the rest of us learn about this, the more we put pressure on our elected officials and say, ‘Look, why do you have one set of rules for a couple hundred global companies and a couple thousand super-rich folks, and another set of rules for the rest of us and for small businesses?’ Let’s have one set of rules, let’s close down these complexities, and let’s shut down this hidden wealth system and have a real, transparent tax system. That would be good for the economy.
Jeff: Given the nature of the global economy, given the nature of global corporations today, is that a reasonable assumption, that the mom and pop down the street be subject to the same kind of rules as a multinational?
Chuck: The mom and pops as well as regular taxpayers, the rules are pretty clear. There’s not a lot of games you can play. Most of us have our taxes taken out of our paychecks as part of withholding, a lot of companies similar. It’s really about making sure that the global companies don’t just have 101 other complex ways of dodging taxes while locally main street companies are paying their taxes. I think that’s partly how we make the system fair.
Jeff: In the short run, what are the changes that you think could make a real difference?
Chuck: One, enforcement, two, shutting down these illicit, these transactions that have no real economic value. And there’s a bunch of legislation to do both those things. Third is this transparency issue. Require companies to have what I would call the library card level of disclosure. Jeff, if you go to the library and you want to get a library card, they say, ‘Who are you and where do you live?’ That should be true for real estate purchases, creating a corporation. It should be that onerous.
Finally, and I think the rest of the world is waiting for the US to step up, stop being the weak link and the laggard on global transparency. If the US and England and a couple of European Union economies all got together and agreed on what are the minimum rules here, that would fundamentally change everything. These weaker, these smaller countries that have sold their sovereignty to change the rules for the wealth defenders will quickly fall into line when the big economic superpowers step up.
Jeff: Partly as a result of what happened in 2008, 2009, and the aftermath of that, and 9/11, we have these KYC rules for banks. Why shouldn’t they be broader in terms of real estate and everything else?
Chuck: That’s exactly right. We should expand some of those disclosure laws to include consulting firms, trusts. Trusts right now are kind of like contracts. They’re not recorded, they’re not monitored. We can bring the same level of reporting and transparency. Family offices, families that with their own private trust companies managing multiple trillions of dollars with no oversight and reporting and transparency. That’s what got us into the first economic meltdown — large pools of money without accountability — and we’re seeing that building up again.
So you’re right, we can use some of those tools and just expand who is required to report and share information.
Jeff: Talk about the potential broader impact to the economy, to investments, to philanthropy. All the arguments that we hear repeatedly with respect to this.
Chuck: Yes, well, one is that this system allows a huge amount of tax avoidance and that’s essentially shifting the responsibility onto small businesses and the bottom 99 percent of taxpayers. It also further entrenches inequality and what I call these inherited wealth dynasties. So we’re seeing, including coming out of the pandemic, a couple of corporations, a couple of families who are going to come out of this pandemic with way more wealth than they went into it, and that’s power.
So from a democratic health point of view, these are democracy-distorting concentrations of power. We have to fix this if we want to save essentially the democratic system as it currently exists. Otherwise, we’re going to be living in a kind of oligarchy where the wealthy call all the shots.
Jeff: Expand on that a little bit, Chuck, the ways in which you think these concentrations of wealth have an anti-democratic effect?
Chuck: Well, we’re seeing it now. A couple hundred companies have so much market power and political power. They’re using their money to fend off regulation and oversight, and wealthy people are doing the same thing. I mean, they’re lobbying against the tax agenda that’s being put forward. They lobbied for tax cuts under the previous administration.
Thomas Piketty says, ‘If we don’t do anything to intervene in the current inequality machinery, 20 years from now, our society will be dominated by the sons and daughters of today’s billionaires, who will dominate our economy, philanthropy, culture, and politics.’ And that’s not the America that I know, and I don’t think that’s where we want to go. We don’t want to go down that road.
Jeff: When we look at all of the new wealth that’s been created, let’s just say in the past 20 years, doesn’t that make the argument that creative destruction, more than anything else, will prevent the kind of concentration you’re talking about?
Chuck: Well, tend to focus a lot on the new technology wealth. What’s interesting is to see the persistence of America’s wealth dynasties. There’re 200 families whose wealth has been accelerating over the last couple of generations. They also have enduring power. If these new tech fortunes transfer their money into wealth defense and lobbying, they will create a new protected class of the super-wealthy. And that will actually hurt competition, it will hurt the next generation of startups and creative disruption because they’ll be able to block those changes. So, too much concentrated power is bad for economic innovation.
Jeff: Of course, the counterargument to that that we hear is that a lot of this money is going into investment, into pools that really are at the core of the innovation.
Chuck: Not necessarily. There are huge amounts of that investment pool that are going into speculative investments, that are going into the casino part of the economy that actually jeopardizes economic stability. There’s no guarantee when you have billions of dollars managed by a few people, that that will be invested in a healthy, constructive way that will help the whole economy.
More and more it’s speculative. We’re seeing that this recent Archegos financial scandal, that’s a huge family office, a giant unregulated pool of private capital, one family’s investments having huge ripple effects. Unfortunately, if we don’t wake up, that’s the wave of the future.
Jeff: Is it reasonable to talk about any of this outside of the context of talking about campaign finance?
Chuck: Well, yes and no. I mean, the fact our political system is captured by big money, that these billionaires have incredible clout. They not only can contribute, they can really control the terms of the debate. They’re not just giving money to candidates, they’re giving money to research organizations and advocacy groups and think tanks. They have the power to shape the conversation, ownership of media. It’s really our political system is in danger because it’s been captured by this big money.
That said, there is room to move. There are people who are pushing these policies against this protected class interest. I think that’s the challenge of the next two years. Can we make some meaningful changes?
Jeff: Chuck Collins, his new book is The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions. Chuck, I thank you so much for spending time with us.
Chuck: Thanks for a terrific conversation.
Jeff: Thank you. And thank you for listening and for joining us here on radio WhoWhatWhy. I hope you join us next week for another radio WhoWhatWhy podcast. I’m Jeff Schechtman. If you like this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to whowhatwhy.org/donate.
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