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››Opinion: Why it’s so easy for rich Americans to hide their money – and how to stop it

Opinion: Why it’s so easy for rich Americans to hide their money – and how to stop it

By Jorge March
October 15, 2021
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As with the Panama Papers which were published five years ago, few Americans have been caught up in the Pandora Papers. The leaks came from 14 providers of offshore wealth management services in countries where wealthy Americans generally do not seek out services, such as Cyprus and the Seychelles.

But rest assured, the ultra-rich Americans are deploying the same tools described in the leaks to avoid paying taxes: shell companies, complex trusts and bank accounts in tax havens. They just don’t need to go overseas.

Our nation’s wealth advocacy industry – the armada of tax lawyers, accountants and wealth managers who help the super-rich – has doubled as it moves billions to dynasty trusts, which are designed to accumulate wealth for centuries without wealth transfer tax, and by deploying special trusts such as Grantor Retained Annuity Trusts (FREE), where appreciation goes to their heirs without gift tax. A recent ProPublica expose has documented that more than half of the richest 100 Americans use FREEs to avoid their estate tax obligations.
The mechanisms are complicated. But most Americans understand that billionaire tax evasion hurts ordinary American taxpayers by shifting the obligations onto everyone. When the rich pay lower effective rates, the cost of public services – education, infrastructure, defense and environmental protection, for example – falls on the non-rich. A Pew Research Center survey shows that about 80% of Americans are bothered that the rich and some businesses are not paying “their fair share.”
In the immediate term, not shutting down the Hidden Wealth System will undermine President Biden’s infrastructure and other public investment program. Democrats want to pay for the plan, in part, by raising taxes for the rich. But when the rich hide a large chunk of their income and assets in trusts and shell corporations, these progressive taxes won’t generate as much income. This is why Biden’s plan to invest in rebuilding the IRS capacity monitoring the rich’s tax hide-and-seek games is so important.
Longer term, the rampant cancer of the hidden wealth system has fueled extreme wealth inequality in the United States and deepened the racial economic divide. Since the publication of the Panama Papers in 2016, the total wealth of American billionaires has doubled to $ 2.4 trillion, according to Forbes, To nearly $ 5,000 billion today.
Even during the pandemic economy, the rich made huge financial gains. American billionaires have seen their richness grow by nearly $ 2 trillion since March 2020, even as the rest of the country has suffered massive losses and unemployment. Meanwhile, the percentage of households with zero financial reserves has increased, especially along racial lines. It is estimated that 28% of black households and 26% of Latinx households have zero or negative financial wealth, compared to 14% for white households.
The first step in solving this problem is for the United States to clean up its own internal tax havens. Several members of Congress have proposed the FACILITATORS Act, which would establish due diligence reporting laws for “intermediary” entities involved in the flow of wealth – such as lawyers, art dealers and wealth managers. Like bankers, they would be required to report suspicious activity under an amended banking secrecy law.

Federal laws should also prevail over state trust laws which create dynasty trusts forever by imposing a limited life on trusts – say, 80 years – at which point the trust ends and assets are subject. to tax. Lawmakers should prohibit certain forms of trusts and loopholes like FREEs that serve no business purpose other than tax evasion. And Congress should fund President Biden’s plan to help the IRS control the tax shenanigans of the super-rich, making sure they pay their fair share.

The recognition of the United States as a global paradise undermines America’s credibility in the fight to eradicate global corruption. But the real harms at home are unbuilt hospitals, unfulfilled potholes, untreated veterans and children, and the persistent division of racial wealth in home ownership and economic opportunity. .

A fairer tax system – and a fairer society – begins by highlighting this hidden wealth.


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