This report examines the growing wealth of billionaires and other ultra-high net worth individuals in Massachusetts — where voters will have the chance to levy a 4 percent surtax on those making more than $1 million a year this November.
There is little that’s shocking in the latest New York Times expose, which revealed Donald Trump and his family were handed hundred million dollar inheritances as they schemed to avoid taxes.
Despite Trump’s boast to being a self-made billionaire, he was “born on third base,” inheriting a real estate empire from his father along with connections and other forms of social capital. We can speculate as to how much of this self-made myth is self-deception, brand-building, or amnesia.
Previous research shows that Trump benefited from loans and financial connections to his father’s real estate empire. But the Times’ investigative report, “Trump Took Part in Suspect Schemes to Evade Income Tax Bills,” reveals previously undisclosed ways that patriarch Fred Trump’s wealth was passed to Donald Trump and his siblings, intentionally designed to avoid estate and gift taxes.
The Times estimates that Trump received at least $413 million, in today’s dollars, from his father’s real estate business, a sum that’s significantly higher than previous approximations.
Trump’s lawyer and spokesperson, Charles Harder, said the Times report was false and defamatory and distanced Trump from the tax evasion schemes. “The affairs were handled by other Trump family members who were not experts themselves and therefore relied entirely upon the aforementioned licensed professions to ensure full compliance with the law,” Harder said in a statement.
And Harder has a point. Teams of professionals are required to manipulate valuations of properties and create elaborate tax dodges, known as GRATs (Granter Retained Annuity Trusts). These are techniques are used by other billionaires, including casino magnate Sheldon Adelson, who used GRATs to avoid $2.8 billion in estate taxes.
The Trump family also used a number of potentially fraudulent methods to funnel funds from Fred Trump’s real estate operations to family members while reducing taxes. Beginning in 1994, the family used several companies, ostensibly set up for property management and building supplies, to transfer millions in cash from Fred Trump to his children.
One company, All County Building Supply & Maintenance, purchased supplies, such as furnaces, and sold them to Trump-owned buildings, taking a mark-up of over 20 to 25 percent. The company, owned by four Trump children and a nephew, distributed the profits to themselves, reducing Fred Trump’s income and future estate taxes.
These schemes also enabled Fred Trump to raise rents in New York City rent-stabilized buildings by showing inflated invoices for building supplies and services.
But Trump is really no different than hundreds of other billionaires and centi-millionaires around the world who use aggressive techniques to hide money, reclassify and reappraise assets, and dodge and evade taxes.
Research suggests that the superrich are hiding their money at alarming rates. A study by economists Annette Alstadsaeter, Niels Johannesen, and Gabriel Zucman reports that households with wealth over $40 million evade 25 to 30 percent of personal income and wealth taxes.
As Trump’s lawyer Harder points out, “all estate matters were handled by licensed attorneys, licensed C.P.A.s, and licensed real estate appraisers who followed all laws and rules strictly.”
Without this “wealth defense industry” — or, more accurately, the “dynasty protection racket” — there would be no Donald Trump billions. This industry doesn’t stop short at just follows the laws, however. It’s actively involved in shaping them.
The industry’s soldiers get up every morning to find the weak spots and loopholes in existing tax laws to exploit. They line up to organize their Delaware-based limited liability corporations to purchase luxury real estate and shuffle assets around the globe.
These wealth defenders create shell corporations, opaque trusts, tax maneuvers like GRATs, and other clever “innovations” in finance that are driven primarily by tax avoidance and intergenerational wealth transfer. And they make a very good living hiding the wealth of the richest .01 percent, enough to rank comfortably in the top 10 percent, if not outright members of the 1 percent themselves.
Without these “licensed” professionals, there would not be much of a global offshore system of tax havens and secrecy jurisdictions.
As Steven Quill writes in his book, Tailspin, the wealthy and privileged have deployed their resources for decades to rig the system to protect their own wealth — while passing on as much advantage as possible to their children.
These professional enablers of inequality are part of national and global associations. These associations have codes of ethics to govern their members and lobby policymakers. These associations are incapable of policing their own members in the use of these using borderline and illegal practices. Unfortunately, Congress has been politically captured by the wealthy and their professional defenders.
The next Occupy movement should walk past the Wall Street banks and financial corporations. We should be occupying the lobbies of the tax and accounting firms, the pliable real estate appraisers, the family offices, and the other licensed enablers of the grotesque inequalities in our country. We should take over the plazas in front of their fancy office buildings. They should be held to account for the inequalities that they have fostered.
Cross-published with Common Dreams.