The Oscar Mayer heir who gave away his fortune to fight inequality explains why South Dakota became America’s secret tax haven, and how it exposes the US as the world’s ‘weak link’

South Dakota's state capitol building.
The state capitol building in downtown Pierre in central South Dakota.

  • A trove of nearly 12 million financial documents revealed how some of the world’s wealthiest hide money offshore.
  • The Pandora Papers, uncovered by ICIJ, shows trusts around the world – including South Dakota.
  • One of them is onshore, inside the USA: South Dakota is where the powerful are storing billions in assets.
  • See more stories on Insider’s business page.

A bombshell report from the International Consortium of Investigative Journalists found that some of the world’s wealthiest and most powerful people are socking away billions in offshore accounts – including the onshore, continental state of South Dakota.

Chuck Collins has known that it’s a problem for years. Once an heir to the Oscar Mayer wiener fortune, he learned firsthand how the wealthy hold on to their fortunes and gave his own away. Today, he’s the director of the Program on Inequality and the Common Good at the Institute for Policy Studies, where he delves deep into how the ultrawealthy dodge taxes in America.

In March, he told Insider that Americans largely don’t understand that “we are now the tax haven.” The US is the No. 2 destination for “global kleptocratic capital,” he said, much of which ends up in places like Delaware and Wyoming – and South Dakota.

The ICIJ confirmed Collins’ research, finding that over the past decade, the amount of customer assets in South Dakota has “more than quadrupled” to $360 billion. The ICIJ looked at nearly 12 million financial records that detail over 29,000 offshore accounts, with hundreds of journalists around the world poring over them, in partnership with outlets including the Washington Post and the Guardian The leak is called the Pandora Papers, following similar leaks called the Panama Papers and Paradise Papers.

All told, 17 US states are in the top 20 jurisdictions that “have the most liberal trust laws” worldwide, according to a paper by Hebrew University law professor Adam Hofri-Winogradow, which was cited by the ICIJ. The ICIJ found 81 trusts in South Dakota alone.

The great plains state changed its laws in the 1980s to become more favorable to these kinds of trusts, according to Collins, who recently authored “The Wealth Hoarders,” a deep dive into the growth of what he calls the “wealth defense industry.” That’s the growing system of lawyers, family offices, and more who help wealthy clients wiggle out of taxes and hold onto wealth – and it has ballooned in the past decades.

chuck collins
Chuck Collins.

In 1983, South Dakota got rid of its rule against perpetuities – what Collins calls an “arcane legal thing” that effectively means when you place money in a trust, it has to be dissolved at some point.

“At that point, there’s often a taxable moment,” Collins said. That could be something like the estate tax or gift tax, but “​​South Dakota said that ‘We’re going to attract trusts by eliminating that law, making them anonymous, making it possible that you can open up a trust and not actually have to live in the state.'”

That means if you put money in a trust in South Dakota, “you’re essentially sequestering money beyond the reach of tax authorities in perpetuity,” according to Collins. Perpetuity is another word for forever.

If you live in South Dakota, you might be wondering where all of that money is hiding. Collins said it’s probably not physically in the state. Instead, it may be parked in luxury real estate or art around the world. Only the trust itself has to be legally filed in South Dakota.

“We are emerging from a pandemic where essentially the wealthiest people on the planet have figured out how to sequester their wealth and avoid taxes,” Collins said.

Collins has multiple suggestions for reform, including federal legislation that can override states when they toss rules against perpetuities, as South Dakota did; requiring trusts to be registered and disclosing their owners; a 1% wealth tax on assets’ interest. President Joe Biden has backed a key senator’s tax proposal about the wealthiest’s assets, but in other respects, Democrats so far are leaving many tax loopholes untouched.

One thing is overwhelmingly clear to Collins, and it should scare every American. “The world is going to be looking at us differently after the Pandora Papers. They’re going to see that the United States is the weak link now in the system of global financial transparency.”

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It’s perfectly legal for billionaires to pay so little in taxes. Democrats say they could finally change that after the bombshell ProPublica report.

Felipe Castro holds a sign advertising a tax-preparation office for people who still need help completing their taxes before the IRS deadline on April 14, 2010, in Miami.
Felipe Castro holds a sign advertising a tax-preparation office for people who still need help completing their taxes before the IRS deadline on April 14, 2010, in Miami.

  • A ProPublica report based on secret IRS files showed billionaires pay relatively little tax.
  • Inequality experts have been warning for years that the wealthy pay relatively low taxes.
  • The details added impetus to a push by Democrats to ramp up taxes on the country’s highest earners.
  • See more stories on Insider’s business page.

On Tuesday morning, ProPublica published a bombshell report showing how little America’s wealthiest pay in taxes, based on leaked documents from the Internal Revenue Service (IRS).

The report shows in detail how billionaires like Jeff Bezos and Warren Buffett have seen billions added to their net worth with little impact on their tax bill. It’s totally legal, and for many, not all that surprising.

“It’s not surprising at all, I think,” Chuck Collins, who works at the left-leaning Institute for Policy Studies, an organization dedicated to highlighting wealth inequality, told Insider.

Collins recently wrote a book on the ways the ultrawealthy hide their money and avoid taxation. In it, he uses the term “wealth defense industry” for the cottage industry that’s grown around helping the rich hold onto their money.

“It’s going to be very hard for ordinary people to decipher these tax transactions because they’re purposefully complex,” Collins said. “The wealth defense industry, their bread and butter is complexity, and opaqueness.”

Chuck Marr, the director of federal tax policy at the liberal-leaning Center on Budget and Progressive Priorities, said “we’ve been making this case for a long time.” He pointed to a paper from 2019 that outlines many findings similar to those in Tuesday’s report.

Still, it’s one thing to know something is likely happening, and another to see the details laid bare, and the figures involved. For example, ProPublica found that Warren Buffett paid 0.1% in “true tax rate,” which compares how much he paid each year in taxes to how much his wealth grew.

ProPublica’s report could draw widespread attention – and scrutiny – to certain intricacies of the tax code just as President Joe Biden moves to reform taxes to pay for his infrastructure proposals.

Already, Democratic lawmakers are seizing on the public report as a way to kickstart tax reform.

The report “should make it very hard for the Congress to not address it,” Marr said. “I think it really underscores, again, that very wealthy people do not pay tax on much of their income. And so this tax bill is a clear opening to address that.”

Jeff Bezos
Amazon CEO Jeff Bezos, the world’s wealthiest man.

America’s wealthiest make most of their money from assets, not income

As the 2019 CBPP paper lays out, a good amount of the income that the wealthiest bring in isn’t technically income – or at least it’s not taxed that way.

If you work a job where you receive wages in a paycheck, you’re probably familiar with the income tax, which taxes the money you get for going to work. Those wages would be income, and you’d be taxed under the income tax.

But, as both the CBPP and ProPublica note, the wealthiest Americans get most of their wealth from assets like stocks, and therefore pay taxes on capital gains.

As Marr and coauthors Samantha Jacoby and Kathleen Bryant write, capital-gains taxes are “effectively voluntary to a substantial extent: High-wealth filers may accumulate capital gains every year as their investments appreciate, but they don’t owe tax on those gains until – or unless – they ‘realize’ the gain, usually by selling the appreciated asset.”

So if you hold onto your stock assets, you’re not seeing that capital gains rate. Goldman Sachs estimated last month that the wealthiest Americans possessed between $1 trillion to $1.5 trillion in unrealized capital gains at that time. Some argue that those unrealized gains should be taxed, since the wealthiest could be sitting on valuable stocks, making money, and not paying taxes. Meanwhile, researchers at the right-leaning Tax Foundation argue that a progressive consumption tax would be a better way to tax the rich.

ProPublica reported that the ultrawealthy can also borrow hefty sums of money to pay off their bills as they sit on stocks and take in little income. “They’ll borrow money and they’ll use the stock as collateral,” Marr said. That means the wealthy are essentially using these loans as a form of income, but aren’t taxed as such.

As Marr, Jacoby, and Bryant write, “this is often a much cheaper strategy than selling stock and paying capital gains taxes, particularly when interest rates are low.”

Joe Biden
President Joe Biden.

The report could add flame to the fire for tax reform

Even before the ProPublica report, tax debate had been brewing. In particular, a provision called the “step-up basis” had been facing scrutiny.

Let’s say you’ve held onto stock for your whole life, and it’s only grown in value. If you die and leave it to someone else, the stock takes on the value at which the recipient gets it, meaning neither the original owner nor the inheritor are taxed on those gains.

For very wealthy people, Marr said, that “wipes out a lifetime of tax liability.”

Biden wants to do away with the step-up basis and he wants to tax capital gains for those making over $1 million at a rate equivalent to income.

“Broadly speaking, we know that there is more to be done to ensure that corporations, individuals who are at the highest income are paying more of their fair share,” White House Press Secretary Jen Psaki told The Washington Post in response to the ProPublica report. “Hence, it’s in the president’s proposals. His budget and part of how he’s proposing to pay for his ideas will go ahead.”

“The principle here is to equalize the treatment of ordinary income and capital gains, and that is a principle that’s neither new or particularly novel,” Brian Deese, the director of the National Economic Council, said in an April briefing. “In fact, the last president to enact a reform to equalize the treatment of ordinary income and capital gains was President Reagan, who did so while raising capital-gains taxes as part of the 1986 tax reform.”

The White House did not respond to Insider’s request for comment.

There’s been GOP resistance to further alterations to the tax code following their 2017 tax cut, especially any increase in rates. But the new reporting already ramped up the tax debate within Congress on Tuesday.

Sen. Bernie Sanders, who chairs the Senate Budget Committee, told reporters on Capitol Hill, “To the surprise of nobody I know, the rich and powerful aren’t paying their fair share, what else is new?” He urged lawmakers to approve Biden’s tax proposals.

“I do want people to understand the bottom line,” Sen. Ron Wyden, chair of the Senate Finance Committee, told reporters. “What ProPublica is revealing is, again, some of the country’s wealthiest taxpayers [that] profited handsomely during the pandemic are not paying their fair share.”

He said he’s in the process of crafting a proposal to change that. Asked by Insider about the timeline of its introduction, Wyden responded: “I’ll have it ready to go shortly.”

“Often solutions to this are portrayed as radical, but what’s radical is the current situation,” Marr said. “What’s radical is that wealthy people, a lot of their income never gets taxed. That’s radical.”

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American billionaires added $1.62 trillion to their wealth over the last 13 months

Elon Musk
Tesla CEO Elon Musk.

  • From March 2020 to April 2021, America’s billionaires added $1.62 trillion to their wealth.
  • A new report from IPS/ATF tracks how much billionaires have gained during the pandemic.
  • These gains could signal that inequality keeps increasing during the pandemic.
  • See more stories on Insider’s business page.

Over the last 13 months, American billionaires added $1.62 trillion to their wealth – a 55% increase.

This was a finding in the latest report from the left-leaning Institute for Policy Studies (IPS) and Americans for Tax Fairness (ATF). Both groups have tracked billionaire gains throughout the coronavirus pandemic, which has seen a K-shaped economic recovery for Americans: High-income workers have seen their jobs and pay grow, while low-wage workers have experienced the opposite.

“Billionaires’ huge pandemic-era wealth growth comes on top of a 19-fold increase in billionaire wealth over 31 years-from an inflation-adjusted $240 billion in 1990 to $4.56 trillion in 2021,” the report said. The report used data from Forbes to track billionaire gains from March 18, 2020 through April 12, 2021.

The number of billionaires has also grown, going from 66 in 1990 to 719 today.

“The concern is that we sort of further entrench the inequalities that we came into the pandemic with, meaning the number of households that are economically precarious grows,” Chuck Collins, director of the Program on Inequality at IPS, told Insider.

He said the “concentration” or “pooling” of wealth among billionaires has also accelerated.

“That’s the reality: We’re going to come out of the pandemic another degree of more unequal,” he said.

In the fourth quarter of 2020, the bottom 50% of Americans held $2.49 trillion in total household wealth. Meanwhile, the top 1% added about $4 trillion to their wealth during that time – more than the bottom 50% holds in total.

To offset the inequality that’s arisen during the pandemic, Collins recommends a combination of supporting frontline workers, lifting up the wage floor, and taxing the rich over the next six months.

If nothing is done, Collins said, that economic precarity could grow. He predicts that homeownership could decrease, as economic vulnerability – and the lack of savings – rises.

Additional taxes on the wealthy have become a hot-button topic during the pandemic. The International Monetary Fund has said that one-off taxes on the wealthy and corporations could help with coronavirus recovery; however, not everyone agrees, with Nobel Prize-winning inequality economist Angus Deaton saying the wealthy would find a way to dodge a tax. IRS Commissioner Charles Rettig also just said that $1 trillion or more in taxes could be going uncollected every year.

President Joe Biden has proposed a hike in the corporate tax to fund his infrastructure package, and has said that Americans earning over $400,000 could see a tax increase. In a speech defending the tax increase, he said that he was “sick and tired of ordinary people being fleeced.”

Collins said he thinks Biden has about two years to enact change and start making a meaningful difference in people’s lives.

“There’s a possibility of totally turning the course here,” Collins said. “But it is going to require some courage and boldness and spine, but I actually think the broader public is with the president on this.”

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Billionaires around the world added $4 trillion to their wealth during the pandemic

tax the rich protest US billionaires
  • A new report from the Institute for Policy Studies analyzes billionaires’ gains during the pandemic.
  • The world’s 2,365 billionaires added $4 trillion to their collective wealth, it found.
  • A January Oxfam report said billionaires’ global gains could pay for everyone’s vaccine.
  • See more stories on Insider’s business page.

From March 18, 2020, to March 18, 2021, the world’s billionaires added $4 trillion to their wealth, according to a new report from the left-leaning Institute for Policy Studies (IPS).

That’s a 54% increase for the world’s 2,365 billionaires, who now have $12.39 trillion. The wealthiest 20 billionaires alone added $742 billion to their collective wealth during a pandemic – a 68% increase.

A January Oxfam report, which tracked global billionaire gains through December 31, 2020, found that the world’s billionaires had added $3.9 trillion to their wealth during the pandemic – an increase that could pay for the entire world’s vaccinations and prevent anyone from falling into poverty. That report found that recovery for people at the bottom could take up to a decade, with 200 million to 500 million people falling into poverty in 2020.

Now, according to the IPS report, which analyzes data from Forbes, Bloomberg, and Wealth-X, those billionaire gains have grown.

Renewed calls for a wealth tax

One of the Oxfam report’s possible solutions for creating a “better world” was imposing a wealth tax.

The IPS report found that American billionaires account for less than a third of that total wealth. But a wealth tax like the one proposed by Sen. Elizabeth Warren – where households with a net worth of over $50 million would see a 2% tax, and those with over $3 billion would see a 3% tax – would still raise $120 billion per year, according to the report.

From the end of 2019 to the end of 2020, the top 1% of Americans added just about $4 trillion to their wealth, while the bottom 50% held just $2.49 trillion in total household wealth by the end of 2020.

However, a wealth tax may still be a ways off in the US. President Joe Biden’s new infrastructure package is paired with an accompanying tax hike. But that increase would only target corporations, raising the corporate tax from 21% to 28%, and seek to enact a global minimum tax rate of 21%. It leaves wealth individuals alone, for now, although Biden’s administration has said it wants to tax households making $400,000 a year and up.

“I’m open to other ideas, so long as they do not impose any tax increase on people making less than $400,000,” Biden said in his speech introducing the package.

Read the original article on Business Insider

The Oscar Mayer heir who gave away his fortune reveals how the rich hide their wealth – and how to stop them

chuck collins
Chuck Collins.

  • New research has shown that the wealthiest Americans hide away their money from tax collectors.
  • Researcher Chuck Collins has written a whole book on how the wealthy hide their fortunes.
  • He told Insider it’s a fixable problem, but one that requires closing loopholes.
  • See more stories on Insider’s business page.

Chuck Collins knows how rich people hide their money.

Collins was an heir to the Oscar Mayer wiener fortune, an inheritance that he gave away completely. But that meant he learned firsthand how the wealthy (even the very charitable) hold onto their fortunes. It’s one thing to give up your income, he learned, and another to compromise the principal – and deprive future generations of accrued wealth – completely.

He opted to give it all away. Today, he’s the director of the program on inequality and the common good at the Institute for Policy Studies, where he delves deep into billionaire gains, income inequality, and how the ultrawealthy dodge taxes in America.

The situation is likely worse than widely appreciated. Recent research found that America’s highest earners may have been hiding billions from the IRS – far more than assumed. In fact, the report found that the top 1% of Americans don’t report 21% of their income, and the figure might be twice as high for the top 0.1%. That research comes from the government itself in the form of the Internal Revenue Service (IRS), along with academic economists.

Sen. Bernie Sanders has introduced legislation that would increase taxes and cut loopholes, and The Wall Street Journal reported that Biden is looking into beefing up the IRS. (Sanders wrote a blurb fo Collins’ book.)

In his upcoming book, “The Wealth Hoarders,” Collins dives into what he calls the Wealth Defense Industry: The army of tax attorneys, family offices, accountants, and more who are devoted to protecting clients’ wealth – and circumventing taxes. His thesis implies that this industry is an inevitable outgrowth of financialization, in which the financial sector grows out of proportion to the rest of the economy. But he argues it’s not too late to reverse it.

Ahead of its publication, Insider spoke to Collins about his own history, the book, and what needs to come next.

The current state of the ‘Wealth Defense Industry’

Collins writes that the Wealth Defense Industry has “mushroomed” in size since his first introduction to it in 1983. For instance, there are now over 10,000 family offices worldwide, he writes.

Collins said that legislation like that introduced by Sanders, Biden’s election, and the blue wave of the 2020 election, led wealth advisors to urge clients to move their money into “new forms” that would be more difficult for tax collectors to find.

“I feel like we’re kind of in a moment where this industry has been growing and growing and accelerating really in the last 15 years – the number of family offices, the number of planners, the number of dynasty trusts,” Collins said. “And it’s reaching this pinnacle moment because, for the first time in a long time, there’s a meaningful discussion about taxing the very wealthy.”

What ordinary people may not understand about how wealth is hidden

Collins told Insider that there’s an outdated image of wealth hiding, where it’s all stored offshore. But the US is the number two destination for “global kleptocratic capital.” Instead of storing money offshore, he said, the wealthy can turn to places like South Dakota, Wyoming, or Delaware.

“The thing I think we don’t understand is we are now the tax haven,” Collins said.

In the book, Collins details the myriad, complex systems that the so-called “Wealth Defense Industry” uses to obscure money. One is “artports,” or art-storage facilities that could be in your neighborhood, full of incredibly valuable paintings.

While one of those facilities could be mere blocks away from you, these ports are technically in Free Trade Zones, and the art never actually enters US commerce.

Gen Z musuem
Rather than a museum, art could be hiding in your backyard.

Or take, for instance, those brand-new glass towers in your downtown, where the wealthy could be parking their wealth by buying up units. Collins uses the Millennium Tower in Boston as an example. Those empty apartments, with their panoramic views, function as “wealth storage units” – and, Collins writes, over 35% of the units there are owned by shell companies and trusts.

On his own decision to give up his wealth, and the pressure that the wealthy face

“I would say the overwhelming cultural message for someone growing up in my class was ‘protect and preserve. You can do quirky things with your income, but don’t touch the corpus. Don’t touch the asset, let it just keep growing,'” Collins said.

For him to think differently meant going up against the “whole universe of wealth management” – and others in his position face an industry that has a self-interest in holding onto their assets and growing them. But Collins contends that there’s a certain point where people don’t need to keep accumulating or stockpiling wealth.

“There’s probably people out there that fundamentally think that they should pay more taxes, but their advisors, just it’s unthinkable, right?” Collins said. He said that there’s a whole culture surrounding the urge to utilize every possible tool and loophole to reduce taxes.

But there’s momentum for change

Collins said he thinks the “reform train” is moving, pointing to potential tax increases being put forward by the Biden administration. But even with new laws, he said, the agenda could be undermined by the Wealth Defense Industry, which underscores the need to shut down this hidden wealth system and close up loopholes.

Bernie Sanders
Senate Budget Committee Chairman Sen. Bernie Sanders (I-VT).

“it’s like we’ve had a wild party at this restaurant, and now the billionaires are going to slip out the kitchen door before the bill comes,” Collins said. “And we basically have to say, ‘Nope, everybody has to stay and we need you all to chip in from the bill here.'”

He later added: “This is totally fixable. Start with enforcement, outlaw the bad trusts, increase transparency in reporting and disclosure, and then join with our global partners to clean up the global system. We could reverse it in 10 years.”

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The minimum wage would be $44 per hour if it had grown at the same rate as Wall Street bonuses

GettyImages 1207533986 Traders work during the closing bell at the New York Stock Exchange (NYSE) on March 17, 2020 at Wall Street in New York City. - Wall Street stocks rallied Tuesday on expectations for massive federal stimulus to address the economic hit from the coronavirus, partially recovering some of their losses from the prior session. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)
Wall Street employees based in New York City earned an average bonus of $184,000 last year – a 10% increase from the year before.

The chaos that the pandemic unleashed on America’s economy turned out to be a major boon for Wall Street traders, according to new data from the New York State comptroller’s office.

Wall Street firms paid their New York City-based traders an average bonus of $184,000 last year, a 10% increase from 2019, New York comptroller Thomas DiNapoli said in a press release Friday.

But those paydays have been skyrocketing for decades. Since 1985, Wall Street traders’ bonuses have grown 1,217% – and that’s just a fraction of their overall pay, which was more than $406,000 in 2019, according to data from DiNapoli’s office.

By comparison, the federal minimum wage has flatlined at $7.25 per hour – or $15,080 annually – for 12 consecutive years. When adjusted for inflation, it has actually decreased by 11% since 1985.

If the minimum wage had instead grown at the same rate as Wall Street bonuses, it would be $44.12 per hour today.

Unlike a majority of the US, Wall Street saw massive financial success in 2020, and experts say it exposed just how detached the industry has become from the rest of the country’s reality.

“It’s just another reminder that there’s a total disconnect between what happens on Wall Street and what happens in people’s everyday lives and in the real economy,” Sarah Anderson, director of the global economy program at the Institute for Policy Studies, told Insider.

Read more: Reddit day traders wanted to beat Wall Street to prove the system is rigged. Instead, they did it by losing.

The stock market blew past pre-pandemic levels months ago as millions of Americans still struggled to find work, while increased volatility in the markets led to record years for Wall Street firms that netted bank executives paydays of up to $33 million, even as many banks laid off workers despite promises not to during the pandemic.

In a blog post for IPS on Monday, Anderson highlighted how deregulation of the financial industry has allowed firms to link traders’ pay packages to increasingly risky investing practices that are mostly only beneficial for Wall Street.

“So much of what is the most rewarded on Wall Street is the kind of trading activity that really doesn’t add a lot to the real economy and isn’t essential,” Anderson told Insider, adding that last year’s huge bonuses were “mostly because of market volatility, not necessarily because they’ve added a lot of value to the economy.”

After the 2008 financial crisis, lawmakers passed the Dodd-Frank Act, which banned pay packages with “inappropriate risks,” but Wall Street lobbyists have successfully blocked efforts to implement the rule for years.

IPS’ report also examined how Wall Street has made racial and gender pay disparities worse because they’ve disproportionately hired white male employees for decades while people of color and women are overrepresented in low-wage jobs.

“Nationally, securities industry employees are 80.5 percent white, 5.8 percent Black, 11.5 percent Asian, and 8.1 percent Latino. By contrast, whites make up an estimated 55.4 percent of people in jobs that pay less than $15 per hour,” Anderson wrote.

Wall Street’s risky, lucrative business models and pay practices are coming under increased scrutiny as the pandemic forces Americans to reckon with the country’s growing inequality.

“I just hope that it will lead to a real assessment of how skewed our values are when people doing these essential jobs are paid such a pittance compared to people on Wall Street,” Anderson told Insider.

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