3 secrets that America’s richest family dynasties use to hang onto their money, from a report on their breakaway wealth during the pandemic

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  • America’s wealthiest family dynasties have held onto and grown their fortunes for decades.
  • A new report from the Institute for Policy Studies dives into how they amass and keep their fortunes.
  • The methods range from strategic charitable giving to forming family offices and special trusts.
  • See more stories on Insider’s business page.

America’s richest family dynasties had a lucrative pandemic year.

The top 10 richest saw their net worths grew by a median 25%, while family dynasties’ wealth grew at a rate 10 times greater than that of a typical family, according to a new report from the left-leaning Institute for Policy Studies (IPS).

The thing is many of these are true dynasties, with wealth dating back much further than relatively recent upstart billionaires like Mark Zuckerberg and Elon Musk. Thirteen of the top 20 wealthiest families were in the top 20 in 1983.

“Dynastically wealthy families remain wealthy for the long haul,” the report’s authors write. “The ranks of America’s dynastic fortunes have remained largely unchanged for decades, and are becoming increasingly persistent over time.”

The methods by which America’s wealthiest individuals hang onto their wealthy – without paying much in taxes -have become increasingly clear in the past few weeks. A bombshell ProPublica report showed just how little America’s billionaires paid in taxes proportional to their wealth; all of those methods are legal – and have been known by experts for years – but the exposure of the numbers themselves could kickstart tax reform.

Titled “Silver Spoon Oligarchs,” the report looks at at the top 50 dynastically wealthy families from Forbes’ inaugural ranking of America’s wealthiest clans, published in December 2020, as well as data from the Federal Reserve‘s Survey of Consumer Finance.

The IPS report breaks down the main ways family dynasties ensure their wealth lasts for so long, and here are three of the most notable ones.

(1) Fight against tax increases by pouring money into PACs and lobbying

The report notes that taxes on America’s wealthiest have sunk over the past few decades as wealth ballooned at the top. In fact, today’s wealthy Americans pay just one-sixth the rate of their 1953 counterparts.

Family dynasties may have held onto their own coffers through everything like funding lobbying efforts, donating money to candidates who are anti-tax, or even setting up their own corporate PACs.

“In-house PACs ensure that corporations are in an excellent position to influence public policy in ways that are favorable to them,” the report said.

(2) Give just the right amount to charity

There’s also an art to charitable giving, according to the IPS report: “Today’s family dynasties understand that if they want to remain at the top, they must not give too many of their assets to charity.”

The dynasties need to strike the right balance between giving and retaining their assets (presumably so they can continue to grow). For instance, the report notes that only four members from Forbes’ top 50 families have signed on to the Giving Pledge, where billionaires pledge to give away half of their wealth to charity either during their lifetimes or at death.

And, as Insider’s Mattathias Schwartz reported, some of the signatories of that pledge are moving slowly in disbursing that money. One mechanism that the wealthiest use for donations are donor-advised funds (DAFs); as Schwartz reported, philanthropists who utilize those funds can put assets in there, immediately see a tax write-off, and then actually disburse the funds in it whenever they want.

As the IPS report says, dynastic families funneling giving “through closely-held private family foundations
provides them with not only an immediate tax deduction, but also the ability to maintain family control over those charitable assets into perpetuity.”

(3) Set up trusts and family offices

Dynastic families are increasingly setting up family offices to maintain and build their wealth, and shore it up for generations to come. According to the IPS report, about half of the nearly 10,000 family offices around the world were founded in the last 15 years.

Family offices are infamously secretive entities devoted to handling wealth. They’ve drawn attention in recent months after the fall of Archegos Capital Management – which reportedly lost $8 billion – as it was technically structured as a family office, according to Insider’s Harry Robertson. As Insider’s Hayley Cuccinello and Rebecca Ungarino reported, family offices were gearing up for new regulations following Archegos.

Another mechanism the wealthiest use are dynasty trusts. Those are long-term trusts, as Insider’s Hillary Hoffower reported, and they have transfer taxes at their creation – essentially meaning they never incur estate or gift taxes when beneficiaries receive money from the trust.

“Because the super-wealthy are avoiding or reducing their taxes, they are shifting the obligations to pay for society’s investments onto lower and middle-income households,” the IPS authors write. “Dynasty trusts also entrench existing levels of wealth inequality and facilitate the formation of dynastic concentrations of hereditary wealth and power.”

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How the wealthy hanging onto their money actually makes everyone else poorer, according to a new study

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  • A Chicago Booth Review report looks at the link between the wealthiest saving their money and inequality.
  • Wealthy people’s savings are used to finance household debt for everyday Americans.
  • As debt grows for the lowest-earning Americans, the wealthy having more savings just fuels the cycle further.
  • See more stories on Insider’s business page.

The wealthy sitting on their savings may be helping finance the debts of poorer Americans and therefore play a role in rising inequality, according to the Chicago Booth Review.

Researchers Amir Sufi, Ludwig Straub, and Atif Mian looked at the growing savings of America’s wealthiest residents, and found it isn’t going into what they call “productive” investments, like building roads or new research. Instead, the stockpile is going toward financing debt from everyone not in the top 1%.

Prior to the financial crisis in 2008, such savings financed “almost a third of the rise in household debt owed by the bottom 90%.” After the housing crash, they began to take on a greater role in subsidizing government debt (although the continued debt from lower-earning Americans is still financed from those savings).

How does that work, exactly? Rebecca Stropoli at Chicago Booth Review uses the hypothetical of a corporation issuing equity to a wealthy shareholder, but the proceeds don’t go on research or equipment but into a deposit at a bank, which in turn uses it to fund a mortgage for a less-affluent household. The wealthy are financing bank lending to average Americans, in other words.

When the poorer take on more debt – especially when they’re incentivized by low interest rates – that’s less money they have to spend on other things.

During the pandemic, wealthy savings climbed, along with their fortunes

On the whole, the personal saving rate – the amount that Americans have left over from their income after paying off bills – has climbed during the pandemic, although it shot down in April 2021. But, as Time’s Alex Gailey reports, an increased savings rate may not show the whole story. Poorer Americans, Time reports, continued to spend at levels just a little below pre-pandemic rates, while their wealthier counterparts held on to more money.

The wealthiest Americans saw their net worths grow during the pandemic as widespread economic devastation and unemployment ravaged the country. From March 18 to December 30, 2020, the world’s billionaires added $3.9 trillion to their net worths; that’s enough to pay for the world’s vaccines and to keep everyone out of poverty.

In the US, billionaires got 44% richer throughout the pandemic, Insider’s Lina Batarags reported. That stands in marked contrast to the millions of Americans facing down unemployment and poverty.

The researchers note that the pandemic has cleaved an even deeper divide between the top 1% and the bottom 99%. Low-wage workers and workers of color were disproportionately impacted by the pandemic’s economic devastation, which took the shape of a K – high-earning workers saw jobs and incomes grow, while those at the bottom experienced the opposite.

“Mian, Straub, and Sufi see in the data a widening wealth gap and more saving by the rich, thus more money being turned into loans and lent out to consumers,” Stropoli writes.

The methods by which the ultrawealthy hang onto that wealth have come into greater relief this week, too, as a bombshell ProPublica investigation revealed that the wealthiest Americans are paying an incredibly low rate of taxes proportional to their wealth. That’s all legal, but it could finally kickstart reform targeted at America’s highest earners.

In the meantime, the savings of the wealthy will sit in bank accounts, fueling more debt for the rest of the country.

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

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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.

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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 world’s most expensive pigeons are on sale again. Weeks after a record $1.9 million sale, 800 deluxe racing pigeons are up for auction.

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In this Wednesday, Jan. 12, 2011 file photo, pigeons fly inside their coop at Pigeon Paradise in Knesselare, Belgium.

  • There’s a new group of 800 racing pigeons up for auction after a record-breaking sale in November.
  • They include descendants of previous record-breaker Golden Prince, and they all come from breeder Gino Clicque.
  • Racing pigeons have picked up interest among the ultrawealthy in the past couple of years, particularly those from China.
  • Visit Business Insider’s homepage for more stories.

A flock of 800 racing pigeons are up for auction starting today, following a historic sale in November.

In 2017, Belgian racing pigeon “Golden Prince” broke records when he was sold for €360,000 (almost $430,000 at today’s exchange rate). Since then, prices have been flying up for prize pigeons. 

In November, “New Kim” sold for $1.9 million – shattering the prior record set by the same owner for “Armando,” who reportedly plans to mate the pair.

The new crop of pigeons include several of Golden Prince’s descendants. All 800 of the pigeons come from one breeder, Gino Clicque; they were either born before 2019 or are new, “unflown” descendants.

Golden Prince’s then-record-breaking sale “proved that the Golden Prince bloodline is very interesting to potential buyers,” according to Sjoerd Lei, who works in the sales department of Pipa, the Belgian auction house that specializes in pigeons and is hosting the sale. His granddaughters, First Lady and Golden Princess, are among the more acclaimed pigeons up for sale.

New Kim’s record-breaking sale in November is part of a larger trend surrounding the sport. Pigeon racing, which began as a working-class sport after World War One, has become something of a prestige symbol for the wealthy. China in particular has seen a huge surge of interest.

Pipa’s Niels Cuelenaere previously told Business Insider that China has around “1 million pigeon fanciers,” and their numbers were only growing.

Lei said it’s “common sense” that Chinese buyers will be interested in the new auction, although it’s unclear if it will yield another record-breaking sale.

During New Kim’s record-breaking sale, visitors to Pipa’s site surged, according to Lei, but that has since quieted a bit. He said he expects interest to pick up again with the new sale. 

At press time, the bidding for pigeon “Golden King” was already up to €202,000 – around $245,345. 

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