A new analysis by the Institute for Policy Studies points to the harms of rising consolidated wealth, and ways to make the rich shoulder their fair share of the tax burden.
An analysis of the 50 richest families in the U.S. highlights tactics used to guard growing “dynastic wealth” in the country, and points to ideas for curbing and effectively taxing consolidated wealth.
The Institute for Policy Studies tracked American families from Forbes’ list across nearly four decades and found that their assets grew by 1007% since 1983, outpacing the average American’s by a factor of 10. The list of American “dynasties” includes household names such as the S.C. Johnson, Rockefeller and Marriott families.
IPS, a think tank focused on foreign and domestic policy, human rights and economics, notes numerous negative consequences of dynastic wealth accumulation. Firstly, dynasties wield serious political and philanthropic power that can be used to pursue their own agendas. Additionally, the IPS report contends that these dynasties do more than hoard wealth across generations; they grow it. For example, ISP cites the cases of the Mars candy and Estée Lauder cosmetics dynasties, whose wealth multiplied by billions between 1983 and 2020. The staggering rate of wealth growth for the country’s top dynastic families only accelerated during the coronavirus pandemic, IPS found.
“In a U.S. context, we’re not a society that had hereditary monarchies. It’s a reflection of a broken system. If people are paying their fair share of taxes, if they’re having children and the money is dispersing over generations, if they’re giving some money to charity, then you don’t have wealth accelerate,” Chuck Collins, co-author of the report, and director of the Program on Inequality and the Common Good at IPS, told ICIJ. “It’s not just that these families remain wealthy, their wealth is accelerating over generations. That shows that they found a way to hide or sequester the money.”
IPS identified six “habits” of highly-entrenched dynasties. These include defeating attempts to raise taxes on the wealthy, not giving away too much to charity, forming a family office to sequester wealth, creating dynasty trusts and loopholes to avoid gift or estate taxation, and using wealth to promote self-serving public policy and weaponizing charitable giving for dynastic interests.
Rising wealth and income inequality has been making headlines in the U.S. recently after ProPublica obtained Internal Revenue Service records exposing billionaires who sparingly pay taxes. Similarly, the IPS report discusses how the wealthiest Americans often pay little to nothing in income tax due to systemic loopholes that are perfectly legal. Since the Reagan era, individuals in upper tax brackets pay significantly less proportionally in taxes than they have historically. One major reason is that these individuals receive most of their income from capital gains such as interest and dividends from investments, as opposed to paychecks, ProPublica reported.
Capital gains tax can be avoided by holding on to the asset and accruing interest, unlike take-home pay. In this method, the asset’s growth can avoid taxes too. IPS says that as dynasties avoid taxes, the burden to fund social services falls on the working class.
“Use every tool at your disposal within the law, especially through estate planning, to keep as much of that money as possible out of the hands of government bureaucrats who will only misuse it,” Abigail Disney, an heiress to the Disney company fortune, wrote in the Atlantic about what she was taught when she began to manage her inheritance at age 21, in response to the ProPublica report. “As time has passed, I have realized that the dynamics of wealth are similar to the dynamics of addiction. The more you have, the more you need.”
The report also highlights potential policy solutions. IPS suggests greater oversight and enforcement by strengthening the IRS, implementing Sen. Eizabeth Warren’s wealth tax proposal, a special wealth tax for pandemic relief efforts, a millionaire surtax, stronger estate taxes and inheritance taxes for heirs. In addition to reforms that have already been proposed, IPS says that outlawing certain types of trusts and having the executive branch institute regulations if Congress fails to act would be helpful in curbing dynastic wealth.
“If we choose to continue along this path, families of inherited wealth will exert ever more control over public policy and the public pocketbook,” the IPS report concluded. “But we can choose to move in a new direction: to enact economic policies that strengthen society as a whole, ensuring equal opportunity and dignity for all, not just the very few.”
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By Anisha Kohli, July 6, 2021, published on ICIJ
