Stealth WEALTH
How billionaires and the world’s most profitable companies hide their fortunes to create . . .
AT 60-stories high and 684-feet tall, Boston’s Millennium Tower, a residential luxury high-rise that opened in 2016, is the fourth-tallest building in the city. It is also a virtual ghost town. That’s because the Millennium is less of a playground for the rich and more of a tax shelter in the sky, writes Chuck Collins in his new book, “The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions” (Polity), out next month.
“Over 35 percent of the 443 condominiums are owned by shell companies and trusts, and almost 80 percent of the unit owners do not claim a residential exemption, indicating that the condo is not their primary home,” writes Collins. “With average condominiums selling for over $4 million, Millennium Tower is not only a wealthy residence for the rich, but also a ‘wealth storage unit’ for global capital looking to park itself and hold value.”
Collins knows a little something about the ultra-wealthy. A great grandson of cold-cut magnate Oscar Mayer, Collins inherited $500,000 at age 25 and gave it all away to charitable organizations. Since then, Collins, now 61, has spent his life educating and writing about the impact of wealth inequality.
His new book focuses on what he calls the Wealth Defense Industry (WDI), noting that not only do the ultra-wealthy — which he defines as the 0.1 percent — spend time and money ensuring they pay almost no taxes, but that there are over 90,000 professionals around the world whose careers are dedicated to helping them do so.
“The wealth defenders are a booming sector of the white-collar workforce around the world,” he writes. “They are the gatekeepers — the lawyers and accountants with expertise in trusts and estates, tax law, incorporation, and business transactions.
“What the industry euphemistically calls ‘tax efficiency,’ ” he adds, is a gentler term “for legal and illegal tax dodging.”
“Tens of thousands of people wake up every morning and say, ‘How can I help this billionaire pass as much money as possible to his children with the lowest taxes?’ That is their mission in life ,” Collins tells The Post. I N 2015, the global Tax Justice Network estimated that there was between $24 trillion and $32 trillion in hidden wealth worldwide — around 10 to 12 percent of the world’s wealth, Collins writes.
The IRS estimates that the top 1 percent of households fail to report about 21 percent of their income, according to a new Wall Street Journal report. The “tax gap” — or the amount “missing” from IRS coffers due to tax evasion and noncompliance — from 2013 to 2015 was a stunning $391 billion a year. Collins notes that “noncompliance is largely the result of the wealth-hiding tricks of the richest one percent, who are responsible for about 70 percent of tax underreporting.”
Asset protection trusts are one commonly used tool for hiding wealth. While varied and complex in nature, a trust can be used to “construct a fiction that they are parting with their property or money while continuing to enjoy the money and property as if they continue to own it (because they sort of do),” Collins writes.
Trusts are often built using “deliberately opaque rules and legal structures that fog up the question of ownership.”
The late billionaire Sheldon Adelson, for example, used a complicated trust mechanism called a “grantor retained annuity trust (GRAT)” to “pass on $7.9 billion to his children while avoiding $2.8 billion in gift and estate taxes.”
Another commonly used technique is transfer pricing, which involves “shifting assets between subsidiaries, increasing costs and expenses in high-tax countries in order to reduce taxes, while moving profits and royalty income to low- or nopanies tax countries Thansfer pricing has allowed companies around the world — like Apple — to “dodge about 10 percent of corporate income taxes, roughly $100 billion to $240 billion a year in US taxes,” Collins writes.
“Apple has patents for their intellectual property, such as the design of the iPhone, owned by a subsidiary corporation based in a country that has low or no taxes on royalty income from intellectual property, such as Ireland or the Netherlands,” Collins writes.
Family offices — businesses that
The wealth-hiding system is not a minor sideshow in the larger economic system — it is the system. — Author Chuck Collins (left)
the dynastic wealth of one or several clans, often seeking out ways to hide their money and diminish their tax burden — are also a major stronghold for the WDI.
“Thousands of families around the world are forming family offices,” Collins writes. “Oprah has one, OW Management LLC. The billionaire Koch family have 1888 Management LLC to manage their $100.6 billion in combined net worth. Hedge-fund manager William Ackman and Google co-founder Sergey Brin each have one.”
Family offices hold “over an estimated $6 trillion or more, the equivalent of 7 percent of the world’s stock markets,” Collins writes. “Think about it. Trillion-dollar pools of unregulated, anonymously owned capital. What could possibly go wrong?”
COLLINS writes that there are 60 countries — including the United States — that have “contorted their laws to attract global financial services,” allowing companies to register there without disclosing beneficial ownership. One way this is done is through anonymous shell companies, which rarely conduct any actual business and allow their owners to keep their identities as hidden as the money they squirrel away within the companies. One expert, quoted by Collins, believes the state of Delaware is the largest source of anonymous shell entities in the world.
While many of the biggest financial scandals, including Bernie Madoff and 1MDB, wind up involving Delaware shell corporations, the state also offers significant tax advantages to its anonymous clientele.
“Delaware does not tax certain profit-making intangible items — like trademarks, royalties, leases, and copyrights. Yet those same intangibles can be part of a tax strategy that allows them to be classified as deductions in other states, reducing the company’s tax bill there,” Bradley P. Lindsey, co-author of the study “Exploring the Role Delaware Plays as a Domestic Tax Haven,” says in Collins’ book.
This loophole has “enabled corporations to reduce taxes paid to other states by an estimated $9.5 billion over a decade by shifting royalties and revenues to Delaware-based holding companies. WorldCom used the loophole to cut $20 billion from state taxes thanks to an intangible asset called ‘management foresight,’ ” Collins writes. (According to The New York Times, management foresight refers to “strategic plans” that WorldCom charged its subsidiaries billions of dollars for.)
Delaware is not alone. In the 1980s, South Dakota, long home to weak regulation and no state income tax, repealed rules that put a time limit on trusts. Instead of being forced to liquidate a trust after a certain number of years, the state allowed rich families to keep on hiding and nurturing their money, essentially offering them an “elixir of immortality for dynastic wealth.”
“In 2010, [South Dakota] trust companies managed a total of $57 billion,” writes Collins. “By 2020, they were managing over $350 billion.”
Many have used anonymous shell companies to park their wealth in luxury real estate in big cities nationwide, such as the Millennium in Boston and One57 on New York’s Central Park.
According to The New York Times, “54 percent of real estate purchased in New York for more than $5 million was acquired in the name of anonymous shell companies” in 2014, Collins writes.
“In the six most expensive condo projects in the city, the owners in a majority of units were hidden by shell companies, including 77 permanage cent of the units in One57 and 69 percent of the units at The Plaza. The value of the 900 condominiums in these six buildings was equal to the value of 20,000 average American homes.”
Collins advocates for greater wealth transparency in the American system — and for rules that make it harder for the nation’s richest people and corporations to avoid paying tax.
“The wealth-hiding system, an ecosystem if you will, operates because of the tolerance and enablement of many different institutions and actors,” he writes. “It is not a minor sideshow in the larger economic system — it is the show. It is the system.”
Currently, the IRS is urging lawmakers to give the agency greater funds for enforcement, including more staff and tougher rules requiring more reporting of financial information by businesses. In congressional testimony last week, IRS Commissioner Charles Rettig argued that each additional dollar spent on tax enforcement could yield $5 to $7 in revenue, and raise an additional $1 trillion over a decade without raising taxes, The Wall Street Journal reported.
“It is not just a body count of how many people we have in enforcement,” Rettig said. “We need to have specialized agents.”
Collins says wealth hoarding can be reined in if the government can find the strength to confront it. In fact, bipartisan steps have already begun.
“In December 2020, Congress passed the Corporate Transparency Act, which requires corporations to disclose beneficial ownership. Republicans and Democrats came together, but it doesn’t include trusts,” Collins tells The Post.
“We could establish a federal law saying that trusts can only exist for 80 years as opposed to these dynasty trusts that exist forever. We could totally fix this. With the political will, we could shut down a lot of this.”