Bob Lord: The era of trust fund trillionaires approaches as fortunes are shielded from gift and estate taxes

Estate in Los Angeles

From OtherWords.org

History doesn’t repeat itself, but sometimes, as the old Mark Twain line goes, it rhymes.

Take this year’s Forbes 400. If you listen close enough, you can hear echoes of the first Forbes list back in 1982 — you just have to turn it up about 100 notches.

Back in 1982, with Reaganomics in its infancy, the first Forbes list of America’s ultra-wealthy had just 13 billionaires on top. The two richest of these billionaires, Daniel Ludwig and Gordon Getty, held personal fortunes estimated in the $2 billion range. The other 11 billionaires on that first annual Forbes list clustered together at the $1 billion level.

Multiply that 1982 billionaire breakdown by 100 and you’d have something awfully close to the present list.

The nine current wealthiest Americans today — all white men — each hold a net worth above or rapidly approaching the $100 billion mark. Two of these “hectobillionaires,” Jeff Bezos and Elon Musk, hold around $200 billion.

To what do we owe this awesome increase in billionaire fortune?

The substantial increase in America’s national wealth since 1982 partially explains it. But our nation’s total combined wealth has only jumped about ten-fold since 1982, from under $10 trillion then to a little over $100 trillion today. That increase pales in comparison to the 100-fold increase in the wealth of those at America’s economic summit.

This giant leap at our economic summit should worry us, especially once we start contemplating how a future verse of the Forbes list might sound.

A generation from now, if current rates of wealth concentration continue, we may have to turn the volume up a thousand times over 1982 levels to hear the Forbes list rhyme. The 1982 $1 billion standard will have become $1 trillion.

That future would rhyme with 1982 on another more insidious level as well. Back in 1982, almost all the grand fortunes on the initial Forbes list came largely as inherited hand-me-downs. Only two billionaires on the 1982 list, Daniel Ludwig and David Packard, could claim anything resembling “self-made” status.

But over recent decades, Republicans have hollowed out our estate- and gift-tax laws. Their legislating has allowed tax-avoidance planners to effortlessly pass billions from one generation to the next — and often to the next generation after that — without incurring tax liabilities.

One former Donald Trump economic adviser, Gary Cohn, infamously noted that “only morons pay estate tax.” We can condemn Cohn’s disparagement of wealthy Americans who choose not to engage in tax avoidance, but we can’t challenge his basic point: In the United States today, the estate tax has become essentially a voluntary levy.

Shady operators like the late Jeffrey Epstein got rich themselves, The New York Times has detailed, by exploiting trusts to shelter billions in their clients’ wealth from estate and gift taxes.

In 2013, the Washington Post reports, the now deceased Sheldon Adelson used similar maneuvers to avoid gift taxes on his transfer of $7.9 billion in trust to his children.

And the Forbes listing of the Mars family’s wealth, the Institute for Policy Studies has noted, indicates that two generations of Mars family grandees have now successfully done an end run around the federal estate tax.

With fortunes well into the billions passing virtually tax-free from one generation to the next, the era of trillionaire trust fund babies is fast approaching. Our leaders could prevent that era. All they need would be the courage to reform our broken estate- and gift-tax system.

Bob Lord is a Phoenix-based tax lawyer and an associate fellow at the Institute for Policy Studies.

Bob Lord: The $170 billion lie in the GOP tax plan

Via OtherWords.org

House Republicans and Donald Trump are ballyhooing the wonders of their new tax plan. It’s called the “Tax Cuts and Jobs Act,” which we’re told will mean “More Jobs, Fairer Taxes, and Bigger Paychecks.”

Hallelujah! We can see the Promised Land!

But before we pop the champagne corks, let’s double-check the sticker price: $1.5 trillion over the next decade. That’s just shy of $5,000 for every man, woman and child in America. For a nation over $20 trillion in debt, that seems pricey.

But that’s only the beginning. The deeper costs of their tax plan are so large and so obvious that the failure of Republican leaders to disclose them is, for all practical purposes, a lie.

The premise of the House plan is, in fact, a $170 billion lie.

The vast majority of these proposed cuts — some 80 percent — go to the top of the income ladder. But to sell the plan as beneficial to the middle class, Republican House leaders included a tax credit of $300 for each family member, plus a larger credit of $1,600 for kids under 17.

Without that “Family Flexibility Credit,” the House plan would be a net benefit to far fewer families. Remarkably, however, the House Republicans crafted the Family Flexibility Credit to expire after only five years — after which middle-class families with college-aged kids will see a big tax hike.

So will the break be extended? Republican leaders promise it will be. But the $170 billion cost of extending the Family Flexibility Credit through 2027 isn’t included in the stated cost of their plan.

It’s worse than just that. The repeal of the federal estate tax, which is exclusively paid by a handful of multimillionaire families, will indirectly allow ultra-wealthy Americans and their heirs to avoid tens of billions in income tax. That lost income tax revenue isn’t reflected in the stated cost of the House plan either.

Nor are the tens, perhaps hundreds, of billions in revenue that will be lost when tax lawyers develop structures to squeeze tax savings out of the new 25 percent tax rate for so-called “business income” — a big discount from the otherwise applicable top rate of nearly 40 percent.

Amendments to address the concerns of powerful interest groups will likely raise the cost further. One example: A concern raised by multinational corporations regarding an excise tax provision was addressed by the House Ways and Means Committee, increasing the cost of the plan by $60 billion.

Even regular people will make adjustments that drive up the cost of the plan.

To minimize the impact of rules reducing the tax benefits they get from charitable contributions, some will bunch several years’ worth of gifts into a single year. If they no longer get a tax benefit from paying mortgage interest, some will forgo other investments that generate taxable income to pay their mortgages down at a faster rate.

None of this is news to Republican House tax writers.

But if their plan becomes law, you can count on those same Republicans to tell us how Social Security and Medicare benefits are driving the national debt too high and must be cut. In reality, they caused the problem themselves, by lying about the costs of their huge giveaway to the rich.

And that stinks.

Bob Lord is a veteran tax lawyer who practices and blogs in Phoenix.  He’s an associate fellow of the Institute for Policy Studies. 

Bob Lord: A tax cut for tax cheats

If the most frequently dialed federal agency in America can’t even answer two-thirds of the millions of phone calls it gets, should the government cut its budget?

Congress thinks so. That agency is the Internal Revenue Service (IRS). And lawmakers have hacked at its budget yet again.

Worse still, those cuts will cost more money than they’ll save. They’re basically “a tax cut to tax cheats,” said IRS Commissioner John Koskinen.

Regardless of your feelings about the IRS, Koskinen is right.

The government has slashed the enforcement portion of the IRS budget by nearly 20 percent over the last five years. That’s forcing the IRS to shrink the number of employees working on enforcement by 15 percent.

Talk about being penny-wise and pound-foolish. For every dollar the IRS spent in 2013, it collected $255, according to National Taxpayer Advocate Nina Olson.

Imagine that someone told a CEO that a given department was bringing in hundreds of dollars to his company for every dollar it spent. “It is difficult to see how the CEO would keep his job if he chose not to provide the department with the funding it needed,” Olson said.

Yet, she noted, “that is essentially what has been happening with respect to IRS funding.” Congress has slashed the IRS budget four times in five years. And those cuts are feeding the budget deficit that conservatives supposedly fret about.

It’s all about political expedience. Remember when the IRS faced accusations of singling out conservative nonprofits for tax scrutiny? Along with other experts, I predicted that it would spur further IRS budget cuts. Now Republican lawmakers are taking their revenge.

It’s a vicious cycle. Critics attack the IRS for making mistakes, darkening the public’s view of it. That gives political opportunists a chance to lobby successfully for cuts. A smaller budget virtually guarantees future mistakes by a cash-strapped agency.

Taxpayer services are underfunded too. The IRS now is unlikely to answer even half the phone calls it gets from taxpayers, Olson says. The average wait time is 30 minutes.

So another vicious cycle plays out as taxpayers who try to do the right thing get frustrated. Evasion rates rise. Pressure on the IRS enforcement team mounts.

On top of all that, taxpayers and collectors alike are coping with a tax code that’s more complex than ever. The IRS is responsible for implementing about 40 new provisions of the Affordable Care Act alone, for example.

And it could get more absurd.

The Republican Party is fundraising on the promise of abolishing the IRS altogether, as Citizens for Tax Justice reports. What happens when a country can’t collect taxes?

“Italy and Greece have been stuck in vicious cycles in which tax evasion runs rampant,”Washington Post columnist Catherine Rampell recently wrote. So politicians “raise tax rates to extract more money from the few law-abiding saps still out there, encouraging people to hide economic activity from even higher tax rates, and so on.”

That kind of dysfunction hurts honest taxpayers and bankrupts governments.

Let’s change course before it’s too late.

Bob Lord, a veteran tax lawyer, practices and blogs in Phoenix.  He is an Institute for Policy Studies associate fellow. This was distributed via otherwords.org.