WASHINGTON—A growing number of U.S. states, and not just small ones like corporate-friendly Delaware and deep-red South Dakota, but big ones such as Florida and Texas, are scheming to or actually hiding the wealth of the rich, letting the upper class get away with not paying their fair share for maintaining society, or democracy, a new report says.
And they’re hiding a lot through the secret trusts that can’t be taxed, the Institute for Policy Studies adds: $5.626 trillion as of 2021. That’s up $1 trillion in just one year and almost double the $3.04 trillion the rich parked in states in 2014. The skyrocketing sum makes the U.S. the world’s biggest tax haven.
The 40-page heavily footnoted IPS report, Billionaire Enabler States, is the latest in a series of studies from various sources showing how the rich worldwide can game the capitalist system to their advantage, and the disadvantage of the rest of us.
“If Russian oligarchs can enjoy the tax haven of the United States, that means that elites from all over the world—including from the United States itself—can too,” it summarizes.
All the studies were set off by massive disclosures which started several years ago, and which continue, by the International Consortium of Investigative Journalists (ICIJ), a large network of investigators, reporters, and analysts who have dug up and repeatedly publicized tax havens, shady dodges, money laundering and other tactics of many of the world’s financial and political titans. ICIJ also exposed their enablers, including law and financial firms.
ICIJ identified many of the current rich who use, and abuse, trusts to squirrel away their wealth. Besides Russian oligarchs, they include the King of Jordan and various Europeans. But ICIJ also identified specific U.S. states that led the way in becoming secretive tax havens for the rich. IPS authors Elena Thomhave and Chuck Collins dissected the policies those states implemented, or didn’t, to benefit the rich—such as states that lack income taxes.
One point not mentioned in the report is the political complexion of the 13 states it puts at the top of a list that makes the U.S. the champion global tax haven. Eight of those 13 are Republican-dominated, including the two biggest, Texas and Florida.
Both are listed as “emerging enablers,” along with Rhode Island and Illinois (both deep blue) and Missouri and Ohio (leaning Republican). Up-and-coming “bad actors” are Tennessee and Wyoming, both deep red, and swing state New Hampshire, a handy haven for the rich from next-door Massachusetts.
Leading the list are, as usual, South Dakota, Alaska, Nevada, and Delaware, in that order. Even Democratic President Joe Biden, a Delawarean, admits his state has for decades been a haven for the corporate class, due to lax laws that let CEOs and company boards get away with anything, regardless of what stockholders want.
Nevada is a swing state, with Las Vegas just hours from wealthy Southern California havens such as Beverly Hills. The other two states atop the IPS list, South Dakota and Alaska, are red. ICIJ had deep-red Wyoming in the top five tax havens, not just as a “bad actor.”
Nevada also makes the list by letting its banks shield virtually everything. There’s supposed to be a state regulator to monitor the banks and trusts. The position has gone unfilled. And in 2005, the legislature repealed state inheritance taxes, too.
Tax havens have washed ashore
In short, the report says, “The concept of the ‘offshore’ tax haven has very much washed ashore” especially, though IPS doesn’t say so, in states under corporate and Republican sway.
“As other countries—including famous tax havens like Switzerland and Panama—have become more transparent, the U.S. has become more opaque. Indeed, U.S. states have dramatically expanded their trust industries,” IPS says. In terms of “modernizing” laws governing trusts—substitute “deregulating” for “modernizing”—U.S. states have been 17 of the top 20 jurisdictions to do so worldwide since 2010, the report says.
And when the rich can conceal their wealth and avoid paying taxes on it everyone else foots the bill, IPS points out.
States which encourage secret wealth-avoidance trusts to aid the rich, often forever, let the rich “avoid federal taxation, cheating the U.S. out of revenue with which it could combat poverty or invest in infrastructure. Trusts, therefore, affect every U.S. citizen and resident.”
Of course, when states think twice and try to expose, much less tax, the trusts, the financiers swing their lobbying clout in state legislatures and bury such moves, IPS reports. One exception: New York, whose lawmakers have repeatedly rejected trusts’ lobbying,
IPS makes another correlation with a political impact: Regressive taxes. The lax states with the rich’s trusts, such as Florida, rely on sales taxes and sin taxes for their revenue, and shun income taxes. That combination disproportionately slams the poor and aids the rich. But Florida isn’t alone. Even if states have personal income taxes, the poor still pay more, proportionately, than the rich, because the rich can shelter their income.
“None of the states in this report tax trust income, and nearly half do not levy any personal income tax at all.” Competition among the states to allow trusts for the rich “is best understood in light of interest group analysis. The immediate benefits of attracting new trust business flow to local lawyers and institutional trustees,” and not the states or their taxpayers.
As one example of that pattern, Illinois’s rich shelter $1.1 billion in trusts just in their home state, with 25% of that in Chicago’s Northern Trust Company. Meanwhile, “Illinois ranks as the eighth most regressive tax system in the U.S. The bottom 20% of Illinois income earners pay 14.4% of their income in state and local taxes while the richest 1% only pay 7.4% of their income,” the report says.
IPS also reports that as bad as the tax evasion problem already is, it could get worse. Other states, the report warns, are in a “race to the bottom,” egged on by financier and trust lobbying, to join the miscreants.
“States are engaged in a rapid race to the bottom, so federal action is needed. States may see a few jobs created by the trust industry and determine that is worth the detrimental effect of trusts on the rest of the country. It is in the federal government’s interest, therefore, to curb state laws that enable illicit wealth hiding and tax avoidance,” IPS says.
The entire report is available on the IPS website, www.ips-dc.org.
CONTRIBUTOR
Comments