Welcome to the Remix! And thanks for joining our latest spin around the economy. In this column (“Meet the New Global Tax Haven, the United States”), we look at how the wealthy hide assets. In decades past, this might have involved secret bank accounts in Switzerland or the Cayman Islands. But as a report by Kalena Thomhave and Chuck Collins of the Institute of Policy Studies details, these days the US has become the global leader in financial secrecy.
It's no secret, however, that US wealth inequality is at record levels. A 2022 Credit Suisse report notes that the average (mean) wealth per US adult is $579,050, compared to, for example, $409,300 in Canada (in US dollars). But the median Canadian adult has a net worth of $151,200—far greater than the equivalent US level of $93,270. In short, while Americans at the top do better, most Canadians are better off than most Americans.
There are many reasons for this gap. A quick digression: $1.7 trillion in student debt that keeps millions from being able to buy homes is one of these. But another one, as Thomhave and Collins detail, is that US trust law has become absurdly permissive.
Say the words “trust law” and eyes glaze over—which is the intent, of course. State by state, starting with South Dakota in 1983, limits on the use of trusts to preserve assets for the ultrawealthy have been eviscerated, resulting in the resurrection of the perpetual or “dynasty” trust. Perpetual means what you think it means: a trust without end.
Perpetual trusts were employed in feudal England to preserve the aristocracy. Their use was prohibited, however, by a 1682 common law decision. That ban remained in place until state legislatures in the 1980s began to pass legislation that superseded it. Many states, including South Dakota, now also enable trusts to be structured to shield assets from taxes and creditors (including former spouses in divorce settlements).
In South Dakota, trust holdings now exceed eight times the state’s gross domestic product or over a half trillion dollars. Nationally, US trust assets total $5.6 trillion and perpetual trusts are available in one form or another in many states across the country. As one firm’s website touts, these trusts “live in perpetuity (forever), therefore never subjecting the assets to federal estate taxation through a forced distribution.”
How to end this? Thomhave and Collins offer a list of policy reforms, but to enact them will require building small “d” democratic political power in a political system, that, according to testimony last year by IRS Commissioner Charles Rettig, allows currently for tax evasion of roughly $1 trillion a year. In reading this article, I encourage you to consider how movements today might mobilize to rein in present-day abuses.
Until the next Remix column, I remain
Your Remix Man:
Steve Dubb
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