Behind the nation's "grotesque" income inequality: An army of wealth-hiding experts

The widening gulf between the nation's richest citizens and everyone else is fueled by an army of experts — accountants, attorneys and bankers — dedicated to helping the ultra-rich create "hereditary dynasties of wealth," according to Chuck Collins, an expert on inequality at the left-leaning Institute for Policy Studies. 

Collins has an inside view to this issue: As the great-grandson of Oscar Mayer, he came into his inheritance in his 20s and was introduced to the world of wealth advisers who help rich families manage their money and assets. He recalled being encouraged to donate money through philanthropy, but without giving away so much that he would risk eroding his fortune. Rather than listen to the advice, Collins gave away his inheritance in his 20s.

As a policy expert on wealth and inequality, Collins, 61, takes a look at what he calls the "wealth defense industry" in his new book, "The Wealth Hoarders," which will be published in April by Polity Books. The nation's wealthiest families pay big money to this army of financial, tax and legal experts to shield and grow their billionaire fortunes, fueling the cycle of inequality. These families and their experts lobby for tax breaks and other regulations that benefit the rich, while the experts guide their clients toward shell companies, trusts and loopholes that will shield their assets from taxation — strategies that largely aren't available to middle-class families.

This is hardly a recent phenomenon, but it has accelerated given decades of tax cuts, culminating with former President Donald Trump's Tax Cuts and Jobs Act in 2017, which chiefly benefited the rich and corporations. President Joe Biden is expected to propose higher tax rates on U.S. companies and the nation's wealthiest people, while Senator Bernie Sanders, an independent from Vermont, last Thursday proposed legislation that would raise federal estate taxes on inherited wealth. 

Such proposals — and more — are necessary to keep America from transforming into a country like Brazil, which has a protected wealthy class, a shrinking middle class and a "large desperate part of the population," Collins warned. Already, the U.S. is suffering from "grotesque inequality," he noted.

Collins spoke with CBS MoneyWatch about his new book. The interview has been edited for length and clarity:

Q: In your book, you examine what you call the "wealth defense industry." What is it? And what do people need to know about it?

A: Wealthy people aren't going off and creating tax havens and offshore bank accounts on their own — they have help doing that, and in some ways that adviser group has a lot of power. Those advisers have a bias toward accumulation and growth — that's the metric and the measure of success. There's nobody who's sitting there saying, "You know, maybe we have enough," or, "Maybe we shouldn't be aggressively avoiding taxes; maybe we should pay our fair share of taxes and maybe we should give away some assets, not just income." 

The wealth managers, the family office professionals, all have a sort of cultural bias toward accumulation and against taxation and that is a very important role that they play. 

Q: You write about "family offices" in your book. What are they?

A: They're not public organizations — they're private family trust offices. On one level there's nothing sinister about them. Some provide the most mundane of services. But central to their purpose is wealth preservation. I would say in a healthy democratic society where there's a fair tax system, families pay their taxes, they share some of the wealth and they have children, and the money is dispersed.

What family offices do is arrest that natural process by aggressively avoiding taxes and setting up trusts and other forms of ownership to ensure the next generation doesn't diminish the wealth. They are fundamentally counter-democratic in the sense of they are focused on building wealth dynasties. 

Q: Wealth advisers would say they aren't doing anything illegal.

A: One of the justifications is, "Hey, we're just helping our clients navigate the law," but the reality is they're very involved in shaping the law. They're actively involved in lobbying. They are [managing] large pools of unregulated capital that are now becoming major forces of investment. They're creating new loopholes; they're fracking the tax code for every possible little extraction and tax break they can.

The other justification is, "Well, we're just trying to help families."  That sounds benign, but you're helping this tiny sliver of the most wealthy families in the world against really the interests of every other family.

Q: As you mentioned, wealth used to disperse within several generations. Now it's not. What is going on?

A: Estate taxes have become porous. It's become almost irrelevant for some families — they've created ways to plan around it and avoid it and it's because of the growth and sophistication of this wealth-hiding system and the wealth defense industry. 

The wealthy are now a protected class, and they are surrounded by professionals who are protecting their interests and those groups themselves are protected by professional associations. So they've essentially created a kind of bubble outside accountability. Weakened oversight from the IRS has decimated its ability to audit rich people. The IRS has lost a lot of the capacity it had in past years to investigate and figure out what's going on with these loopholes. 

Q: What is the impact when so much wealth is hidden or simply avoids taxation?

A: It shifts the tax obligations off the wealthy on to everyone else. It creates austerity. 

We were weakened by these inequalities going into the pandemic. We were more fragile and brittle, because instead of the public investments that could have been made in health care and instead of reducing inequality, we are now experiencing this pandemic through the extreme inequalities in our society. 

We're drifting toward creating these hereditary wealth dynasties. In 20 years from now, the sons and daughters of today's billionaires will be dominating our economy, politics, culture and philanthropy. We're going to be even more unrecognizable than we are now in terms of our strength of our democracy. 

Q: You've been tracking the growth of billionaire wealth during the pandemic at the Institute for Policy Studies. At the same time, tens of millions of Americans are facing hardship. How did this happen?

A: What's happening now is there are certain companies that are well-positioned to take advantage of the pandemic because their competition has been shut down — whether that's DoorDash or Amazon or telemedicine or online gaming. 

The winning companies could have shared the prosperity with their employees — they could have had hazard pay; they could have raised wages; they could have shared stock ownership. But the fact that they were hoarding money at the top underscores my biggest fear that our social solidarity is undermined. These guys are banking billions, and it just poisons any kind of sense that we're in this together.

People are furious about this, and I think there will be a backlash both in the form of taxation and also wanting to make society better for low-wage workers. 

Q: The Biden administration is expected to propose a tax overhaul. What are the most important changes to be made? 

A: First would be enforcement to rebuild the oversight system. We have to shut down this hidden wealth apparatus because we're not going to be able to get wealthy people to pay their fair share if the tax code is optional for the super rich. 

Next, a meaningful income tax where we treat income from work and income from investments at the same rate — closing the gap between capital gains tax rates and wage tax rates. 

Then, fixing the estate tax so that it's not optional. Senator Sanders introduced his estate tax reform bill that has higher rates on the larger estates, and in that estate tax bill are a bunch of the provisions that would close down the hidden wealth gimmicks. That's exactly what needs to happen. 

Finally, we should look at some form of wealth tax like the one introduced by Senator Elizabeth Warren of Massachusetts and Rep. Pramila Jayapal of Washington.

Q: Where will the nation be in five years if there aren't changes? 

A: We'll see growing inequality, and the way that manifests is more people living in what the British call the "precariat," who are in a precarious economic situation. They're living on the edge, paycheck-to-paycheck. You'll see a shrinking middle class, a shrinking number of households that consider themselves stable and able to help protect their children's standard of living, and then you're going to have this extreme concentration of wealth. 

We will become more like Brazil where you have a large desperate part of the population, a shrinking middle-class and a sequestered wealthy group who take their kids to school with bodyguards. It's not the kind of society any of us really want to live in, including wealthy people.