Private Tax System for the Wealthy

For decades the wealthiest individuals have been exploiting tax loopholes to save millions of dollars.  The practice has become so well known that some have dubbed it the “income defense industry.”  While millions of dollars are being invested into the income defense industry, the ultra wealthy are also donating millions to Republican candidates seeking to lower or eliminate certain tax completely.  Most Republican candidates favor eliminating the inheritance tax entirely.  Other candidates have proposed to reduce or even eliminate tax on investment gains, where tax rates are already discounted.

The last few decades has seen record levels of growth in wealth and expansion in the use of “family offices.”  Pioneered by the Rockefellers in the late 1800s, family offices help oversee the management of a family’s large personal wealth, be it in the hundreds of millions or billions of dollars.  The core function of these offices, above all else, is tax planning, with the ultimate goal being to minimize tax, and on the most basic level is accomplished by converting one type of income into another type with a lower tax rate. Needless to say, the complex tax strategies employed can only be afforded and utilized by the ultra-wealthy, thereby creating a schism not only in wealth disparity but in the tax system itself.

Wealthy individuals continue to exploit loopholes and fight for further tax cuts and tax planning strategies by employing the use of powerful lobbyists and trade groups meant to represent the interests of the ultra-wealthy.

In an effort to combat the constant exploitation of the tax system and ongoing efforts to evade taxation, President Obama signed legislation in 2010 to enact the Foreign Account Tax Compliance Act, making it easier to identify assets hidden overseas.  In 2013, the IRS convened the Global High Wealth Industry Group, meant to scrutinize the tax returns of Americans with income of at least $10 million a year.  Though audit rates did spike following the creation of the Global High Wealth Industry Group, they have plummeted in recent years.  Ongoing political battles, however, make it increasingly difficult for the IRS to match the intellectual and resource power behind organizations supporting the ultra-wealthy.  Between 2010 and 2014, the IRS budget was slashed by nearly $2 billion, forcing the termination of about 5,000 of the 23,000 high-level enforcement positions.