"Accidental" Tax Break Gets Riches Out of Paying U.S. $100 Billion
What do Mark Zuckerberg, Ralph Lauren, Lloyd Bankfein, and Sheldon Adelson have in common? They're bazillionaires who'd like to stay that way. Here's how they do it.
Bazillionaires hate estate taxes. They hate that they can't take their fortunes with them, and they hate that they can't give it all to some heirs without the gubmint taking its 40 percent. But sometimes bazillionaires act mad about taxes to distract from the inspired ways they avoid those taxes:
Federal law requires billionaires such as Adelson who want to leave fortunes to their children to pay estate or gift taxes of 40 percent on those assets. Adelson has blunted that bite by exploiting a loophole that Congress unintentionally created and that the Internal Revenue Service unsuccessfully challenged.
The loophole is a "Walton grantor retained annuity trust, or GRAT," which sounds like a rip in the time-space continuum named for a long-dead WASP astronomer. Essentially, it enables rich folks to give investment gifts to their heirs tax-free, because on paper it looks like the rich benefactor is giving the gift to himself. Its originator, attorney Richard McCovey, proudly boasts to Bloomberg that the GRAT has kept wealthy clients from paying $100 billion in tax since 2000—about a third of the government's entire estate-tax haul. Here's a simple explanation of how it works:
See? Anyone can do it!
So why doesn't Congress close this loophole? In fact, why doesn't Congress come up with a term for a loophole that's not loophole-sized at all, but actually gapes like the maw of a leviathan, gobbling up money that could be spent on SNAP and TANF and Social Security and Medicare and defense and the like? Per Bloomberg:
Covey suggests one reason for the lack of action: Wealthy donors to politicians, both Democratic and Republican, want to keep the loophole in place.
"I've done a lot for Democratic contributors," he says with a smile.