She turns to me and she goes, ‘You know, the thing about 20’”—by this, she meant $20 million a year—“‘is 20 is only 10 after taxes.’ And everyone at the table is nodding.”
— from “The Rise of the New Global Elite” by Chrystia Freeland, The Atlantic, January/February 2011.
That snippet of conversation from a Manhattan dinner party, “20 is only 10 after taxes,” has stuck with me since 2011. “The very rich,” F. Scott Fitzgerald wrote, “are different from you and me.” Chrystia Freeland observed the way money makes the very rich a nation unto themselves, rootless, and highly mobile (and rude drivers.) Their concerns are not those of mortals. They are disconnected from plebian trifles. Freeland quotes Thomas Wilson, then CEO of Allstate, explained offshoring jobs bluntly, “I can get [workers] anywhere in the world. It is a problem for America, but it is not necessarily a problem for American business …”
And American workers’ problems? They’re on their own.
One reason progressive taxation exists is spelled out in the Gospels: To whom much is given, much will be required (Luke 12:48). Those who profit most from the markets and system of laws and infrastructure that undergird their vast enterprises are expected to pay the most for their upkeep. Another reason is to prevent such accumulation of wealth as to create family dynasties that mimic those of hereditary royalty. We fought the American Revolution, at least in theory, to escape that sort of stratified society and create a more equal one. What we find today, however, is that taxing income alone is inadequate to prevent the sort of wealth inequality not seen since the first Gilded Age. Hence Sen. Elizabeth Warren’s call for an annual tax on wealth.
A decade after Freeland’s study of the super-rich, Disney heiress Abigail Disney has awakened perhaps late in life to what it means to be a trust beneficiary. What shocked her about ProPublica’s report on 25 of America’s richest was not that they paid so little in taxes, but that it was all legal. And very, very familiar:
What’s worse, these methods and practices—things such as offsetting income with losses in unrelated businesses; structuring assets to grow rather than generate income, then borrowing against those growing assets for cash needs; and deducting interest payments and state taxes from taxable income—are so downright mundane and commonly applied that most rich people don’t see them as unethical. The more interesting question is not how the men in ProPublica’s report were able to avoid paying much or anything in federal income taxes, but why. What motivates people with so much money to try to withhold every last bit of it from the public’s reach?
A common ideology underlies wealth accumulation, Disney writes. “The government is bad and cannot be trusted with money.” Better for the elite — those whose wealth confirms success with it — to distribute theirs through philanthropy instead, though not so conspicuously as to be gauche.
An heiress herself, Disney was schooled in these principles from a tender age. The isolation that comes with great wealth means she saw no reason to question them:
Practically speaking, the way the trusts were devised meant that I came into a significant amount of money at the tender age of 21. I became an asset manager before a lot of people get their first apartment. I’m 61 now, meaning I’ve been the recipient of four decades’ worth of tax advice from the decent, good, kind men (yes, they were all men) who were put in place by my grandparents, and then my parents, to ensure that I wouldn’t do anything stupid with what I had been given.
Asset managers taught her how to take advantage of what is standard practice for the wealthy.
When you come into money as I did—young, scared, and not very savvy about the world—you are taught certain precepts as though they are gospel: Never spend the “corpus” (also known as the capital) you were left. Steward your assets to leave even more to your children, and then teach them to do the same. And finally, use every tool at your disposal within the law, especially through estate planning, to keep as much of that money as possible out of the hands of government bureaucrats who will only misuse it.
Thus do family dynasties build and perpetuate themselves. Great wealth is seductive, Disney explains somewhat sheepishly. Like “20 is only 10 after taxes,” having more creates a thirst for still more. And more is never enough:
As time has passed, I have realized that the dynamics of wealth are similar to the dynamics of addiction. The more you have, the more you need. Whereas once a single beer was enough to achieve a feeling of calm, now you find that you can’t stop at six. Likewise, if you move up from coach to business to first class, you won’t want to go back to coach. And once you’ve flown private, wild horses will never drag you through a public airport terminal again.
“What’s shocking about the ProPublica report is not just that the tax bills are so low, but that these billionaires can live with themselves,” Disney writes, explaining her crisis of conscience (my words).
If your comfort requires that society be structured so that a decent percentage of your fellow citizens live in a constant state of terror about whether they’ll get health care in an emergency, or whether they can keep a roof over their family’s heads, or whether they will simply have enough to eat, perhaps the problem does not rest with those people, but with you and what you think of as necessary, proper, and acceptable.
The very rich are different from you and me. Michael Mechanic of Mother Jones explores how “America’s dynastic bloat” in the trillions manages and grows itself. No doubt the Disney family business has a family office:
The billionaires themselves rarely do the lobbying and financial voodoo that let them grow and protect their wealth. Rather it’s the minions in their exceedingly low-key offices. You’d never even notice Walton Enterprises, LLC, the entity that keeps the Walmart dynasty humming. This family office is located in a nondescript building in downtown Bentonville, Arkansas, across the street from a Cajun restaurant called the Flying Fish. (“Mudbugs Are Here,” noted a recent advertising banner.) A Flying Fish hostess told me she’d heard of Walton Enterprises only because its employees sometimes eat there, “but we don’t know what it is or what they do.”
They do a lot of stuff. One wealth professional I interviewed got her start in a multibillionaire’s family office with dozens of employees, including real estate experts, estate lawyers, accountants, financiers, and aircraft managers. Larger offices hire CEOs and chief information officers, and are overseen by boards consisting of family members and outsiders. Staffers pay the family’s bills and wrangle its club memberships. They manage vacation properties, planes, yachts, and household employees. They book meetings, travel, and medical appointments. They work with architects and contractors and security consultants and see to the education and financial literacy of children and grandchildren. They devise “tax-efficient” strategies for philanthropy, insurance, and risk-management, plan parties and vacations, plan weddings, funerals, and reunions—the tasks are endless. A full-service office, EY [Ernst & Young] estimates, costs $10 million a year or more to operate.
Some family offices, Mechanic offers, even pay for themselves through tax avoidance. And so, financial aristocracies “thrive and reproduce” unseen, growing more politically influential even as they grow more distant from the common folk whose share of the economic pie continues to shrink. Hungry for more, dynastic wealth grows like science-fiction serranium, expanding until large enough, if not to throw Earth out of its orbit, to render democracy irrelevant. Barring the arrival of pitchforks, of course.
Pulitzer Prize–winning historian Joseph Ellis recounts exchanges between John Adams and Thomas Jefferson on the nature of aristocracy. That “all men are created equal” might be true in some theoretical sense, thought Adams, but not here on God’s Earth. Aristocracies were inevitable.
Jefferson believed the unique properties of this new continent meant feudal privileges, inherited titles, etc., held no sway here, and “rank, and birth, and tinsel-aristocracy will finally shrink into insignificance.”
“As long as Property exists,” Adams responded, “it will accumulate in Individuals and Families…the Snow ball will grow as it rolls.”
As it has. Now, what to do about it?