Taking Offense on Wealth Defense: a Review of Chuck Collins’ The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions
by Matthew Rusakevich
As children, we often played hide and seek, where we created elaborate hiding schemes and watched joyfully as our peers struggled to find us. Today, billionaires and ultra high net worth individuals have created their own version of hide and seek — hiding trillions of dollars from governments for the sole purpose of growing wealth for generations. In The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions, Chuck Collins draws up the notion of a mysterious river of money, which holds the secrets of wealth for the top 0.1 percent. He argues that the so-called Wealth Defense Industry made up of lawyers, accountants, consultants, and wealth managers utilize the secrets of the money river to funnel resources from everyone else into the hands of the richest. Rather than being an inequality parasite to the economic system, Collins provides a compelling narrative of how it comprises the whole system itself. However, in doing so, he villainizes a broad group of white collar professionals for pursuing opportunity, while offering an overly optimistic path for change.
Chuck Collins frames the staggering enormity of growing wealth and the inequality that comes with it in a way that makes the problem undeniable. Based on unrecorded assets and uncollected tax revenues, approximately ten to twelve percent of the entire world’s wealth is hidden, amounting to tens of trillions of dollars. You may be wondering where exactly this money is hiding: Is it under beds? Inside walls? Or inside secret safes? The answer, however, is in none of these assumptions and transcends any physical hiding place. Instead, what Collins refers to is the increasing use of loopholes that the ultra wealthy exploit to grow and defend their wealth. When measuring billionaire statistics, the results are clear as can be. In 1982, there were 17 billionaires in the United States who were worth 118 billion dollars combined. At the time of the book’s publishing, there were 640 billionaires worth a combined 3.5 trillion dollars, and today there are an estimated 700. This is no coincidence — the wealth of the top 0.1 percent is growing at an exponential rate, with billionaires like Elon Musk holding as much wealth as the bottom 50 percent of humanity. Advocates for billionaires will say that they deserve their wealth due to hard work and clever decisions. However, what many proponents of billionaires fail to recognize is that these individuals don’t just grow their wealth in isolation; in fact, they are seizing the wealth of the bottom 90 percent of the world’s population and facilitating a disadvantaged economy.
Collins eloquently translates the impact of inequality through the examples of housing and healthcare, the two areas that wealth hoarding has recently affected the most. To understand, we must first examine how real estate is maneuvered by the ultra wealthy as stores of capital due to tax benefits and relatively steady and safe capital appreciation. Arik Levinson showcases in “America’s regressive wealth tax: state and local property taxes”, how despite government claims of progressive taxes, our taxes are structured in a way that is regressive only for the rich and progressive for everyone else. Specifically, property taxes are crucial because they make up over 30% of state and local tax revenue. While home equity makes up only 17% of the net worth of the richest 10%, “for the 10% of US homeowners with the lowest incomes, home equity accounts for 82% of their net worth” (Levinson 1235). This means that the tax burden falls mostly on the poor, while the rich are able to enjoy a complex system of corporations to avoid taxes altogether through real estate. To illustrate this concept in action, over half the units in the Millenium Tower, a luxury high rise apartment complex in Boston, are owned by shell companies or trusts, whose owners are willing to pay premiums for the steady store of value. Consequently, the land prices around the city rise, leading to a decline in affordable housing for low income individuals and a surge in homelessness. In an even more compelling case, Collins highlights the dire homeless situation in Los Angeles. Anyone who has been to the city can easily notice the tents lined along roads that house the 36,000 homeless families of Los Angeles. According to Collins, “one report found more than 103,000 vacant units in Los Angeles with over 41,000 not on the market” (Collins 121). These empty units owned by wealthy investors could easily alleviate homelessness and shelter poverty if legislation like vacancy taxes were enacted to regulate the use of living space. The Covid-19 pandemic has exacerbated this issue because moving remote workers’ demand fueled an even bigger rise in home prices.
Outside of housing, the virus underscored how inequality grips our healthcare system. During the Covid-19 pandemic, the wealthiest prospered with surging assets while the rest of the population faced unemployment, sickness, medical bills, and death. Due to lacking public health infrastructure, the U.S. had an inadequate response to the virus, which cost millions of lives. The consensus of the medical community is that people with lower socio-economic standings are inclined to have pre existing conditions because of hindered access to healthcare. Furthermore, “whilst elective hospital admissions are evenly spread across more and less deprived areas, emergency admissions are concentrated in more deprived areas” (Blundell 312). Because medical care within our constrained infrastructure is allocated to the wealthy who have significantly lower risk of pre-existing conditions, inequality is a factor that continues to determine who lives and who dies when battling Covid-19. Although the government often tells tales of insufficient funding for public programs that increase access to quality healthcare, Collins effectively calls attention to how it turns a blind eye to the billions of dollars in tax revenue lost per year due to legislative loopholes, which could absolutely cover the necessary costs.
We often fall into the trap of viewing these loopholes in a context outside of our borders; however, one of the most intriguing aspects of the book is how Collins dispels the misconception of wealth hiding as a foreign activity and shines the spotlight on the financial occupations that seek loopholes in the United States. Although oligarchs are commonly pictured in foregin countries like Russia, our economy is run by oligarchs who are defined as people with enough money to have wealth in the first place and resources to defend this wealth. This need has spawned what Collins refers to as the “Wealth Defense Industry”, the lawyers, accountants, consultants, and wealth managers whose careers are dedicated to protecting and growing the wealth of the 0.1 percent. Through aggressive lobbying and political influence, the Wealth Defense Industry has written the rules of the taxation structure that is regressive in nature for the richest, but progressive for everyone else despite the claims of the government. However, the real damage is inflicted by exploiting regulatory loopholes. At the heart of these loopholes is anonymity, which allows wealthy individuals to shelter funds from the government with complicated legal forms and untraceable transactions. The most common tool which leverages anonymity for tax avoidance is the anonymous shell corporation. In 2017, the Panama Papers detailed how the law firm Mossack Fonseca set up shell corporations for thousands of people in Panama, allowing for money laundering and other illicit financial activities due to the limited reporting laws of the nation. These are the types of corporations that individuals hide behind when purchasing real estate and other assets. The second tool, called a trust, facilitates dynastic wealth. Trusts allow for individuals to avoid the only wealth tax, the estate tax, by designating ownership of assets to another individual, effectively creating an ownership limbo that prevents taxation. Although anonymous shell corporations and trusts are often traced to secrecy jurisdictions with limited reporting laws like Panama or the Cook Islands, the main activity resides onshore in our own backyard. Oddly, Delaware is the world’s capital of shell corporations and South Dakota for trusts due to federalism creating state competition for capital inflow. As a result, the number of both domestic and foreign billionaires with registered trusts or shell corporations in the two states has exploded in recent years, keeping the Wealth Defense Industry busier than ever.
Collins paints the Wealth Defense Industry in a new light; while the white collar workers are typically revered for their prestige and hard work, Collins positions them mainly as partaking in nefarious activities. By repeatedly referring to them as “enablers of inequality”, he creates an inaccurate generalization that suggests all financial workers are deliberately constructing a kleptocracy for selfish reasons like high salaries and other benefits that billionaires provide. In his epilogue, Collins gives his advice for college graduates to skip job opportunities working “for the wealth hiders — the lawyers, accountants, lobbyists, and others who get up every morning to protect the financial accumulations of billionaires and corporations” (Collins 182). Instead, he urges people to pursue opportunities organizing low wage workers in unions, defending the public in local governments, and serving children in public schools. In a perfect world, yes everyone wakes up to help others instead of waking up to help billionaires. But our world is far from perfect, and no, individuals part of the Wealth Defense Industry aren’t bad people. In fact, they are our parents, friends, neighbors, and mentors. To suggest that graduates can afford the choice to forgo larger salaries in an unequal world is a foolish fallacy; this would only increase inequality as the ultra wealthy are bound to get richer. In fact, wealth inequality is so vast, that French economist Thomas Piketty has pointed out that “the wealth of the capitalist class will eventually grow faster than the incomes of workers, leading to an ‘endless inegalitarian spiral’” (Berman). For many poor, middle class, and first generation individuals, like myself, going through university in the United States, the so-called Wealth Defense Industry is a window of opportunity to thrive and move closer towards the American Dream of financial stability. Nonetheless, the role of wealth defenders isn’t exactly ethical and has room for constructive growth provided that we scrutinize billionaires’ perpetual demand for wealth hoarding. Rather than placing optimism in the Wealth Defense Industry to facilitate more equality, the bulk of change must come from the government.
Collins asserts that awareness is growing for how the wealthy utilize legal loopholes to defend their wealth; however, I will argue that confusing tax-structures and a lack of clarity from the government is resulting in the opposite effect. While Rational Choice Theory in relation to taxes infers that people should approve increasing taxes that they don’t have to pay themselves, this does not always hold true. For example, “the highest rates of opposition to inheritance tax were among unskilled workers and the unemployed (social class DE) who were the least likely of any social class group to potentially pay the tax” (Rowlingson 433). Another common misconception lies in how the wealthy spend their money, and contrary to common knowledge, it is not cash. Most billionaires hold enormous wealth in securities like stocks. With current legislation, they pay zero taxes when these securities appreciate in value, therefore allowing the rich to grow enormous wealth — tax free — in perpetuity. You may be wondering how rich people spend if they never sell their shares. Large banks like Morgan Stanely have billions of dollars worth of security-backed lines of credit, so billionaires like Elon Musk and Jeff Bezos can take out cash loans worth between 50 and 100 percent of their assets, while using their assets as collateral. What this means is that they can use credit to buy boats, homes, and vacations, while paying back these loans once their untaxed assets appreciate. It is the responsibility of the government to close this loophole, as well as many forms of corporations and trusts that allow billionaires to avoid taxes by becoming stateless. The single most important piece of leverage the federal government has over states is to enact nationwide legislation requiring disclosure of beneficial ownership information. Although states like Delaware oppose such transparency and are intertwined with federal politics, increasing lawsuits from other states and attention from senators put regulation within a reasonable grasp. When loopholes are extinguished, the Wealth Defense Industry can focus on more meaningful and impactful work such as impact investing.
As I move closer towards graduating from the University of Southern California, I find myself at a horizon looking over my future career path in the financial services industry. Despite the discouraging words of Collins, his work is integral to bringing awareness to the stark wealth inequality that grows with the use of tax avoidance loopholes. I encounter hope in the growing number of politicians within the government who are taking offense on wealth defense by pushing for legislation to suppress these loopholes. With the looming threat of climate change, population growth, and inequality in the next decade, we must not focus on wealth hoarding, but rather wealth giving to create a more equitable and sustainable humanity.
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