The Oscar Mayer heir who donated his fortune to fight inequality explains why South Dakota has become America’s $ 360 billion secret tax haven and how he exposes the United States as the “weak link” in the world
- A mine of nearly 12 million financial documents has revealed how some of the world’s richest people are hiding money abroad.
- The Pandora Papers, uncovered by the ICIJ, show trusts around the world, including South Dakota.
- One of them is on land, inside the United States: South Dakota is where the powerful store billions of assets.
- See more stories on the Insider business page.
An explosive report from the International Consortium of Investigative Journalists found that some of the richest and most powerful people in the world rack up billions in offshore accounts – including the mainland state of South Dakota.
Chuck Collins has known this is a problem for years. Once heir to Oscar Mayer’s smoked sausage fortune, he learned firsthand how the wealthy clung to their fortunes and gave their own. Today, he’s the director of the Inequalities and the Common Good program at the Institute for Policy Studies, where he looks at how the ultra-rich dodge taxes in America.
In March, he told Insider that Americans generally don’t understand that “we are now a tax haven.” The United States is the second-largest destination for the “kleptocratic capital of the world,” he said, much of which ends up in places like Delaware and Wyoming – and South Dakota.
The ICIJ confirmed Collins’ research, finding that over the past decade, the amount of customer assets in South Dakota has “more than quadrupled” to $ 360 billion. The ICIJ has reviewed nearly 12 million financial records that detail more than 29,000 offshore accounts, with hundreds of reporters around the world looking into them, in partnership with outlets such as the Washington Post and the Guardian. The leak is called the Pandora Papers, following similar leaks called the Panama Papers and Paradise Papers.
A total of 17 US states are in the top 20 jurisdictions that “have the most liberal trust laws” in the world, according to an article by Hebrew University law professor Adam Hofri-Winogradow, which was cited by the ICIJ. The ICIJ found 81 trusts in South Dakota alone.
The Great Plains State changed its laws in the 1980s to become more favorable to these type of trusts, according to Collins, who recently wrote “The Wealth Hoarders,” a deep dive into the growth of what he calls ” the wealth defense industry “. It’s the growing system of attorneys, family offices and more that help high net worth clients avoid tax and retain their wealth – and it has exploded in recent decades.
In 1983, South Dakota got rid of its rule against perpetuities – what Collins calls an “obscure legal thing” which effectively means that when you put money into a trust, it must be dissolved at some point. given.
“At this point there is often a taxable moment,” Collins said. It could be something like inheritance tax or gift tax, but “South Dakota has said, ‘We’re going to attract trusts by eliminating this law, making them anonymous, allowing that you can open a trust and not actually have to live in the state. ‘”
This means that if you put money in a trust in South Dakota, “you are essentially sequestering money out of the reach of tax authorities in perpetuity,” according to Collins. Perpetuity is another word forever.
If you live in South Dakota, you might be wondering where all that money is hiding. Collins said it’s probably not physically in the state. Instead, it can be parked in luxury real estate or art around the world. Only the trust itself needs to be legally filed in South Dakota.
“We are emerging from a pandemic where essentially the wealthiest people on the planet have figured out how to sequester their wealth and avoid taxes,” Collins said.
Collins has several suggestions for reform, including federal legislation that can prevail over states when they reject rules against perpetuities, as South Dakota has done; require trusts to be registered and disclose their owners; a wealth tax of 1% on interest on assets. President Joe Biden has backed a key senator’s tax proposal for the assets of the richest, but in other ways Democrats have so far left many tax loopholes untouched.
One thing is extremely clear to Collins, and it should frighten all Americans. “The world is going to look at us differently after the Pandora Papers. They are going to see that the United States is now the weak link in the global financial transparency system.”