This week, Bloomberg Politics reported that investor and businessman, Sheldon Adelson, was taking advantage of a loophole in the current tax law to pass assets on to his heirs. Passing new tax laws in 1990–both the House and Senate were Democratic controlled at that time–is what created the loophole initially. It takes advantage of a special trust called a “GRAT” (grantor retained annuity trust), which allows placing assets into an irrevocable trust, where the person creating the trust pays a tax. The trust pays an annuity every year, and upon expiration, the beneficiaries receive the remaining assets in the trust, tax-free.
Adelson and other businessmen have successfully used this mechanism to pass their assets to others and to avoid paying penalizing government fees and estate taxes to the tune of $100 billion over the past 13 years. Adelson himself has been able to pass $7.9 billion of his money to his heirs. Mark Zuckerberg (of Facebook fortune) and Lloyd Blankfein (of Goldman Sachs Group) have also taken advantage of the loophole.
Proponents of big government seem suddenly to realize the additional billions that they could spend if the loophole were closed, and they bemoan the fact that it’s still available. Adding to that, the fact that there is simply such large amounts of money mentioned, and others’ greed and envy kick in as well. Ironically, the concerns that people utter reflect the same thinking as Adelson et al., namely that, “I don’t have enough” and “I need a way to save what I have now for myself and my children”.
Quickly after that, any parallel thinking ends, and arbitrariness kicks in. All too suddenly, a self-concerned commenter engages in the conditioned response of this administration– “Surely those terribly rich men have enough money already? Why shouldn’t I be able to help spend some of that? Those businessmen must have made that money illegally or exploitatively…”
So, let us review: Congress screws up when they rewrite the tax code, Congress continues to refuse to fix the loophole, people are able to save their own money, and thus give it to their children. And the unavailable money that the government cannot collect is largely the businessman‘s fault? I am not sure what mental gymnastic enables one to bend logic that far, but it is quite a stretch.
I expect it will be some time before Congress does anything to close this loophole, since the right’s opposition to taxes is well-known, and the left has far too many big donors taking advantage of the loophole to close it. One thing is certain–whenever a government attempts to increasingly micromanage and legislate things, they will always underestimate the ability and ingenuity of the people to find ways to wriggle out of the most awful laws. The people may be dumb enough to vote for the Congressman, but they are smart enough not to follow his laws.