The Great Inheritors: How Three Families Shielded Their Fortunes From Taxes for Generations
"Inside the $40-billion-a-year tax 'loophole' Biden's plan would eliminate [...] “Middle-income people spend most of their assets before they die, whereas high-income people have more wealth than they can spend,” said Leonard Burman, a co-founder of the Urban-Brookings Tax Policy Center, who contributed data to the Senate’s predictions. “So the more unequal wealth becomes, the more assets you’ll find are being passed tax-free.” P -The stepped-up basis provision, which has been used for decades to pass on wealth, was designed for that purpose. According to congressional records, the exemption was drafted in 1927 as a part of the Internal Revenue Act by House Ways and Means Committee Chairman William R. Green with help from Treasury Secretary Andrew Mellon, the son of one of the wealthiest families of the time. P - Mellon loathed the inheritance tax, condemning it as a means to devalue land and wealth, as he wrote in his 1921 book “Taxation: The People’s Business.” https://archive.org/details/taxationthepeopl033026mbp/page/n7/mode/2up"
Mellon gets an early mention below. In toto this article is very long.
In the early 1900s some of the wealthiest Americans claimed their fortunes would never last through the generations. A century of tax avoidance later, the dynasties are going strong.
by Patricia Callahan, James Bandler, Justin Elliott, Doris Burke and Jeff Ernsthausen
Dec. 15, 2021, 6 a.m. EST
[...]
President Franklin D. Roosevelt pounded on his desk and swore.
His treasury secretary had handed him a series of memos detailing the many ways the wealthy were avoiding taxes. Enraged by a rich businessman’s schemes, Roosevelt asked his treasury secretary to publicly denounce the man as a “son of a bitch.”
Roosevelt, himself an heir, earlier had warned that “economic royalists” had “carved dynasties” off the backs of America’s working men and women. Now he saw a chance to address the unfairness in the nation’s tax system.
“The time has come when we have to fight back, and the only way to fight back is to begin to name names of these very wealthy individuals,” Roosevelt told the treasury secretary, who detailed the May 1937 scene in his diary.
That summer, the Treasury Department released one name after another at a packed meeting of a joint committee of the House and Senate. Americans saw how many of the country’s wealthiest families gamed the tax system with tricks that Roosevelt described as “so widespread and so amazing both in their boldness and their ingenuity that further action without delay seems imperative.”
Some businessmen stashed their profits in secret accounts in the Bahamas. Ethel Mars, the widow of candymaker Frank Mars, was singled out for equine tax avoidance. She deducted the losses from her Milky Way horse racing stables from the candy manufacturer’s corporate taxes.
The internal revenue commissioner testified that the late E.W. Scripps and his son, whose newspapers championed the working man, avoided an estimated half a million dollars in taxes (nearly $10 million in today’s dollars) by directing income to holding companies — derided by the commissioner as “merely ephemeral subdivisions of the personalities of the individual owner” — to take advantage of lower tax rates and deductions.
The starring villain in Roosevelt’s crackdown on aggressive tax avoidance was the Mellon family, which controlled banks, aluminum production and oil interests.
Roosevelt summed up the stakes of this historic probe in a letter to Congress. “Taxes are what we pay for civilized society,” he wrote, invoking former Supreme Court Justice Oliver Wendell Holmes. He then added his own knife twist: “Too many individuals, however, want the civilization at a discount.”
In the more than eight decades since the hearings, tax avoidance has hardened into a way of life for the ultrarich. Over the past year, ProPublica has analyzed confidential IRS data covering thousands of the nation’s wealthiest people and revealed the largely legal strategies they use to drastically winnow down their tax bills, sometimes to zero.
[...]
The notion that the estate tax was killing family farms became a powerful weapon in the fight against the tax. Yet, the same year that Bush touted his victory for family farms, David Cay Johnston of The New York Times reported on an unpublished IRS analysis of estate tax returns that found almost no working farmers owed any estate tax at all. A prominent Iowa State University economist told Johnston he looked hard but had never found a farm lost to the estate tax.
The farm owners more likely to feel the relief of Bush’s estate tax cuts weren’t those planting corn and soybeans in Iowa. They were the “gentlemen farmers” of Virginia’s Piedmont region. There, descendants of Andrew Mellon and Frank Mars owned properties in a historic district that describes itself as a place where “former working farms became gentry estates” and “horse breeding, racehorse training, and dressage exercises occurred, along with foxhunting by wealthy land owners.”
Bush’s action was the culmination of a decadelong PR and lobbying campaign by a coalition of wealthy families and business groups that cast the “death tax” as one of America’s great evils with a ghoulish government pursuing lowly taxpayers into the grave to secure a few extra nickels. The coalition, which was funded in part by Mars Inc., succeeded with the help of “money, money, money,” Yale professors Michael Graetz and Ian Shapiro wrote in a book about the lobbying campaign.
Mars Inc. is among the largest family-owned businesses in the U.S. At the time of Bush’s announcement, Forbes pegged the wealth of Frank Mars’ three grandchildren at $27 billion. Jacqueline Mars, granddaughter of Frank and an award-winning owner of horses that compete in equestrian events, has received more than $1 billion in trust income since 1999, according to the tax data ProPublica analyzed.
[...]
The advocates of estate tax repeal even managed to turn a tax that overwhelmingly fell on white wealth into an issue of racial justice. Robert Johnson, the founder of Black Entertainment Television and the country’s first Black billionaire, became one of the most prominent backers of the effort. In a full-page New York Times ad, Johnson and others said that eliminating the estate tax would “help close the gap in this nation between African American families and White families.”
In 2006, an economist estimated that just 59 of 38 million Black Americans would pay the estate tax.
The Bush tax cuts phased out the estate tax until it was gone in 2010, but the tax came back the following year. By then, though, wealthy families had a way around it that had the blessing of the federal tax court.
Years earlier, a member of Walmart’s Walton family had tried to pass money to her children free of gift or estate taxes using a trust structure that pushed the boundaries of what was allowed. The IRS sent her a hefty tax bill, and the dispute wound up in U.S. Tax Court, which ruled against the IRS in 2000. The trust she used, the grantor retained annuity trust, or GRAT, morphed from exotic estate-tax dodge to routine estate planning for the wealthy.
Here’s how it works. The creator puts stocks or other assets into a GRAT, which pays back an equal amount to what was put in, plus a modest amount of interest. Any gains on the investments flow to the heirs free of gift or estate taxes. So if a person puts in $100 million worth of stock and its value rises to $130 million, the heirs receive about $30 million tax-free.
As ProPublica recently reported, more than half of the 100 richest Americans have used GRATs and other such trusts to avoid estate and gift taxes. Jacqueline Mars had more than 15 GRATs, the tax records show.
While they have major federal tax implications, trusts are actually governed by state laws. This jurisdictional difference has also tilted in the ultrawealthy’s favor. As the rich embraced trusts, states have furiously competed for their trust business, knowing that white-collar jobs and fees would follow. States began doing away with a centuries-old legal concept known as the “rule against perpetuities.” Under that rule, the creator of a trust had to designate people who were alive when the trust was formed (often grandchildren or great-grandchildren). The trust had to end 21 years after the death of the last of those people.
Once that rule was gone, this meant a billionaire could tuck wealth into a trust and create what University of Chicago law professor Daniel Hemel dubbed “a perpetual estate-tax-avoidance machine.”
That wasn’t possible when E.W. Scripps created his trust in 1922. After protecting the family’s riches from estate taxes for decades, the trust ended in 2012. The imaginary vault opened, and money and shares gushed out for his heirs.
[... to end ...]
The Rich Win Again
Though he loathed taxes, Thomas Mellon, the progenitor of the Mellon fortune, made an unintentional case for the estate tax when he worried about the corrupting influence of inherited wealth. “Where a family has enjoyed their career of wealth and prosperity for a generation or so,” he wrote in his autobiography, “we may expect ‘degenerate sons.’”
The very court system in Pittsburgh where Mellon presided as judge became the site of a public fight over Mellon family money. Indeed, the six-year battle over Richard Mellon Scaife’s trust could have been ripped from the pages of Charles Dickens’ “Bleak House.” Even the setting — Allegheny County Orphan’s Court — sounds Dickensian.
When Scaife died in 2014, his last will and testament asked that his dogs be taken care of but didn’t mention his adult son or daughter. Not that they were paupers. Court records show the trust that Sarah Mellon Scaife created just for them still had $660 million in it in 2020 after having spit out millions to both of them for years.
They sued for more.
A trust Scaife’s mother created for him would have passed to his children automatically, but Scaife emptied it to fund his newspaper business before he died in 2014. One of the children’s main arguments was that the trustees never should have allowed their father to fritter away the principal of a dynastic trust on a money-losing newspaper. Even after Scaife’s daughter died, the case plodded on. Ultimately Scaife’s estate agreed to pay $200 million in a court settlement, with the lion’s share returning to the trust for Scaife’s son David and his children, court records show.
David Scaife could not be reached for comment. Attorneys who represent him did not return calls or emails seeking his comment, nor did the head of his family foundation.
Richard Mellon Scaife in 1997. Tony Tye/Pittsburgh Post-Gazette via AP Photo
Despite the settlement and a hefty state inheritance tax bill, there still was plenty of money for Scaife’s anti-tax causes. Even from the grave, Scaife’s hand continues to influence the debate over how much America will tax the wealthy. He donated more than $736 million to two charities, one of which has given millions of dollars in recent years to the Heritage Foundation, Tax Foundation and FreedomWorks. A cartoon on FreedomWorks’ website shows the grim reaper, with an IRS briefcase in one hand and a scythe in the other, stalking a businessman at a bus stop.
The estate tax is now on life support. Annual revenues from the estate and gift taxes as a proportion of household wealth in the country have fallen more than 80% since the early 1970s, according to economists Gabriel Zucman and Emmanuel Saez.
Barring a major shift in tax policy, the number of self-perpetuating Mars, Scripps or Mellon-style dynasties will likely multiply and gain dominion over ever more areas of American life. Even the humdrum corners of capitalism are spawning intergenerational windfalls. ProPublica’s tax data shows family fortunes flowing to heirs of the founders of Public Storage, Family Dollar and even the company behind the microwaveable turnovers known as Hot Pockets.
For a brief moment this fall, it looked like the tide might finally turn against the ultrarich. Dynastic wealth faced a real threat for the first time in years. Congress was considering a special tax on billionaires, and expanding the estate tax and clamping down on the trusts that super wealthy families use to avoid the tax.
Elon Musk, then the world’s richest man, complained to his 61 million Twitter followers: “Eventually, they run out of other people’s money and then they come for you.”
Adding ammunition to the debate was the publication, once again, of the private tax information of the wealthiest Americans. ProPublica reported that Musk didn’t pay .. https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax .. any income tax in a recent year. Financier George Soros paid zero federal income taxes three years running. And Amazon’s Jeff Bezos reported so little income one year that he qualified for a child tax credit, the tax records show.
But they needn’t have worried. The very same groups that fought the estate tax in the 1990s had never disbanded. With names like the Family Business Estate Tax Coalition, they mobilized to fight the proposals targeting dynastic wealth. A real estate company hired a former top aide to Sen. Joe Manchin, D-W.Va. .. https://projects.propublica.org/represent/members/M001183-joe-manchin-iii , a crucial swing vote on the bill, to lobby against the changes. And the old arguments were dusted off. Hard working families would have to sell their farms and businesses.
Even the American Horse Council cantered in: horse farms would be paved over for Walmarts, a lobbyist warned.
Just weeks after they were introduced, the tax proposals targeting dynastic wealth were gone, as dead as a fox eviscerated by hounds.
How We Reported This Story
To trace the fortunes of three families over the past century, reporters drew on court records, transcripts of congressional hearings, letters, memoirs, telegrams, contemporaneous newspaper accounts and more than 70 books.
Critical to our research on the Scripps family were the E.W. Scripps Papers at the Ohio University Libraries and the Patricia A. Schaelchlin/Scripps Family Research Collection at Scripps College. Three books were helpful in tracing details about Scripps and his newspaper chain: “The Astonishing Mr. Scripps: The Turbulent Life of America’s Penny Press Lord” by Vance Trimble, “The Scripps Newspapers Go To War, 1914-1918” by Dale Zacher and “E.W. Scripps and the Business of Newspapers” by Gerald J. Baldasty.
The Franklin D. Roosevelt Presidential Library and Museum shared a copy of Treasury Secretary Henry Morgenthau’s diary, in which he recounted the administration’s campaign against tax avoidance. “Their Fair Share: Taxing the Rich in the Age of FDR” by Joseph Thorndike also provided context.
We relied on books written by members of the Mellon family: Thomas Mellon’s autobiography, “Thomas Mellon and His Times,” Andrew Mellon’s “Taxation: The People’s Business” and Timothy Mellon’s “panam.captain.” Several other books on the Mellon family were resources, including David Cannadine’s biography, “Mellon: An American Life,” and David Koskoff’s “The Mellons: The Chronicle of America’s Richest Family.”
Few copies of Richard Mellon Scaife’s memoir, “A Richly Conservative Life,” exist. The Library of Congress made theirs available to us. “Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right” by Jane Mayer fit Scaife’s role of bankrolling conservative think-tanks into a broader movement.
We drew insights on taxation from W. Elliot Brownlee’s “Federal Taxation in America: A History,” “Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth” by Michael Graetz and Ian Shapiro, and “The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay” by Emmanuel Saez and Gabriel Zucman.
"Inside the $40-billion-a-year tax 'loophole' Biden's plan would eliminate"
Posted almost 12 years ago.
Updated 4/14/2010 7:51 PM
By Web Bryant, USA TODAY.
By Rich Benjamin
I secretly love the ritual.
Every spring I pay a visit to Howard Carlin, my tax accountant, to settle my dues. Howard's upbeat personality, peppered with quirky quips, lightens the proceedings. Click, click, click, go his rapid-motion fingers. The numbers whir on screen like a digital slot machine. Up pops a figure. "See?" Howard chimes. "That's your tax burden." I wrinkle my nose. This faux disgust is just a ceremonial knee-jerk gesture, as if showing my solidarity with the millions of other Americans who vilify taxes.
But deep in my bones, that place that speaks my mind, I am proud and glad to pay my income taxes.
Others, especially those in the "Tea Party" movement, are not. Their battle cry, Taxed Enough Already (TEA), amplifies a crescendo of discontent over taxes (though they rarely specify which kinds) and government spending.
The Tea Party movement comprises protesters politically awakened by the recession. Many Tea Partiers voice their protest by describing lives freshly toppled by a layoff, a foreclosure, a bankruptcy, a catastrophic illness, a depleted retirement account. The irony? Their political complaint — "socialist tyranny," "high taxes," "stimulus spending" — often defies any credible explanation of their individual financial woe.
Though I sometimes look at my country with a healthy dose of criticism — the gimlet eye of a probing skeptic — I couldn't be more pleased to be American. I am as American as Wiffle ball or huckleberry pie. I lovingly recall starting a dog-walking business at the ripe age of 9. From Nike's ad campaign (Just Do It!) to PT Barnum's grand promotion ( The Greatest Show on Earth!) all the way back to Benjamin Franklin's cheery Protestant proverbs (Well done is better than well said!), America's optimism and profit motive swim in my red blood cells.
That's why, in contrast to Tea Party "patriots," I fervently support income taxes.
Franklin on taxation
Beyond declaring that the only certainty in life is "death and taxes," Benjamin Franklin also reminded his complaining anti-tax contemporaries that government taxes were a pittance next to life's "more grievous" obligations. "We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly," said the Founding Father.
In deed and thought, I feel as connected to many of our Founding Fathers, and to this nation's revolutionary birth, as does any triangular-hat-sporting, placard-toting, Tea Party protester. Those demonstrators do not own a monopoly on those Founders or our history.
Paying income taxes confirms my pride as a modern-day American citizen. As loudly as I might declare my love for this country, I need to put my money where my mouth flaps. For those like me — not fighting in Afghanistan, not toiling in our foreign service, not extinguishing fires or fighting crime as a public servant — paying taxes makes real my commitment to a functioning America.
Market Data 
Markets 
AI
