Four U.S senators this week called on Treasury Secretary Janet Yellen to use her existing authority to go after American billionaires and multimillionaires who "use trusts to shift wealth to their heirs tax-free, dodging federal estate and gift taxes."
"They are doing this in the open: Their wealth managers are bragging about how their tax dodging tricks will be more effective in the current economy," stressed Sens. Elizabeth Warren (D-Mass.), Chris Van Hollen (D-Md.), Bernie Sanders (I-Vt.), and Sheldon Whitehouse (D-R.I.).
"While we look forward to continuing to partner with you on legislative solutions," the senators wrote to Yellen, "the Treasury Department can and should exercise the full extent of its regulatory authority to limit this blatant abuse of our tax system by the ultrawealthy."
Their letter to the Treasury leader, dated Monday and first reported by CBS MoneyWatch Tuesday, highlights that "only the wealthiest American families" are asked to pay transfer taxes such as the estate tax, gift tax, and generation-skipping transfer (GST) tax.
As the letter lays out:
Tax avoidance through grantor trusts starts with the ultrawealthy putting assets into a trust with the intention of transferring them to heirs. Grantor trusts are trusts where the grantor retains control over the assets, and the structures of some of these grantor trusts allow the transfer of massive sums tax-free. Tax planning via grantor trusts, including grantor retained annuity trusts (GRATs), is a kind of shell game, with a wealthy person and their wealth managers able to pass assets back and forth in ways that effectively pass wealth to heirs while minimizing tax liability.
Some of the wealthiest families further compound this tax avoidance with perpetual dynasty trusts, which can be used to shield assets from transfer tax liability indefinitely. For example, aggressive valuation discounts can artificially reduce the value of assets transferred into a trust below the GST tax exemption threshold, after which the assets can grow in perpetuity within a trust exempt from transfer tax.
"The ultrawealthy at the top of the socioeconomic ladder live by different rules than the rest of America, especially when it comes to our tax system," the letter charges. "As the richest Americans celebrate and take advantage of these favorable tax opportunities, middle-class families struggle with inflation and Republicans threaten austerity measures and the end of Social Security and Medicare."
To help force the richest Americans to "pay their fair share" in taxes, the senators are calling on Treasury to revoke a pair of tax code rulings from the Internal Revenue Service (IRS); require GRATs to have a minimum remainder value; reissue family limited partnership regulations; clarify that intentionally defective grantor trusts (IDGTs) are not entitled to stepped-up basis; and put out clarifying regulations on certain valuation rules for estate and gift taxes.
The senators also sent a series of questions—about potential administrative action, how much is estimated to be held in grantor trusts, and how much could be raised from cracking down on abuse—and requested a response from Treasury by April 3.
Their letter comes after President Joe Biden earlier this month introduced a budget blueprint for fiscal year 2024 that would hike taxes on the rich—proposed policies praised by progressive experts and advocates as "fair, popular, and long overdue."
Yellen last week appeared before the Senate Finance Committee—of which Warren and Whitehouse are members—to testify about the administration's proposal. She said in part that "our proposed budget builds on our economic progress by making smart, fiscally responsible investments. These investments would be more than fully paid for by requiring corporations and the wealthiest to pay their fair share."
This content originally appeared on Common Dreams and was authored by Jessica Corbett.