Funding Public Goods Problematic??? Blame the Tax-Dodging Billionaire
So, what are nepo babies or nepotism babies? The second name gives the meaning away. A person who gains success or opportunities through familial connections. Especially a child of a famous parent (such as an actor, musician, entrepreneur, or politician), Merriam Webster.
Some Examples.
There are tax implications benefiting them as explained by Common Dreams author Julia Conley.
Why Can’t We Fund Universal Public Goods? Blame the Tax-Dodging Billionaire Nepo Babies, Common Dreams, Julia Conley
The children of the richest families in the U.S. are well-known for spending their vast wealth on frivolous luxuries—constructing a replica of a medieval church on their acres of property, in the case of banking heir Timothy Mellon, or starting a brand of T-shirts described by one critic as “terrible beyond your wildest imagination,” as Wyatt Koch, nephew of Republican megadonors Charles and David, did. Sometimes they pour millions into state-level lobbying efforts simply to secure their own financial interests, pushing legislative questions like “is sports betting legal in florida” not out of civic concern, but to clear a path for a private venture they want to back.
But a report released by Americans for Tax Fairness (ATF) on Thursday shows how “billionaire nepo babies” don’t just waste their families’ fortunes. They also benefit from “a rigged system” that allows them to “pass that wealth down over generations without being properly taxed–often without being taxed at all.”
In addition, the heirs of the country’s biggest fortunes spend vast sums “to elect politicians who protect their unearned wealth and manipulate the country’s economy in their favor,” said ATF.
Along with Mellon and Koch, the report profiles Samuel Logan of the Scripps media dynasty; Nicola Peltz-Beckham, daughter of billionaire investor Nelson Peltz; Gabrielle Rubenstein, whose family has made its fortune in private equity; and President-elect Donald Trump’s son, Eric Trump.
The nepo babies are part of a small group of billionaire families in the U.S. who benefit from tax loopholes that ensure little of their immense wealth ever goes to benefit the public good.
At least 90 billionaires have passed away over the last decade, leaving their beneficiaries $455 billion in collective wealth.
But according to ATF, “$255 billion (56%) of that amount was likely entirely exempt from the capital gains tax because of a special break called ‘stepped up basis.'”
Without loopholes included the stepped up basis tax cut, the current estate tax on billionaires and centimillionaires would yield enough revenue to fund universal childcare, preschool, and paid family leave for U.S. workers, with hundreds of billions of dollars left over, according to ATF’s report.
The wealthy heirs profiled in the report and their families are some of the Republican Party’s top donors—contributing hundreds of millions of dollars to candidates including Trump in the hopes of securing even more tax cuts.
Mellon, for example, is Trump’s “biggest supporter, giving $140 million to a pro-Trump PAC in 2024 alone,” reads the report.
A previous analysis by ATF found that as of late October, just 150 billionaire families had spent $1.9 billion on the 2024 elections.
As the Center for American Progress found earlier this year, Trump’s plan to extend the tax cuts that he pushed through in 2017 would cost $4 trillion over the next decade.
“The vast wealth inherited by centuries-old billionaire families is staggering. While these heirs and their billions go undertaxed, enormous sums are squandered on lavish mansions, private jets, and vanity projects instead of funding crucial public investments,” said ATF executive director David Kass. “In 2024, these billionaire families used their enormous wealth to make record-breaking political contributions to secure a GOP trifecta. Now, Trump and his allies in Congress are doing their donors’ bidding by rigging the system in their favor and pushing a $4 trillion giveaway to wealthy elites and giant corporations—all while advocating for cuts to vital programs that working and middle-class Americans depend on.”
The report calls for Congress to pass “proven, pragmatic proposals to unrig the tax system that enjoy high levels of popular support,” such as the Ultra Millionaire Tax Act that was proposed by Sen. Elizabeth Warren (D-Mass.) and Reps. Pramila Jayapal (D-Wash.) and Brendan Boyle (D-Pa.) this year. The bill would tax fortunes between $50 million and $1 billion at 2% and wealth above $1 billion at $1 billion.
The small tax on enormous wealth would generate “a whopping $3 trillion over 10 years,” said ATF.
The estate tax could also be “restored so that it can play a meaningful role in promoting fairness and equal opportunities” through the passage of the For the 99.5% Act, which was introduced in 2023 by Sen. Bernie Sanders (I-Vt.) and Rep. Jimmy Gomez (D-Calif.).
Under the bill, the estate tax exemption would be lowered to $7 million per couple and the current 40% flat rate would be replaced with a sliding scale that would charge higher rates as a family’s wealth grows.
“None of these tax reforms would impoverish the ultra wealthy, nor even inconvenience them in any meaningful way–but they would reduce the concentration of wealth that is so corrosive to society,” reads the report.
“At the same time, they would raise trillions of dollars that could be used to reduce inequality and improve the lives of families that can only dream of the kind of security and opportunity enjoyed by the nation’s richest clans.”
“And if rich families ever did need to tighten their belts a bit to pay their taxes,” the report continues, “the economizing might begin by reducing the flow of money funding the extravagant lifestyles of America’s Billionaire Nepo Babies.”
I mentioned this issue yesterday (see comments on Steve Roth’s Capital Gains: Realization).
I have a problem with taxing estates at the time of inheritance. I don’t think the heirs should have to sell assets in order to pay the tax. You shouldn’t have to sell the family business, farm, home, etc to square up with the government. The cost basis should be set to $0 for the inherited wealth instead of the “stepped up basis” (fair market value at time of death). When the asset(s) is sold the capital gains would be paid which would capture all the realized gains. The heirs did not earn the wealth so their gain is the selling price with $0 cost basis.
Markg:
Tax it now or later. Give them the choice of how they will pass on inheritance.
I have made it clear I’m in favor of eliminating the step-up cost adjustment, even just killing the estate tax entirely to get it. But it way too much to describe this as “tax-dodging”. Heirs are fully compliant with tax law that stretches back to 1921. The Mellons had a bundle then, but few billionaires or other extraordinarily wealth individuals can trace their fortunes to that period. One reason this is hard to repeal is that the eventual revenue manifests via the income tax, not the estate tax. Likely millions of far from wealthy families are also banking on their parents’ $300,000 cap gains split between 4 kids getting stepped up. Sure a Mellon saves many millions but plenty of folks are pencilling out how this is $21,000 and helps them a lot.
There are exemptions for the less than wealthy.
If you google “has any family farm been lost to estate taxes”, you do not find any documented examples of a family farm being lost.
Wisconsin Farm Management Extension:
“To illustrate how few farms are affected by estate taxes, the USDA Economic Research Service estimated that in 2018 – 38,106 farm estates would be created. Of those farm estates, 0.6% (or 230 estates) would need to file a Federal estate tax return, and only 0.35% (or 133 estates) would have to pay an estate tax2. Therefore, we propose that the biggest threat to a farm estate getting to the rightful heirs is the owner generation’s lack of succession planning and not federal estate taxes.”
A few years ago I read an opinion piece by a man who inherited a cattle ranch. He had to pay $2M in taxes over 5 years. His complaint was not that he could not pay it, but that he could have grown the business by more if he had not paid the taxes. His analysis of how many jobs he could create with $2M somehow assumed that the taxing authority would somehow not manage to create any jobs.
Holding up family farms as a reason to eliminate estate taxes is a red herring by those who own billion dollar companies. (That does not mean there are not meaningful things we can do to support family farms.)
Arne, the reason no one has lost the family farm is because the current tax policy would not allow it. I was stating why I was against the proposed inheritance tax and feel the better option would be to stop the stepped up basis in favor of a $0 cost basis policy.
Mark:
But, but. the numbers of complaints are small as Arne points out:
Wisconsin Farm Management Extension:
“To illustrate how few farms are affected by estate taxes, the USDA Economic Research Service estimated that in 2018 – 38,106 farm estates would be created. Of those farm estates, 0.6% (or 230 estates) would need to file a Federal estate tax return, and only 0.35% (or 133 estates) would have to pay an estate tax2. Therefore, we propose that the biggest threat to a farm estate getting to the rightful heirs is the owner generation’s lack of succession planning and not federal estate taxes.”
and
Holding up family farms as a reason to eliminate estate taxes is a red herring by those who own billion dollar companies. (That does not mean there are not meaningful things we can do to support family farms.)
There is agricultural Relief if the Farm is in a trust. How the Family Farm Can be put into a Trust.
I am not convinced a Trust is a giveaway. Trusts can protect the Farm and much of its assets. Trusts do work. The only issue being too many people wait too long.
Again Bill, those facts are based on current policy. What would happen if the tax policy were changed to tax all wealth inherited?
None of the proposals suggested taxing all inherited wealth. There is always an exemption with many different cutoff levels. If family businesses need to be protected there should be an outreach to help them create succession plans.
Giving a portion of the business to family that materially participates in the business should be meaningfully different than passing it as a valuable asset to family that was not materially involved.
I can see the lawyers salivating on how to stretch the meaning of what I am thinking about, but if the auditing were set up to happen before the transfer (and said audits were actually funded), family businesses could be protected while unearned wealth was taxed. Note that showing up at a meeting where a property manager reports on how wealth is being protected should not count as being materially participating in a family business.
Arne:
I agree with you.