A report from Americans for Tax Fairness (ATF) estimates that tax loopholes will allow the dynastically wealthy to avoid paying as much as $8.4 trillion in estate, gift, and generation-skipping transfer taxes between now and 2045.

The report, Dynasty Trusts: Giant Tax Loopholes That Supercharge Wealth Accumulation (44 pages, PDF), found that of the estimated $68 trillion Americans are expected to transfer to heirs and charities over the next 24 years, $21 trillion will pass internally within already dynastically wealthy families. The $8.4 trillion in foregone tax revenue is equivalent to more than four Build Back Better (BBB) spending bills or twice the cost of the expanded Child Tax Credit over 24 years, a component of the BBB bill that is expected to reduce childhood poverty by 40 percent.

According to the report, the top five dynastic families saw their wealth (adjusted for inflation) grow from $15.5 billion in 1983 to $528 billion in 2020. Based on Forbes data, ATF estimates that as of mid-October 2021, the country’s 745 billionaires had seen their wealth grow by 70 percent, or $2.1 trillion, during the first 19 months of the pandemic, and eight had fortunes exceeding $100 billion, including Jeff Bezos, Elon Musk, and Mark Zuckerberg.

The methods used by dynasty trusts—wealth-accumulating structures that remain in place for multiple generations—to avoid intergenerational wealth-transfer taxes include artificially depressing for tax purposes the value of family assets; creating trusts that allow for the systematic transfer of wealth free of estate and gift tax; and leveraging the exemption from generation-skipping tax to shelter massive fortunes from wealth-transfer taxation in perpetuity.

The report’s authors note that dynasty-trust reforms that were included in the BBB legislation passed by the House Ways and Means Committee were stripped out before the House passed it in November 2021. In addition to closing existing dynasty-trust tax loopholes, recommendations include adding an income tax bracket on undistributed trust income in excess of $250,000 at 5 percentage points above that of the maximum bracket for individuals and imposing an annual 2 percent wealth tax on dynasty trust holdings of more than $50 million, with an additional 1 percent tax on holdings in excess of $1 billion.

“This hoarding of wealth is inexcusable,” said ATF tax counsel Bob Lord, the report’s principal author. “The BBB legislation now before the U.S. Senate should be amended to close loopholes in the three components of America’s wealth transfer tax system: the estate, gift, and generation-skipping tax. Effective reforms have already been developed—all that’s needed is for Congress to recognize the urgency to act now.”

(Photo credit: Getty Images)