Recent years have seen a tremendous amount of scholarship and commentary on the growth of inequality in the United States and what can be done about it. Lots of energy has been focused on public policies that “raise the floor,” or directly help out those at the bottom, by doing things like boosting the minimum wage or taxing high-earners and investing the proceeds in ways that help the public good.
Part of the inequality problem, however, is that trillions of dollars are being shifted off the ledger, hidden from measurement and taxation. Some of this “hidden wealth of nations,” as Gabriel Zucman calls it, is kept in offshore tax havens like the Cayman Islands and Panama that function as secrecy jurisdictions with minimal transparency or reporting requirements.
Trillions more has been hidden in trusts and other complex financial arrangements available only to the very wealthy. New research suggests that households in the top 0.01 percent, those with wealth over $40 million, evade 25 to 30 percent of personal income and wealth taxes—about 10 times more than the general population.
This process is aided and abetted by professional wealth managers who facilitate and lubricate the process of hiding wealth. Many of them work in private family offices that serve wealthy families. These are not mom-and-pop financial planners who help protect families from running out of money. We’re talking about the well-compensated professionals that serve the richest one-tenth of one percent of Americans.
To better understand the work of these wealth managers, and their effect on economic inequality, I spoke with sociologist Brooke Harrington, a professor at the Copenhagen Business School in Denmark, and the author of a new book, Capital Without Borders: Wealth Management and the One Percent. Harrington spent several years being trained as a wealth manager in order to gain firsthand insight into the the secretive world of this discreet profession.
By obtaining professional certification through the Society of Trust and Estate Practitioners (STEP), Harrington built relationships, trust, and access with 65 wealth advisors around the world. To conduct interviews, she traveled to 18 countries, including notorious offshore tax havens like the Cook and Seychelles islands.
Chuck Collins: Why should we care about the role of wealth managers?
Brooke Harrington: One driver of inequality—economically, politically, and legally—is that so many wealthy people avoid taxation. In the United States, there are billions a year that could be invested in building roads, schools, and infrastructure. This level of tax avoidance wouldn’t be possible without wealth managers.
For as long as there have been taxes, going back to the early Greeks and Romans, there have been well-to-do people who haven’t wanted to pay their fair share and who deploy a variety of strategies to achieve that. As the stakes got higher, a whole professional class of people emerged to accomplish this goal.
If wealth managers disappeared from the face of the earth, there would still be tax evasion. But it couldn’t happen on the grand scale that we are seeing today without expert intervention.