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Warren, Sanders Call for End to Rules Letting Billionaire Dynasties Dodge Taxes

The lawmakers are calling for scrutiny of some of the most popular forms of tax evasion by the richest Americans.

Sen. Bernie Sanders speaks during a news conference on Capitol Hill in Washington, D.C., on March 1, 2023.

Senators Elizabeth Warren (D-Massachusetts) and Bernie Sanders (I-Vermont) are calling on the Biden administration to bring an end to several estate and dynasty trust tax rules that are allowing the richest Americans to hide hundreds of millions of dollars from government tax agents.

Dynasty trusts and the estate tax are major sources of tax evasion that stack the U.S. tax system even more in favor of billionaires and the ultra-wealthy, Warren and Sanders said. Through methods like intricately-designed trusts that appear to be essentially explicitly allowed by the federal tax code, the wealthy are able to take advantage of rules regarding the ways that they can pass on huge sums of money to their heirs, tax-free.

In a letter to Treasury Secretary Janet Yellen on Monday, the lawmakers railed against this “blatant abuse of our tax system” by the wealthy.

“Billionaires and multi-millionaires use trusts to shift wealth to their heirs tax-free, dodging federal estate and gift taxes. And 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,” they wrote. Senators Chris Van Hollen (D-Maryland) and Sheldon Whitehouse (D-Rhode Island) also signed the letter.

The lawmakers request that, as the Biden administration takes a closer look at trusts and the mechanisms behind dynastic wealth in its 2024 budget request, the Treasury Department takes steps to end the tax evasion, such as issuing a rule requiring transactions between a grantor and a grantor trust to be taxable. They call for the reissuing of Barack Obama-era regulation, withdrawn by Donald Trump, to stop the ability of the ultra-wealthy to devalue their assets to bring them under the estate or other transfer tax caps.

As the senators explained, wealthy families are able to use a type of trust known as a grantor trust that allows a wealthy person, or a grantor, to pass on their assets to an heir with little to no tax liability.

Grantor retained annuity trusts (GRAT) are a popular form of a grantor trust that allow the grantor to contribute assets that will eventually be paid back in full to the grantor in the form of an annuity, while investment gains made on the assets will be handed down to heirs, tax-free.

ProPublica uncovered in 2021 that at least half of the 100 richest people in the U.S. — including people like former presidential candidate Michael Bloomberg, far right mega-donors Koch brothers and Blackstone founder Stephen Schwarzman — have used GRATs and other similar trusts. A lawyer who pioneered the use of GRATs estimated that they have cost the government $100 billion in lost taxes between 2000 and 2013 — or about one-third of all of the estate and gift taxes collected by the government over the same period of time.

Money managers openly brag about their ability to structure trusts to dodge taxes. The letter points out one wealth management firm that has advertised its clients to accumulate $367 million over 75 years through dynasty trusts, based only on a $12 million contribution — which the firm calls an “extraordinary opportunity.”

The lawmakers’ effort shines a light on the sophisticated and expressly permitted ways that the rich are able to exploit the U.S. tax code that are not only completely inaccessible to ordinary, working-class Americans, but also completely unknown.

“The ultra-wealthy 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 said. “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.”

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