By Polly Cleveland
Over the last five years, from my 5th floor apartment window, I’ve watched a blue spire rise in the distance. Fifteen blocks south of me, 225 West 57th Street has just joined Billionaires’ Row in Manhattan. At 1550 feet it’s now the tallest. Apartments in these buildings have been selling for over fifty million dollars per floor. The windows grant a falcon’s eye panorama of New York, but visitors on a windy day report feeling seasick from the swaying. No matter. These apartments aren’t for living; they’re for hoarding wealth.
Chuck Collins features Billionaires’ Row in his new book The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions. Buying ultraluxury skyscraper apartments is one of the many techniques deployed by what Collins calls the Wealth Defense Industry or WDI. The true owners of these apartments, many of whom are foreign, usually hide behind a series of shell corporations. These folks often have good reason to hide—they may be laundering money from illegal arms or drug trafficking, or embezzled from a foreign government. They may be avoiding taxes, or stiffing creditors, or dodging former wives and ungrateful offspring. In major western cities like Boston and London, their own Billionaires’ Rows have surfaced, the glittering tips of vast icebergs of frozen wealth.
Collins, who began life at the top of the One Percent, eventually donated his inheritance to progressive causes. He now provides us with a guided tour of the WDI. First, there are the WDI lawyers, investment advisors, bankers and others who help their clients park their cash discreetly, anonymously and safely out of reach of prying eyes. Some of these WDI employees operate out of so-called “family offices” where they serve a single extended family such as the Rockefeller and Walmart heirs. “Family office” sounds benign, but this year the family office of Archegos Capital Management, belonging to one Bill Hwang, rocked the markets by defaulting on billions owed to Credit Suisse, Nomura Holdings, Goldman Sachs and Morgan Stanley.
Then there are the WDI enablers. These are governments, national and local, that allow and enforce wealth-hiding contracts. A number of nations, notably islands like the Bahamas, the Cook Islands, Guernsey, and the Isle of Man, invite corporate charters with minimal disclosure requirements and fees. Switzerland famously offers guaranteed anonymous bank accounts. In 2016, leaked papers from Panamanian law firm Mossack Fonseka embarrassed a number of the world’s rich and powerful—including 12 current or former heads of state. Some of the greatest WDI enablers are US states, starting with corporate-friendly Delaware and followed by South Dakota. Delaware actually boasts of offering the world’s easiest creation of anonymous shell corporations. WDI enablers not only help the top One Percenters hide, but also allow real corporations to report their profits as “earned” in a tax-free jurisdiction, sometimes where they keep only a mailbox.
What to do? Collins offers a number of proposals. In the US, these include banning the practices of states like Delaware, requiring federal charters for corporations over a certain size, increasing enforcement of the Foreign Corrupt Practices Act, and providing decent funding to the IRS. Collins also calls for creating and enforcing global standards on taxation and regulation. These are all worthy proposals, and there has been some progress. For example, in 2019 a bipartisan majority of the US House passed the Corporate Transparency Act, proposed by US Representatives Carolyn Maloney (D-NY) and Peter King (R-NY). But even if we get more transparency—a big if given the power of the WDI—then what? We still have to enforce tax laws and regulations.
From the time of Adam Smith until maybe a hundred years ago, even ordinary people knew how to cut the Gordian knot: tax the underlying wealth and don’t worry too much about who owns it. For example, California’s Central Valley was once a hot, dry, semi-desert. Rivers from the Sierra Nevada to the east held promise of irrigation. Small farmers faced a problem, though: much of the land belonged to large absentee owners with no interest in development. In 1887, the California legislature passed the Wright Act, enabling farmers to form irrigation districts by simple majority vote of residents. The districts then taxed the land in order to finance construction of canals. As expected and intended, heavy taxes forced the unproductive absentees to sell off their land to hard-working small farmers. Soon the desert bloomed.
Deep in their kernels, shell corporations hold titles to real wealth. These titles are government created and protected rights to specified activities within a specified territory. The oldest, best-known and most valuable titles are deeds to land. In writing on taxes, (Wealth of Nations, Book V, Ch II, Pt II) Adam Smith favors taxes on land above all others because land values most closely reflect the benefits landowners receive under protection of the state. He says nothing about progressivity, but then, as now, the One Percent owned much of the land, and most of the best land.
In his gorgeous new book, An Illustrated Business History of the United States, Richard Vague estimates the value of land in the US in 2019 at $60 trillion—dwarfing the value of stocks, bonds and other assets. That value is taxed by general property taxes at state and local levels. A hundred years ago, property taxes were the dominant tax. Today they’ve been substantially replaced by sales taxes and “progressive” but loophole-ridden income taxes. Still, they remain the only tax many One Percenters and corporations pay.
Beyond land titles there are many other valuable and eminently taxable titles, that is, government-created and protected rights attached to a territory. Spectrum titles authorize owners to broadcast at a specified frequency and power from a specific location. Spectrum titles in the US are worth over a trillion and rapidly growing. Pharmaceutical patents—the right to sell a particular chemical in the US or in other nations—are surely worth over a trillion. While patent holders deserve a return on investment in R&D, (often carried out in government-supported university labs), the monopoly profits vastly exceed any reasonable return. What about bank charters, the right to provide financial services within a state or country? With good reason we call bank charters “a license to print money.”
The list of valuable titles goes on and on: fishing rights, water rights, rights of way, drilling and mining rights, airport landing rights, air traffic routes, import quotas, cable franchises, from geosynchronous orbits all the way down to local taxi medallions and liquor licenses. It doesn’t matter if these titles nominally belong to a Bahamian shell corporation; US, state or local governments created the titles and can tax them, given the political will.
Back to Billionaires’ Row. Like the absentee speculators in California’s Central Valley, the absentee billionaires have fastened onto New York City like alien parasites. They consume valuable urban space and services while giving little back. The solution is obvious: tax billionaire hot spots heavily enough, and their shady clientele will slip away. We won’t care who they were.