Americans who are wealthy have always sought to lower their taxes by using charitable donations. The International Consortium of Investigative Journalismists released the "Pandora Papers", revealing how billionaires, world leaders and other wealthy people have kept trillions of dollars from the reach of governments through shell companies and offshore accounts. These accounts are legal.
A "dynasty" trust, which can be created in perpetuity in states such as South Dakota, is one of the maneuvers described in this report. These trusts allow Americans to legally protect themselves from estate and other taxes, and remove major incentives for charitable giving.
A federal estate tax is imposed on any American couple whose wealth exceeds $11.7 million and $23.4 million respectively. Each dollar above this level, once left, will be subject to a 40% federal estate tax.
Experts say that Americans can legally avoid income taxes in certain states by setting up trusts. South Dakota is one of these states. It doesn't have an inheritance, estate, or capital gains tax. This makes it a great place to park wealth.
Ray Madoff, who is a Boston College Law School professor in tax and philanthropy policies, said that there are good reasons to believe that this wealth will eventually lead to a loss of revenue for charities. "The impact on charities is already evident, but it will only get worse," I believe.
After all, tax policy has a consistent impact on charitable giving. According to the Treasury Department, charitable donations fell 1.3% in 2018 after President Donald Trump's tax reforms. These donations usually grow at the same rate as the nation's gross national product, which rose 5.2% in 2018.
The Biden administration is promoting its plan to increase taxes on wealthy Americans. It has included in its estimates the idea that many people would donate more to charities to reduce their tax burden if they were to do so. For many wealthy people, trusts such as those described in the "Pandora Papers", would lower their tax burden and not require charitable giving.