Michael Heller and James Salzman write:

Over the past pandemic year, American billionaires have grown $1.3 trillion richer, the beneficiaries of a soaring stock market. Income inequality has widened. One response is imposing new taxes on wealth, such as those just introduced by Sen. Elizabeth Warren (D-Mass.), but that approach faces significant political hurdles.

There’s another way to tackle the problem. Instead of focusing only on taxing wealth accumulation, we can address the hidden flip side — wealth transmission. America’s super-rich have created a little-known parallel legal system in some unlikely states. There, they pass on massive amounts of wealth tax-free and lock in inequality for generations, exploiting cracks in our system of taxing inherited wealth.

The first step to reining in this system is to recognize its existence. The place to start is South Dakota, which has quietly made itself the world’s leading money haven, crushing former go-to shelters such as Switzerland and the Cayman Islands.

In theory, the super-wealthy pay some taxes when they pass on estates beyond the current tax-free exemption level of $11.7 million for an individual, $23.4 million per couple. But the reality is that the wealthy find legal ways to shelter their enormous estates using tax avoidance tools that understate their assets’ true values. Often, they avoid any state or federal taxation whatsoever. [Continue reading…]