…by John Stoehr
Raw Story: The United States was founded on the idea of freedom by right, not freedom by bloodline. But that has not stopped the super-rich from creating what can only be called an American aristocracy. So much of our politics is shaped by a few hundred families, the .01 percent. Many of them can trace their wealth and power to the late 19th century.
This week, ProPublica posted a barn-burning report on fortunes amassed by the robber barons of old that are still going strong, generations later, in the 21st century. That’s thanks to a federal tax code designed and maintained in large part by our feudal overlords, whose sons and daughters, and institutions, define politics, even what constitutes private property rights and whose job is to protect them…John Stoehr
The Great Inheritors: How Three Families Shielded Their Fortunes From Taxes for Generations
by Patricia Callahan, James Bandler, Justin Elliott, Doris Burke and Jeff Ernsthausen
Series:The Secret IRS Files
Inside the Tax Records of the .001%
President Franklin D. Roosevelt pounded on his desk and swore. His treasury secretary had handed him a series of memos detailing the many ways the wealthy were avoiding taxes. Enraged by a rich businessman’s schemes, Roosevelt asked his treasury secretary to publicly denounce the man as a “son of a bitch.”
Roosevelt, himself an heir, earlier had warned that “economic royalists” had “carved dynasties” off the backs of America’s working men and women. Now he saw a chance to address the unfairness in the nation’s tax system.
“The time has come when we have to fight back, and the only way to fight back is to begin to name names of these very wealthy individuals,” Roosevelt told the treasury secretary, who detailed the May 1937 scene in his diary.
That summer, the Treasury Department released one name after another at a packed meeting of a joint committee of the House and Senate. Americans saw how many of the country’s wealthiest families gamed the tax system with tricks that Roosevelt described as “so widespread and so amazing both in their boldness and their ingenuity that further action without delay seems imperative.”
Some businessmen stashed their profits in secret accounts in the Bahamas. Ethel Mars, the widow of candymaker Frank Mars, was singled out for equine tax avoidance. She deducted the losses from her Milky Way horse racing stables from the candy manufacturer’s corporate taxes.
The internal revenue commissioner testified that the late E.W. Scripps and his son, whose newspapers championed the working man, avoided an estimated half a million dollars in taxes (nearly $10 million in today’s dollars) by directing income to holding companies — derided by the commissioner as “merely ephemeral subdivisions of the personalities of the individual owner” — to take advantage of lower tax rates and deductions.
The starring villain in Roosevelt’s crackdown on aggressive tax avoidance was the Mellon family, which controlled banks, aluminum production and oil interests.
Roosevelt summed up the stakes of this historic probe in a letter to Congress. “Taxes are what we pay for civilized society,” he wrote, invoking former Supreme Court Justice Oliver Wendell Holmes. He then added his own knife twist: “Too many individuals, however, want the civilization at a discount.”
In the more than eight decades since the hearings, tax avoidance has hardened into a way of life for the ultrarich. Over the past year, ProPublica has analyzed confidential IRS data covering thousands of the nation’s wealthiest people and revealed the largely legal strategies they use to drastically winnow down their tax bills, sometimes to zero.
The Scripps, Mellon and Mars families are living proof of the triumph of tax avoidance and the durability of dynastic fortunes: Their combined wealth today is pegged by Forbes at $114 billion. Over the years, members of all three families have played prominent roles in the modern anti-tax movement and have helped shape tax policy. And in a centurylong cat-and-mouse game, Congress has scrambled to keep up with their tactics.
Drawing on the trove of secret IRS data as well as letters, diaries, books, congressional records and court documents, ProPublica traced how these families managed to preserve their wealth over the last century despite congressional efforts to clip dynastic fortunes.
With each new rewrite of the tax code, the superrich deploy clever trusts and armies of lawyers and lobbyists to find ways not to pay. Even legislation specifically designed to prune fortunes before they pass to the next generation has not been much of an impediment.
Take the estate tax, which was established in 1916, and has never quite worked the way Congress intended. Over the years the rates have changed, but the goal of taxing the wealthiest Americans has remained. This year, the estate tax applies to couples worth more than $23.4 million.
Faced with taxes at death, some of the rich simply passed their fortunes to their heirs while they were alive. So Congress enacted a tax on those gifts. Enterprising parents got around the full bite of estate taxes by skipping their kids and giving their wealth to their grandchildren. Then came the 1976 tax imposed on gifts that skip a generation. Throughout, the ultra rich have stayed one step ahead.
The estate tax has eroded to the point that last year the estates of just 1,275 people in the whole country owed the tax — down from a peak of 139,000 in 1976 — despite historic amassing of wealth by the very richest.
The estate tax essentially has become voluntary for the ultrawealthy, paid only if “you’re unwilling to take the time and pay lawyers to plan around the tax,” said Alice Abreu, a tax law professor at Temple University.
Neither of the main levers the government has to rein in dynastic wealth and inequality — income and estate taxes — is working, she said, noting that their failure also deepens racial divides as the modern aristocrats, like their forebears, are overwhelmingly white.
“The ultimate consequence,” Abreu said, “is the very real threat to democracy that we’re facing right now.”
Worries about outsized wealth consolidated in the hands of a few date back to the Founding Fathers. When he was a Virginia legislator, Thomas Jefferson sought legal ways to prevent the perpetuation of great fortunes, fearing the rise of American-style feudalism. An “aristocracy of wealth,” Jefferson warned in his memoir, posed more “harm and danger, than benefit, to society.”
But throughout history, the aristocracy has pushed back. Andrew Mellon, the banker and industrialist who served as treasury secretary under three Republican presidents and whom the Roosevelt administration pursued for tax evasion, argued against wealth taxes to break up large fortunes. The continuation through generations of a single fortune “has been proven to be impossible,” Mellon wrote in his book about taxation. “It is an often quoted saying that ‘there are three generations from shirt sleeves to shirt sleeves.’”
The refrain meant that a fortune amassed by one generation will be frittered away by the third. E.W. Scripps used the same saying in his essays.
They were wrong. Just recently, one of Scripps’ great-great-grandsons posed on Instagram in shirtsleeves, holding stacks of cash, his arm festooned with diamond-encrusted watches. Private jets and a fleet of Lamborghinis ferry him between a mountain getaway in Aspen and a gun range in Miami, where he shoots a gold AK-47.
And this year Mellon’s grandson, Timothy, donated $53 million worth of securities to the state of Texas for a border wall with Mexico, The Texas Tribune reported. A railroad investor and major donor to Donald Trump’s 2020 reelection campaign, Timothy Mellon wrote in his autobiography that big government has made a record number of Americans dependent on government largess. “They have become slaves of a new Master, Uncle Sam,” he wrote.
The fortunes of Andrew Mellon and his peers have proved so durable over the past century that today one-third of the top 50 wealthiest Americans on the Forbes list are heirs. The cascading riches have minted multimillionaires and billionaires outside the top 50, as well.
ProPublica’s analysis of confidential IRS data shows the youngest son of the late opioid magnate Mortimer Sackler took in more than $205 million by age 22; Bruce Nordstrom, grandson of the department store founder, collected more than $175 million in trust income through 2019; and William Wrigley Jr., the great-grandson of the chewing gum pioneer, raked in more than $570 million in trust income through that year.
Sackler, Nordstrom and Wrigley declined to comment. After repeated calls and emails, an executive at the railroad company where Timothy Mellon is a major investor said she could not reach Mellon and that he does not generally comment on media inquiries. A representative of the Scripps family said its members “have always complied with all tax laws.” Family members, he said, “do not attempt to manipulate, influence or change tax policies.”
A spokesperson for the Mars family said that it “prides itself on being responsible Americans” who “have always paid their taxes in full, including on all income received from the company.”
Today, the nation’s richest employ what are aptly known as dynasty trusts, tax shelters designed to allow them to avoid estate taxes not just for three generations, but for the next 1,000 years. Or even forever.
To understand the roots of America’s attempts to rein in family fortunes, it helps to start in the early 1900s with a whiskey-swilling, pistol-toting millionaire.
“Rascality of the rich man”
E.W. Scripps Fights for Taxes on the Rich, Then Regrets It
That millionaire was E.W. Scripps. A man of contradictions, he preached radicalism and expressed sympathy for the labor insurgents who bombed the Los Angeles Times building and killed 21 people. He then spent much of his last decade sailing the world on his 172-foot yacht or puffing cigars at Miramar, his sprawling ranch outside of San Diego modeled after a castle in Italy.
Scripps co-founded a newspaper empire in 1878 aimed at the working class. In the late 1800s, when many newspapers cost 5 cents, Scripps sold his for a penny and published news that, he said, helped working men and women “protect themselves from the brutal force and chicanery of the ruling and employing class.”
The strategy made Scripps rich, and his writings show deep misgivings about his wealth. He feared his heirs might become “unutterable snobs.” And he worried that the laborers, incensed by the selfishness of America’s plutocrats, would rise up in a “violent, costly, and perhaps bloody revolution.”
Scripps wrote, “I didn’t count myself so much a friend of the poor as I counted myself the antagonist of the foolish members of my own economic class.”
He saw the tax system as a way to defuse that powder keg and took a leading role in campaigning for taxes that he said would “make the rich men pay.”
As World War I loomed, Scripps pressed President Woodrow Wilson: “I strongly urge that we should pay as we go in the war with income and inheritance taxes,” Scripps told Wilson in a telegram, adding that people who made more than $100,000 ($2.2 million in today’s dollars) should pay the most. “Such legislation would cost me much more than half my present income.”
In 1916, Wilson signed legislation creating the modern estate tax. As it is today, the estate tax was based on the value of a person’s assets before they were passed to heirs. That first year, the rate on wealth exceeding $5 million was 10%. The following year, the top rate was 25% and soon would jump to 40%.
Yet, from the earliest days of the income and estate taxes, it was clear that the wealthy found ways to duck them. Scripps’ newspapers ran an investigative series about tax dodging in 1916, and Scripps pressured Congress and the president to make income tax data public. Complaining to Wilson, Scripps said Treasury Department scrutiny of his own taxes was so inadequate that he could have paid half of what he owed without being discovered.
“The rascality of the rich man has been used to influence Congress to rig the tax law with purposeful defectiveness to provide loopholes for the wealthy,” Scripps told one of his editors.
His enthusiasm for progressive taxation, however, dimmed as his own taxes rose. Scripps complained to President Warren G. Harding in 1921 that he’d seen his taxes rise almost 30-fold — which he found “absurd” and “unreasonable.”
Even so, Scripps confessed to Harding that he had been successful in avoiding taxes by keeping profits inside his business and, as a result, would leave his heirs a much bigger estate. It wasn’t exactly tax evasion, Scripps said, but it was avoidance.
The following year, in 1922, Scripps put all of his newspaper stock in a trust for his heirs with his son Robert Paine Scripps as trustee.
By that point, trusts had already become a preferred tax-dodging tool of the rich, and they have remained so. The trust is a legal instrument so ancient that scholars still debate its precise origins. In the Middle Ages in England, they were used in part to get around a feudal form of taxation as well as rules requiring the first born son inherit a father’s property. With a trust, a landowner could pass an inheritance to a wife and younger children as well as preclude any payments to the lord.
Today, there are many kinds of trusts, from those created by cut-and-paste templates to bespoke versions crafted by boutique law firms dedicated to the defense of family fortunes. At their most basic, they are imaginary vaults for cash, stock, businesses or other things. The money made by what’s in the trust — say, dividends, interest or business profits — is still subject to income tax.
But it’s possible to set up a trust so that what’s inside is protected from the estate tax. The person who sets up the trust writes instructions and designates people known as trustees to carry out those wishes. That’s where the mystical power of the trust comes in: In the eyes of the estate tax system, the person who created the vault and their heirs don’t actually own it.
The wealth inside can exist in a limbo unreachable by the estate tax because the trustees technically control it. Still, the heirs can receive a massive stream of income from those stocks or properties for generations.
Scripps’ trust was a little different. Because he wasn’t willing to give up control of the shares in his trust during his lifetime, Scripps’ estate would later face a tax bill. But after his death, it automatically transformed into the kind that would allow generations of his heirs to avoid the estate tax that he had pushed to create.
Scripps, whom one biographer called a lifelong misogynist, also dictated that Robert’s female offspring were to receive half what the males did. He made sure his wife and daughter wouldn’t get any shares in his newspaper company. He wrote that he didn’t want them to turn what he considered “an instrument of power” into “merely an instrument to manufacture money to spend on things women want.”
A Scripps family spokesman said E.W. Scripps’ intention was to perpetuate and expand his company and that “the future prospects of his newspapers were far more important than the financial interests of his heirs.”
Scripps would later set sail on his yacht and die off the coast of Liberia with no family at his side. His trust lived on for 86 more years.
“The Gates of Gold”
A Foe of Taxes on the Rich Takes Power
On Inauguration morning in March of 1921, the new treasury secretary arrived in Washington aboard a private rail car. With a bearing the San Francisco Examiner called “so shy that (it) is almost shrinking,” Andrew Mellon lacked the swagger of one of the most powerful businessmen in the world.
At 65, Mellon was the oldest cabinet member of the Harding administration and by far the richest. “Be assured, neighbors, your money is safe as long as your new Cousin Andrew of the tired eye stands guard at the gates of gold,” gushed a reporter for the Los Angeles Times.
Mellon came by his early fortune and antipathy for taxes the old-fashioned way: He inherited them from his old man.
Thomas Mellon had immigrated from what is now Northern Ireland, where, he complained in his autobiography, “oppressive taxes … drove our people from their homes.” In the early 1820s, Thomas, then a child, visited Pittsburgh. He gaped at the power of a steam-driven grist mill and at the opulence of the mill owners’ home, a stately brick mansion. This was the Negley estate, owned by one of the most prominent landholders in Pittsburgh.
Mellon would live on that very property. Years later, after a calculated courtship, he married Sarah Jane Negley, who inherited a share of her father’s properties. As Pittsburgh boomed, Mellon became successful in his own right, building a law career, investing in real estate, becoming a judge and then an immensely wealthy banker.
With success came fear, a nagging sense that his riches could be snatched away by the tax man, according to a biography of Mellon by one of his great-great grandsons.
Steeped in social Darwinism, Mellon viewed the acquisition of wealth as a mark of merit and poverty as a failure of character. Mellon wrote in his autobiography that voting rights were responsible for many of society’s ills, driving higher spending, borrowing and taxes. Not far below the surface of these fears was racism.
After the Civil War, Mellon toured the South, where he wrote that he was disgusted to see Louisiana’s Legislature captured by what he called “stolid, stupid, rude and awkward field negroes, lolling on the seats or crunching peanuts.” These representatives, he declared, were puppets of white Northerners who were using “corrupt schemes to rob the property owners and taxpayers.”
In 1869, Mellon founded a bank where he was joined by two of his sons, Richard and Andrew. They were early venture capitalists. Companies that borrowed money from the Mellon bank — steel, oil, aluminum and chemical firms, among others — became Mellon companies as the family took stakes in each.
Thomas Mellon soon began to transfer his business interests to his sons. In 1890, the Pittsburgh newspapers reported that Mellon had transferred his “vast estates,” including 1,000 dwelling-houses in Pennsylvania, to Andrew.
By the time Thomas Mellon died in 1908, his children were making money hand over fist, and their political power would soon match their wealth.
In Andrew Mellon, Harding found a perfect person to deliver on the president’s promise of bringing a country exhausted by the privations of war “less government in business and more business in government.”
Mellon would be dogged by allegations that he used his perch to advance his family’s enterprises. But Harding — and the next two presidents — didn’t care.
As David Cannadine would write in his biography of the treasury secretary, Mellon would later be beloved by conservatives as a prophet of “trickle-down” economics: Mellon argued that lowering taxes for companies and the wealthiest would spur investment that would lead to prosperity for the nation.
When he assumed his cabinet post, the top income tax bracket was 73%. Mellon argued that wealthy people increasingly saw taxes as punitive and sought ways to avoid them. “Taxes which are inherently excessive are not paid,” Mellon wrote in a book on taxation published while he was treasury secretary.
He asked the Bureau of Internal Revenue, which he controlled, to put together a list of legal tax avoidance schemes. Later, Mellon admitted under oath to using five of the 10 tricks to reduce his taxes.
Mellon especially hated the estate tax, which he sought to eliminate. “The social necessity for breaking up large fortunes in this country does not exist,” Mellon wrote in his book. When lawmakers considered raising the estate tax on the wealthiest Americans to 40%, Mellon decried the move to a Senate commitee as “economic suicide” and likened the actions of the senators to “the revolutionists of Russia.”
After Mellon was reappointed by the next president, the press began describing him as “near to being the financial dictator of the United States.” But Mellon still had to contend with Congress. And soon he found himself grappling with a major crisis.
“Dishonesty and Crime Thrive in the Dark”
The Tax Payments of the Rich Become Public
In late October of 1924 America’s richest and most powerful men woke to see their income tax payments splashed across the front pages of newspapers, just as E.W. Scripps had envisioned years earlier.
“The lid is off income tax secrets,” The Boston Globe declared.
Over Mellon’s objections, Congress had passed a gift tax and the so-called publicity amendment, which authorized the release of the names of taxpayers and the amount of income tax they paid.
The disclosures that followed contained some bombshells: J.P. Morgan, who dominated the banking world, paid an income tax of just $98,643, which was inexplicably nine times less than the junior partner at his firm. Oil magnate Harry Sinclair, who was embroiled in the Teapot Dome bribery scandal, paid just $213.
But there was no way to determine what their income was, which deductions they took or what loopholes they were exploiting. Newspapers published long lists of names and amounts paid but were unable to provide much context.
Still, as Duke Law professor Lawrence Zelenak recently pointed out, journalists who dug into the numbers back then identified a striking trend: those with the most money did not necessarily pay the most income tax.
“Persons supposed, or known to be among the very rich, in some cases paid a smaller income tax than persons supposed only to be in comfortable circumstances,” The Wall Street Journal reported in 1924.
Wisconsin senator and progressive presidential candidate Robert “Fighting Bob” La Follette called the low payments a scandal. “Tax paying is public business, and public business ought to be public,” he said. “Dishonesty and crime thrive in the dark.”
Then came the backlash. Though The New York Times published the tax details on its front page, its editorial board called the law allowing publication of this data “foolish and even odious.”
Mellon, whose own tax payments were published in the Scripps-owned Pittsburgh Press, said the publication of tax payments was simply the “gratification of idle curiosity.”
The Department of Justice brought charges against the Baltimore Daily Post, a Scripps paper, for publishing information from tax returns, and it also charged editors of a Kansas City newspaper. The law, the attorney general’s office contended, made this information “open to inspection only” and didn’t allow for publication. When lower courts ruled in favor of the paper and editors, the solicitor general took the cases to the Supreme Court.
In 1925, the Supreme Court sided with the papers, finding that all forms of publicity, including publication in newspapers, were allowed under the law.
That victory was short-lived. In 1926, Congress limited the right to inspect the returns to its investigative committees. Under a new law, the information in tax returns only became public if the president ordered it so. Who did lawmakers put in charge of writing the rules for such disclosure? Mellon.
For Mellon, though, there was an even bigger victory to be celebrated. Congress passed his tax plan, which dramatically lowered income tax and estate tax rates and repealed the gift tax entirely.
One senator complained that Mellon alone got “a larger personal reduction than the aggregate of practically all the taxpayers in the state of Nebraska.”
In the 6 1/2 years before the gift tax was reinstated, Mellon gave his two children stocks and properties, avoiding millions in estate taxes when he died. Mellon wrote to his son in 1931, “I have good precedent in this respect as it was the course followed by my own father.”
“I Am Not a Tax Dodger”
FDR and Congress Expose Tax Tricks of the Rich
In November 1932, Franklin D. Roosevelt defeated Herbert Hoover in a landslide.
No longer did the country view Mellon as Cousin Andrew guarding the gates of gold. By then, more than 3,500 banks had failed. The unemployment rate would soon reach 25%. People who lost their homes moved to “Hoovervilles,” shacks made from scrap wood and metal. The Great Depression had swallowed the country.
Mellonism — and its central tenet of slashing taxes on the wealthy and business to spur growth — was in retreat. Before Hoover left office, he and Congress reinstated the gift tax and hiked estate and income taxes. At one point, the House even tried to impeach Mellon, though that was dropped after Hoover named him ambassador to Great Britain.
Roosevelt’s New Deal turned Mellon’s tax policies upside down. Under Roosevelt, whom one biographer hailed as a “traitor to his class,” the top income tax rates shot as high as 94% to raise funds for World War II. And the tax on the largest estates went up to 77%.
In 1937 Roosevelt’s desk-thumping anger prompted Congress to shame members of the Mars, Scripps and Mellon families, as well as many others. The chairman of the Joint Committee on Tax Evasion and Avoidance vowed “to unearth the various devices and subterfuges employed by tax dodgers.”
The Washington Post set the scene. “The arena was freshly sprinkled with sawdust yesterday to catch the heads of the victims, the guillotine was oiled to flashing perfection,” the reporter wrote, and then referred to Roosevelt’s treasury secretary as “the lord high executioner.”
Millionaires reacted with fury.
“I am not a tax dodger, never have been, and do not intend to be,” declared Ethel Mars, who was reeling from the Treasury Department’s accusations that her family’s candy company had used her horse racing stables and farm as “sort of a corporate hobby.” By claiming the Milky Way horse farm was an advertising vehicle, her family’s company was able to take a deduction of $288,477 (nearly $6 million in today’s dollars).
And after chastising E.W. Scripps Co. and Scripps’ son for using the holding company scheme to dodge taxes, Congress clamped down on that maneuver.
But as tax historian Joseph Thorndike noted in his book, “Their Fair Share: Taxing the Rich in the Age of FDR,” the Roosevelt administration’s pursuit of Mellon was more personal. He’d escaped impeachment under Hoover, but Roosevelt wasn’t going to let him get away.
First, the Department of Justice sought criminal tax fraud charges, but a grand jury voted not to indict Mellon. Then the administration fought him bitterly in civil court, seeking more than $3 million in back taxes and penalties for fraud, a case that would dog Mellon through his dying days. Among the more damning evidence the government presented: Mellon used his family’s interlocking webs of related companies to sell his stock at a loss when he needed a tax write-off and then have another arm buy it back later.
At one point during that case, the government challenged deductions Mellon wanted to take for paintings he said he would donate to a museum. But the government looked petty later when Mellon unveiled his plans to build the National Gallery of Art, which he promised Roosevelt “will rank with the other great galleries of the world.”
Months after Mellon’s death, the Board of Tax Appeals cleared him of the fraud charge but found he did owe some back taxes and penalties. In 1938, his estate paid $668,000 ($13 million today), a fraction of what the government originally sought. Between stock he gave to his children before he died and his gifts of art and a museum to the government, there was little left to tax in Mellon’s estate.
Mellon’s brother, Richard, wasn’t so lucky. He gave his two kids $75 million in stock not long before he died. That left a shrunken estate that claimed to be worth just $11 million. Roosevelt’s tax collectors cried foul. They slapped Richard Mellon’s estate with a massive tax bill. After a fight, the government prevailed and Mellon’s heirs ultimately paid more than $40 million in federal and state taxes, about $840 million in today’s dollars.
Even as the government was tangling with the family, Richard Mellon’s daughter, Sarah Mellon Scaife, was already trying to avoid a similar fate. She tucked shares of Mellon family bank and coal companies into a trust for her young son, Richard Mellon Scaife. She would later put Mellon family shares of Gulf Oil in a trust for her grandchildren.
She was in good company. Not long after that, Ethel Mars’ stepson, Forrest Mars Sr., and his wife, Audrey, created trusts for their kids and at some point deposited shares of the family candy company.
And once E.W. Scripps’ son Robert paid his father’s $1.2 million federal estate tax (about $19 million in today’s dollars), the trust would protect the family’s fortune for the next generations. Like his father, Robert died on his yacht.
With the three families’ defenses against the estate tax in place, money would pour out of those trusts for the heirs decades later.
“Isn’t It Grand?”
A Mellon Heir Uses His Trust Fund for Anti-Tax Causes
Andrew Mellon had been dead for nearly 40 years, but one of his chief antagonists would not let America forget about the power his family fortune still wielded at the expense of taxpayers.
In the House throughout the 1960s, Rep. Wright Patman, the Texas Democrat who had tried to impeach Mellon, hammered away at how the superrich were using private foundations “as a loophole which enables them to avoid federal estate taxes and thus keep their businesses and large fortunes intact.”
Patman believed that the wealthy were siphoning assets that otherwise would have been subject to the estate tax and pouring them into tax-exempt foundations benefiting their niche causes.
Patman singled out a foundation created by a descendant of the Mellon family for funding esoteric research rather than causes that benefit the broader public, including the “origin and significance of the decorative types of medieval tombstones in Bosnia and Herzegovina.”
“If the Mellons are more interested in medieval tombstones than in Pittsburgh poverty, and care to spend their money studying 12th- and 13th-century church construction, that is the Mellons’ affair,” Patman said during a 1969 hearing. “However, there is no obligation upon either the Congress or the American citizenry to give the Mellons tax-free dollars to finance their exotic interests.”
Patman’s hearings led to major changes in the rules governing philanthropy.
Soon Mellon money was being used not for esoterica but to try to remake the tax system.
Sarah Mellon Scaife’s son, Richard, tapped his trust money to transform himself into what The Washington Post in late 1990s called “the most generous donor to conservative causes in American history.” The groups he funded grew into some of the most ardent and effective anti-tax organizations in the land, providing the Reagan revolution and the assault on the estate tax with intellectual firepower.
Long before that, Scaife had lived the life of a dilettante. Real penguins roamed the grounds of one of his childhood homes. Local journalists treated the Mellon Scaifes like royalty, describing their appearances at polo matches, horse races and fox hunts at Rolling Rock, a Pennsylvania estate that dated back to his great-grandfather Thomas Mellon.
During what he described as his “reckless years,” Scaife got kicked out of Yale. When he was in his early 20s, a jury awarded $105,000 (more than $1 million in today’s dollars) to a family after he crashed into them, critically injuring a young mother. Once he turned 25, the trust Sarah Mellon Scaife set up for him in 1935 began showering him with cash. (One of his wives in a divorce filing would later list his profession as “beneficiary.”)
Scaife recalled in his memoir, a copy of which is kept at the Library of Congress, that he was never told exactly why the trusts had been set up but he always assumed his mother was seeking legal tax avoidance in anticipation of the “confiscatory” tax policies of the New Deal. “You’d have to be in a coma not to hear the alarm bell like that,” Scaife wrote. “The rich are going to organize whatever the law allows to use their money as they see fit, out of reach of the tax collector. That’s just Economics 101.”
Two other trusts that his mother later set up for him required that the income go to charity for a number of years before the money flowed to her son. At one point, Scaife’s trusts had more than $1.4 billion in them, according to court records in one of his divorces.
“Isn’t it grand how the tax system is written?” Scaife wrote in his memoir.
When Scaife dipped his foot into national politics, it backfired spectacularly. At a time before political spending limits or donor disclosures, Scaife gave $1 million to the campaign of Richard Nixon. To avoid triggering the federal gift tax, Scaife wrote 334 checks for $3,000 or less, each written to a different dummy committee that fronted for the campaign, the Chicago Tribune reported.
After the Watergate scandal, Scaife largely shifted his donations away from individual politicians to the spread of conservative ideas, said Yale Gutnick, Scaife’s longtime attorney, in an interview.
Scaife gave so much money to the Heritage Foundation, the influential anti-tax, limited-government think tank, that his name in gold letters greets visitors as they walk through the door of its Washington offices. He would later fund conspiracy-fueled investigations of President Bill Clinton.
“Presidents might surround themselves with Secret Service agents and phalanxes of lawyers and operatives, but Scaife proved how hard it was to defend against unlimited, untraceable spending by an opponent hiding behind nonprofit front groups,” the journalist Jane Mayer wrote in “Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right.”
A Columbia Journalism Review reporter described how when she asked Scaife why he funded conservative causes, he replied: “You fucking Communist cunt, get out of here.” He also told her she was ugly and had bad teeth.
Scaife also used much of the money he inherited to transform a suburban newspaper into the Pittsburgh Tribune-Review. His goal was to provide a “second voice” to counter what he perceived as the liberal media dominating that city. At one point the Tribune-Review’s editorial page editor dubbed the estate tax “freedom robbing” and “un-American.”
The heir to another dynastic fortune — Nackey Scripps Loeb, a granddaughter of E.W. Scripps — co-owned and helped run one of the most influential right-wing newspapers in the nation, the Manchester Union Leader in New Hampshire. Because New Hampshire held the first presidential primary, the Union Leader had special sway in elections, and it pressed Republican candidates to sign pledges that they would not raise taxes. Loeb wrote in an editorial, “It is past time for a taxpayer revolt to force the Congress and the White House to stop taxing us more and more in order to support the monster that they have created in Washington.”
A Scripps family spokesman said that Loeb’s views do not represent the broader Scripps clan, which is made up of nearly 100 individual families with different social and political viewpoints. “With respect, it is quite clear to us that you are selecting facts and anecdotes to disparage the Scripps family to advance your viewpoints on tax policies,” the spokesman said. (The Scripps Howard Foundation, which is funded by E.W. Scripps Co. and members of the family, is a donor to ProPublica.)
Though Loeb’s and Scaife’s newspapers shared an animus for taxation, Scaife’s stood out for another reason. The Tribune-Review was a money loser, bleeding red ink even during times when many papers enjoyed fat profit margins. “The profit element was not uppermost,” Scaife wrote in his memoir. “My prime motive as a publisher was and is ideological.”
Ordinary Americans can’t deduct what they spend on passion projects. But for Scaife, the newspaper’s lousy finances created a windfall. Because the newspaper was a business in the eyes of the tax code, its losses helped offset the millions Scaife was receiving each year in trust income. As a result, Scaife paid zero in federal income taxes in four of the last seven years of his life, according to tax records in ProPublica’s trove.
Still, money thrown off by his trusts supported the lifestyle of a royal. He owned a DC-9 that flew him between his country estate outside of Pittsburgh and his seaside escapes in Nantucket and Pebble Beach. His 19th-century silver-gilt dinner service alone was worth more than the average home in Pittsburgh.
“Money, Money, Money”
Dynasties Try to Kill the Estate Tax for Good
The day after he signed historic tax-cut legislation in June 2001, President George W. Bush stood on a makeshift stage surrounded by hay bales and American flags on a century-old family farm in central Iowa. With a shiny green John Deere combine behind him and a vintage corn silo in the distance, the 1,300 acre setting was the perfect mix of modern and historic, a postcard of the heartland.
No longer, Bush told the applauding crowd, would hard-working families have to sell their farms to pay their estate tax bill. The new law phased out the estate tax over the next decade, doing away with it entirely (if momentarily) in 2010.
“The bill we worked on and I signed recognized the importance of the family farmer in America,” Bush told the crowd.
The notion that the estate tax was killing family farms became a powerful weapon in the fight against the tax. Yet, the same year that Bush touted his victory for family farms, David Cay Johnston of The New York Times reported on an unpublished IRS analysis of estate tax returns that found almost no working farmers owed any estate tax at all. A prominent Iowa State University economist told Johnston he looked hard but had never found a farm lost to the estate tax.
The farm owners more likely to feel the relief of Bush’s estate tax cuts weren’t those planting corn and soybeans in Iowa. They were the “gentlemen farmers” of Virginia’s Piedmont region. There, descendants of Andrew Mellon and Frank Mars owned properties in a historic district that describes itself as a place where “former working farms became gentry estates” and “horse breeding, racehorse training, and dressage exercises occurred, along with foxhunting by wealthy land owners.”
Bush’s action was the culmination of a decadelong PR and lobbying campaign by a coalition of wealthy families and business groups that cast the “death tax” as one of America’s great evils with a ghoulish government pursuing lowly taxpayers into the grave to secure a few extra nickels. The coalition, which was funded in part by Mars Inc., succeeded with the help of “money, money, money,” Yale professors Michael Graetz and Ian Shapiro wrote in a book about the lobbying campaign.
Mars Inc. is among the largest family-owned businesses in the U.S. At the time of Bush’s announcement, Forbes pegged the wealth of Frank Mars’ three grandchildren at $27 billion. Jacqueline Mars, granddaughter of Frank and an award-winning owner of horses that compete in equestrian events, has received more than $1 billion in trust income since 1999, according to the tax data ProPublica analyzed.
A spokesperson for the Mars family declined to answer detailed questions but said that Mars Inc. has paid over $15 billion in corporate taxes over a decade and “continually creates good jobs, treats its people well, provides products and services people rely on, and uses its size to improve people’s lives and the planet.”
The anti-estate tax coalition shifted attention away from those most likely to pay it — the likes of the billionaire Mars heirs — to family farmers. When the Heritage Foundation, funded by Scaife, complained the tax had a “rapacious appetite for family-owned businesses,” the images that came to mind were farmers and mom-and-pop businesses, not the multinational Mars Inc. The coalition also successfully targeted state-level estate and inheritance taxes, with these taxes ultimately disappearing in 33 states.
Ray Madoff, a tax law professor at Boston College, said she is amazed at how effective the anti-estate tax campaign has been. “People won’t know what century Abraham Lincoln lived in,” she said, “and they will know that the estate tax is a double tax that hurts family farmers.”
The advocates of estate tax repeal even managed to turn a tax that overwhelmingly fell on white wealth into an issue of racial justice. Robert Johnson, the founder of Black Entertainment Television and the country’s first Black billionaire, became one of the most prominent backers of the effort. In a full-page New York Times ad, Johnson and others said that eliminating the estate tax would “help close the gap in this nation between African American families and White families.”
In 2006, an economist estimated that just 59 of 38 million Black Americans would pay the estate tax.
The Bush tax cuts phased out the estate tax until it was gone in 2010, but the tax came back the following year. By then, though, wealthy families had a way around it that had the blessing of the federal tax court.
Years earlier, a member of Walmart’s Walton family had tried to pass money to her children free of gift or estate taxes using a trust structure that pushed the boundaries of what was allowed. The IRS sent her a hefty tax bill, and the dispute wound up in U.S. Tax Court, which ruled against the IRS in 2000. The trust she used, the grantor retained annuity trust, or GRAT, morphed from exotic estate-tax dodge to routine estate planning for the wealthy.
Here’s how it works. The creator puts stocks or other assets into a GRAT, which pays back an equal amount to what was put in, plus a modest amount of interest. Any gains on the investments flow to the heirs free of gift or estate taxes. So if a person puts in $100 million worth of stock and its value rises to $130 million, the heirs receive about $30 million tax-free.
As ProPublica recently reported, more than half of the 100 richest Americans have used GRATs and other such trusts to avoid estate and gift taxes. Jacqueline Mars had more than 15 GRATs, the tax records show.
While they have major federal tax implications, trusts are actually governed by state laws. This jurisdictional difference has also tilted in the ultrawealthy’s favor. As the rich embraced trusts, states have furiously competed for their trust business, knowing that white-collar jobs and fees would follow.
States began doing away with a centuries-old legal concept known as the “rule against perpetuities.” Under that rule, the creator of a trust had to designate people who were alive when the trust was formed (often grandchildren or great-grandchildren). The trust had to end 21 years after the death of the last of those people.
Once that rule was gone, this meant a billionaire could tuck wealth into a trust and create what University of Chicago law professor Daniel Hemel dubbed “a perpetual estate-tax-avoidance machine.”
That wasn’t possible when E.W. Scripps created his trust in 1922. After protecting the family’s riches from estate taxes for decades, the trust ended in 2012. The imaginary vault opened, and money and shares gushed out for his heirs.
Today, one of his great great grandsons, Sam Logan, is a personality on the MTV reality show “Siesta Key.” He also owns a cannabis startup and regularly posts on Instagram deplaning from a private jet or lounging atop a Rolls Royce. (His brother and fellow heir, Max Logan, is the Lamborghini and watch enthusiast; one red-gold-and-diamond Richard Mille timepiece he displayed on Instagram retails for $285,000.)
A spokesman for the brothers declined to comment. A separate spokesman for the rest of the family said the brothers are “rare exceptions to the low-profile culture” of the Scripps family.
“Almost all live lives that are low-key, dignified and in keeping with the communities in which they live and work,” that spokesman said.
Another great-great-grandchild of Scripps received more than $210 million in income before her 19th birthday, the confidential tax records show.
Like the rest of the family, her financial affairs are organized by Miramar Services. Named after E.W. Scripps’ California ranch, the outfit is composed of tax lawyers, accountants and investment specialists devoted to perpetuating the family’s fortune.
Since E.W. Scripps’ trust was gone, the heirs had to worry about protecting their newfound wealth for the next generation. Lucky for them, GRATs were easy to come by: nine members of the Scripps family together had more than 125 of these trusts, the tax records show.
The great-great-granddaughter alone had already used at least 10 GRATs. And by the age of 17, she had her very own dynasty trust. That’s that kind that can last for centuries.
Of Hot Pockets and Horse Farms
The Rich Win Again
Though he loathed taxes, Thomas Mellon, the progenitor of the Mellon fortune, made an unintentional case for the estate tax when he worried about the corrupting influence of inherited wealth. “Where a family has enjoyed their career of wealth and prosperity for a generation or so,” he wrote in his autobiography, “we may expect ‘degenerate sons.’”
The very court system in Pittsburgh where Mellon presided as judge became the site of a public fight over Mellon family money. Indeed, the six-year battle over Richard Mellon Scaife’s trust could have been ripped from the pages of Charles Dickens’ “Bleak House.” Even the setting — Allegheny County Orphan’s Court — sounds Dickensian.
When Scaife died in 2014, his last will and testament asked that his dogs be taken care of but didn’t mention his adult son or daughter. Not that they were paupers. Court records show the trust that Sarah Mellon Scaife created just for them still had $660 million in it in 2020 after having spit out millions to both of them for years.
They sued for more.
A trust Scaife’s mother created for him would have passed to his children automatically, but Scaife emptied it to fund his newspaper business before he died in 2014. One of the children’s main arguments was that the trustees never should have allowed their father to fritter away the principal of a dynastic trust on a money-losing newspaper.
Even after Scaife’s daughter died, the case plodded on. Ultimately Scaife’s estate agreed to pay $200 million in a court settlement, with the lion’s share returning to the trust for Scaife’s son David and his children, court records show.
David Scaife could not be reached for comment. Attorneys who represent him did not return calls or emails seeking his comment, nor did the head of his family foundation.
Despite the settlement and a hefty state inheritance tax bill, there still was plenty of money for Scaife’s anti-tax causes. Even from the grave, Scaife’s hand continues to influence the debate over how much America will tax the wealthy.
He donated more than $736 million to two charities, one of which has given millions of dollars in recent years to the Heritage Foundation, Tax Foundation and FreedomWorks. A cartoon on FreedomWorks’ website shows the grim reaper, with an IRS briefcase in one hand and a scythe in the other, stalking a businessman at a bus stop.
The estate tax is now on life support. Annual revenues from the estate and gift taxes as a proportion of household wealth in the country have fallen more than 80% since the early 1970s, according to economists Gabriel Zucman and Emmanuel Saez.
Barring a major shift in tax policy, the number of self-perpetuating Mars, Scripps or Mellon-style dynasties will likely multiply and gain dominion over ever more areas of American life. Even the humdrum corners of capitalism are spawning intergenerational windfalls. ProPublica’s tax data shows family fortunes flowing to heirs of the founders of Public Storage, Family Dollar and even the company behind the microwaveable turnovers known as Hot Pockets.
For a brief moment this fall, it looked like the tide might finally turn against the ultrarich. Dynastic wealth faced a real threat for the first time in years. Congress was considering a special tax on billionaires, and expanding the estate tax and clamping down on the trusts that super wealthy families use to avoid the tax.
Elon Musk, then the world’s richest man, complained to his 61 million Twitter followers: “Eventually, they run out of other people’s money and then they come for you.”
Adding ammunition to the debate was the publication, once again, of the private tax information of the wealthiest Americans. ProPublica reported that Musk didn’t pay any income tax in a recent year. Financier George Soros paid zero federal income taxes three years running. And Amazon’s Jeff Bezos reported so little income one year that he qualified for a child tax credit, the tax records show.
But they needn’t have worried. The very same groups that fought the estate tax in the 1990s had never disbanded. With names like the Family Business Estate Tax Coalition, they mobilized to fight the proposals targeting dynastic wealth. A real estate company hired a former top aide to Sen. Joe Manchin, D-W.Va., a crucial swing vote on the bill, to lobby against the changes. And the old arguments were dusted off. Hard working families would have to sell their farms and businesses.
Even the American Horse Council cantered in: horse farms would be paved over for Walmarts, a lobbyist warned.
Just weeks after they were introduced, the tax proposals targeting dynastic wealth were gone, as dead as a fox eviscerated by hounds.
Paul Kiel contributed reporting.