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Andrew Mellon, left, Ethel Mars and E.W. Scripps Credit: Mike McQuade, special
to ProPublica. Photos by Library of Congress/Corbis/VCG via Getty Images,
Bettmann Archive/Getty Images, Bettmann Archive/Getty Images
THE GREAT INHERITORS: HOW THREE FAMILIES SHIELDED THEIR FORTUNES FROM TAXES FOR
GENERATIONS
IN THE EARLY 1900S SOME OF THE WEALTHIEST AMERICANS CLAIMED THEIR FORTUNES WOULD
NEVER LAST THROUGH THE GENERATIONS. A CENTURY OF TAX AVOIDANCE LATER, THE
DYNASTIES ARE GOING STRONG.
by Patricia Callahan, James Bandler, Justin Elliott, Doris Burke and Jeff
Ernsthausen Dec. 15, 6 a.m. EST
by Patricia Callahan, James Bandler, Justin Elliott, Doris Burke and Jeff
Ernsthausen Dec. 15, 6 a.m. EST
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SERIES: THE SECRET IRS FILES
Inside the Tax Records of the .001%
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you (standard messaging rates apply).
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.”
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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 ultrarich 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.”
Andrew Mellon, far left — a hater of the estate tax — watches the signing of a
package of tax cuts in 1926 by President Calvin Coolidge, whom he served as
treasury secretary. Credit: Library of Congress/Corbis/VCG via Getty Images
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 Credit: Bettmann Archive/Getty Images
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.
An investigation about tax dodging was featured on the front page of The Toledo
News-Bee, a Scripps-owned newspaper, in 1916. Credit: The Toledo News-Bee via
Google News Archive
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, on a yacht, smokes a cigar and reads the newspaper. He spent the last
years of his life sailing. Credit: E.W. Scripps Archive via Ohio University
Libraries
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.
Andrew Mellon, as treasury secretary, lays cornerstone of the Internal Revenue
building in Washington in May 1929. Credit: Universal History Archive/Universal
Images Group via Getty Images
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.
Andrew Mellon bought this Pittsburgh mansion in 1917. Credit: AP Photo
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.
The New York Times reported income tax payments on the front page. Credit: The
New York Times
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.
Andrew Mellon, left, with his heirs: daughter, Ailsa, and son, Paul Credit:
Bettmann Archive/Getty Images
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.
Ethel Mars posing with a jockey. Her family’s candy company deducted losses from
her horse racing stables from its corporate taxes. Credit: Bettmann
Archive/Getty Images
“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.
Andrew Mellon testifies at a hearing about his taxes in Pittsburgh on April 1,
1935, two years before his death. Credit: AP Photo
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.
THE MELLON FAMILY
* Thomas Mellon: The patriarch and businessman
* Andrew Mellon: Treasury secretary, son of Thomas Mellon
* Richard Mellon: Business partner, brother of Andrew Mellon
* Sarah Mellon Scaife: Daughter of Richard Mellon
* Richard Scaife: Newspaper owner, son of Sarah Mellon Scaife
* Timothy Mellon: Railroad investor, grandson of Andrew Mellon
“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.”)
Richard Mellon Scaife in 1973 Credit: AP Photo
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.”
THE SCRIPPS FAMILY
* E.W. Scripps: Founder of newspaper company
* Robert Paine Scripps: Son of E.W. Scripps
* Nackey Scripps Loeb: Co-owner of Union Leader, daughter of Robert Paine
Scripps
* Sam and Max Logan: Great-great-grandsons of E.W. Scripps
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.
President George W. Bush speaks at a family farm in Iowa on June 8, 2001.
Credit: Mike Theiler/Reuters
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.
THE MARS FAMILY
* Frank Mars: Founder of the candy company
* Ethel Mars: Frank Mars’ wife, race horse enthusiast
* Forrest Mars Sr.: Son of Frank Mars, stepson of Ethel
* Audrey Mars: Forrest Mars Sr.’s wife
* Jacqueline Mars: Daughter of Forrest and Audrey Mars
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.
A picture posted by Max Logan on Instagram with the caption, “This week’s carry
on essentials.” Logan is E.W. Scripps’ great-great-grandson. Credit: Screenshot
via Instagram
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.
Richard Mellon Scaife in 1997. Credit: Tony Tye/Pittsburgh Post-Gazette via AP
Photo
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.”
ProPublica
Read More
The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the
Wealthiest Avoid Income Tax
When You’re a Billionaire, Your Hobbies Can Slash Your Tax Bill
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.
HOW WE REPORTED THIS STORY
To trace the fortunes of three families over the past century, reporters drew on
court records, transcripts of congressional hearings, letters, memoirs,
telegrams, contemporaneous newspaper accounts and more than 70 books.
Critical to our research on the Scripps family were the E.W. Scripps Papers at
the Ohio University Libraries and the Patricia A. Schaelchlin/Scripps Family
Research Collection at Scripps College. Three books were helpful in tracing
details about Scripps and his newspaper chain: “The Astonishing Mr. Scripps: The
Turbulent Life of America’s Penny Press Lord” by Vance Trimble, “The Scripps
Newspapers Go To War, 1914-1918” by Dale Zacher and “E.W. Scripps and the
Business of Newspapers” by Gerald J. Baldasty.
The Franklin D. Roosevelt Presidential Library and Museum shared a copy of
Treasury Secretary Henry Morgenthau’s diary, in which he recounted the
administration’s campaign against tax avoidance. “Their Fair Share: Taxing the
Rich in the Age of FDR” by Joseph Thorndike also provided context.
We relied on books written by members of the Mellon family: Thomas Mellon’s
autobiography, “Thomas Mellon and His Times,” Andrew Mellon’s “Taxation: The
People’s Business” and Timothy Mellon’s “panam.captain.” Several other books on
the Mellon family were resources, including David Cannadine’s biography,
“Mellon: An American Life,” and David Koskoff’s “The Mellons: The Chronicle of
America’s Richest Family.”
Few copies of Richard Mellon Scaife’s memoir, “A Richly Conservative Life,”
exist. The Library of Congress made theirs available to us. “Dark Money: The
Hidden History of the Billionaires Behind the Rise of the Radical Right” by Jane
Mayer fit Scaife’s role of bankrolling conservative think-tanks into a broader
movement.
We drew insights on taxation from W. Elliot Brownlee’s “Federal Taxation in
America: A History,” “Death by a Thousand Cuts: The Fight over Taxing Inherited
Wealth” by Michael Graetz and Ian Shapiro, and “The Triumph of Injustice: How
the Rich Dodge Taxes and How to Make Them Pay” by Emmanuel Saez and Gabriel
Zucman.
Paul Kiel contributed reporting.
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