The US is the second worst tax haven in the world. States like South Dakota are to blame. The conservative mini-state deliberately sees financial regulation as relaxed. A model that the banking industry exploits and the Republican after-work parliament rarely understands.
South Dakota is a US state of minor numbers. It has just under 900,000 inhabitants and only carries 0.26 percent of American economic output at. The capital Pierre is rather a larger village with 14,000 inhabitants. And although the well-known presidential monument Mount Rushmore Built in the 1940s to stimulate tourism, few holidaymakers get lost in the Prairie State in the middle of the United States, in the so-called fly-over country – the region that is usually only traveled by Flies coast to coast. Historically, there are a lot of cattle, but only a few people, says Philipp Adorf in the ntv podcast “Learned again”.
The political scientist from the University of Bonn has not yet been to Mount Rushmore State, but is primarily researching the Republican Party. At this point he is in good hands in South Dakota, as the state is also called in Germany. Because there are hardly any US states in which the Republicans are more dominant.
“Since 1936, a Republican has won the state 20 times in 21 presidential elections. The last time a Democrat won in 1964. Donald Trump won both times by 25 percentage points,” said Adorf, describing the loyal electorate. “The Republicans control 90 percent of the seats in both chambers of parliament. There is almost no democratic minority. This is of course also reflected in local politics.”
Center of the financial industry
Local politics that looked like this during the Corona crisis: South Dakota had one investigation According to the lowest corona restrictions of all US states. “South Dakota is not New York City”, Governor Kristi Noem declared her laissez-faire approach without lockdown, masks and distance in April 2020.
The 50-year-old tea party supporter is considered to be coming face the republican party. Ex-President Trump likes them, the Christian conservatives too: Private gun ownership? Of course, says Noem. Abortions and Same-Sex Marriage? No thank you.
On July 4th, 2020, ex-President Trump visited South Dakota and Governor Noem to celebrate US Independence Day on Mount Rushmore.
(Photo: AP)
She is also fully on the radical party line on other issues: Few states invest less money in their health system than South Dakota. Few have such lax banking laws. For example, South Dakota removed the state cap on credit card interest in 1981. Since then, Sioux Falls, the state’s largest city, has been the center of America’s financial industry. Almost every US bank has a branch there, almost every credit card is issued there – many of them with usurious interest if they are overdrawn.
Deregulation is enough for majorities
“Because of the political majority, this is relatively easy to implement. The tenor is a bit far: what the banking or credit industry wants is more or less read off the lips by the local republican politicians,” says the Bonn political scientist, describing the usual legislative process in South Dakota. “Not least because the local politicians do not have any particular insight that one can say: They understand what is being implemented. They only see that it is about deregulation. That is enough to find majorities.”
“Statistical surveys show that 80 percent of the people in South Dakota believe that agriculture is the most important industry,” says Philipp Adorf.
(Photo: University of Bonn)
Many laws in South Dakota are introduced by the so-called Trust Taskforce. It has been around since 1990 and, according to Adorf, has a fairly simple task: It looks at how strict the financial and banking rules are in other US states so that South Dakota can adjust its rules if necessary – in most cases, relax them attract more banks or private wealth. The local Lay parliament or after-work parliament in Pierre then blesses the proposals.
This type of legislation has created a whole new “tourist attraction” in South Dakota. One that became famous at the beginning of October through the “Pandora Papers”: the Trusts.
“Most powerful protective shield”
Lives in South Dakota not a single one of the 500 richest people in the worldEven so, the mini-state holds more than $ 360 billion in assets in its 81 known trusts – that’s about that Six times your own economic output. And trust assets are growing: they are four times larger today than they were ten years ago.
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“South Dakota is peddling its financial secrecy”, the development is described in the “Pandora Papers”. A trust in South Dakota is “the strongest protective shieldThat money can buy, “says the British” Guardian “, because one in seven of the trusts discovered has connections to people or companies abroad that are accused of money laundering, bribery or human rights violations.
“You can make access to these trusts as restrictive as you want. Even creditors have almost no access to them,” said political scientist Adorf, explaining the attraction of the local financial service. “Another big factor is that this trust, unlike many other similar offers, can be set for eternity. Normally, this is called ‘Rule against perpetuities’, such trusts are after a certain point in time After the person who set up the trust died, so that part of the assets that were parked there can go into the state budget through taxes. “
Foreclose assets
Typically, such trusts are set up as a triangular deal: a rich or wealthy person transfers part of their money, shares or real estate to a trustee so that he can manage the valuables for a third person or for a specific purpose. In most cases, for example, it is about inheritances or grandparents who want to help their grandchildren start their careers. Depending on the purpose of the trust, the sum is paid out either in the event of death, at the age of majority or at school graduation. As soon as the money is paid out, it must also be taxed.
Not so in South Dakota. Like other US states, the Prairie State has adjusted the rules since the 1980s: Their trusts are primarily used to foreclose assets. Strict data protection rules ensure that tax authorities or foreign governments that want to collect taxes only get access to a trust if the founder allows it. Investigative authorities also have no access.
Unsuspecting population
In the case of South Dakota, the founder does not even have to register a third party beneficiary or live in the Prairie State, but can have the assets managed for himself by an overseer of his choice. The trust is a type of mutual fund for which fees but no other costs are due: The providers advertise that South Dakota does not have any Income tax, no inheritance tax and no capital gains tax required. The national budget comes out as good as empty.
“If you can find ways not to pay taxes, we agree“The Washington Post describes the golden rule by which Republicans make politics. A rule not even known to the local population:” Statistics show that 80 percent of the people in South Dakota believe that agriculture is the is the most important branch of the economy, “says Philipp Adorf.” Only two percent mentioned the financial sector. But with a share of 21 percent of the gross domestic product, it is the most important line of business. “
In the Financial Secrets Index, the lax rules of states such as South Dakota have on the United States for the past few years second place catapulted. The US is a tax haven. And South Dakota is the most beautiful island.