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WASHINGTON — The hedge fund magnates Daniel S. Loeb, Louis Moore Bacon and Steven A. Cohen have much in common. They have managed billions of dollars in capital, earning vast fortunes. They have invested millions in art — and millions more in political candidates. Moreover, each has exploited an esoteric tax loophole that saved them millions in taxes. The trick? Route the money to Bermuda and back. With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes. Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means. In recent years, this apparatus has become one of the most powerful avenues of influence for wealthy Americans of all political stripes, including Mr. Loeb and Mr. Cohen, who give heavily to Republicans, and the liberal billionaire George Soros, who has called for higher levies on the rich while at the same time using tax loopholes to bolster his own fortune. The average tax rate for the ultra-wealthy has fallen dramatically. All are among a small group providing much of the early cash for the 2016 presidential campaign. Operating largely out of public view — in tax court, through arcane legislative provisions, and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans. The impact on their own fortunes has been stark. Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups. The ultra-wealthy “literally pay millions of dollars for these services,” said Jeffrey A. Winters, a political scientist at Northwestern University who studies economic elites, “and save in the tens or hundreds of millions in taxes.” Some of the biggest current tax battles are being waged by some of the most generous supporters of 2016 candidates. They include the families of the hedge fund investors Robert Mercer, who gives to Republicans, and James Simons, who gives to Democrats; as well as the options trader Jeffrey Yass, a libertarian-leaning donor to Republicans. Mr. Yass’s firm is litigating what the agency deemed to be tens of millions of dollars in underpaid taxes. Renaissance Technologies, the hedge fund Mr. Simons founded and which Mr. Mercer helps run, is currently under review by the I.R.S. over a loophole that saved their fund an estimated $6.8 billion in taxes over roughly a decade, according to a Senate investigation. Some of these same families have also contributed hundreds of thousands of dollars to conservative groups that have attacked virtually any effort to raises taxes on the wealthy. In the heat of the presidential race, the influence of wealthy donors is being tested. At stake are the Obama administration’s limited 2013 tax increase on high earners — the first in two decades — and an I.R.S. initiative to ensure that, in effect, the higher rate sticks by cracking down on tax avoidance by the wealthy. While Democrats like Bernie Sanders and Hillary Clinton have pledged to raise taxes on these voters, virtually every Republican has advanced policies that would vastly reduce their tax bills, sometimes to as little as 10 percent of their income. At the same time, most Republican candidates favor eliminating the inheritance tax, a move that would allow the new rich, and the old, to bequeath their fortunes intact, solidifying the wealth gap far into the future. And several have proposed a substantial reduction — or even elimination — in the already deeply discounted tax rates on investment gains, a foundation of the most lucrative tax strategies. “There’s this notion that the wealthy use their money to buy politicians; more accurately, it’s that they can buy policy, and specifically, tax policy,” said Jared Bernstein, a senior fellow at the left-leaning Center on Budget and Policy Priorities who served as chief economic adviser to Vice President Joseph R. Biden Jr. “That’s why these egregious loopholes exist, and why it’s so hard to close them.” Each of the top 400 taxpayers took home, on average, about $336 million in 2012, the latest year for which data is available. If the bulk of that money had been paid out as salary or wages, as it is for the typical American, the tax obligations of those wealthy taxpayers could have more than doubled. Instead, much of their income came from convoluted partnerships and high-end investment funds. Other earnings accrued in opaque family trusts and foreign shell corporations, beyond the reach of the tax authorities. The well-paid technicians who devise these arrangements toil away at white-shoe law firms and elite investment banks, as well as a variety of obscure boutiques. But at the fulcrum of the strategizing over how to minimize taxes are so-called family offices, the customized wealth management departments of Americans with hundreds of millions or billions of dollars in assets. Family offices have existed since the late 19th century, when the Rockefellers pioneered the institution, and gained popularity in the 1980s. But they have proliferated rapidly over the past decade, as the ranks of the super-rich, and the size of their fortunes, swelled to record proportions. “We have so much wealth being created, significant wealth, that it creates a need for the family office structure now,” said Sree Arimilli, an industry recruiting consultant. Family offices, many of which are dedicated to managing and protecting the wealth of a single family, oversee everything from investment strategy to philanthropy. But tax planning is a core function. While the specific techniques these advisers employ to minimize taxes can be mind-numbingly complex, they generally follow a few simple principles, like converting one type of income into another type that’s taxed at a lower rate.
