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| THIS WEEK | |
The total U.S. tax burden, from local, state, and federal taxes combined, has now dropped to its lowest level since 1958. Our overall tax bill, new Commerce Department data show, has dropped half a trillion dollars in just a generation. For some wealthy Americans, the tax bill simply can't drop much lower. About 4,000 Americans who make over $1 million a year, a news analysis last week revealed, will pay not one cent of federal income tax for 2010. How can that legally be? Charitable donation games explain a good bit of those zero tax bills. One popular game: The wealthy donate shares of stock that have gone up steeply in value, then deduct the high current share value off their taxes, without having to pay any tax on the share value run-up. But no big deal, right? So some billionaires play donation games on their tax returns. Why quibble? We all benefit immensely from philanthropy, don't we? Maybe not. This week, in Too Much, we take a look at a new study that examines, from up close, what billionaire philanthropy is actually doing for us — and to us. | |
| GREED AT A GLANCE | |
 Health care CEOs did quite nicely in last year’s executive pay sweepstakes, according to the new Wall Street Journal figures. Their $10.6 million median pay outpaced the pay that went to high-tech top execs in 2010 by nearly a full million. In other health care news, CNN reports that health care costs for the average insured American family of four are now running $19,393 a year, almost double the average American family health care expense bill in 2002 . . . You have to hand it to those hedge fund honchos on Wall Street. They really know how to open their wallets at the annual Robin Hood Foundation gala, Wall Street’s largest single charitable fundraiser. Last week's fabulously lush Robin Hood gala, starring none other than Lady Gaga, raised $47.4 million. An impressive chunk of change — until you realize that the financial industry's 25 top-paid hedge fund managers, all by themselves, last year made almost ten times that $47.4 million each and every week! This year's Robin Hood gala, despite Lady Gaga's appearance, raised $40 million less than last year's . . . Hedge fund contributions to charity look even less impressive when you add up the various tax breaks that inflate the hedge fund bottom line — and New York City unions, community groups, and non-profits are now doing that adding. Their coalition last week called for an end to “the more than $1.55 billion in subsidies, sweetheart deals, and tax loopholes” that New York’s big banks and super rich are annually pocketing. A single hedge fund municipal tax loophole — a provision that exempts the bulk of investment fund income from New York’s most important business tax — costs the city's treasury $200 million a year . . . Understandably missing from last Monday’s Robin Hood Foundation gala: hedge fund mogul Raj Rajaratnam. The Galleon Management founder had pressing business elsewhere: his trial on federal insider trading charges. Rajaratnam spent upwards of $25 million on his defense, enough to fund a 45-lawyer defense team, but a jury Wednesday found him guilty anyway. Rajaratnam now becomes the first big-time Wall Street player since the 2008 financial industry meltdown to face hard time. But the biggest of Wall Street’s bigs, Rolling Stone’s Matt Taibbicharged last week, “stands now on the precipice of officially getting away with one of the biggest financial crimes in history.” Taibbi’s piece details how top Goldman Sachs executives bet against their own clients — and then perjured themselves before Congress when quizzed about those same transactions. | |
| INEQUALITY BY THE NUMBERS | |
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| IN FOCUS | |
For Top 400 Taxpayers, a Near-Record Year America's super rich, new IRS income data show, partied on right through the depth of the Great Recession. And they shared precious little of their good fortune with Uncle Sam.In 2008, the IRS revealed last week, 400 Americans reported at least $110 million in income on their federal tax returns. These 400, in a year that ended with millions of Americans out of work and home, averaged $270.5 million each, the second-highest U.S. top 400 average income on record. The IRS only started reporting top 400 income calculations in 2003, and the agency's official “top 400” totals just go back to 1992. But older IRS data reports do make top 400 estimates from some earlier years possible. And these earlier figures leave the latest IRS numbers in even starker relief. In 1955, for instance, America's top 400 averaged — in 2008 dollars — $13.3 million. In other words, the top 400 in 2008 reported incomes that, after taking inflation into account, amounted to more than 20 times the incomes of America’s top 400 a half-century ago. But 1955’s top 400 didn’t just make far less than 2008’s top 400. The rich in 1955 paid far more of their income in taxes than today’s rich. In 2008, the new IRS data show, the top 400 paid only 18.1 percent of their total incomes in federal income tax. The top 400 in 1955 paid 51.2 percent of their total incomes in tax. After taxes, and after adjusting for inflation, 2008’s top 400 had a staggering $85 billion more left in their pockets than 1955’s most awesomely affluent. You don’t have to go all the way back to 1955 to see how little today's top 400 are paying in taxes. In 1992, the IRS stats detail, only 33 of the top 400 paid less than 20 percent of their incomes in federal income tax. In 2008, 253 did. The main reason: Today’s rich are getting more and more of their income from capital gains — the profits from buying and selling stocks, bonds, and other assets — and these capital gains now face a substantially lower tax rate than they did two decades ago. Some specifics: In 1992, the top 400 grabbed 26 percent of their income from paychecks and 36 percent from capital gains. In 2008, by contrast, only 8 percent of top 400 income came from salary — 88 of the year's top 400 didn’t even have jobs — and 57 percent came from capital gains. These 2008 capital gains faced only a 15 percent tax rate, down from a 1992 rate almost twice that high. Incomes for the 2008 top 400 did dip from top 400 levels in 2007, a year that saw the top 400 average $344.8. But the dropoff from 2007 to 2008 turned out to be less steep than the dip in 2000 after the dot-com bust. America’s richest came roaring back, fairly fast, from that dot-com setback. How fast will the next comeback be for America’s super rich? We won’t know for sure until next spring, when the IRS releases top 400 income figures for 2009. We can, in the meantime, do some reasonable surmising. Next year’s top 400 figures for 2009, we can predict with some confidence, figure to be real stunners. One statistic behind that confidence: In 2009, we already know, the financial industry’s top 25 hedge fund managers averaged a record $1.01 billion, over double the $464 million hedge fund top 25 average in 2008. | |
| IN REVIEW | |
Philanthropists Gone Wild: A Cautionary Tale Education Inc.: Big Bets, Modest Payoffs. Center for Public Integrity, Washington, D.C. May 2, 2011 Philanthropists can be bullies. They can — and do — use their fortunes to bend public institutions to their own private will. Last week, for instance, we learned that right-wing billionaire Charles Koch is wielding veto power over faculty hires at a public university, Florida State, where he’s bankrolling economics courses. That arrangement, notes the St. Petersburg Times, directly violates “a hallmark of academic freedom,” the notion that universities must retain the power to choose professors “without outside interference.” But wealthy donors don’t have to swing sharp elbows — like Charles Koch — to bully. Indeed, the findings from a new study on billionaire philanthropy and public education suggest a deeply more troubling reality: Billionaire charity can make democratic give-and-take — and thoughtful public policy — next to impossible. The researchers behind this new Center for Public Integrity study had a simple goal. They knew that billionaire cash has been rushing into urban schools over the last decade, $4.4 billion from Bill Gates, Michael Dell, Eli Broad, and the Wal-Mart Waltons alone. Their question: What impact have these billions had? The Center researchers examined records from the ten major urban school systems, from New York to Oakland, where billionaire dollars have concentrated. And they found that the billionaire dollars, in the end, didn’t do much. The districts studied did somewhat improve student performance faster than other districts in their states, but “only 60 percent of the time.” Test scores in some districts awash in billionaire dollars actually went backwards. In one district, Washington, D.C., scores showed appreciable gains, but, the Center study notes, these scores “have lately come under investigation, amid suspicions of cheating.”
All those billionaire dollars, the study relates, didn’t pour into projects and programs that local educators and their communities had identified. They poured instead into the pet projects of the billionaires. In fact, most of the billionaires seemed to view the local democratic decision-making process as more obstacle than anything else. They celebrated their capacity, as Los Angeles billionaire Eli Broad put it, “to take risks that government is not willing to do” — and even derided the importance of listening to local stakeholders. “The fact that I don't concern myself about criticism or pushback helps,” Broad boasted to the Center’s researchers. This attitude shouldn't come as any surprise. Billionaire execs, in their corporate empires, don't have to tolerate pushback. They see no reason why this intolerance can't work in philanthropy either. “The business titans entered the education arena,” the Center for Public Integrity researchers would conclude, “convinced that America's schools would benefit greatly from the tools of the boardroom.” America's schools, the billionaires believed, needed principals operating like CEOs. Teachers needed to be “paid for performance,” they insisted, and districts needed more “charter schools” free from “government monopoly” regulation. None of these corporate “answers” for education’s problems rest on research data culled from real school and classroom experience. “Merit-pay” schemes for teachers, in the research literature, have an inglorious history. Charter schools, for their part, have produced no grand advances in student performance. That didn’t stop the billionaires from dumping dollars, by the billions, into merit pay and charter school initiatives. And the failure of those billions to make any significant impact doesn’t seem to have humbled either the billionaires or their philanthropic major domos. They’re all still assuming their ideas represent “best practice” and essentially admit to only one failure: impatience. “It's so hard in this country to spread good practice,” as one billionaire foundation executive told the Center for Public Integrity research team. “When we started funding, we hoped it would spread more readily.” The real failure here appears to go much deeper. Our democratic faith rests on the assumption that we do better, as a society, when we all together discuss, debate, and decide the solutions to our problems. Billion-dollar philanthropy short-circuits that discussion, debate, and democratic decision making. Still, in these tough economic times, can we possibly afford to do without the dollars billionaires have to offer? Of course not. We certainly do need billionaire dollars in education. But we shouldn’t need to depend on philanthropic whims to get those dollars put to the public good. We have, after all, a time-tested democratic alternative. Progressive taxation. Let’s try it. | |
Quote of the Week
“There won't be a flight of talent. In fact, it might winnow out those whose modus operandi is self-interest and greed and retain those who are fair-minded human beings.”
Australian senator Bob Brown, defending his proposal to cap CEO pay at 30 times average worker pay against charges that the cap would drive top executives out of Australia, Sydney Morning Herald, May 13, 2011
Stat of the Week
One of America's best large school districts, Maryland’s Montgomery County, has just hired a new superintendent — at a salary of $250,000. The new superintendent will manage 22,229 staffers and a $2.1-billion budget. Montgomery County’s 20 highest-paid private corporate CEOs last year managed, on average, 13,911 employees and $4.2-billion budgets. These CEOsaveraged $7.9 million in pay.
New Wisdom
on Wealth
Aditya Chakrabortty, Wealth gap: the moral behind the royal wedding, Guardian, May 10, 2011. This tale of the princess and the palace cleaner “reveals the growing gulf between rich and poor,”
Sarah Anderson, CEO-Worker Pay Ratio Rule Under Attack, CSRwire, May 10, 2011. A vigorous defense of the year-old CEO-worker pay ratio disclosure mandate now under ferocious corporate assault in Congress.
Barry Lynn, The Real Enemy of Unions,Washington Monthly, May/June 2011. Today's U.S. economy has become more monopoly-driven than J. P. Morgan's, a reality that helps “explain the extreme and growing concentration of wealth” that's “fast remaking our political system.”
J. Robert Brown, Executive Compensation and Ratio Disclosure, Race to the Bottom, May 12, 2011. An excellent refutation of the corporate case against disclosing the CEO-worker pay gap within individual corporations.
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