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| THIS WEEK | |
Twenty-five million Americans looking for full-time jobs last month could not find them. How is the American political system responding to this crisis? In Iowa last week, a governor hot on halving the state taxes corporations pay killed legislation that would have kept open Iowa’s 36 unemployment offices. The governor says Iowa’s 100,000 jobless don’t need local offices where they can get help finding work and applying for unemployment benefits. He’s urging jobless Iowans to hit their local libraries instead and look for help on the Internet. America’s rich, of course, don’t have to go online to find help. They have legions of lawmakers intensely devoted to their welfare, as last week’s debt ceiling debate once again demonstrated. Congress and the White House now agree that no “solution” to the ceiling crisis will dare raise taxes on America’s swells. In other words, the debt ceiling, one way or another, will eventually rise. So will inequality. Did the debt ceiling debate have to end this way? This week, in Too Much, we peer back into history for help on the answer. | |
| GREED AT A GLANCE | |
 The CEO of the world’s largest luxury retailer, the Paris-based LVMH, only needs one word to describe the state of today’s global luxury market: “remarkable.” LVMH chief exec Bernard Arnault announced last week that his luxury brand goliath — purveyor of everything from Dom Perignon champagne to Givenchy perfume — has registered a 22 percent hike in profits over 2011’s first half. Sales are running particularly strong for $17,000 Hublot watches — and LVMH is also reporting waiting lists for its $2,100 Louis Vuitton handbags . . . The world’s most over-the-top pleasure boat, the 530-foor gigayacht that belongs to Russian oligarch Roman Abramovich, has one missile defense system, two swimming pools, and three helipads. Now the yacht is boasting something really unexpected: renters. Abramovich is leasing his deep sea pride and joy out for a clean $2 million a week. The move makes sense of sorts. The ship costs Abramovich an estimated $50 million a year to maintain — on top of fuel . . .  Apologists for grand fortune also enjoy arguing that the wealthy among us merit their mega millions because they take risks. In China, the Epoch Times reports, getting rich may actually entail a serious bit of risk taking. Of the 72 Chinese ultra rich who have died over the last eight years, the paper notes, 53 have died from “unnatural causes.” Chinese multi-millionaires, in fact, are passing on precipitously at nearly the same rate as Chinese police officers. Among the “unnatural causes” behind mega millionaire passings: the death penalty. Fourteen of China’s 53 most unfortunate holders of grand fortunes died after convictions for offenses that ranged from embezzlement to serial rape. Suicides claimed 17 others, homicides 15, and accidents the final seven. | |
| INEQUALITY BY THE NUMBERS | |
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| IN FOCUS | |
Doing Debt Ceiling Battle the FDR Way At times of national fiscal crisis, President Franklin Roosevelt ever so firmly believed, you don't give the awesomely affluent a free pass. You pound them — and then you pound them some more. Against a Congress where zealously rich people-friendly conservatives hold the upper hand, how much can a President of the United States committed to greater equality realistically hope to accomplish? The answer from today’s White House: not much. Advocacy for equality has to take a backseat, Obama administration insiders insist, once fanatical friends of the fortunate in Congress recklessly put at risk our nation’s full faith and credit. But history offers another alternative. Back in 1943, halfway through World War II, a President of the United States confronted a debt ceiling crisis eerily similar to our own. That President, Franklin Roosevelt, faced a congressional opposition to inconveniencing the rich — with higher taxes — every bit as rabid as ours. FDR's choice, in the face of this opposition? He doubled down on equality. Roosevelt’s debt ceiling battle actually began in the months right after Pearl Harbor. The nation needed dollars — and lots of them — to wage and win the new war. FDR wanted those dollars raised as equitably as possible. That would require, FDR and his New Dealers believed, a steeply graduated income tax, with tax rates on income in the top income brackets much higher than rates on income in the bottom brackets. How high should the top rates go? All the way, FDR proposed, to 100 percent. At a time of “grave national danger,” the President told Congress in April 1942, “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year,“ an income just shy of $350,000 in today’s dollars. The year before, gun executive Carl Swebilius had pulled in $243,204 after taxes, the equivalent of over $3.7 million today. Steel exec Eugene Grace had grabbed $522,537, over $8 million today, in 1941 salary. But conservatives in Congress looked the other way. They never gave FDR’s plan any love. Four months later, Roosevelt would try again. In his Labor Day message, FDR repeated his $25,000 “supertax” income cap call. Again Congress ignored him. FDR would not back down. In early October, the President flexed his authority under the newly enacted Emergency Price Control Act and issued an executive order that limited top corporate salaries to $25,000 after taxes, a move, he pronounced, needed “to correct gross inequities and to provide for greater equality in contributing to the war effort.” America’s wealthiest, New Dealers explained afterwards to the press, “should be willing to get along on more than $2,000 a month while marines endure tortures on Guadalcanal Island for $60 a month and room and board.” FDR’s executive order would infuriate conservatives. They saw red, literally. The “only logical stopping place for this movement,” fumed Princeton economist Harley Lutz, would be “a completely communistic equalization of incomes.” FDR’s salary cap, roared New Bedford publisher Basil Brewer, just might “lose the war.” In Congress, meanwhile, lawmakers vowed to kill FDR’s executive order by any legislative means necessary. Roosevelt, in response, simply kept pushing. In January 1943, he reminded Congress that “the receipt of very large net incomes from any source constitutes a gross inequity undermining national unity” and asked lawmakers to make taxes on America’s highest incomes “fully effective.” Roosevelt also asked Congress, in his 1943 budget message, to raise the nation’s debt ceiling. Conservatives indicated they would — if the ceiling bill included a rider that repealed the President’s $25,000 salary cap executive order. Lawmakers would not go along with a debt ceiling hike, California Republican Bertrand Gearhart told reporters, until FDR's “thoroughly un-American” salary cap, “fraught with such disaster to the Republic, is wiped from the books.” At this point, no “realistic” observer could have faulted FDR if he simply threw in the towel. The 1942 mid-term elections the previous November, after all, had significantly strengthened the congressional conservative camp, in large part because millions of New Deal voters — soldiers overseas and workers who had migrated far from home for wartime factory work — couldn’t vote. But FDR threw in nothing. To reporters and Congress, he reiterated his support for the $25,000 salary cap. Of course, the President added, he would “rescind” his cap in an instant if Congress passed legislation that limited all individual after-tax income, not just salary, to $25,000. And if Congress couldn’t see fit to go that far, the President helpfully suggested, he hoped lawmakers would enact “steeply graduated rates” that brought taxes on top-bracket income up to the 90 percent neighborhood. Eventually, both the House and Senate would pass the debt ceiling bill — with the salary cap repeal rider attached. Most Democrats went along, noting, as Senator Alben Barkley put it, “the importance of increasing the debt limit.” Roosevelt well understood that importance, too. He would let the higher debt ceiling bill become law, without his signature. But FDR quickly signaled no surrender in his continuing battle to make sure that “not a single war millionaire will be created in this country as a result of the war disaster.” Congress, Roosevelt pointed out, “had authorized the drafting of men into the armed forces at $600 a year regardless of what they had earned in civilian life,” but, with the salary cap repeal, had “refused to reduce the salary of a man not drafted no matter how high his income might be.” The President, to be sure, had definitely lost the debt ceiling battle over his executive salary cap, as he no doubt knew he would. But sometimes a President can win by “losing.” FDR did not prevail on the salary cap. He did prevail in his far broader struggle to shape the wartime finance debate. Roosevelt's relentless campaign to cap top incomes kept that debate focused on taxing the rich. Conservatives didn’t want to do that taxing. They wanted a national sales tax instead, as do many conservatives today. But FDR’s aggressive advocacy for equity never let that regressive sales tax notion get traction. The war revenue debate would be fought on Roosevelt's terms — not on whether to tax the rich, but on how much. And, in the end, that “how much” would turn out to be quite a great deal. By the war's end, America’s wealthy would be paying taxes on income over $200,000 at a 94 percent statutory rate. Americans making over $250,000 in 1944 — over $3.2 million today — paid 69 percent of their total incomes in federal income tax, after exploiting every tax loophole they could find. In 2007, by contrast, America’s 400 highest earners paid just 18.1 percent of their total incomes, after loopholes, in federal tax. None of the debt ceiling “deals” that House and Senate leaders advanced last week asked any of these top 400 — or any other rich Americans — to pay a penny more in taxes than they do now. In the 2011 debt ceiling struggle, inequality has clearly triumphed. So what ought we learn, amid this triumph for greed, from FDR’s debt ceiling battle? Maybe this: We really can have a more equal America. We just need to fight for it. | |
| IN REVIEW | |
The Wealth Gap's Great Recession Surge Rakesh Kochhar, Richard Fry, and Paul Taylor, Wealth Gaps Rise to Record Highs Between Whites, Blacks, Hispanics. Pew Research Center, July 26, 2011. Has the Great Recession been an equal opportunity destroyer? Or have some Americans survived the nation’s worst economic downturn since the 1930s significantly better than others? A new report from the Pew Research Center, based on extensive Census Bureau survey work in 2005 and 2009, resolves these questions — on two fronts. The first: ethnicity. The Pew data show that the Great Recession has widened the wealth gap substantially between white and black and white and Hispanic households. In 2005, the typical white household held seven times more wealth than the typical Hispanic household and 11 times more than the typical African American household. In 2009, these gaps stood around twice as wide, 18 times between white and Hispanic households, 20 times between white and black. The primary source of these growing wealth gaps between white and minority households? The collapse of the housing bubble. Minority households get much more of their net worth from the equity they hold in their homes than white households. Geography exacerbates the gap: Hispanic families reside disproportionately in the states — California, Florida, Nevada, and Arizona — that have seen home values sink the fastest. But the new Pew report tells another story as well. The Great Recession hasn't just widened the wealth gap between ethnic groups. The recession, the Pew researchers note, has widened the gap within each ethnic group — grown that gap “in favor of the wealthiest within each racial and ethnic group.” The richest top 10 percent of white households have increased their share of white household wealth, from 49 to 56 percent. For the richest 10 percent of black, Hispanic, and Asian households, even heftier increases. How much of that increasing wealth share for the top 10 percent have the really rich — households in the top 1 percent — grabbed? The Pew report can’t help us here, since Census surveys don't effectively track wealth at America's economic summit. The best data on wealth at the top come from the Federal Reserve’s triennial Survey of Consumer Finances. The next of these studies, covering 2010, won't be out until next winter. | |
Quote of the Week
“The $15,080 minimum wage workers have for rent, groceries, transportation, medicine, and everything else for the year doesn't even buy 2 pounds of the imported caviar featured in the Forbes Cost of Living Extremely Well Index.”
Holly Sklar, CEOs to workers: More for me, less for you, July 25, 2011
Stat of the Week
How adept at avoiding taxes have America’s top CEOs become? On paper, the corporations they lead must pay a 35 percent federal income tax on their profits, the second-highest corporate tax rate in the world. In real life, notes a new Greenlining Institute report, major U.S. corporations are now only paying 18.4 percent of their domestic profits in tax. Of the world’s 26 major industrial nations, only two collect less in corporate taxes, as a share of GDP, than the United States.
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Rachel Brown, Charity CEOs: Are They Being Paid Too Much? San Francisco Chronicle, July 26, 2011. Museum of Modern Art CEO Glenn Lowry took home $2.4 million last year — and America's rich still get tax breaks for the donations they give him.
Mark Anderson, Income and taxes, Bangor Daily News, July 27, 2011. A University of Maine economist rips the bogus argument that taxes on “small” businessmen making over $250,000 undermine job creation.
Bartlett Naylor, Measuring CEO pay: more than gore, CitizenVox, July 28, 2011. An excellent summary of the new AFL-CIO report that explains why the ratio of CEO to worker pay should matter to investors.
Joe Nocera, The Madoff Trustee’s Bad Day, New York Times, July 29, 2011. JPMorgan Chase CEO Jamie Dixon, who made $17 million last year, is smiling after a federal court ruled that Wall Street's finest can't be sued for enabling the Bernie Madoff Ponzi scam.
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