President Obama last week proposed a tax increase on America’s wealthy to finance the $447 billion jobs plan he advanced the week before. Representative Eric Cantor, the GOP House majority leader, responded almost immediately.
“I sure hope that the president is not suggesting,” Representative Cantor pronounced, “that we pay for his proposals with a massive tax increase at the end of 2012 on job creators.”
Interesting. Does this mean that Cantor now welcomes tax hikes for job “destroyers”? Like Richard Clark, the chair of drug maker Merck. Clark took home$17.9 million last year. His company earlier this year announced plans to shed13,000 workers. Or how about Bank of America CEO Brian Moynihan? He pulled in$10 million last year. B of A has just announced 30,000 new job cuts.
We suspect that majority leader Cantor misspoke. He really doesn’t support tax increases on rich people period, whatever their job record may be. Cantor’s perspective has, of course, dominated Congress for the last three decades. The result? We have this week some new Census stats that paint a sobering picture.
|GREED AT A GLANCE|
|cost over $150 million. Bertarelli’s six-deck Vava II comes, naturally enough, with “helicopter landing capabilities.” These have become de rigueur in billionaire yachting circles, saysBurgess Yachts CEO Jonathan Beckett. He’s currently advising his clients to plan “at least” two heliports per mega yacht — “so you can land your own helicopter and visitors can also land theirs.” The world’s 81st richest man, the 45-year-old Ernesto Bertarelli, already had a trophy wife, a former Miss UK. Now the Swiss pharmaceutical magnate has a trophy boat to boot. His first yacht, built in 1996, stretched only 155 feet long. His new super yacht, just completed, runs twice that length, nearly 315 feet, and |
Inequality is weighing much more heavily on Canadian minds these days, now that the nation’s top business research group has just reported that the bulk of Canada’s new wealth — over the past 22 years — “has accrued to the top fifth of the population.” A full one-third of the nation’s new wealth, adds the Conference Board of Canada, has gone just to the top 1 percent alone, a turn of events that “both raises a moral question about fairness and can contribute to social tensions.” Canada still has some ways to go before reaching tension levels south of the border. Between 1983 and 2009 in the United States, the Economic Policy Institute noted last week, America's top 1 percent pulled in 40.2 percent of all new wealth, with another 41.6 percent going to the next richest 4 percent . . .
Location, location, location. That's one sad story behind the “Belcourt Castle,” once Rhode Island’s largest personal residence, today a white elephant that a 68-year-old widow can’t move, even after whacking the selling price almost in half. Banking heir Oliver Belmont opened this massive Newport getaway back in 1894. The construction price: $75 million, in today's dollars. Belmont’s original layout, a news report notes, had only one bedroom “but accommodations for 30 servants.” The current structure sports 10 bedrooms — and leaky roofs. Even worse, Belcourt's neighborhood has gone to relative seed. The owner has dropped the home’s asking price to $3.9 million, down from $7.2 million two years ago . . .
The average U.S. senator, calculates the Center for Responsive Politics, holds a $13 million personal fortune. Members of the U.S. House of Representatives average close to $5 million. Does that wealth matter? A top political scientist, Duke’s Nicholas Carnes, has put that question to the statistical test — via a study that matched members of Congress, their class backgrounds, and their votes in the near-century between 1901 and 1996. The main takeaway from the research, as summed up by George Washington University's John Sides: If Congress had a class composition that matched the actual U.S. population, lawmakers would pass “one to three more major progressive economic policies” every two years . . .
The United States, surveys have repeatedly shown, sports considerably more religious practice than other wealthy developed nations. But in the overall community of nations, Christianity Today’s Tobin Grant noted last week, the United States “may not be so exceptional after all.” New research, his Christianity Today piece relates, indicates that most nations that share levels of inequality as high as the United States also share similarly high levels of religious practice. By some measures, Grant adds, “the wealthy grow more religious and the poor become less” in nations where inequality is rising. Indeed, he contends, “religions that thrive in unequal societies are likely ones that appeal to the wealthy.”
|INEQUALITY BY THE NUMBERS|
A Riddle that Brings Joy to Mega Rich Hearts
The Census won't count it. The IRS won't tax it, at anywhere near full freight. What is it? It's enough, all by itself, to keep grand fortunes constantly soaring.
Can we start the century over?
Economically, new Census Bureau income stats released last week suggest, our 21st century so far rates as the worst century in American history. We are hurtling backwards — at an alarmingly rapid rate.
The typical American household income, $53,164 in 2000 after adjusting for inflation, stood at just $49,445 last year. Incomes for the typical working-age household — under 65 — have dropped over 10 percent since 2000.
The number of Americans living in poverty, meanwhile, is rising. In 2000, 11.3 percent of Americans rated as officially poor. Last year, 15.1 percent fit the poverty definition — under $22,314 for a family of four — and almost half those in poverty, 44.3 percent, had incomes less than half the poverty threshold.
What about households at the other end of the income spectrum? The annual Census Bureau figures on incomes at our tippy top have never been particularly helpful. Census statisticians, to protect the confidentiality of the households they survey, “topcode” income categories — at $1.1 million.
We know, as a result, exactly how many American households made under $10,000 last year or between $50,000 and $60,000. But we have no clue, from the annual Census figures, how many made over $5, $10, or $20 million.
The even bigger shortcoming with the annual Census stats: The Census income survey doesn’t count “capital gains,” the profits from the sale of stocks, bonds, and other assets. Capital gains just happen to make up the single biggest category of income America’s super rich pull in every year.
In fact, as the Washington Post reminded us last week, capital gains make up nearly 60 percent of the income that goes to America’s 400 highest-earning taxpayers. Since the early 1990s, over 80 percent of all capital gains have gone to America’s richest 5 percent — and almost half to the richest 0.1 percent.
None of this capital gains income shows up in the new Census income figures released last week, the prime reason why the Census data show the average income of America’s top 5 percent, adjusted for inflation, down over the past decade, down even more sharply than incomes in America's statistical middle.
Top 5 percent households took home an inflation-adjusted $320,000 in 2001, according to the Census figures out last week, and only $288,000 in 2010.
But these totals bear only a passing resemblance to the sums households in the top 5 percent have actually been raking in. We know that for a fact, thanks to statisticians at the IRS. Their IRS annual reports do include capital gains income.
What sort of difference does this inclusion make to America's income picture? A quite substantial one.
Between 2001 and 2008, the IRS stats show, the top 5 percent's share of America's national income rose from 31.99 percent to 34.74 percent. The Census Bureau annual data have the top 5 percent share, for these same years, falling from 22.4 percent to 21.5 percent.
A distressing irony lurks in all these numbers. The Census Bureau doesn't count capital gains income. The IRS doesn't tax it — at anywhere near the tax rate that applies to ordinary income. In real life, this preferential treatment for capital gains serves to make the super rich ever richer.
The world of professional baseball offers a particularly vivid example. In 2010, all Major League players will pay a 35 percent tax on any salary over $373,650. Any Major League owner who sells his franchise this year, by contrast, will pay just a 15 percent tax on the capital gains mega millions he makes on the sale.
That's not, of course, the fault of the IRS. Over the past three decades, Presidents and members of Congress, both Democratic and Republican, have opted to lower the capital gains rate — and kept it low.
Still, capital gains only make up part of our national inequality story, and the latest Census figures, even without any capital gains data, do have important inequality stories to tell.
One such story: According to the new Census stats, the nation's income divide between households at the 95th percentile — that is, households making more than all but the nation’s top 5 percent — and households at the 20th and 50th percentiles has, in modern times, never been higher.
Back in 1968, households at the 20th percentile made an inflation-adjusted $18,251. Households at the 95th percentile that year took home $156,316. In 2010, 20th-percentile households had incomes only slightly higher, just $20,000. The much more robust 2010 income at the 95th percentile: almost $181,000.
Overall income inequality, the new Census Bureau annual income report concludes after presenting stats like these, definitely “is increasing.”
Much, much faster, unfortunately, than the Census stats show us.
Look Who's Soured on Economic Inequality
Why Inequality Throws Us Off Balance, Finance & Development, the International Monetary Fund magazine, September 2011.
Inequality, a conservative online daily told its readers last week, has been a “good thing” for America. We Americans, the claim continued, “live richer lives precisely because of the unequal distribution of wealth.”
That sentiment, not too long ago, used to pass as conventional economic wisdom — in far beyond conservative circles. Societies that tried to become more economically equal, the widespread assumption went, would always be less economically efficient. If you wanted to be efficient — and maximize your society’s economic growth — you had to tolerate inequality.
This world view still, of course, defines America’s conservative political mindset, and few mainstream politicos, among either Democrats or Republicans, ever stray too far from this bit of economic orthodoxy.
But elsewhere in the world, among perfectly respectable economists no one would ever dare dub radical, this notion that inequality has redeeming social value — can be a “good thing” — no longer figures in serious economic discourse.Take, for instance, this just-published latest edition ofFinance & Development, the International Monetary Fund quarterly journal, hardly a hotbed of dissident economic thought. The latest issue concentrates almost totally on economics and inequality.
The issue’s basic message? That comes through plainly in a contribution to the issue from Andrew Berg and Jonathan Ostry, both high-ranking IMF researchers.
“Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution? Are social justice and social product at war with one another?” the two ask. “In a word, no.”
The more inequality in a society, Berg and Ostry demonstrate with data from all around the world, the less the society’s “sustained growth.”
Other contributors to this IMF special focus on maldistributed income and wealth go at various other aspects of inequality’s impact. Michael Kumhof and Romain Rancière track the linkages between inequality and rising indebtedness.
The world’s “main deficit countries,” the two researchers report, show “a steep increase in income inequality over recent decades, as measured by the share of income going to the richest 5 percent of the country’s income distribution.”
“An increase in inequality,” the Kumhof and Rancière data indicate, “translates into lower real wages for the bottom 95 percent of the population and higher indebtedness at home and abroad.”
The lead author in the new Finance & Development issue, Branko Milanovic, ranks as one of the world’s foremost authorizes on global income and wealth. His contribution surveys what we know — in effect, the economic “state of the art” — about global disparities and how these disparities play out in everyday lives.
Milanovic, a top World Bank researcher currently at the University of Maryland, sees the “advantages to reducing inequality” as “both practical — facilitating economic growth — and ethical.” His analysis gives special place to education.
Without widespread education, Milanovic explains, modern economies cannot effectively develop. But without “relatively even income distribution,” he stresses, “broadly accessible education” becomes “difficult to achieve.”
What’s driving inequality in the world today? Milanovic describes a host of factors, some peculiar to individual nations and the economic decisions they choose to make, some more global. In either case, he believes, “government intervention can still curb the increase in inequality.”
Why don’t we witness more of that intervention? “A government’s refusal to take steps to minimize inequality,” Milanovic observes, may reflect a simple “political reality — that the rich wield a disproportionate influence over policy.”
That reality, these analyses from Milanovic and his fellow researchers show quite convincingly, desperately needs overhauling.
Quote of the Week
“At what point do we realize enough is enough — that giving more and more money and power to big business and the super-rich will never translate into more jobs, better wages, and a better economy but simply more yachts and luxury villas?”
Sally Kohn, Time to raise taxes on the rich, CNN, September 14, 2011
Stat of the Week
In 2009, 76 percent of federal revenue from taxes on capital gains — profits from dealing stocks, bonds, and other assets — came from taxpayers making over $250,000. Eliminating all taxes on capital gains, a move backed by five hopefuls for the 2012 GOP Presidential nod, would cost the federal treasury $574 billion over the next five years, a sum higher, notesUSA Today, than the cost of the pending White House jobs bill.
Isaiah Poole, Air-Conditioned Poverty: A Right-Wing Diversion, Campaign for America's Future, September 13, 2012. A demolition of the Rush Limbaugh claim that our poor can't be poor because they have TVs and DVDs.
Dennis Mehiel, Testimony before the Committee on Finance United States Senate, September 14, 2011. A veteran small business owner makes an eloquent case for steeper progressive tax rates on America's wealthy.
Neil Schoenherr, CEO stock options can lead to increased risk taking, finds new study, Washington University Newsroom, September 14, 2011. Researchers from three top business schools explore the pay roots of executive recklessness.