How much of our income goes to Wall Street? Anthropologist David Graeber, a specialist in the study of debt, recently set out to find out how much of an average American income ends up “appropriated” by the financial industry “in the form of interest payments, fees, penalties, and service charges.”
Graebner would quickly find that no government agency is actually compiling all that exact information. But mortgage and consumer interest charges alone, he discovered from Federal Reserve data, are eating up 15 to 17 percent of average household income, and that figure doesn’t include either student loans or “penalty fees” on bank and credit card accounts.
Overall, Graebner estimates, at least one dollar of every five Americans earn is “now likely to end up in Wall Street’s coffers in one way or another.” That’s substantially more than average Americans pay in federal income tax. Maybe we need some “tax reform” on all the levies Wall Street imposes on us.
We also need, of course, a good bit of serious reform on federal taxes as well. Twenty-five years ago this past Saturday, an attempt at that serious reform went into law. That attempt failed miserably. In this week’s Too Much, we wonder why.
|GREED AT A GLANCE|
Move over, Olive Garden. Make room for Eddie V, advises Darden Restaurants, the Fortune 500 powerhouse that owns the middle class-oriented Olive Garden and Red Lobster eateries. Darden is steering a course to much more affluent consumers. The company earlier this month bought up the Eddie V “high-end seafood and fine dining” chain, another sign that luxury rules America’s 21st century marketplace. More signs: Saks Fifth Avenue “blew away” Wall Street analysts earlier this month when the luxury retailer reported soaring revenues in 2011’s third quarter. And BMW has just reported a record September, with sales up 11 percent over September 2010. Amid all these luxury happy tidings, retailer Neiman Marcus last week unveiled its 51st annual Christmas wish book. This year’s showcase offering: a $1 million his-and-hers water fountain set . . .Centuries ago, in medieval Italy, rich urban families would have towers raised to show off their wealth and power. In India today, the rich are once again raising personal towers. Mumbai billionaire Mukesh Ambani, in fact, now owns two. His first, 14 stories high, has assorted family living on separate floors. His second, opened last year, runs 27 stories and sports three rooftop helipads and parking for 160 cars. Ambani so far seems to be using his new tower mostly for entertaining. The tower’scost: $1 billion. Ambani’s net worth: $22 billion. The average Indian adult's net worth? The Credit Suisse Research Institute last week put that at $5,548. But half India’s 735 million adults have nest eggs less than $1,291 . . .
The corporate annual meeting season, in Australia, has just begun with a unique new twist on CEO pay. Under Australia’s old corporate rules, in effect since 2005, shareholders had the right to cast “advisory” votes on CEO pay deals. Under new rules finalized this past summer, if 25 percent or more of shareholders vote “no” on these advisory votes two years in a row, a simple shareholder majority can force a corporation’s entire board of directors to have to stand for re-election — within 90 days. Directors at Australian housewares giant GUD Holding may be the first to experience this new “two-strike rule.” Last week, 42 percent of GUD shareholders voted against a pay deal that had awarded CEO Ian Campbell a 33 percent pay hike after company earnings fell 14 percent. U.S. shareholders have had the right to cast advisory CEO pay votes since last year. But U.S. corporate boards can still legally ignore whatever “advice” shareholders offer . . .From Occupy Wall Street’s Manhattan encampment to state capitol corridors in Albany — and everywhere in between — New Yorkers have started dubbing Andrew Cuomo, their state’s top politico, “Governor 1 Percent.” Cuomo has earned that dishonor. He's opposing an extension of his state’s “millionaires’ tax,” a levy put in place two years ago that subjects income over $500,000 to an 8.97 percent state tax. If Cuomo gets his way, New York’s richest will see a $5 billion annual windfall come December 31. A new “99 New York” coalition is now working to stop this enormous giveaway — and has the public squarely on its side. By a 72-to-26 percent margin, note Siena College pollsters, New Yorkers oppose letting the state millionaires’ tax expire . . .
In 1979, financial industry suits who sat in the nation’s most affluent 1 percent took home less than 1 percent of the nation’s total income. By 2005, the top 1 percent’s high-finance cohort had more than tripled its share of total national income. A millionaires’ tax offers one way to address that greed grab. One of the movers behind Occupy Wall Street, the Adbusters network, is now calling foranother: a 1 percent “Robin Hood tax” on all financial transactions and currency trades. Such a tax, says Adbusters, could “slow down some of that $1.3-trillion easy money that's sloshing around the global casino each day — enough cash to fund every social program and environmental initiative in the world.”
|INEQUALITY BY THE NUMBERS|
The 'Landmark' Tax Reform that Fizzled
Exactly a quarter-century ago, America's punditocracy proclaimed victory in the struggle against tax complexity and unfairness. The rich applauded right along. We should have been suspicious.
Can a small army of policy wonks, working in a bipartisan political environment overflowing with lawmakers willing to compromise, actually put into law a reform package that leaves the U.S. tax code considerably more simple and fair?
Twenty-five years ago, on October 22, 1986, legions of Washington wonks and lawmakers thought they had accomplished just that. Media heavyweights agreed, and so did President Ronald Reagan. He signed into law that day legislation that pundits immediately branded the “landmark” Tax Reform Act of 1986.
America will now have, President Reagan crowed at the signing ceremony, “the most modern tax code among major industrialized nations, one that encourages risk-taking, innovation, and that old American spirit of enterprise.”
“Fair and simpler for most Americans,” he added, “this is a tax code designed to take us into a future of technological invention and economic achievement, one that will keep America competitive and growing into the 21st century.”
Democrats crowed, too. Senator Bill Bradley from New Jersey considered the 1986 legislation his greatest legislative triumph. Democrats pointed proudly to the many tax loopholes the new reform act plugged and the legislation’s most signal achievement: the end to preferential tax treatment for capital gains, the profits from buying and selling stocks and other assets.
But this past Saturday, the silver anniversary of the “landmark” 1986 tax act — “the broadest revision of the federal income tax in history,” according to theWashington Post — came and went without any gala celebrations.
“Was it all,” Bruce Bartlett, a former Reagan aide, mused last week, “much ado about nothing?”
The Tax Reform Act of 1986 today seems just another milestone on the road to a federal tax code that has our mega rich, as billionaire Warren Buffett has so colorfully noted, paying taxes at a lower rate than their secretaries. The act’s most admirable features have long since evaporated.
We need to understand why — before we let this 25th anniversary slide by. Did the 1986 tax reform effort, we ought to ask, have to end up hijacked by America’s high-income set? The short answer: Yes.
Sweeping tax reform, to succeed and leave the tax code truly simpler and fairer, requires two political prerequisites: a set of elected leaders committed to confronting the rich and powerful who benefit from tax code unfairness and a mass popular upsurge that keeps those elected leaders’ feet to the fire.
The 1986 tax reform battle had neither.
The 1986 tax battle began in the wake of the 1984 elections, a debacle for Democrats. Their Presidential candidate, Walter Mondale, had talked vaguely about the inevitability of having to raise taxes. But Mondale never defined who he would be taxing. On Election Day, Reagan crushed him.
Mondale’s defeat would shove any proposals to tax the rich, or anybody else, off the table. Top Democrats would now talk only about tax “simplification.” Toward that end, Bradley and other Democrats would negotiate a grand bargain with the White House: You let us plug tax loopholes and we’ll give you lower tax rates.
Reagan agreed. The legislation he signed hiked the capital gains tax rate, plugged various other loopholes, and lowered the top tax rate on ordinary income.
Newspaper editorials would celebrate this bargain as a grand step toward common sense tax fairness. Reformers who read the fine print did no cheering. “Behind the facade of eliminating ‘tax preferences for the rich,’” as political analyst Kevin Phillips would later point out, the 1986 act shoved into law some 650 new provisions that benefited special interests.
Most incredibly of all, the legislation set the highest tax rate not on America’s wealthy, but on the nation’s upper middle class. Ordinary income between $70,000 and $170,000, under the reform, would be taxed at a special “bubble” rate of 33 percent. Income above $170,000 would face only a 28 percent levy, the same top rate that the 1986 legislation placed on capital gains income.
For the rich, a good deal. The capital gains rate, to be sure, had jumped from 20 to 28 percent. But the top rate on other income had been 70 percent when Reagan won election in 1980. His 1981 tax legislation had chopped that top rate down to 50 percent. The new 1986 reform now cut that 50 percent nearly in half.
How could all this happen? All this could happen because the 1986 tax legislation had been a top-down exercise right from the start. No grassroots movement had mobilized to demand a fairer tax system — and keep lawmakers honest. So all the wheeling and dealing around the 1986 reform legislation essentially involved only lawmakers, wonks, and lobbyists for the rich and powerful.
The resulting “reform” didn't do much more than inconvenience America's economic elite. The wealthy, in the years right after 1986, found themselves having to “shift” their income around to avoid higher taxes.
The new law, for instance, left the top individual tax rate lower than the top corporate tax rate. Business owners, notes former Reagan aide Bruce Bartlett, would react by reorganizing their operations into “sole proprietorships and other business forms that caused income that was previously reported on corporate returns to be reported on individual returns.”
But the wealthy didn’t just shift income around. They pushed back — against the 1986 act’s noblest advances. The capital gains tax rate, under their pressure, would eventually drop back from 28 to almost 20 percent in 1997. That rate would drop even further, in 2003, to 15 percent, and that remains the rate today.
The top federal tax rate on ordinary income, in the meantime, did rise in 1993 to 39.6 percent, only to fall back to 35 percent eight years later. That's higher than the 28 percent tax on top-bracket income the 1986 act legislated, but still only half the 70 percent top rate in 1980 — and only a little over a third the 91 percent top rate in effect as late as 1963.
The good news amid all this? With Occupy Wall Street, we have taking root a broad and varied popular movement that openly challenges a system rigged to benefit the top 1 percent, the movement we so sorely missed back in 1986.
A century ago, we also had a broad and varied popular movement that openly challenged America’s rich. That movement paved the way for the original progressive income tax in 1913 — and then reappeared in the Great Depression years and sparked a strengthening of that tax in the 1930s and 1940s.
Without that popular spark, “tax reform” will always devolve into “tax charade.” On this 25th anniversary of the 1986 Tax Reform Act, let’s remember that lesson.
Should We Want the Ultra Rich as Neighbors?
The UHNW City Ranking, Wealth-X, October 18, 2011.How much does Wall Street tower over the U.S. economy? We have some new evidence.
The first-ever breakdown of America’s super rich — by metropolitan area — has New York, Wall Street's host, the home to far more “ultra high net worth” individuals than any other city in the United States.
Some 7,270 New Yorkers now boast at least $30 million in net worth, says a new report from Wealth-X, the Singapore-based “wealth intelligence” company that helps private banks and luxury retailers focus a more “tailored approach to their target market.”
About 13 percent of America’s 57,860 super rich now live in metropolitan New York, an area, Wealth-X researchers point out, that sports only 6 percent of the nation’s total population.
All combined, the top ten metro areas on the inaugural Wealth-X super rich list — New York, Los Angeles, San Francisco, Chicago, Washington, Houston, Dallas, Atlanta, Boston, and Seattle — hold just under half the nation’s super rich.
Should residents of these cities be cheering their Wealth-X “ultra high net worth” ranking? The principals at Wealth-X seems to think so.
“A concentration of UHNW individuals,” says Wealth-X co-founder David Friedman, “is certainly indicative of an area’s overall economic health.”
But don’t go rushing to pull up stakes and move to New York, our top super rich hotspot, just yet. New York’s “overall economic health” leaves a bit to be desired.
This past summer, New York’s Fiscal Policy Institute reported that New York City’s “underemployment” — that’s jobless, plus involuntary part-timers and discouraged workers who have given up looking for jobs — is running higher than the national average.
Many of New York’s employed, meanwhile, don’t make enough to keep their families out of poverty. A stunning 20.1 percent of all New Yorkers, the Census Bureau notes, live below the poverty level.
And even New Yorkers who have good jobs and decent incomes have reason aplenty not to cheer their city’s status as a super rich playground. The wealthy, wherever they congregate, tend to bid up the price for everything from housing to restaurant meals.
That bidding is raging in New York’s core. The average price of a Manhattan apartment now runs $1.4 million. This past spring, 28 Manhattan apartments sold for $10 million or more, the highest total since the calendar quarter right before the 2008 financial industry meltdown.
Welcome to “ultra high net worth” New York.
Quote of the Week
“In America we have democracy, but the top 1 percent can pay lobbyists to rewrite laws to favor corporations. We have free speech, but the super rich have a megaphone of high-paid commercial ads while the rest of us have a tin cup.”
Kevin Lindahl, vice president, Bloomfield Tenants Organization,Bloomfield (N.J.) Patch, October 19, 2011
Stat of the Week
The Occupy Wall Street movement, the Economic Policy Institute's Larry Mishel pointed out last week, rests on a solid economic data foundation. Between 1979 and 2007, Mishel notes, the incomes of America’s top 1 percent rose 224 percent after inflation. Incomes for the bottom 90 percent of America's households grew only 5 percent over that same span.
Rex Hoover, Let's limit CEO pay for government contractors, Fredericksburg Free Lance-Star, October 18, 2011. We can send a “loud message” by electing public officials who'll deny government contracts to firms that pay top execs excessively.
Occupy Atlanta Cheers Huey P. 'Share the Wealth' Long! October 18, 2011. A YouTube take on 1934 and 2011.
John Horner, Trend toward economic disparity surprises many Americans, Colorado Springs Gazette, October 18, 2011. U.S. income distribution used to resemble France's. Now we mirror Iran and Uganda.
Maia Szalavitz, How Economic Inequality Is (Literally) Making Us Sick,Time, October 19, 2011. An insightful popularization of the scientific literature.
Jim Hightower, Wall Street Is Dazed and Confused, Creators Syndicate, October 19, 2011. Hedge fund billionaire John Paulson and his job-creating claims.
Ruy Teixeira, Why a Majority of Americans Are Getting Behind Occupy Wall Street, New Republic, October 20, 2011. Notes this veteran analyst: “Fighting inequality has gone from option to necessity: There is now no choice but to confront the economically powerful.”