 | January 9, 2012 |
| THIS WEEK | |
Last week, the day after his primary win in Iowa, GOP Presidential front-runner Mitt Romney felt primed for a little victory celebrating in New Hampshire. His staff had everything set up just right for a special town hall meeting where U.S. senator John McCain would join Mitt and give him a rousing endorsement. Everything would go by plan until Romney opened the floor for questions. “Twenty years of Reagan trickle-down economics,” one local woman would tell the candidate, “didn’t help me.” A shout would soon come from another local: “The U.S. has the highest income inequality in the entire developed world!” A pained John McCain then walked over to the offending gentleman. Speaking “menacingly,” one press report would note, the senator would deliver a taut, two-word command: “Be quiet!” Here at Too Much, we don’t plan to “be quiet” about inequality in 2012. We’ll do our best to dissect and push back against our nation's woeful concentration of income and wealth. And we do have a bit of a new look for the new year. Hope you like it. And hope we all, in 2012, can come to live in more equal places. | |
| GREED AT A GLANCE | |
Mitt Romney ranks as the third-richest White House candidate of all-time, the Wealth-X financial consultancy reported last week. Only Ross Perot and Steve Forbes have come before voters with personal fortunes larger than Romney's $250 million. But you don’t have to be super rich to advance a super rich-friendly agenda. Three key Romney rivals for the GOP nomination, notes a new Citizens for Tax Justice analysis, have tax plans that would save America’s top 1 percent more than Mitt. Top 1 percenters would save an average $126,450 each under the Romney tax plan in 2014, but $217,500 with Rick Santorum, $272,730 with Rick Perry, and a whopping $391,330 with Newt Gingrich . . . Hedge funds have worked wonders for hedge fund managers. The average earnings of the nation’s top 25 hedgies have more than tripled since 2004 to $883 million. But the institutional investors — like pension funds — that have entrusted their dollars to hedge fund managers haven’t done nearly as well. Since 1998, calculates a new book from former JPMorgan analyst Simon Lack, the effective return to hedge-fund clients has averaged just 2.1 percent a year, less than the return, quips the Economist magazine, from “boring old” U.S. Treasury bills . . . Charles Dickens may have been right, suggests newly published research inEmotion, an American Psychological Association journal. Lower-class individuals, the research concludes, appear “more attuned to others' distress” than their upper-class counterparts.” Upper-class people, cautions study leader Jennifer Stellar from the University of California at Berkeley, don’t come into the world more “cold-hearted” than anyone else. They “may just not be as adept at recognizing the cues and signals of suffering because they haven't had to deal with as many obstacles in their lives.” Stellar’s co-authors include investigators from Northwestern University and UC San Francisco. | |
| PETULANT PLUTOCRAT OF THE WEEK | |
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| INEQUALITY BY THE NUMBERS | |
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| IN FOCUS | |
Behold and Beware Our New 'SWAG' Economy Today's swaggering rich are increasingly stuffing their dollars into investments that do America's 99 percent not one whit of good. Your pop quiz for today: Define “art.” Wait, you don't need to panic here. You don’t need to go fumbling in the deep recesses of your mind for some wisdom about “beauty” or “imagination” or “form.” You just need to repeat after Michael Plummer and Jeff Rabin, the two principals behind the midtown Manhattan-based Artvest Partners LLC. “Art,” their maxim goes, “is an asset class.” ArtVest Partners, the trendy financial firm Plummer and Rabin run, helps wealthy people invest in works of fine art. The firm is doing a bang-up business. America’s wealthy — and deep pockets everywhere else for that matter — have been pouring epic sums into artwork. Christie's and Sotheby's, the two big fine art auction houses, are reporting a 35 percent gain in the prices paid for Gainsboroughs, Picassos, and other blue-chippers over the past 12 months. The Artprice Global Index, a broader tally of the prices works of fine art are fetching, has art values up 120 percent over the last decade. Why the surge? Higher prices reflect no greater appreciation — on the part of the wealthy — for the aesthetically pleasing. They do reflect a greater appreciation of art, within high-income circles, as a high-return investment. And bankers are appreciating, too. Financial institutions are making art-based loans. They're letting mega millionaires use their artwork as collateral for business deals. “We now can start talking,” an arm of Deloitte, the global consultancy firm,reported last month, “about the early stages of an Art and Finance industry.” The continuing Great Recession in regular, old-fashioned industry, analysts at ArtInfo explained last week, is helping this new art-and-finance combo along. “International high-net-worth individuals,” the analysts point out, “are looking for somewhere to put their money besides the anemic stock market.” But the art world hasn’t been the only “asset class” to benefit from this yearning for larger and safer returns. Dollars and euros and pounds are also flowing to other “hard” assets that share all the attractions that fine art offers. Silver, wine, and gold have all been ratcheting up steadily over recent years. This past September, Investment Week’s Joe Roseman gave all these hot asset classes a memorable new handle. “Everyone,” Roseman advised his well-heeled readers, “needs some SWAG.” The elements of SWAG — silver, wine, art, and gold — have “all appreciated quite sharply” over the past decade, notes Roseman, despite “two global recessions, a severe global banking crisis, a credit crunch, and (generally speaking) highly volatile and mostly negative equity market performance.” Fine wines, the Liv-Ex wine index shows, have jumped about 300 percent since 2000. Gold has appreciated at an even higher rate, as has silver. The Standard & Poor’s 500 stock index, by contrast, rose just 0.04 percent in 2011, returning only 2.1 percent with stock dividends included. The SWAG elements have plenty in common. Silver, wine, art, and gold all rate as scarce, transportable, long-lasting physical assets. They also make for wonderful tax shelters. They throw off no income stream and, consequently, create no annual tax liability for wealthy investors. The profits SWAG assets generate at sale, meanwhile, count as capital gains and receive preferential tax treatment over ordinary income. These tax benefits from SWAG ought to create obvious concerns for those of us in America’s 99 percent. The less the nation’s wealthy pay in taxes, after all, the greater the tax burden on everyone else. But our cause for concern ought to go deeper than the tax games the swaggering rich can play with SWAG assets. SWAG just may symbolize the ultimate folly — and sheer irrationality — of our staggeringly unequal, top-heavy economy. In today's troubled economic times, we desperately need investments in products and services that translate into jobs and paychecks. We need dollars for renewing our society. We need dollars for everything from replacing crumbling infrastructure to developing sustainable new energy technologies. The last thing we need? We don’t need billions of valuable dollars sunk into SWAG that hangs on the walls of manses or ages in high-tech wine cellars or sits in locked safes. But in a deeply unequal United States, where wealth remains concentrated in a precious few pockets, that’s exactly what we have. Many of those dollars pouring into SWAG today would have gone yesterday to Uncle Sam. In the middle decades of the 20th century, America’s wealthiest faced income tax rates that reached up over 90 percent on income over $400,000. In that high-tax-on-high-income environment, wealthy Americans routinely plowed their wealth into tax-free municipal bonds. In the 1950s, for instance, the widow of automaker Horace Dodge invested her entire $56 million legacy from the Dodge auto fortune in municipals. Those municipals didn't help Anna Dodge much. They paid only 3 percent in interest. But the dollars invested in municipals paid off handsomely for the mid-century 99 percent. Those dollars financed the schools and sewage plants and waterworks that created the foundation for the classic American middle class. Those mid-20th century days did, to be sure, hold certain charms for America’s deepest pockets. They could pick up works of art for a song. In 1960, banker David Rockefeller only had to shell out $10,000 for painter Mark Rothko’s White Center. In today’s SWAG world, White Center now carries a $72 million price-tag. | |
| IN REVIEW | |
Money Making Money: Inequality's Key Driver Thomas Hungerford, Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor Income, Capital Income, and Tax Policy, Congressional Research Service, December 29, 2011. Why have we become so unequal? Are higher paychecks for CEOs the prime villain? Are changes in tax laws more to blame? Or are shifts in what economists call “capital income” — dividends, business earnings, and profits from buying and selling assets — doing the most to widen the economic gaps between us?  That answer only covers the years 1996 and 2006. But the CRS chose these years for good reasons. Among them: The nation saw major tax policy changes three years before both 1996 and 2006. Major tax changes can sometimes stimulate major short-term changes in taxpayer behavior. If wealthy taxpayers know that a tax cut on the profits they make from selling stocks is coming, for instance, they’ll likely hold off selling off stock until the new lower rate kicks in. That delay, in turn, will artificially decrease income for the wealthy in the year before the tax cut hits and artificially increase that income the year after. Cheerleaders for lower taxes on the rich find that dynamic enormously useful. These apologists love to argue that tax cuts “pay for themselves.” Such cuts, the argument goes, stimulate so much new economic activity and income that the IRS will end up collecting more revenue, even with lower tax rates in effect. Artificially high income totals in the year right after a major tax cut can seem to “prove” this phony point. By starting and ending its analysis three years after major tax changes, the new Congressional Research Service study takes these artificial, short-term income changes out of the equation. Tax changes between 1996 and 2006, the CRS goes on to show, most definitely did contribute to greater inequality. The changes substantially shaved tax rates on high incomes, so much so that, over the decade, the taxes the nation’s richest 0.1 percent of taxpayers paid rose just “one-third as fast as their income.” Higher paychecks for America’s corporate elite and other high-earners, the study adds, also contributed to greater inequality in the decade before 2006. But the single greatest source of the decade’s rising inequality, the study finds, came from hefty increases in capital income — the income that comes from wheeling and dealing on stocks and other financial securities, from the dividends that corporations pay out to investors, and from the business income that flows directly to partners in private equity firms and hedge funds. How significantly did capital income rise from 1996 to 2006? This significantly: If the 2001 and 2003 Bush tax cuts had never happened, the CRS posits, “income inequality would likely have increased” anyway, just from the impact of increased capital income. What makes capital income such a potent inequality generator? Two factors. The first: The vast bulk of capital income goes to America’s most affluent. In 2006, the bottom 80 percent of American taxpayers received less than 3 percent of their income from capital gains, dividends, and business income. Taxpayers in America’s top 0.1 percent, by contrast, received 70 percent of their total income from these sources in 2006, up from 64 percent in 1996. The second factor: Dividends and most capital gains get taxed at a maximum 15 percent, not the maximum 35 percent that ordinary income can face. These maximums both ran higher before the Bush tax cuts in 2001 and 2003. And that points to another reality that the new CRS report acknowledges. All the three possible sources of inequality the CRS examined — income from labor, income from capital, and tax changes — interrelate with each other. We can’t totally isolate out the impact of each single source. The ultimate lesson for the 99 percent in this new CRS study? No one single driver is widening inequality. No one single bullet will end our inequality either. Egalitarians need to be struggling on multiple fronts. | |
Quote of the Week
"We're losing public goods available to all, supported by the tax payments of all and especially the better off. In its place we have private goods available to the very rich, supported by the rest of us."
Robert Reich, former U.S. secretary of labor, The Decline of the Public Good, January 4, 2012
Stat of the Week
As of noon, January 3, Canada’s top 100 CEOs had already pocketed, on average, $44,366 for 2012, more than average Canadians make in a year. Canada’s top 100 CEOsaverage $8.38 million. Typical CEOs at the top 500 U.S. firms take home $8.93 million.
Take Action
on Inequality
Common Security Clubs/Resilience Circles
New Wisdom
on Wealth
Salvatore Babones, COLAs, CPIs, and the $14 Minimum Wage,Inequality.Org, January 2, 2011. Had minimum wages risen at the same pace since the mid 1970s as the incomes of America's top 1 percent, the minimum wage would now be $26.96 an hour.
Scott Harris, Rising Economic Inequality Provokes Search for Practical, Democratic Alternatives, Between the Lines, January 4, 2012. An interview with the University of Maryland's Gar Alperovitz.
Mike Lofgren, Have the Super-Rich Seceded from the United States?CounterPunch, January 5, 2012. A long-time GOP congressional staffer sees our plutocracy living “like the British in colonial India: in the place and ruling it, but not of it.”
Elise Gould and Natalie Sabadish, Mobility remains low as inequality increases, Working Economics, January 5, 2012. A survey of the latest research.
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