When the gods dance...

Monday, November 26, 2012

The Rich Don't Always Win



Last week, with Wal-Mart workers all across the country planning Black Friday job actions, the giant retailer took time out to announce that the next Wal-Mart dividend will go out December 27 instead of January 2. Why the switch? The Bush tax cut for dividends expires at year-end. Switching the date will save the billionaire heirs of Wal-Mart founder Sam Walton as much as $180 million.

Some perspective: This $180 million would be enough to give 72,000 Wal-Mart workers now making $8 an hour a 20 percent annual pay hike. That hike would still leave those workers making under the poverty line for a family of three.

Some more perspective: Back in the middle of the 20th century, Americans didn’t tolerate inequality this brazen. We lived back then in a nation that seriously taxed the rich and encouraged decent wages.

Coming up this week: the release of a new book by Too Much editor Sam Pizzigati that tells the story of that America. In today’s Too Much, more on this new book, The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class. Also now available for Too Much readers: a video intro to The Rich Don't Always Win and an online excerpt from it.



With Thanksgiving behind us, dear friends of plutocrats everywhere are once again pondering that eternal question: what to give the deep pocket who already has everything? Some answers popped up at a just-completed luxury gift showcase in New York. On display: a Steinway Lingdorf stereo that carries a $250,000 price-tag and a partially solid-gold pen from Montegrappa Italia that retails for $140,000. The show also featured some more plebeian pleasures, including the “ultimate outdoor kitchen” from Kalamazoo Outdoor Gourmet. The discerning backyard chef can get, besides a gas-wood-charcoal grill, a cute little refrigerator and a wine cooler built in. Only $40,000 . . .

Right-wing California lawmaker Chuck DeVore expected rich Californians to start following him out of the state after he moved to Texas late last year. The rich would exit en masse, DeVore predicted, if voters this past Election Day okayed a ballot proposition to raise the state tax on income over $1 million to 13.3 percent, the highest top state tax rate in the nation. That would be the “last straw,” DeVore figured. He figured wrong. Voters did okay that tax hike, but no exodus, Reuters reports, seems in the offing. Realtors in Nevada’s Incline Village, a high-end watering hole just over the border from California, say their phones aren’t ringing. No surprise there: A Stanford study found no millionaire exodus after California enacted a millionaire's tax seven years ago . . .

Vinod Gupta runs a hedge fund with an office in California’s Silicon Valley, and his teeth start grating whenever he hears someone utter “millionaire’s tax.” That wording, says Gupta, smacks of “class warfare.” But don’t dismiss Gupta as just another smug, anti-tax mega millionaire. Gupta actually supports much stiffer tax rates on the rich. America's wealthy “just aren’t paying their fair share,” he pronounced after Election Day. In fact, he adds, private equity and hedge fund billionaires are “practically getting away with murder by paying just 15 percent in taxes.” Gupta wants to end the current preferential tax treatment of capital gains and dividends. Families making over $250,000 a year, says Gupta, “should pay a tax rate of at least 30 percent, no matter how they earn their money.”





Quote of the Week

“Obama’s proposals are not strong enough, per se, to undo the very large inequality increase the U.S. has experienced since the 1970s, particularly when it comes to the incomes at the very top. To really make a dent, you would need to consider more radical policies.”
Emmanuel Saez, University of California at Berkeley economist, Can Obama Narrow the Income Gap? Washington Post, November 25, 2012


Hedge fund kingpin Steven Cohen first became a superstar in 1999 when he returned his investors a 68 percent annual return. His returns over the last two decades have averaged a remarkable 30 percent and made Cohen a billionaire eight times over. That fortune, Wall Streeters have whispered for years, rests on illegal insider trading. Cohen has heard the whispers — and they bug him. Complained Cohen in one interview: “In some respects I feel like Don Quixote fighting windmills.” But Cohen vowed to battle any “perception” he was cutting corners. Last week, perception and reality nudged closer. FBI agents arrested a former Cohen hedge fund exec for his role in what one federal prosecutor is calling the “most lucrative” insider trading scheme ever.





Should we be taxing income or wealth? If we really want to narrow inequality, New York University economist Daniel Altman proposed last week, we ought to replace all taxes on individual income with a progressive wealth tax. One reason: Wealth inequality has hit an “extreme” level. In 1992, America's richest tenth held 20 times more wealth than the nation's bottom half. In 2010, that top tenth held 65 times more. An annual tax that claims 1 percent of wealth between $500,000 and $1 million and 2 percent over $1 million, Altman calculates, could raise more revenue than Uncle Sam currently collects from income taxes. Switching to a wealth tax, he argues, would do more to reduce disparities in economic power “than any other tax plan being considered.”


Take Action
on Inequality

Spineless federal regulators have helped along the Wall Street greed grab of recent years. Urge President Obama to appoint a Securities and Exchange Commission chair who'll hold Wall Street accountable.

inequality by the numbers




Stat of the Week

Two numbers that help define, notes analyst Eduardo Porter, the U.S. “economic challenge.” The first: $3,837, the amount of annual income the typical middle-class family lost between 2000 and 2010. The second: 17.42 percent, the top 1 percent share of national income in 2010, a figure double the top 1 percent share in the 1970s.


Plutocracy-Busting Ideas from America's Past

Americans today can take more than inspiration from the struggles against plutocracy that progressives waged years ago. They can take a host of still relevant — and cutting-edge — policy proposals.

Our contemporary billionaires, most Americans would likely agree, are exploiting our labor and polluting our politics. Can we shrink our super rich down to a much less powerful — and more democratic — size? Of course we can. We Americans, after all, have already done that shrinking once before.

Between 1900 and the 1950s, average Americans beat down plutocrats every bit as dominant as ours. A century that began with huge private fortunes and most Americans living in poverty would come to see a mass middle class and suburban developments where grand estates and mansions once stood. 

Most of us today, unfortunately, have no inkling that this huge transformation even took place, mainly because that exuberantly middle class America of the mid 20th century has disappeared. Those grand mansions have come back.

Does this super-rich resurgence make failures out of our progressive forebears, the men and women who fought so hard and so long to limit the wealth and power of America’s wealthiest? Our forebears didn’t fail, suggests a new book by Too Much editor Sam Pizzigati. They just didn’t go far enough.

Those progressives accomplished incredible feats, relates the just-published The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class. They “soaked the rich” at tax time. They built a union movement that acted as a real check on corporate arrogance and greed.

But these great victories have long since faded away. How can we get back on a plutocracy-busting track? We could start by revisiting those struggles of years past that came up short, those proposals that, had they become law, might have lastingly leveled down our super rich.

The Rich Don’t Always Win explores a host of these proposals. Here we spotlight just five.

One: Require the rich to annually disclose the income they're reporting to the IRS and how much of that income they actually pay in taxes.

Eighty years ago, just like today, America’s rich were routinely and massively avoiding and evading taxes.

If wealthy taxpayers knew their returns would be open to public inspection, reformers argued, they would be far less audacious with their tax games. Disclosure would also help lawmakers identify the tax loopholes that most needed plugging.

In 1934, progressives actually added a disclosure provision to the tax code. But the super rich counterattacked with a media blitz that tied disclosure to the infamous Lindbergh baby kidnapping. If all rich Americans had to disclose their incomes, the argument went, kidnappers would gain a wider pool of targets.

This PR juggernaut carried the day. Congress repealed the disclosure mandate. But the basic idea behind income disclosure remains as promising as ever.

Two: Leverage the power of the public purse against excessive corporate executive pay. Congress couldn’t directly set limits on private corporate executive pay, yesterday's progressives understood. But Congress could impose limits indirectly by denying federal government contracts and subsidies to corporations that lavished rewards on top executives.

In 1933, then-senator and later Supreme Court justice Hugo Black won congressional approval for legislation that denied federal air- and ocean-mail contracts to companies that paid their execs over $17,500, about $300,000 in today’s dollars.

But the New Deal never fully embraced the Hugo Black perspective. We could now, by denying federal contracts and tax breaks to any companies that pay their CEOs over 25 times what their workers are making.

Three: Give Americans a safe alternative to private banks. For Louis Brandeis, a reform giant who also became a Supreme Court justice, prohibiting financial institutions from speculating with the savings of average Americans always remained a top priority.

In the early 1930s, Brandeis advocated the expansion of postal savings banks, a system — in effect since 1911 — that paid 2 percent interest on modest savings accounts maintained with the post office. That expansion never took place, and postal savings banks withered away. They deserve a second shot.

Four: Tax undistributed corporate profits. America’s biggest corporations are currently sitting on stashes of cash that have hit mega-billion levels. Money that could be invested in creating jobs sits instead in income-generating financial assets that only sweeten corporate bottom lines and executive paychecks.

A similar problem plagued the nation back during the Great Depression, and progressives pushed for a stiff tax on these “retained earnings.” In 1936, Congress passed a watered-down version of this tax that didn’t last and didn't make much of an impact. A stronger tax today just might.

Five: Cap income at America’s economic summit. In 1942, in the midst of a war-time fiscal squeeze, President Franklin Roosevelt proposed a 100 percent tax on all individual income over $25,000, the equivalent of about $355,000 today.

Congress didn’t go along. But lawmakers did set the top tax rate at 94 percent on income over $200,000, and federal income tax top rates hovered around 90 percent for most of the next two decades, years of unprecedented prosperity.

America’s rich fought relentlessly to curb those rates. They saw no other way to hang on to more of their income. But what if we restructured the top tax rate of America's postwar years to give the rich a new incentive.

We could, for instance, set the entry threshold for a new 90 percent top rate as a multiple of our nation’s minimum wage. The higher the minimum wage, the higher the threshold, the softer the total tax bite out of the nation’s highest incomes.

Our nation’s wealthiest and most powerful, under this approach, would suddenly have a vested interest in enhancing the well-being of our poorest and weakest.

Years ago, progressives yearned to create an America that encouraged just that sort of social solidarity. They couldn’t finish the job. We still can.



New Wisdom
on Wealth

James Kwak, The U.S. Does Not Have a Spending Problem, We Have a Distribution Problem, The Atlantic, November 19, 2012. The United States only has a budget crisis if the nation's rich refuse to pay higher taxes.

Paul Buchheit, Ten Numbers the Rich Would Like Fudged, Common Dreams, November 19, 2012. Only a tiny share of the super rich, for starters, actually owe their fortunes to entrepreneurial zeal.

Robert Skidelsky, Inequality is Killing Capitalism, Project Syndicate, November 21, 2012. Why “we cannot carry on with a system that allows so much of the national income and wealth to pile up in so few hands.” The author: a member of the British House of Lords and biographer of John Maynard Keynes.

Joshua Tucker, Throwing the 1 percent under the bus for the 0.1 percent? Monkey Cage, November 23, 2012. GOP lawmakers in Congress now appear willing to raise taxes on the just slightly rich to avoid raising them even more on the ultra rich.



new and notable

Josh Bivens and Andrew Fieldhouse, Navigating the fiscal obstacle course: Supporting job creation with savings from ending the upper-income Bush-era tax cuts, Economic Policy Institute, November 2012.

Nobody needs to jump off any “fiscal cliff” next month. Nor do we face any sort of mystifying crisis, two Economic Policy Institute economists note in this welcome new report. We can, they note, easily solve our current budget mess. The catch? America’s top elected leaders must show some political courage and dare to increase taxes on America’s most wealthy. If lawmakers let the upper-income Bush tax cuts go by the boards and devote half the new revenue to real job creation, the two show, the nation would be able to avoid the unnecessary pain of austerity and actually grow the economy.



Web Gem

Patriotic Millionaires/ The online staging ground for awesomely affluent Americans who want the nation's rich to pay a great deal more in taxes.

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