|June 3, 2013|
Last week brought disturbing new stats on our unequal times, and we have them all in this week’s Too Much. Last week, on the cheerier side, also brought insightful new commentaries from three of our era’s top inequality analysts.
You'll find all three pieces below in our New Wisdom on Wealth sidebar. And the three certainly do have fresh new wisdom to offer. David Cay Johnson, for instance, helps us see how low taxes on high incomes give our CEOs an ongoing incentive to line their own pockets “at the expense of the enterprises they run.”
Chuck Collins, for his part, helps us understand another hidden impact of our top-heavy world, the phenomenon sociologists call the “intergenerational transmission of advantage.” Collins walks us through the games the wealthy play to boost their children’s prospects — at the expense of everyone else’s.
Chrystia Freeland, the last of our trio, riffs off recent sexist gabbing by billionaire Paul Tudor Jones to reflect upon our gender and income divides. The more our income gaps widen, Freeland notes, the greater “the social and political sway of those at the very, very top.” Societies that let the rich sway away, she reminds us, invite pathologies we’re only now beginning to understand.
|GREED AT A GLANCE|
Top U.S. corporate executives are, at last count, averaging 354 times more pay per year than average American workers. These CEOs compete in the same global markets as Norwegian CEOs. How much do big-time CEOs in Norway make? Norwegian CEOs, calculates Norway’s largest daily, average 16 times what their workers earn. Some do make more — and get plenty of grief for making it. Headlines in Norway have recently been bashing Helge Lund, the top exec at Norway’s largest oil company. He’s pulling in $2.4 million a year. That sum strikes Norwegians as outrageous. Lund no doubt considers himself a bargain. Chevron CEO John Watson is pulling in 10 times his compensation . . .
No banker in North America, Bloomberg Markets Magazinereported last week, took home more in 2012 than the $26 million that went to Lloyd Blankfein, the CEO of Wall Street giant Goldman Sachs. Blankfein guided Goldman to $7.5 billion in profits last year. Along the way he guided 900 Goldman employees into unemployment. The shedding of bank jobs, industry-wide, has continued on into 2013. In this year’s first quarter, America’s six largest banks announced 21,000 layoffs. But banks aren’t just rewarding execs like Lloyd Blankfein for cutting jobs. They’re hiring like crazy at the executive level. The resulting “competition for business leadership” has headhunter firms doing a bang-up business. At the executive search firm Heidrick & Struggles, revenues from New York bank clients have jumped 25 percent . . .
In the race for global supremacy in dissolute extravagance, the Mediterranean deep-pocket playground of Monaco has now trumped the desert oasis of Las Vegas. Both cities have exclusive night clubs that have been offering up — for a mere $500,000 — a nine-bottle “Dynastie Collection” set of Armand de Brignac champagne. Late last month, at Monaco’s “Billionaire Club,” British financial adviser Charles Shaker became the first club patron anywhere in the world to shell out for the nine-bottle collection. The club crowd, one party-goer later told reporters, “went crazy,” with everyone “trying to take pictures, cheering and clapping.” Another “Dynastie Collection” set remains on sale — and unsold — at Hakkasan Las Vegas, a “nightlife mecca” at the MGM Grand Hotel and Casino.
Quote of the Week
“In most recessions, societies become more equal. Unemployment may rise and wages stagnate. But the gap between the top and the rest narrows as those with the most to lose lose the most. In our time, the gap is widening, and I am tired of hearing lectures on how we can do nothing about it from supporters of the status quo, who have been wrong about everything for years.”
Nick Cohen, The Observer,June 1, 2013
|PETULANT PLUTOCRAT OF THE WEEK|
Tennessee voters elected Stephen Fincher to Congress in 2010 as a Tea Party Republican, and Fincher, a heavyweight in agribusiness, has not disappointed the small-government crowd. Washington, he told a Memphis audience last month,has gone “out of control,” making moves “to steal money” from some to “give it to others.” Fincher has been especially vocal in this year’s food stamp budget debates. He wants two million poor families cut off from food stamp benefits. But Fincher’s commitment to “small government” doesn’t apparently extend up the income ladder. Between 1999 and 2012, the Environmental Working Group reports, Fincher personally collected $3.48 million in federal farm subsidies.
|IMAGES OF INEQUALITY|
The world’s glitterati descended on Monaco at the end of May for the annual auto Grand Prix race. The engines won’t start roaring again until next May. By that time, realtors hope to have sold the five-floor penthouse now under construction in Monaco’s newest high-rise tower. The expected sale price: $386 million.
Genuine Progress/ How do we measure progress in a way that takes inequality into account?
|PROGRESS AND PROMISE|
In New York, a New Lid on Contractor Pay
New York governor Andrew Cuomo can’t seem to figure out whether he wants to wink at inequality or fight it. He’s just proposed an ill-advised initiative that wouldflood the state with special zones that exempt corporate execs from sales, property, and income taxes. On the more sensible side: Starting this July 1 New York will be limiting annual CEO pay at nonprofit and for-profit service providers that collect at least 30 percent of their revenues from state tax dollars. Execs at these providers won’t be allowed to grab over $199,000 a year. The loophole: Agencies can use revenue from non-taxpayer sources to boost pay over $200,000. But they first have to file a waiver to gain approval. CEO paychecks at taxpayer-subsidized service providers in New York have in recent years run as high as $3 million. Corporate pay consultants, predictably, are kvetching over the precedent the governor’s porous but still promising pay cap sets.
|INEQUALITY BY THE NUMBERS|
Stat of the Week
Households holding over $1 million worth of stocks, bonds, and other financial assets make up just 0.9 percent of global households, computes the latest annual Boston Consulting Group wealth report.
Let's Talk Taxes, Let's Talk Trillions
America's deepest pockets, a new report shows, are saving big bucks from the U.S. tax code's wide assortment of income tax breaks. They're saving even more from the absence of a wealth tax.
A hundred years ago, in 1913, Congress wrote into law a federal income tax. Lawmakers have been dotting the tax code, almost ever since, with an assortment of “never-minds” that hand most of us, at one time or another, discounts at tax time.
These discounts can come in handy. If you buy a home, you get to deduct off your taxes the mortgage interest you pay. If you’re raising a family, you get to claim tax credit for your children. If you retire, you can exclude Social Security income from taxes.
And if you make a killing trading on the stock market, you only have to pay taxes on your windfall at half the normal tax rate.
How much do all these deductions, credits, exclusions, and preferential tax rates cost the federal treasury? Representative Chris Van Hollen, a lawmaker from Maryland, wanted to know. He asked the nonpartisan Congressional Budget Office to calculate exactly how much “tax expenditures” — the wonky label in Washington for tax never-minds — were actually costing.
Van Hollen also asked the CBO to calculate which American taxpayers, by income level, were benefiting the most from these tax expenditures.
Last week, the CBO reported back — with some big numbers: The top 10 special tax breaks in the federal tax code will cost the federal government $900 billion in 2013 and $12 trillion over the next decade.
And most of the benefits from all these trillions in tax savings, the CBO found, are cascading down to America’s most comfortable.
If tax expenditures operated on a totally neutral basis, America’s most affluent 1 percent would be receiving just 1 percent of the taxpayer savings that tax expenditures generate. In fact, the CBO calculates, the top 1 percent of U.S. taxpayers are receiving 17 percent of tax expenditure benefits.
Project these numbers over a decade, and the tax savings for America’s most affluent really start to add up. Over the next ten years, if current law remains in effect, tax expenditures will pour $3.6 trillion into the pockets of America's top 5 percent of income earners — and $1.9 trillion into the pockets of America’s top 1 percent, households that make over $450,000.
But the enormity of these trillions only hints at how light a tax burden rests on our rich, suggests another new study released last week, the annual global wealth survey from researchers at the Boston Consulting Group.
Just under 5 percent of America’s households, says this new study, now hold at least $1 million each in financial wealth, assets like stocks and other securities, the dollars in savings and checking accounts, and the like.
In 2012, the total net worth of these top 5 percent households pumped up America’s total financial wealth to $39 trillion, a total a trillion dollars higher than the combined financial wealth of Japan, China, and Germany, the world’s next three richest nations.
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America’s wealthiest households pay no annual federal taxes on any of these trillions. Why? The United States has no annual federal tax onfinancial wealth.
We do, on the other hand, have a tax on property wealth. This property tax — a state and local government levy — essentially amounts to a tax on America's middle class. That's because residential property makes up the bulk of American middle class wealth — 66 percent, on average, the latest Fed figures show.
For households in America’s richest 1 percent, by contrast, home sweet home accounts for only 9.4 percent of household net worth.
In other words, in America today, we tax the wealth of the middle class on an annual basis. We essentially give the wealth of the wealthy a free pass.
Other nations do tax the wealth of the rich. One of these nations, France, has just upped the rates on its “wealth tax.” French households with over $21.5 million in wealth are now paying this wealth tax at nearly a 2 percent annual rate.
How much would an annual 2 percent wealth tax raise from America’s millionaire households? Research from the Deloitte Center for Financial Services can help us here. Deloitte researchers have calculated that American millionaire households in 2011 held $38.6 trillion in total, not just financial, net worth.
In 2020, Deloitte estimates, U.S. households worth at least $1 million will hold $87.1 trillion in wealth, over five times the size of that year's entire estimated federal debt. A 2 percent annual tax on this $87.1 trillion would raise over $1.7 trillion. Some perspective: In 2020, the Congressional Budget Office estimates, the personal income tax bill for all Americans will total $2.16 trillion.
The new CBO numbers on tax expenditures, says Representative Chris Van Hollen from Maryland, show clearly that current federal income tax deductions, credits, exclusions, and preferences skew “disproportionately to the highest 1 percent of income earners.”
America's absence of any national annual tax on the wealth of our wealthy skews this lopsided, top-tilting tax picture a good bit more.
Chuck Collins, The Wealthy Kids Are All Right, American Prospect, May 28, 2013. In a tough economy with dwindling social supports, children of privilege have a huge head start.
Chrystia Freeland, Sexist Mores of Super-Rich Hurt Us All, Reuters, May 30, 2013. Some deeper reflections on the latest controversy around hedge fund billionaire Paul Tudor Jones.
David Cay Johnston,Inequality Rising — All Thanks To Government Policies, National Memo, May 31, 2013. How U.S. tax, union bargaining, inheritance, and other rules widen the growing divide between those at the top and everyone else.
Learn more about this new history of America's first triumph over plutocracy.
|NEW AND NOTABLE|
Behind All Our Global Immigration Debates
Branko Milanovic, Global Income Inequality by the Numbers: In History and Now: An Overview, New Economic Thinking and Columbia University, February 2013.
Location, location, location. That’s all that matters, goes the old real estate agent bromide. That goes double, says economist Branko Milanovic, for understanding global economic inequality.
Milanovic, the lead research economist at the World Bank, prepared this analysis for a conference on global income inequality held this past winter. The journal Global Policy will shortly be publishing an updated version, and the wider circulation of this new version will almost certainly recharge the debate over how we address our globe’s staggering economic inequality.
The bottom line as Milanovic sees it: What part of the world your birth places you in matters much more to your economic status than ever before. Asks Milanovic: “Is citizenship — belonging to a given country, most often through birth — something that gives us by itself the right to greater income?”
Rich countries are so far answering with a resounding “yes.” The amount of aid the world’s wealthy nations currently lay out for development assistance, Milanovic points out, comes to not much over $100 billion a year, “just five times more than the bonus Goldman Sachs paid itself during one crisis year.”
If global economic elites continue to allow location to drive global economic inequality, Milanovic concludes, the tensions that mass global migrations create will only escalate enormously over coming decades.