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| THIS WEEK | |
We are the 99 percent. The rallying cry of Occupy Wall Street has gone viral and become, almost overnight, a world-wide phenomenon. The top of the top 1 percent, meanwhile, is so far resolutely holding the line. Salon, the online magazine, earlier this month asked all the billionaires on theForbes 400 list if they, like their fellow billionaire Warren Buffett, are “willing to pay higher taxes.” Of the 400 billionaires queried, Salon reported last week, exactly eight, counting Buffett, indicated they would be willing. But other affluents in the top 1 percent are declaring solidarity with Occupy Wall Street, and quite movingly so, online at We are the 1 percent, We stand with the 99 percent. Reads one entry: “People my age struggle to . . . follow their dreams while being told they’re not trying hard enough. I haven’t worked any harder than they have. I stand with the 99 percent. And I want the system to change.” How might that change come about? We explore, this week, some options. | |
| GREED AT A GLANCE | |
Cash registers will be jingling this holiday shopping season, says a new American Express/Harrison Group survey, at those retailers that cater to America’s most affluent. Households making over $250,000 a year, the survey details, plan to spend an average “7 percent more on holiday gifts.” Most everyone else will be cutting back, even households in the well above average $100,000-to-$250,000 income bracket. Households in this range say they’ll be spending 17 percent less on gifts in 2011. The new American Express poll numbers come as no surprise inside the retail industry. Observes New York retail analyst Howard Davidowitz: “The wealthy have gotten tremendously richer over the last two years. In the Trump Tower, they are buying $10 million apartments like it’s nothing.”  Do lush pay deals, on everything from severance to stock options, actually generate better CEO “performance”? A top Australian daily, the Sydney Morning Herald, last week put that question to a top former Aussie CEO and gave that ex-exec anonymity to enhance his candor. Excessive pay, the CEO responded, does have an impact, all negative: “Execs buy a third house, they get attacked by professional fund raisers, they spend money on stuff that takes up their thinking time.” What about the claim than lavishing stock on execs “aligns” their interests with shareholders'? Retorted the former CEO: “Executives don't work harder when the company's shares fall in value, they panic. Execs don't work better when shares rise, they get comfortable and take too many risks.” Most Americans realize that CEO pay is soaring. Most Americans don’t realize that tax dollars are directly subsidizing the soars. Federal officials last year shelled out $320 billion to private contractors, and execs at these contractors can charge taxpayers up to nearly $700,000 each for their services, over triple the $200,000 that goes to the federal government’s most senior in-house executives. The White House has proposed a $200,000 cap for every contractor’s five highest-ranking execs. Democrats on the House Government Reform Committee last week calledfor that cap's extension to all private contractor staff, as did Senators Barbara Boxer from California and Charles Grassley from Iowa. But these proposals only cover the pay contractors can charge the government directly. Execs at major contractors like Lockheed routinely take home mega millions more indirectly, in stock rewards for the profits their firms reap from government contracts . . . Does former CEO Herman Cain, the new leader in Republican voter public opinion polls, have any chance of winning the 2012 GOP Presidential nod? Pundits give Cain no shot. The more interesting question: Will the “9-9-9” tax plan that’s propelled Cain’s rise in the polls gain any lasting traction? The Cain plan would eliminate all taxes on dividends, capitals gains, and the estates rich people leave behind at death — and impose what amounts to a 27 percent tax on wage income. The impact, one tax analyst noted last week, would be a “distributional monstrosity.” A family earning $50,000 a year would face a tax hike over $2,500. Top 1 percent households would see their tax rates drop 60 percent. Cain actually considers his “9-9-9” — a flat 9 percent income tax, a flat 9 percent business tax, and a new national 9 percent sales tax — as just a flashy step toward his ultimate goal: a national sales tax that totally replaces the federal income tax. | |
| INEQUALITY BY THE NUMBERS | |
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| IN FOCUS | |
Do We Need 'Student Loans' for Billionaires? Students of modest means must pay a stiff price to build their capacity to contribute to society — and pay interest if they can't afford that price. A wealth tax could apply this same principle to America's rich. Polly Toynbee, a commentator for Britain’s Guardian newspaper, plays a role quite similar to Paul Krugman, the Nobel Prize-winning economist who doubles as a New York Times columnist. Both regularly advance well-reasoned — and even inspirational — attacks on the concentration of income and wealth that have left the United States and the UK the world’s two most unequal developed nations. Both also rate as eminently pragmatic. They champion the politically possible. But we live today in tumultuous times, and that may be why Toynbee last week found herself celebrating a proposal for taxing the rich that rather boldly stretches most anybody’s sense of political practicality. Why not levy, Toynbee asked, a one-time 20 percent tax on the total wealth of Britain’s richest tenth, a tax “graduated” to ensure that the richest 1 percent pay at a higher rate than households at the bottom of this top 10 percent? This one-time “windfall taking” tax, Toynbee suggested, could help “save services, save jobs, expunge the national debt, kick-start growth, and set the economy on the road to recovery.” “The worst ever crisis,” she added, “needs better solutions than any currently on offer for the grim decade ahead.” The United States, of course, faces that same grim decade. And that makes Toynbee's proposal a matter of more than idle interest. Could a one-time 20 percent levy on the wealth of the rich really make an appreciable difference? The source of Polly Toynbee’s wealth tax proposal, Glasgow University’s Greg Philo, certainly thinks so. Philo first laid out the proposal last year and even had a national poll commissioned to gauge public reaction. That survey found 74 percent of the UK population approving. Britain’s richest 10 percent currently hold £4 trillion — about $6.3 trillion — of the UK’s £9 trillion in personal wealth. A 20 percent tax on that £4 trillion would raise £800 billion, enough, says Philo, to “pay off the national debt” and “avoid the need for deep and harmful cuts” in public services. Philo’s plan anticipates one major objection. Few affluent households have 20 percent of their wealth in readily available cash. They have much of their wealth in property of various sorts that would have to be sold, perhaps at a great loss if all the wealthy had to sell at once. Not a problem. The wealth tax, under Philo's plan, would not have to be paid all at once. But if a wealthy household wanted to delay payment, that household would have to pay interest on its outstanding wealth tax liability. “It would be akin,” says Philo, “to a student loan for the rich.” A 20 percent tax on the wealth of Britain’s richest 10 percent, points out theGuardian’s Polly Toynbee, would essentially “push back downwards the money hoovered upwards in the last decade.” The billions “hoovered upwards,” Glasgow University’s Philo adds, have largely “been directed into inflated property values.” A wealth tax could recirculate this “dead money” into government expenditures that could stimulate growth. A one-time 20 percent wealth tax, Philo sums up, “offers a real alternative” that would “move debt off the government's books, using money that is largely trapped in the housing market, from people who will not miss it.” Could such a wealth tax have a similar impact on the United States? The U.S. numbers — on wealth distribution — make that question a natural. Our richest actually hold a far greater wealth share than Britain’s. In the UK, the top 10 percent hold 44 percent of their nation’s personal wealth. In the United States, notes an analysis from the Economic Policy Institute released earlier this year, just the top 5 percent held 63.5 percent of the nation’s wealth in 2009. The top 1 percent alone held 35.6 percent. As of April 2011, NYU economist Nouriel Roubini and two colleagues reported last week, total U.S. household net worth amounted to $56.8 trillion. If we assume that the distribution of U.S. wealth has not changed since 2009, our latest year with distributional figures available, then the top 10 percent today hold 75.1 percent of the nation’s current wealth, or $42.7 trillion. A 20 percent tax on this wealth would raise over $8.5 trillion, a sum that equals about 85 percent of America's publicly held national debt. And America’s richest 1 percent? How would they be faring if they had to pay a one-time 20 percent wealth levy? Their average remaining net worth would actually be higher, after adjusting for inflation, than the net worth of America’s richest 1 percent in 1983. Indeed, the top 1 percenters could pay a 25 percent wealth tax and still hold more wealth than their 1983 total. Our next decade need not be grim. Our next decade does need to be more equal. | |
| IN REVIEW | |
To Nurture Business Creativity, Try Equality Richard Florida, Greater Competitiveness Does Not Have to Mean Greater Inequality, The Atlantic, October 11, 2011. Richard Florida, a senior editor at The Atlantic, also directs the Martin Prosperity Institute at the University of Toronto's Rotman School of Management. He obsesses over issues around entrepreneurship and innovation, creativity and competitiveness. In other words, a typical business school muckety-muck. Once upon a time, business honchos at Florida’s level seldom gave equality a passing thought. And if they did, that thought would almost always be negative. Any significant commitment to equality, the conventional business wisdom held, leaves enterprises ill-equipped to innovate and successfully compete. Without a fairly hefty dollop of incentivizing inequality, business leaders agreed, how could we ever spur entrepreneurs onto greatness? Florida and his University of Toronto colleagues have, of late, been putting this conventional wisdom to the test. They’ve developed a “measure of creativity and competitiveness” they call the Global Creativity Index. And they’ve compared national ratings on this GCI with global indices that measure everything from innovation and efficiency to business climate and entrepreneurial know-how. Out of all this data came a ranking of the world’s most innovative and creative economies. Did business activity in these economies, the Florida team then went on to ask, “necessarily lead to greater levels of economic inequality?” The answer that emerged: a thundering “no.” Florida and friends found that “highly creative nations are less likely on balance to suffer from the deep class divides that beset the U.S. and U.K.” “The Scandinavian and Northern European countries as well as Japan,” Floridawrites in a new essay on his work, “combine high levels of innovation and creativity with much lower levels of inequality.” Americans, Florida argues, need “to reframe the dialogue over America’s economic future.” They ought to be far more worried by their nation’s “lagging performance” developing a creative class — a lag “magnified” by America’s “high level of inequality” — than by the “danger of being surpassed by China.” “Economic growth increasingly turns on the full development of each and every single human being,” Florida sums up. “Real sustainable economic prosperity can and must benefit the many, not just the few. | |
Quote of the Week
“Any economic model that does not properly address inequality will eventually face a crisis of legitimacy.”
Nouriel Roubini, The Instability of Inequality, Project Syndicate, October 13, 2011
Stat of the Week
In 2006, the nonpartisan Congressional Research Service reported last week, a quarter of the U.S. households making over $1 million — 94,500 households in all — paid federal taxes at a lower rate than 10.4 million of the U.S. households who earned less than $100,000.
New Wisdom
on Wealth
Richard Rubin and Steven Sloan, Senate Report Says ‘Failed’ Tax Holiday Shouldn’t See Repeat, Bloomberg, October 11, 2011. After the 2004 corporate "tax holiday," says this new study, top U.S. executive pay increased 27 percent the first year, 30 percent the second at the 15 firms that reaped the biggest holiday benefits.
Mark Thoma, Why America Should Spread the Wealth, Fiscal Times, October 11, 2011. On the choice between cutting benefits for the middle class and creating an ever more unequal society or raising taxes on the wealthy.
George Packer, The Broken Contract: Inequality and American Decline, Foreign Affairs, October 11, 2011. A top foreign policy journal likens economic inequality to “an odorless gas” that “pervades every corner of the United States” and saps its democracy.
Barbara Ehrenreich, The Guys in the 1% Brought This On, The Progressive, October 12, 2011. An astute analysis of the changing class contours of American society.
David Lynch, Growing Income Gap May Leave U.S. More Vulnerable to Crisis, Bloomberg Business Week, October 13, 2011. The United States faces recurring economic crises if nothing is done about income inequality.
Brad Maher, I'm in the 1%. But I support the 99%,Guardian, October 14, 2011. An eloquent call for greater equality from a Wall Street power suit who's “sick of this society that skews the rewards for work so grotesquely.”
Nicholas Kristof, America's 'Primal Scream,' New York Times, October 16, 2011. The Occupy Wall Street protests may have “lofted the issue of inequality onto our national agenda to stay.”
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