 | February 13, 2012 |
| THIS WEEK | |
Two steps forward, one step back. That's how progress generally unfolds. Progress against the mindsets that accept intense concentrations of income and wealth typically moves the same way — as we saw last week on Capitol Hill, in the suitably ornate hearing room of the U.S. Senate Budget Committee. That panel took the time Thursday to conduct a welcome session on “Assessing Inequality, Mobility, and Opportunity.” Chairman Kent Conrad, a North Dakota Democrat, opened the hearing. Our rich, he noted, are “getting much richer.” Two steps forward. But Conrad couldn't stop himself from adding, almost as if by conditioned political reflex, “nothing wrong with that.” One step back. But this hearing has a happy ending. Three expert witnesses — from the Center on Budget and Policy Priorities, the Center for American Progress, and theInstitute for Policy Studies — proceeded to respectfully blow away the notion that nothing's “wrong” when wealth concentrates. They covered consequences that range from declining social mobility to rising enterprise inefficiency. Two steps forward! In this week's Too Much, more steps still. | |
| GREED AT A GLANCE | |
America’s 50 most generous super rich, the Chronicle of Philanthropy reported last week, gave $10.4 billion to charities last year. The most popular charity among America’s deepest pockets: their collegiate alma maters. Giving by billionaires and mega millionaires is still running below pre-Great Recession levels — and way below the super-rich capacity to give. One yardstick: The nation’s 50 richest last year held a combined net worth of just under $230 billion. If that wealth annually returned a mere 5 percent on investment, those 50 could have given away $11 billion to charity in 2011 and still ended the year with a higher personal net worth than they held when the year began . . .  Should our tax dollars be subsidizing excessive CEO pay? In California and New York, that question is starting to come to the political fore. In New York a new gubernatorial executive order places a $199,000 cap on the amount of salary the state will reimburse at non- and for-profit service providers. In California, state university system trustees last month adopted a $325,000 cap on the public funds that go to campus president pay. Over in Silicon Valley, the union that represents workers at El Camino Hospital is now organizing to place a CEO salary cap on the November local ballot. El Camino annually takes in millions of tax dollars. The union initiative would limit the pay of El Camino CEO Tomi Ryba to twice the governor's pay, a move that would slice Ryba’s $700,000 annual pay by half. | |
| PETULANT PLUTOCRAT OF THE WEEK | |
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| INEQUALITY BY THE NUMBERS | |
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| IN FOCUS | |
Trickle-Down in the Other 'Down Under' GOP White House hopefuls want taxes on the rich cut even lower than they've already been cut. What might a tax-the-rich-even-less future bring? The land of the kiwi offers one frightful answer. Where in the developed world do rich people pay the least in taxes? To Americans these days, this question would seem to have an obvious answer. The most rich people-friendly nation at tax time simply must be the United States, a land where the mega rich pay taxes at lower rates than their secretaries and a White House hopeful with a quarter-billion-dollar fortune pays only 13.9 percent of his annual take-home in federal income tax. But that obvious answer would be wrong. The rich people-friendliest developed nation in the world just happens to be New Zealand. So show the latest data from the Organization for Economic Co-operation and Development, the industrial world's top economic researcher. And so says Rob Salmond, a New Zealand-born political scientist now at the University of Michigan. “We charge less tax than any comparable country on high incomes, dividends, and capital gains,” notes Salmond. The tax laws that New Zealand has locked in place over the last quarter-century almost read like a “tax reform” wish list — on steroids — from Mitt Romney and his rivals for the GOP Presidential nomination. Abolish taxes on the estates rich people leave behind at death, as former governor Romney and all his rivals propose? The tax law in New Zealand exempts all huge private fortunes from any “death taxes.” Drop the tax rate on capital gains below the current 15 percent, as Rick Santorum advises, or simply eliminate taxes altogether, as Newt Gingrich advocates, on asset trade profits? New Zealand has no tax levy on capital gains income. Tax no dollar of ordinary income at more than 35 percent, the rate the Bush tax cuts fixed in the U.S. tax code back in 2001? All the GOP Presidential candidates are vowing they'll extend that 35 percent Bush-era rate. In New Zealand, no dollar of millionaire income faces a tax rate higher than 33 percent. Cutting taxes on America's most wealthy, our GOP Presidential candidates all claim, would bring the United States a broad new prosperity from sea to shining sea. New Zealand's recent tax history offers a real-life test of that claim. New Zealand's 33 percent top tax rate has been on the books for most of the years since the mid 1980s, as have the rest of New Zealand’s exceedingly rich people-friendly tax policies. So how are all these policies working out? Not particularly well. Rich people-friendly tax policies in New Zealand have helped turn a society that worked — and worked admirably — for average New Zealanders into an economic deadend for all but the high-income set. This bleak transformation hit the headlines last week, and dramatically so. Over six straight days, New Zealand’s largest-circulation daily newspaper showcasedjust how unequal New Zealand has become — and just how brutally that inequality has impacted daily life in Auckland, the nation’s largest metro area. The onset of Auckland's inequality, the New Zealand Herald series details, has been incredibly sudden and swift. “Auckland has changed from an equal city to an unequal one in less than a generation,” notes Herald reporter Simon Collins. Indeed, back in 1986 Auckland ranked as one of the most equal cities in the world. Over half the metro area’s census tracts — 52 percent — had median incomes within 10 percent of the regional median. By the 2006 census, this “bunching” around the middle had largely evaporated. Only 26 percent of Auckland census tracts now have incomes that fall within 10 percent of the region's median. The number of Auckland tracts with medians more than 30 percent above the metro median has more than tripled. What changes has this immense income shift brought? Some changes have become exceptionally visible. Auckland’s super rich, says the Herald, “have built sprawling homes on a scale the city had never dreamed of in the 1980s.” Other visible changes have come at the bottom. Food charities — largely “unheard of” in 1986 — have become a necessary fact of everyday Auckland life. “Even for families who are not considered poor,” the Herald observes, “parents are having to do without to make sure their children are fed and clothed.” In 1986, New Zealand’s top 1 percent households were grabbing 5 percent of the nation’s income. That share has since doubled. New Zealand’s top 1 percenters today do, to be sure, get a smaller share of national income than top 1 percenters in the United States. But New Zealand’s inequality may be, if anything, more striking, since New Zealand — before the current inequality surge began — had been a more equal place. In fact, the New Zealand that entered the 1980s rated as something of a global middle class haven, full of policies that helped poorer people gain middle class status. Those policies have largely gone by the boards as income — and power — have concentrated at New Zealand’s economic summit. One example: Between 1946 and 1985, New Zealand’s “family benefit” funneled a weekly allowance to the family of every New Zealand child. Young parents could “cash in” this benefit for a first-home downpayment. Lawmakers abolished the overall universal family benefit in 1991. The next year, lawmakers turned around and gave affluent households a huge new tax break, the ability to deduct off their regular income any “losses” they suffer when rents from the properties they own don’t equal their mortgage payments on those properties. This new tax subsidy gave the affluent a huge incentive to go out and borrow to buy up homes for renting out. If their rental income topped the mortgage outlay due, they made money. If the rents didn’t cover the mortgage, they had a tax break. Either way, they won — and they won even more when they sold their rental properties and didn’t face any capital gains tax on the profits. The resulting real estate speculating left much of Auckland's housing unaffordable for working families — and forced widespread housing overcrowding. The overcrowding, in turn, has exploded hospital admittances for infectious diseases, the New Zealand Herald notes, “as extended families unable to afford rising Auckland house prices and rents double up in houses and garages.” New Zealand is suffering educationally as well. The latest education data indicatethat no developed country’s schools now do a worse job than New Zealand “at helping students overcome the disadvantages of being born into poor families.” The reason? Auckland schools are struggling to serve a vastly expanded poverty population. Last winter, one local principal told the New Zealand Herald, many students “came to school in thin shirts and shorts without shoes or sweaters.” The purchases that hard-pressed New Zealand families can afford, meanwhile, come encumbered with a heavy sales tax burden. In the developed world as a whole, sales taxes cover 59 percent of potential consumer purchases. In New Zealand sales tax impacts 98 percent of what consumers purchase. What can New Zealand do to regain a more equitable quality of life? One unusual suggestion came last month in an essay contest sponsored by civic action group in the community of Whangarei. Local resident Trisha Fisk won a $1,000 prize for an essay that proposed a “maximum wage.” “Society has developed a system where a minimum wage has been legislated for,” Fisk wrote. “Now why can’t our system also legislate for a maximum wage?” “Does the multi million dollar CEO really earn his keep so many many times more than the worker who actually produces the goods?” Fisk asks. “Would he be worth bobsy-die if the individuals at the bottom of the feed chain didn’t do their job?” “Bobsy-die”? That slang might not be familiar to most Americans. New Zealand’s economic predicament, on the other hand, may well become our future. | |
| IN REVIEW | |
The Tilt to the Top 1 Percent's Top 1 Percent  Politics in the United States, Blair Bowie and Adam Lioz readily acknowledge in this new analysis of what has become known as the “super PAC” phenomenon, has been a “rich person’s game” for quite some time. The rich in America didn’t need the Supreme Court’s 2010Citizens United decision to dominate the American political process. They already did. In the 2006 congressional elections, Bowir and Lioz note, just under two-thirds of the individual contributions to candidates came from Americans affluent enough to contribute at least $1,000 to a political campaign. But super PACs, the two analysts cogently explain, have most definitely “made a bad situation worse.” Much worse. America's courts — by allowing the wealthy and the corporations they run to contribute as much as they want to “independent expenditure committees,” the technical label for super PACs — have essentially shifted dominance over our political process from our top 1 percent to the top “1 percent of the 1 percent.” In the 2010 election cycle, the first with super PACs that could accept unlimited donations, a mere 26,783 deep pockets who each contributed at least $10,000 supplied “nearly a quarter of all funds contributed to politicians, parties, PACs, and independent expenditure groups.” In their new Auctioning Democracy, researchers Blair Bowie and Adam Lioz break the danger the super PAC shift creates down into two main menacing trends. The first: Our ultra rich can now pour directly into election struggles far more cash far more quickly and far more efficiently than ever before. The second: These ultra rich can do this pouring in secret. Auctioning Democracytraces how that secrecy, all now legal, works in real time. In 2010's super PAC dress rehearsal, Bowir and Lioz point out, American politics witnessed a huge spike in secret super PAC cash right before the November congressional elections. So far in the 2012 cycle, the two note, only 6.4 percent of super PAC dollars “cannot be traced back to an original source.” Will another sudden secret surge arrive right before the 2012 elections? The more chilling question: Are we doomed to one surge after another until a new majority on the U.S. Supreme Court takes hold? Actually, stresses Auctioning Democracy, we don’t have wait for the courts to change course. We can do plenty right now to tame the super PAC menace. We can, for instance, pressure the Federal Election Commission to prohibit candidate staffers from going to work for super PACs. We can push the White House to issue an executive order that requires all corporations with government contracts to disclose all their direct and indirect political spending. We can urge members of Congress to advance a constitutional amendment that clarifies the right of Congress and the states to “regulate individual and corporate political contributions and spending.” Auctioning Democracy has over a dozen specific citizen action recommendations. We citizens either have to start down that list — or get used to a “big money electoral system” that “gives a very small number of wealthy individuals and institutions vastly outsized influence over who wins elections.” | |
Quote of the Week
"Folks in this country have to begin to ask themselves whether democracy is still working, or, as I believe, that we have fallen into a plutocracy. Gridlock is just a game being perpetrated in Washington to maintain the status quo of wealth for the few."
Arlene Violet, former Rhode Island attorney general, Have We Become a Plutocracy? Valley Breeze, February 7, 2012
Stat of the Week
U.S. income gaps have soared since 1960. So have U.S. educational gaps. Since 1960, new data show, test score gaps between kids in families at the 90th income percentile, about $160,000 in 2008, and kids at the 10th, about $17,500, have widened by 40 percent.
New Wisdom
on Wealth
Rick Perlstein, Ronald Reagan: Welfare Queen of Montana (or: Tax Tips for Mitt Romney), Rolling Stone, February 7, 2012. The seldom-told story of how a former President dodged taxes and accountability.
Peter Hart, The 1 Percent President, Extra! February 2012. Hedge fund money mobilizes on behalf of America's "middle."
Sam Pizzigati, Should There Be a Lid on How Much Someone Can Make?AlterNet, February 9, 2012. From philosopher Felix Adler to President Franklin Roosevelt: tracing the notion of a "maximum wage" through U.S. history.
Bill Moyers, Who Shipwrecked Our Economy? Moyers & Company, PBS, February 10, 2012. National television's most incisive critic of inequality riffs off last week's Too Much super PAC analysis.
Paul Krugman, Money and Morals, New York Times, February 10, 2012. An insightful take on the right-wing claim that loose morals are driving up levels of inequality.
Jordan Weissmann, Occupy Kindergarten: The Rich-Poor Divide Starts With Education, Atlantic, February 11 2012. Children of the rich end up better educated and more likely to succeed simply because they're children of the rich.
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