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|July 30, 2012|
|Every summer the United Nations releases a survey on how well efforts to help the world’s poor are going. The just-released latest World Economic and Social Survey doesn’t have much good news on that score. In 2011, the UN reports, aid to the world’s poor fell $167 billion shy of what developed nations had promised.But UN analysts aren’t just wringing their hands over this shortfall. They’re talking up an array of “innovative financing” maneuvers to help tackle global poverty, everything from a speculation tax to a 1 percent tax on billionaire net worth.A tax at that modest level, the UN estimates, would raise $46 billion a year from the world’s 1,200-plus billionaires. Average billionaires who paid this tax would have to spend $1,000 a day for the next 10,000 years to exhaust their fortunes.The new UN survey readily acknowledge that a global tax on billionaire wealth remains, for the moment, no more than “an intriguing possibility.” In this week’sToo Much, we explore some other intriguing possibilities. Come explore with us.||About Too Much,
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|GREED AT A GLANCE|
|More evidence that CEO pay has become a colossal shell game: Two business school researchers have found that corporations respond to negative press on executive pay excess by cutting back on whatever category of compensation may be making headlines and increasing rewards elsewhere. Northwestern’s Camelia Kuhnen and the University of Mannheim’s Alexandra Niessen went through 26,123 articles about executive pay that appeared over the 20-year span ending in 2010. Companies regularly shift rewards, the pair reveal in the July Management Science, into “less contentious” pay categories. In 2009, for instance, negative press coverage focused on CEO bonuses. Corporate boards proceeded to drop bonus pay by 17 percent — and boost stock grants by 20 percent . . .Who runs the most revolting CEO pay shell game of all? Tough call. But this dishonor may well belong to the private for-profit higher ed industry. For-profit private colleges collect up to 90 percent of their revenues from the federal student loan and grant programs that public tax dollars underwrite, and they make their profits, a congressional report released last weeksuggests, by rewarding their executives for cutting corners and ignoring student needs. The result? Todd Nelson, currently the chair of the nation’s second-largest higher ed for-profit, took home $13.1 million last year. Yale president Richard Levin, by contrast, took home $1.6 million. For-profitsnow account for 12 percent of U.S. college enrollment and over 45 percent of federal student loan defaults. . . .The one Olympic record sure to fall this week in London: most super yachts docked at one time in one small stretch of river. City officials are expecting 100 mega pleasure boats to dock on the Thames for this year’s Olympiad, including the biggest boat of them all, Russian billionaire Roman Abramovich’s 557 foot-longEclipse, as well as the $200 million supersized dinghy that belongs to Microsoft founder Paul Allen. Billionaire wannabees don’t have to gawk from the shore. They can pull alongside by chartering their own super yacht. Boats like the 213-foot Seanna, Time reports, run just $450,000 a week.||Quote of the Week“What the Supreme Court did in Citizens United is to say to these same billionaires and the corporations they control: ‘You own and control the economy; you own Wall Street; you own the coal companies; you own the oil companies. Now, for a very small percentage of your wealth, we’re going to give you the opportunity to own the United States government.’”
Senator Bernie Sanders(I-Vermont), in Senate Judiciary subcommitteetestimony, July 24, 2012Like this Too Much?
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|PETULANT PLUTOCRAT OF THE WEEK|
|James Hagedorn likes to fancy himself a CEO champion for common sense on health. A few years ago, his Scotts Miracle-Gro company started firing workers who smoked. People have to become responsible for their own risky behaviors, Hagedorndeclared. But not apparently all people. Hagedorn has refused a request from his corporate board to quit piloting his own plane and even admits to catching up on his reading while flying, a real cockpit no-no. Hagedorn also hasn’t much minded putting others at risk. Scotts earlier this year had to pay $4.5 million in fines for two pesticide safety violations. Hagedorn’s response? Last month Scotts dumped $200,000 into an anti-regulation super PAC, becoming in the process one of the first publicly traded firms to take advantage of the 2010 court ruling that lets corporate cash go into political campaigns.||Stat of the WeekCould higher taxes on the rich erase the federal budget deficit? The Financial Timesdoesn’t think so. For taxes on the rich to cover the deficit, the prestigious journal notes, the top tax rate would have to rise to 91 percent. In the 1950s, the magazine fails to note, the top U.S. tax rate did run 91 percent.|
|INEQUALITY BY THE NUMBERS|
on InequalityJoin in on the Americans for Tax Fairness campaignto end the Bush tax cuts for America’s richest 2 percent.
|The Rich: Once We ‘Clawed Back’ Them AllThe movers and shakers of scandal-ridden Wall Street are busy scapegoating a ‘few rotten apples’ — and hoping the rest of us don’t notice they’re still holding billions in ill-gotten gains.Remember Ina Drew? This past spring Drew had her 15 minutes of fame as the JPMorgan Chase exec in charge of the reckless derivatives trading that may end up costing the Wall Street banking giant as much as $7.5 billion.Drew will apparently pay a price for her role. JPMorgan CEO Jamie Dimon announced earlier this month that the bank will “claw back” approximately two years worth of the pay Drew has already collected.Which two years? Dimon didn’t say. Drew collected about $14 million last year and $15.9 million the year before.Drew resigned from JPMorgan in May after 30 years of faithful service. In all those years — a span of time that has included one financial industry scandal after another — no other bank executive as high-ranking as Drew has had to suffer the indignity of having take-home clawed back.Bankers, in other words, appreciate the public relations value of shouting out a willingness to claw back “ill-gotten gains.” But they seldom ever do any clawing.Clawbacks, on the other hand, do raise some difficult practical questions. Where, for instance, do you draw the clawback line?
Consider JPMorgan CEO Jamie Dimon. In 2011, Dimon pocketed an 11 percent raise to $23.1 million. Doesn’t Dimon, and not just Ina Drew and the power suits she so poorly managed, bear some responsibility for the JPMorgan trading mess? The messing all took place, after all, on his watch.
But let’s be fair. On Wall Street, Dimon hardly stands alone. The sky-high rewards for financial industry executives that we’ve seen over recent years rest, across the board, on a recklessness that almost crashed the nation’s entire banking sector — and would have if taxpayers hadn’t come to the rescue in 2008.
Last week, the now-retired CEO who helped swing open the door to that recklessness went public with an apology of sorts.
As a top corporate exec in the late 1990s, Sandy Weill had pressured Congress late to gut the federal law that had for years prevented banks from gambling with federally insured bank deposits. Congress eventually passed legislation that did just what Weill was asking. Now he’s calling for a regulatory do-over, a restoration of the old rules that kept apart commercial and investment banking.
Giant banks, proclaims Weill, should never again be able to place taxpayers and depositors “at risk.”
The banking colossus Sandy Weill created, Citigroup, made him a billionaire, and Weill spent most of the first decade of the 21st century on the Forbes list of America’s 400 richest. Should a chunk of his huge fortune now be clawed back?
Former CEOs at two other financial industry giants, Merrill Lynch and Morgan Stanley, also now acknowledge the disaster that our reign of big banks has created. Should they be clawed back, too?
We as a nation actually answered questions just like these generations ago. In 1916, we enacted a federal estate tax, a national levy on the grand fortunes that affluent people leave behind at death.
Back then, most Americans agreed that the richest among us had either ripped the rest of us off to build up their grand fortunes or benefited much too royally from an infrastructure the rest of us, through our tax dollars, had fashioned.
Either way, our forebears concluded, the wealthy had a responsibility to give back to the society that had made them fabulously rich. They saw the estate tax, in effect, as the ultimate clawback.
In future years, the estate tax would do some serious clawing. Between 1941 and 1976, the estates of the rich faced a tax rate of 77 percent on wealth over $10 million. In 1980, the top estate tax stood at 70 percent on wealth over $5 million.
Estate tax levies have been falling ever since. In 2010, thanks to the Bush tax cuts enacted in 2001, we had no estate tax at all.
Since then, thanks to a late 2010 deal between the White House and GOP leaders in Congress, we’ve had an exceedingly weak estate tax. Couples have had all wealth under $10 million totally exempt from any estate tax, and no estate with a value over $10 million has faced a tax rate higher than 35 percent.
If the current Congress does nothing on the estate tax over the rest of this year, the pre-Bush estate tax of 2000 — with a 55 percent top rate — would go back into effect as of January 1, 2013. Lobbyists for America’s most comfortable are, predictably, working hard to prevent that eventuality.
To help in that effort, Republican lawmakers are seeking to make the 2010 estate tax deal permanent. Top Democrats in Congress and the White House want to revert back to 2009’s 45 percent top rate. But the Democratic congressional leadership hasn’t been able to round up enough Democratic votes to move forward on even this mildest of stabs at significant estate taxation.
How mild? In real life, a 45 percent top estate tax rate translates, after exemptions and deductions, into not much of a burden on the super rich.
In 2007, for instance, the top estate tax ran 45 percent. In that year, 1,192 wealthy Americans died and left behind estates worth at least $20 million. These estates held a combined $75 billion. But after exemptions and deductions, only$10.2 billion of that $75 billion, 14 percent, went to federal estate tax.
Two years ago, three U.S. senators introduced legislation that would, if enacted, subject net estate wealth over $50 million to a 55 percent top tax rate, with a surtax of an additional 10 percentage points on wealth over $500 million.
Estate tax rates at that level might do some serious clawing. And claw we must.
“The man of great wealth owes a particular obligation to the state,” the great Republican estate tax champion Teddy Roosevelt noted a century ago, “because he derives special advantages from the mere existence of government.”
Wealthy Americans today aren’t meeting that obligation, not even coming close.
|Email this Too Much
issue to a friendNew Wisdom
Paul Buchheit, Three Big Lies Perpetuated by the Rich, Common Dreams, July 23, 2012. Topping the current prevarications: the notion that higher taxes on the rich slow job creation.
Stewart Lansley, Why more equal societies have more stable economies,Inequalities, July 24, 2012. A leading British analyst runs down the three basic reasons why inequality inevitably undermines economic health.
Mark Weisbrot, End tax-cuts for super-rich only and spend new revenues on job creation, South Coast Today, July 28, 2012. Between 1979 and 2007, America’s top 1 percent took three-fifths of all the nation’s income gains. Ending the Bush tax cuts for this elite could be a first step toward economic recovery.
Interview: World’s Super-Rich Hide $21 Trillion Offshore, Radio Free Europe, July 28, 2012. Former McKinsey & Company chief economist James Henry explains the basic findings of his new blockbuster report on the cash stuffed in global tax havens.
|Why We Should Fear Lower Taxes on the RichThomas Piketty, Emmanuel Saez, and Stefanie Stantcheva, How Much Should The Rich Pay in Taxes? Tax Justice Focus, Third Quarter 2012 issue.Economists Thomas Piketty and Emmanuel Saez have emerged over recent years as the world’s most respected authorities on income concentration. No one has generated better historical data on the incomes of America’s super rich.But Piketty and Saez haven’t done much work, for the general public, on the impact of top-heavy income distributions on our daily economic lives.That has just changed. The Paris-based Piketty and Saez, a University of California at Berkeley scholar, have just joined with MIT’s Stefanie Stantcheva on a brief article that helps explain why raising taxes on a nation’s rich creates economies that work for everyone, not just the wealthy.Piketty and his colleagues begin their new piece in the most recent edition of the Tax Justice Focus quarterly by noting a simple, amply documented reality: In nations that have significantly lowered tax rates on high incomes, the rich have significantly increased their share of national income.Since the 1970s in the United States, the tax rate on income over $400,000 has dropped from 70 to 35 percent. Over that same span, households in America’s top 1 percent have over doubled their national income share, to 20 percent.In Europe and Japan, by contrast, tax rates on the rich have dropped much more slowly and top 1 percent income shares have increased “only modestly.”
Conservatives have an explanation for these numbers. High tax rates on high incomes, they claim, discourage entrepreneurs. Lowering high rates, the claim continues, encourages them. Entrepreneurs who can keep more of their income go on to invest in their economy, create jobs, and make everybody happier.
In the bigger economy these lightly taxed entrepreneurs build for us, conservatives freely admit, the rich will make plenty of money and even increase their income share. But the rest of us shouldn’t mind any of this at all. Thanks to the rich, they argue, we get to live in larger, more buoyant economies.
In their new Tax Justice Focus paper, Piketty, Saez, and Stantcheva put these claims to the test. If the conservative argument reflected reality, they note, nations that have cut tax rates on the rich substantially should show much higher economic growth rates than nations that still levy stiff taxes on their richest.
In fact, the three economists point out, reality tells no such story. Nations that have “made large cuts in top tax rates such as the United Kingdom or the United States,” they detail, “have not grown significantly faster than countries that did not, such as Germany or Denmark.”
So what’s going on in countries where the rich all of sudden face substantially smaller tax bills?
In these countries, Piketty and his colleagues posit, top executives don’t suddenly — and magically — become more “productive.” They suddenly instead find themselves with a huge incentive to game the system, to squeeze out of the companies they run all the personal profit their power enables them to squeeze.
The more these executives can squeeze, in countries that have sheared tax rates on the rich, the more they can keep. The result? The top 1 percent in nations that go easy on the wealthy at tax time proceed, as Piketty and his fellow authors put it, to “grab at the expense of the remaining 99 percent.”
The three authors don’t go into chapter and verse on this grabbing in their new paper. They don’t need to. Millions of Americans already know this grabbing behavior first-hand. They’ve seen corporate execs routinely outsource and downsize, slash wages and attack pensions, cheat consumers and fix prices.
How can we start discouraging these sorts of corporate executive behaviors? Piketty, Saez, and Stantcheva have a straightforward suggestion: raise taxes on America’s highest-income bracket, raise them as high as 83 percent.
This suggestion, the three acknowledge, may now seem politically “unthinkable.” But back between the 1940s and the 1970s, they point out, the notion that we ought to raise taxes on the rich to reduce the incentive for outrageous behavior rated as the conventional wisdom in the United States.
In those years, “policy makers and public opinion” felt strongly that pay increases at the nation’s economic summit “reflected mostly greed or other socially wasteful activities rather than productive work effort.”
Is this perception about pay at the top now about to make a comeback? Piketty and his fellow researchers certainly think so, and they see in the Occupy movement signs of a shifting public perspective on the wealth of the wealthy.
Economists ought to be speeding this shift “with compelling theoretical and empirical analysis,” add Piketty, Saez, and Stantcheva in a hopeful final note.
These three authors, their new paper demonstrates, practice what they preach. All the rest of us should be grateful.
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