A special news alert for frustrated Americans who believe the wealthy pay too little, much too little, in taxes: You don’t have to whisper anymore. Soaking the rich, as a serious policy option, has suddenly become respectable again.

In fact, this month may go down in history as the worst August for America’s super rich since Teddy Roosevelt, exactly a century ago, predicted that ruin for the United States would be “inevitable if our national life brings us nothing better than swollen fortunes for the few” — and called for stiffly graduated income and estate taxes on these few and their “grand fortunes.”

What has made this August so special? This month, for the time in decades, several major media outlets have run analyses that make the common-sense case for subjecting the ultra wealthy to ultra high tax rates. And mainstream think tanks have started picking up on that same theme, too.

We have more, in this week's Too Much, on this most welcome — and ridiculously overdue — development.

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Just what America needs: another “ego-seum.” That’s the new label for the private art museums billionaires the world over are building to house their personal art collections. The latest ego-seum will be rising in Los Angeles. Billionaires Eli and Edythe Broad are spending a reported $300 million to fashion enough exhibit space and operating endowment to display — on a rotating basis — their 2,000-piece contemporary art collection. Meanwhile, in Patterson, New Jersey, the new Urban Art Foundation this past weekend staged a graffiti artist “world cup” fundraiser to try and offset art teacher budget cutbacks in the New York metro area. About a fifth of New York City’s public schools are starting the new school year without a single certified teacher in the creative arts . . .

In 2009, a top hospitality industry trade journal noted last week, America’s hotel chains suffered — not surprisingly — “one of the worst operating performance years in the industry’s history.” Among those not suffering: the industry’s CEOs. In fact, details HospitalityNet, the top two dozen lodging execs pulled in about the same pay in 2009 they collected the year before. The industry’s top paycheck went to Walt Disney’s Robert Igor. He pulled in just over $29 million. The industry’s richest execs remain Carnival’s Micky Arison and Marriott’s J. W. Marriott, Jr. Both hold fortunes worth over $1 billion . . .

A top candidate for the leadership of South Korea’s main opposition party is calling for a new “wealth tax” on the fortunes of his nation’s richest 1 percent. The revenue from a wealth tax, says the Democratic Party’s Chung Dong-young, could raise 10 trillion won a year, about $8.5 billion, enough to secure pensions for South Korea’s elderly. A nation's tax code, says Chung, ought to both raise revenue and “redistribute wealth.” Politicos who support social safety nets without proposing adequate funding for them, he adds, “are deceiving the public.”

In the UK, another nation with a leadership tussle in the main opposition party, a Labor Party lawmaker is echoing the South Korean wealth tax call. Andy Burnham, one of five hopefuls for Labor’s top slot, last week called for a “solidarity wealth tax” that would subject an individual’s total assets, less debt, to an annual levy. The Labor Party, says Burnham, must be “true to its redistributive roots.” Adds the Labor leadership candidate: “We must never be about courting elites: we must be about breaking them down.” Ed Miliband, a Burnham rival, is also stressing the need for Labor to be “standing for redistribution.” He last week won the backing of a key UK progressive journal, the New Statesman, for his commitment to “above all else, reducing inequality.”

An even stronger push for a wealth tax on accumulated fortune is coming in Germany where 86 percent of the public, according to a new Der Spiegel poll, want the rich to burden more of the cost of the current economic crisis. One group of concerned millionaires wants to see a wealth tax on Germans with assets over 500,000 euros, about $633,000. Political analysts are predicting that Germany’s opposition parties may soon unite to issue a similar wealth tax call. The income tax rate on Germany’s top income bracket now stands at 42 percent, down from 53 percent in 1998. The current U.S. top rate: 35 percent.

Quote of the Week

“Congress should not shy away from bolder action on executive pay. Lawmakers mandate limits on other types of corporate behavior all the time. They limit how much pollution corporations can spew out. They limit the chemicals companies can sneak into their products. They set these limits because they recognize that irresponsible corporate behaviors threaten our communities. Excessive executive pay, the Wall Street meltdown has demonstrated ever so vividly, endangers our public well-being as surely as any pollutants.”
Sarah Anderson, The Hill, August 27, 2010

Stat of the Week

Under current law, no paycheck income over $106,800 faces Social Security tax. This cap, notes Economic Policy Institute analyst Monique Morrissey, amounts to "a huge windfall for the rich and a terrible shortfall for the benefits program” — since 16 percent of all U.S. earnings fall above the $106,800 level.

In the Tax Debate: A Blast of Fresh New Air

'Soak the rich,' after years in the shadows, has suddenly become a policy option fit for discussion in 'respectable' media circles.

At long last, we may be witnessing a fundamental paradigm shift in how we, as a society, talk about taxing the rich.

Until this summer, no national pundit — at least no pundit in good standing with the chattering class — would ever dare suggest a federal tax rate on America's top income bracket higher than 39.6 percent, the level in place under Bill Clinton.

Now pundits and the policy wonks who hover around them are openly singing the praises of top tax rates calibrated at 50 or 60 or even 70 percent, a level that would double the current 35 percent rate on top-bracket income.

Who deserve the credit for this abrupt turnaround? That honor unquestionably belongs to James Surowiecki, the New Yorker magazine’s top economic analyst.

The New Yorker occupies a rather unique role in the modern America media echo chamber. The magazine’s high-brow readership and legendary reputation for rigorously fact-checked accuracy lend enormous credibility to any outside-the-mainstream point of view that gets expressed in the New Yorker's pages.

In the August 16 New Yorker, analyst Surowiecki aggressively advanced just such an outside-the-mainstream point of view — on taxing the extraordinarily wealthy. Our current approach to taxing the awesomely affluent, he wrote in a piece entitled Soak the Very, Very Rich, “makes no sense.”

Under this current system, Surowiecki pointed out, a successful dentist who makes $200,000 a year pays taxes at about the same rates as someone who makes $200 million.

We have in America today, Surowiecki's New Yorker analysis would go on to add, “a yawning chasm between the professional and the plutocratic classes, and the tax system should reflect that.”

That reflection could be easy. Lawmakers, noted Surowiecki, would merely need to create new tax brackets for higher amounts of income, starting with a new and higher tax rate on income over $1 million. But, as his New Yorker piece quickly observed, lawmakers would have “no reason to stop there.”

Last week, CNBC gave the influential Center for American Progress, the Washington think tank led by a former Bill Clinton White House chief of staff, an opportunity to suggest how much further lawmakers should go. The Center’s Michael Linden suggested added tax brackets for income over $1 million, $5 million, and $10 million.

Someone making $500,000 a year, explained Linden, shouldn’t be paying “the exact same marginal tax rate on their last dollar of earnings as somebody making $10 million or $50 million.”

Time magazine’s Stephen Gandel, in his reaction to the New Yorker analysis, would stress the multiple benefits of soaking the rich. A “super tax rate for the super rich,” he noted, wouldn’t just “redistribute some of that wealth at the very high end of the income ladder to social programs that end up improving education or paying for healthcare reform or creating jobs.”

A super tax on super incomes, Gandel explained, would also help fix what ails our economy, by reducing “that global pool of money that sloshes around our financial markets and creates all types of bubbles.”

All “that money concentrated with the rich,” the Time analyst pointed out, “makes our economy prone to booms and busts, and less stable.”

The Washington Post, for its part, reacted to the wonky uproar that Surowiecki’s New Yorker column created by quizzing a cross section of tax experts and politicos on how high a super tax rate on super incomes should go.

The University of Michigan's Joel Slemrod, in response, put the optimum top rate at “60 percent or higher.” Emmanuel Saez from the University of California, the nation’s top expert on high incomes, opted for 69 percent top federal rate. Dean Baker, from the Center for Economic and Policy Research in Washington, D.C., suggested “somewhere around 70 percent and possibly a bit higher.”

The Post also put the same question to conservative analysts. Even one of them, former Reagan adviser Bruce Bartlett, called for a rate — at 50 percent — substantially higher than the current 35 percent U.S. top rate.

Robert Reich, the former U.S. labor secretary, last week shoved history into this spirited new tax-the-rich debate. How about, Reich mused in a nationally circulated column, setting the top tax rate at 91 percent, the level where that rate stood back during the 1950s under Republican President Dwight D. Eisenhower?

That 91 percent rate applied to income over $400,000, the equivalent of about $3 million in today’s dollars. The rich, no surprise, loathed that rate. With that rate in effect, they felt their plutocratic powerfading away fast.

“The United States Government makes the old 'Robber Barons' look like children,” multi-millionaire Richard Lounsbery, the heir to a mining fortune, fumed to the New York Times in 1959. “And there's no difference between the Republicans and the Democrats, either. The Republicans are Socialists and the Democrats are Communists — that's all.”

Middle class Americans, in the meantime, did just fine in a 91 percent top-tax-rate America. The mid 20th century would see the incomes of average Americans double, after taking inflation into account. “Soaking the rich” helped nurture a middle class Golden Age.

Apologists for America’s staggeringly unequal status quo, until this summer, had good reason to think that history forgotten. Now they have reason to worry. History remembered, after all, can become history repeated.

New Wisdom
on Wealth

Donard Dwyer, Wealth in moderation, Shreveport Times, August 24, 2010. What should trouble us more, the redistribution of wealth via progressive taxation or “the unfair advantages that gave rise to that wealth in the first place”?

Michael Linden, Golden Years for the Gilded, Center for American Progress, August 25, 2010. A comprehensive look at how America's wealthy have fared over the 21st century's first decade.

Michael Hiltzik, Corporate America, it's time to spread the wealth, Los Angeles Times, August 25, 2010. Exposing the corporate consensus “that only a shrinking proportion of American workers deserves a solid middle-class income.”

Chuck Marr, Inequality and the High-End Bush Tax Cuts, Center on Budget and Policy Priorities, August 25, 2010. Why tax policy remains “one of the best tools we have to help offset the troubling trend of growing inequality.”

Frank Rich, The Billionaires Bankrolling the Tea Party, New York Times, August 29, 2010. The three deep pockets behind the right wing's “grassroots” rebellion

Tax Cutting to a Top-Heavy Society

Anthony Atkinson and Andrew Leigh, The Distribution of Top Incomes in Five Anglo-Saxon Countries over the Twentieth Century, Institute for the Study of Labor, Bonn, Discussion Paper No. 4937, May 2010.

Conservatives who oppose any move to raise taxes on the rich inevitably swing back to one central pitch. Taxing the rich, they argue, will always be a futile exercise. So why bother? Arthur Laffer, analyst who inspired the Ronald Reagan tax cuts, made just this point earlier this month in a Wall Street Journal op-ed.

Unlike average taxpayers, Laffer wrote, taxpayers in the top tax brackets can minimize their income come tax time “by hiring lawyers, accountants, deferred income specialists, and the like.” These wealthy taxpayers can routinely “change the location, timing, composition, and volume of income to avoid taxation.”

At one level, Laffer’s observation rings true. The wealthy certainly do use their wealth to create and exploit tax loopholes. But this conniving never stops. The rich connive to avoid taxes when tax rates on high incomes run high. They connive when these tax rates run low.

By lowering tax rates on the rich, a society simply leaves rich people with much more money in their pockets — and a much greater share of the nation's income. But how much greater a share?

That’s a question Oxford economist Anthony Atkinson and the Australian National University’s Andrew Leigh explore in this detailed new analysis of nearly a century of tax-the-rich history in five major English-speaking nations, the United States, Britain, Canada, New Zealand, and Australia.

In all five of these societies, the share of national income rushing into top 1 percent pockets dipped significantly in the mid 20th century and then increased mightily. What explains this changing income share for the top 1 percent?

Above all else, taxes — or rather, the higher tax rates on the rich in effect a half century ago and the much lower rates on the rich in effect over recent years.

These recent reductions, calculate Atkinson and Leigh, “explain between one third and one half of the rise in the income share of the richest 1 percent.”

The United States hasn't taxed top-bracket income at over 39.6 percent since the mid 1980s. Governments that tax top-bracket income at no more than 40 percent, Atkinson and Leigh charge, are kissing away up substantial amounts of the revenue “they could potentially raise from the richest percentile group.”

In fact, the two add, the five nations they studied could raise their top-bracket tax rate to between 63 and 83 percent and still not lose any overall revenue.

“This suggests,” they conclude, “that in all five Anglo-Saxon countries, the tax rate paid by the top percentile group in the early-2000s was well below the revenue-maximizing point.”

This suggests, we ought to conclude, that our rich have seldom had it so good.

Inequality Links

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