Donald Trump is fuming. The Donald, our national self-proclaimed millionaire extraordinaire, flew off in a plutocratic rage last week after New York’s top pols agreed to hike the state tax rate — on income over $500,000 — from 6.85 to 8.97 percent. Trump placed an angry phone call directly to the governor, then vented to reporters.

The new tax, Trump told the New York Post, would be “very dangerous.” The rate boost, he sputtered to Fox News, would be “a total disaster.”

Take a deep breath, Donald. You should be celebrating, not kvetching. You should be thanking your lucky stars that this week’s Tax Day finds you in 2009 and not 1955, the first year that April 15 marked the day taxes came due.

Why should Trump be feeling so grateful? In this week's Too Much, we highlight the answer — from a new report that details how steeply taxes on the rich have fallen over the past half-century. Also this week: We look into a fascinating transatlantic debate on just how high taxes on the rich really ought to go.

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Two new reports on recent CEO pay emerged last week, and both make the case that executive pay may actually be increasing. The Corporate Library, in a survey of companies that filed annual reports in January and February, found that a number of firms have rejiggered “performance” targets to keep bonuses flowing. Another analysis, from veteran CEO pay-watcher Graef Crystal, sees a 2 percent total pay hike in 2008 compensation for top execs at companies worth at least $10 billion. Shareholders at these same companies, notes Crystal, “took a 27 percent haircut.” The pay hikes executives registered last year, quips Crystal, reflect “the Marie Antoinette School of Management at its best.”

We don’t yet know how much top CEOs in Germany took home last year. But we do know that metal parts magnate Reinhold Würth made more than enough — to pick up a new yacht that stretches just 21 feet short of the length of a football field. The yacht's reported price-tag: $95 million. Billionaires like Würth purchase yachts, of course, all the time. But this purchase raised more eyebrows than usual. Würth had just cut the pay of a quarter of his German workers by 15 percent and forced the rest of the workforce to take a 5 percent “solidarity” pay cut . . .

You don’t have to run a major corporation to make a killing while the economy tanks. You could, for instance, manage investments for Harvard's endowment. Five top Harvard investment managers last year split $25.9 million in bonuses. The Harvard endowment, higher ed’s largest, lost $8 billion last summer, and the university is now freezing faculty salaries and slicing academic budgets. In January, alumni who’ve been protesting investment bonuses since 2003 — when five top managers together cleared over $100 million — called on Harvard to limit investment office pay to the university president's salary. The millions Harvard has shelled out to investment managers, historian and protest organizer David Kaiser noted last month in an analysis of “why bonuses matter,” gave these managers an incentive to invest heavily in speculative ventures. Harvard's endowment will likely end fiscal 2009 off 30 percent . . .

Earlier this month, Senator Blanche Lincoln, a Democrat from Arkansas, co-sponsored a budget amendment to slash the federal estate tax. Her proposal narrowly passed. Why would Lincoln, a senator from a poor state, push a measure that lets the first $10 million of super-rich estates go totally untaxed — and cuts the tax due on the rest? Lincoln's first answer: She was protecting “family-owned businesses.” The Arkansas Times had some trouble taking that rationale seriously. Not one family farm or mom-and-pop business, the paper related, “has ever had to close because of the estate tax.” Lincoln then argued — to critics who charged she was doing the bidding of her state’s richest family, the Wal-Mart Waltons — that the really rich “don’t care” about the estate tax because they’re rich enough already. For the record, estate tax collections from Arkansas over tripled, to $120 million, the year after Wal-Mart founder Sam Walton died in 1995. Of the world’s 14 top billionaires, notes Forbes, four owe their wealth to Wal-Mart. They sport a combined $70.6 billion net worth . . .

America’s biggest paychecks, over recent years, have gone to power suits in high finance — and the far more casually attired computer kingpins of Silicon Valley. The high-finance power suits, we now know, cratered the economy with their chase after fortune. High-tech exec pocket-stuffing, a study released last week suggests, has done some damage, too. The United States, says a Geneva-based telecom research group, is falling steadily behind the rest of the developed world in basic high-tech infrastructure. The United States now ranks 17th globally, down from 11th in 2002, on a yardstick that measures everything from access to broadband Internet to bandwidth available per Internet user. Meanwhile, notes the San Jose Mercury News, at least 91 homes sold for over $5 million last year in the two California counties that top Silicon Valley execs call home, the highest total “since the dot-com-nirvana year of 2000.”

Quote of the Week

“Perusing the Forbes 400 list of America's richest people, it's striking how few of them made the list by building the proverbial better mousetrap. The most common route to gargantuan wealth, like the route to smaller piles, remains inheritance.”
Michael Kinsley, Democrats for Rich Heirs? Washington Post, April 10, 2009

New Wisdom
on Wealth

Gerald Scorse, Stock Slump Creates Huge Tax Bailout of 'Investors,' April 8, 2009. An expert on capital gains tax reporting explains how current law bankrolls the losses of our biggest Wall Street speculators.

Mike Prokosch, Karen Kraut, and Lee Farris, Safe, Fair and Sustainable: Do President Obama's Tax Proposals Measure Up? April 9, 2009. This United for a Fair Economy analysis finds that current White House tax plans “could be sharply improved to raise more revenue, be more fair, and clamp down harder on high-risk Wall Street speculation.”

Simon Johnson, The Quiet Coup, The Atlantic, May 2009. A former International Monetary Fund chief economist, in a cogent analysis of our current meltdown, makes a powerful case for limiting incomes in the financial sector through executive pay caps, taxes, and tighter regulation.

Robert Borosage, Eric Lotke, and Hillary Hampton, Gilded Age Taxation, Campaign for America's Future, April 13, 2009. How the tax code privileges the wealthy.

Should We Double the Tax Rate on the Rich?

We live in a sound-bite political culture. Politicos and policy makers hardly ever engage their opposite numbers in anything close to real debate. Instead, they inflict upon us carefully rehearsed talking points. And the rest of us usually don’t particularly mind — because we’re not paying much attention anyway.

We’re not paying attention because the talking heads are seldom speaking to ideas bold enough to move us. Still, every once in a while a real debate, on an absorbing question, does break out. Then we realize what we’re missing.

One of those rare moments began last week, in a formal — and fascinating — online debate that will end this Wednesday. The host: the Economist, the prestigious British business magazine. The proposition before the house: that “the rich should pay higher taxes.”

The Economist has invited two sparklers to do the debating. Arguing the affirmative: French economist Thomas Piketty, whose work has traced the income explosion at the top of the U.S. economic ladder. His challenger: Chris Edwards, a former senior economist with the congressional Joint Economic Committee now with the Cato Institute, a leading conservative think tank in Washington, D.C.

The debate is following the classic format: opening statements, rebuttals, closings. But the Economist has also thrown in some cyberspace wrinkles. Guest experts are commenting on the debate’s exchanges, and readers can join in to the discussion — and vote for and against the proposition.

The sum total of all this: the “richest” exchange on taxing the rich in years.

And this exchange, notes debate moderator Saugato Datta, could hardly be more timely. With the world in economic crisis, and America’s top 0.1 percent taking in four times more of U.S. income than they did a generation ago, even those who consider inequality a “necessary price” to pay for a system that “rewards success” are “asking whether matters have got out of hand.”

To get things in hand, Thomas Piketty proposed Tuesday, in his debate opener, an 80 percent top tax rate on all income over 1 million euros, or $1.3 million. This 80 percent rate — twice the top rate that President Obama is now proposing — would rest on a historical foundation. Between 1932 and 1980, the top U.S. tax rate averaged 80.2 percent.  

A rate that high today, argues Chris Edwards, “would be disastrous.” High-income taxpayers would reduce their “work effort.” Overall output and tax revenue would quickly plummet. Edwards, to give a sense of the enormous losses he feels Piketty’s tax hike would generate, goes on to cite calculations by former White House Council of Economic Advisers chair Martin Feldstein.

Back in 1993, Piketty responds, Feldstein applied his theoretical perspective to Bill Clinton’s proposed top tax rate increase — from 31 to 39.6 percent — and predicted a substantial drop in taxable income if Clinton’s hike went into effect. No dropoff actually took place, a detail that didn't stop George W. Bush from getting the top tax-bracket tax rate dropped to its current 35 percent in 2001.

The most gripping exchanges between Piketty and Edwards, overall, have so far revolved more around basic philosophical assumptions about the nature of work and reward than questions over how well economic theories can explain actual economic behavior

Taxpayers in the highest-income brackets, Edwards contends, generate their high incomes “by their own efforts.” They produce “items of value to others.” Exceptions — “high-earning CEOs who perform poorly” — do exist, he acknowledges, “but it doesn't make economic sense to impose exorbitant tax rates because of the exceptions.”

The income most of us make, Piketty concedes, does reflect the contribution we make “to total economic output.” But this link between productive effort and economic reward breaks down at our economic summit, where top-earners like CEOs have the power to skim off whatever they can grab.

Top execs “will keep setting their own pay to the highest possible levels,” Piketty contends, “as long as they are not prevented to do so.” How can we do this preventing? History suggests, he answers, “that highly progressive taxation on very high incomes is the most efficient way to achieve this goal.”

High taxes on high incomes, Piketty adds, can “curb the grabbing hand.”

But it we let government grab too much in taxes from the rich, retorts Edwards, we will have started ourselves down a slippery slope to tyranny.

“The government that persecutes certain people with 80 percent tax rates,” he charges, “will find it much easier to expropriate the property of other groups it deems to be a menace.”

And even if this nightmare should not materialize, Edwards holds, high taxes on high incomes still make “no sense” because rich entrepreneurs remain far “more likely to use the cash productively than the government.”

That argument — that the private sector always knows best — may not be resonating particularly well in our epoch of meltdown and Madoff, even among the Economist’s business-oriented readership. As of this past weekend, readers, by a 52 to 48 percent margin, were favoring the Piketty position.

Piketty and Edwards will file their closing arguments this coming Wednesday. The Economist will pronounce a winner Friday.

In one sense, the Economist’s official choice won’t matter. By having the opportunity, at long last, to debate the wisdom of really taxing the rich, our body politic has won already.

Tax Day 2009: The Case for Populist Rage

John Cavanagh, Chuck Collins, Alison Goldberg, and Sam Pizzigati, Reversing the Great Tax Shift: Seven Steps to Finance Our Economic Recovery Fairly. Institute for Policy Studies and Wealth for the Common Good, April 7, 2009.

In 1955, the first year April 15 marked the IRS filing deadline, America’s 400 richest taxpayers swallowed hard and did their civic duty. They paid their taxes. A good bit of taxes. On average, the 1955 top 400 paid 51.2 percent of their total incomes in federal income tax — and that was after making sure they were taking advantage of every deduction they had coming to them.

How much of top 400 income will go toward taxes by April 15 this year? Nothing close to 51.2 percent. Nothing even remotely close. In 2006, the most recent year with IRS stats available, our 400 most financially favored paid a mere 17.2 percent of their total incomes to Uncle Sam.

Amazing — and alarming — figures like these abound in Reversing the Great Tax Shift, the new Tax Day 2009 report just released by the Washington, D.C.-based Institute for Policy Studies and Wealth for the Common Good, a new national campaign that’s mobilizing business leaders and wealthy individuals interested in public policies that promote shared prosperity.

The United States boasted plenty of shared prosperity back in the 1950s and 1960s, years when high tax rates on high incomes discouraged speculation and nurtured a vibrant middle class economy. But those high tax rates on high incomes have disappeared over the past three decades, and the top-heavy economy that emerged from that disappearance has now gone and crashed.

Recovery, Reversing the Great Tax Shift argues, is going to take a commitment to making investments in our future that we haven’t been making for over a generation. And those investments, the report notes, are going to require “new sources of federal revenue.”

A half-century ago, the rich and powerful — the foremost beneficiaries of the bounty the American economy creates — made a substantial contribution to the fiscal resources the nation needed. They can certainly afford to make that contribution again.

Just what form ought this contribution take? Reversing the Great Tax Shift offers a package of “practical and politically viable policies that could raise the revenues we need.”

These proposals range from a 50 percent tax on all income over $2 million a year to a 0.25 percent tax on the buying and selling of stocks, bonds, and other securities. Together, if enacted, these steps would raise $450 billion a year.

As a nation, Reversing the Great Tax Shift points out, we can’t “undo the damage wrought by the reckless tax giveaways to America's rich that have multiplied over recent years,” giveaways that “have turbocharged the concentration of wealth that sits behind our current economic meltdown.”

But that reality doesn’t have to leave us helpless.

“We can,” sums up this new Tax Day study, “take steps toward restoring the greater equality — and prosperity — that Americans enjoyed in the 20th century's middle decades.”

Stat of the Week

With schools facing massive budget cuts in Washington State, teacher David Spring is building support for extending the property tax to stocks, bonds, and other forms of “intangible property.” Spring’s plan would exempt retirement funds and the first $100,000 of intangible property per person. The proposal, if enacted via referendum this November, would raise $1 billion a year from the state’s top eight billionaires.

Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org.