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April 20, 2009 |
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Fernando Garcia works for the Northwest Arkansas Workers' Justice Center. These days, he doesn’t see much justice. In this labor organizer's neck of the global woods, retail giant Wal-Mart looms large and casts an incredibly dark shadow. “A Wal-Mart worker,” Garcia noted last week, “has to work roughly 1,646 years to make the same amount of what former CEO Lee Scott of Wal-Mart would make in a year.” Wal-Mart isn’t making things any easier for workers who might want to stick around for as many of those years as possible. We explain, in this week’s Too Much, whose health rates protecting at Wal-Mart. And we also ponder a most puzzling new inequality stat straight from the data banks of the Federal Reserve. |
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Last week’s Tax Day teabag protest made lots of news — and no sense. Teabag organizers insisted that America has become a tax-crazed country. But the federal tax burden on the typical American family, after the middle-income Obama tax cut enacted earlier this year, now stands under 5.9 percent of income, “only slightly higher than the all-time low of 5.3 percent,” notes the Center on Budget and Policy Priorities. Even some conservative public policy stalwarts are dissing the teabag case. Bruce Bartlett, a former Reagan adviser, last week observed that tax revenues, as a percent of GDP, “will be lower this year than any year since 1950.” Added Bartlett: “The truth is that the U.S. is a relatively low-tax country no matter how you slice the data.” Who benefits the most from these low taxes? Next year, the last of the tax cuts enacted under George W. Bush go fully into effect. The Bush cuts together will boost the after-tax incomes of households making over $1 million by 7.7 percent, triple the increase average-income households will see . . . Congress could, this year, revoke the Bush tax cuts for the wealthy that current law mandates for 2010. Stopping the Bush cuts, the Tax Policy All the votes have come in — from the global readership of the Economist, the prestigious British business magazine — and we have a winner in the magazine’s just-completed online debate on taxing the rich. By a narrow margin, readers have voted to support debater Thomas Piketty, the French economist who’s calling for an 80 percent tax rate on income over $1 million euros, the equivalent of $1.3 million. Piketty’s opponent, Chris Edwards of the conservative Cato Institute, gave the Economist debate a bit of unintended hilarity in his closing statement. France’s current “high income and wealth taxes,” Edwards charged, “have led to a brain drain and a wealth drain.” The only actual example Edwards could cite: aging rock star Johnny Hallyday who “fled to Switzerland in 2006 to avoid France's high taxes.” At Goldman Sachs, the investment banking powerhouse, top execs have a habit of seldom saying what they really mean. Last fall, for instance, CEO Lloyd Blankfein announced he would not be taking any annual bonus beyond his base The Monte Carlo Rolex Masters, Europe’s first big world-class tennis tourney of the spring, has been attracting the global high-net-worth crowd to the French Riviera for some time now. The 2009 edition of the tourney, the first since the global financial meltdown, opened last week. Would the world ultra rich show up? They most certainly would — to sit in 20-seat boxes that sold for $63,250 each. Meanwhile, last Thursday in New York, baseball fans with thick wallets sat comfortably behind homeplate for the opening of the new $1.5-billion Yankee Stadium. The near-homeplate seats in the ballpark’s exclusive “Legends” section run $2,625 for single games and over $200,000 for the season. |
Quote of the Week “And people wonder why there is simmering class resentment in this country?”
New Wisdom Robert Borosage, Eric Lotke, and Hillary Hampton, Gilded Age Taxation. Institute for America's Future, April 13, 2009. America's problem, this analysis documents, “isn’t taxes.” It's “who pays taxes and who gets the benefits.” Bernie Hughes, Democracy not well served with wealth in hands of just a few, Superior Telegram (Wisc.), April 14, 2009. A child of the Great Depression reflects on the dangers that lurk when wealth concentrates. Mike Prokosch, Extreme wealth is threatening our economy and our democracy, Dorchester Reporter (Mass.), April 15, 2009. By taxing the rich, Congress “can make our economy safer, fairer, and more solvent.” William Pesek, Anarchy in Streets Builds When GDP Isn’t Shared, Bloomberg, April 15, 2009. An analysis of the growing concentration of wealth behind the recent protests in Thailand.
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America’s Most Puzzling Inequality Stat The United States has been regularly counting people, via the Census, since 1790. But the federal government didn’t start counting the dollars in people’s pockets, with any regularity, until 1983 when the Federal Reserve began conducting a “Survey of Consumer Finances.” This Fed survey, now conducted every three years, tallies just how much family wealth sits in the United States and who holds it. The Fed delivers all this info in a neat little summary report that makes comparing the wealth of America’s poor, average, and affluent families a relatively easy undertaking. But this Fed report doesn’t tell us much about America’s truly rich. These rich remain fairly invisible, lost in a broad “top 10 percent” category that includes plenty of families few Americans would consider exceptionally wealthy. In the Fed’s most recent Survey of Consumer Finances wrap-up, released in February, this top 10 percent extends down to families that make $140,000 a year. To the rescue comes Arthur Kennickell, the chief of the Fed’s survey unit. Over recent years, Kennickell has been producing an analysis of the Survey of Consumer Finances data that isolates out the wealth of the top 1 percent, a group most all Americans would define as rich. His latest analysis has just become available online. In 2007, the year the new Survey of Consumer Finances data cover, a family needed to sport a net worth of at least $8.3 million to enter the nation’s richest 1 percent. Together, these top 1 percent families held a collective net worth of $21.9 trillion, $3.5 trillion more than the net worth of all the families in the nation’s bottom 90 percent combined. These numbers actually understate the wealth of America’s top 1 percenters. Each Fed Survey of Consumer Finances, as Kennickell notes, “specifically excludes” from the survey sample any of the people wealthy enough to make the most recent Forbes 400 list of America’s richest. In 2007, the Forbes 400 held a collective net worth of $1.5 trillion. But in 2007, even without the fortunes of the Forbes 400, the top 1 percent still held a whopping 33.8 percent of America's total family wealth. Families in the bottom 90, all together, only held 28.5 percent. Robert Frank, the Wall Street Journal reporter who covers the paper’s wealth beat, finds these numbers deeply troubling — and not just for the obvious reason that they reveal a staggeringly unequal America. For Frank, the Fed numbers on the top 1 percent’s wealth share just don’t make sense statistically. Here’s why. According to the Fed, the nation’s top 1 percent in 2007 held roughly the same share of the nation’s family wealth as the top 1 percent held in 1995. Indeed, the 2007 share for top 1 percent — 33.8 percent — runs a bit under the 34.6 percent top 1 percent share in 1995. The Fed’s numbers on income, curiously, show a quite different dynamic. Since the mid 1990s, the share of the nation’s family income going to America’s top 1 percent of wealth-holders has risen substantially, from 11.5 percent of total family income in 1994 to 16.4 percent in 2006. How can this be? How can the nation’s wealthiest be grabbing a greater share of America’s income and not show a greater share of America’s wealth? The answer could be a statistical quirk. Maybe the Federal Reserve Survey of Consumer Finances just isn’t uncovering all the wealth the wealthy hold. That's possible. The IRS, after all, can send people to jail if they don’t honestly report all the income they’re making. Fed researchers, to collect wealth data, have no such power. These Fed researchers have to rely on the families they survey to respond to questionnaires, and, as Kennickell points out, “nonresponse in surveys often appears to be higher among wealthy families.” But Fed researchers do take eminently reasonable statistical steps to minimize this nonresponse factor. So what other explanation could account for Robert Frank’s “wealth-and-income puzzle”? The Fed could be overestimating the wealth of average American families. Any overestimating of average household wealth would, of course, reduce the percentage share of America’s total wealth that the rich hold. New York University economist Edward Wolff suspects this may indeed be happening. The Fed may be overestimating the wealth of average Americans, he notes, by not taking into account Corporate America’s massive switch from defined-benefit to defined-contribution pension plans. The Wall Street Journal’s Robert Frank has still another explanation for the top 1 percent puzzle, an explanation that no one, he concedes, can yet prove. Those huge incomes that go into rich people’s pockets aren’t translating into a greater share of the nation’s wealth, Frank postulates, because the rich have been busy spending massively on “McMansions, yachts, planes, Gucci bags, bottles of Mouton Rothschild, and $300,000 watches.” The rich, in other words, have been consuming, not investing, a huge chunk of their incomes. Now some of this consumption may add to a rich person’s net worth on paper. A yacht, for instance, can appreciate in value over time. But much of this consumption — a $2,632 ticket to a ballgame at the new Yankee Stadium, for instance — simply subtracts from a rich person’s net worth. Could America’s rich actually be consuming, on personal pleasures, enough to put a statistically significant dent on their share of American family net worth? Maybe. We have no reliable national data on rich people's personal consumption. But every so often we do get a glimpse at the immense fortunes America’s rich are regularly spending to be all they can be. One such moment came last month in the Connecticut divorce trial of former United Technologies CEO George David — the nation's top-paid CEO in 2004 — and his 36-year-old former investment banking spouse, Marie Douglas-David. Douglas-David is suing for $57 million more than her ex is offering. She needs that extra, her lawyers contend, to cover her basic expenses. These expenses, to be precise, run $53,000 a week, a sum that covers, among other outlays, “$4,500 a week for clothes, $8,000 for travel, and $1,500 for eating out.” How typical might Douglas-David be? We can't know for sure. The puzzle of our top 1 percent's static net worth share, for now at least, must remain unsolved. Should that bother us? Does this puzzle, in the final analysis, really matter? Sure does. The puzzle that the Wall Street Journal's Robert Frank has identified carries much more than just statistical significance. The entire rationale for cutting taxes on the rich rests, after all, on the notion that the wealthy will “invest” the extra dollars tax cuts deliver unto them. These investments, the argument goes, will strengthen the core economy and leave all of us better off. But if the rich are frittering away their fortunes, they’re not creating wealth, they’re burning through it. And that, advises the Journal’s Frank, ought to be “a worrying sign for those who hope that the rich are sitting on the sidelines with loads of accumulated wealth, ready to lead us into recovery.” |
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Executive PayWatch 2009: Worth a Surf A number of national media outlets and research organizations currently generate, every spring, oodles of corporate executive pay numbers. But nobody puts flesh and blood — and greed — on these numbers better than the researchers at Executive PayWatch, the AFL-CIO’s 12-year-old online compensation tracking service.
First some numbers: In 2008, notes the new Executive PayWatch, CEOs with pay hikes outnumbered CEOs with pay cuts, despite the U.S. economy’s worst year since the Great Depression. Among companies in the Russell 3000 that had filed CEO pay data by March 31, 480 hiked their CEO pay. Only 463 cut it. Now some stories. Start with Wal-Mart, where employees “have a strong incentive to stay healthy” — since only 48 percent of them have health insurance coverage from Wal-Mart. Nearly half of Wal-Mart worker children now either get their health coverage, at taxpayer expense, through Medicaid or go uninsured. “Meanwhile,” PayWatch observes, “Wal-Mart’s top executives receive an annual ‘senior executive physical’ examination paid for by the company.” These physicals cost Wal-Mart several thousand dollars each. In 2008 overall, H. Lee Scott, the Wal-Mart CEO who retired earlier this year, took in $431,446 worth of perks like this free physical. His total 2008 pay: $29.7 million. Or how about FedEx, where delivery driver Jean Capobianco was fired when she took time off for cancer surgery. How could FedEx get away with that? Easy. The company defines drivers like Capobianco as “independent contractors,” not employees, a neat maneuver that lets the company avoid niceties like the Americans with Disability Act and discharge workers at will. FedEx executives, on the other hand, enjoy gold-plated job security. Under the FedEx CEO “Management Retention Agreement,” PayWatch points out, company chief exec Frederick Smith “stands to receive a $26.6 million golden parachute as well as outplacement assistance if he loses his job or is demoted after a merger or acquisition of the company.” The new PayWatch site thoughtfully features, for readers needing a bit of cathartic release, a “Boot the CEO” online board game. “Booting” the game’s CEOs, with cursor clicks, turns out to be devilishly difficult, about as difficult as giving CEO pay excess the boot in real life. But this booting of excess, even a few minutes spent on the PayWatch site reminds us, remains as desperately needed as ever. |
Stat of the Week Between 1979 and 2006, new data from the Congressional Budget Office show, the after-tax incomes of America's most affluent 1 percent rose 256 percent, after adjusting for inflation. Over the same period, notes an analysis of the CBO data by Arloc Sherman of the Center on Budget and Policy Priorities, middle-income households saw a 21 percent increase.
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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. |
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Center estimates, would up federal revenue by $45 billion. But White House officials so far appear content to let the Bush tax cuts run their course — and hike taxes on incomes over $250,000 only after the cuts expire at the end of 2010. Among the groups mobilizing to end the Bush tax cuts now rather than later: 
salary. Last month, news reports 
The labor federation last week unveiled its