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||March 2, 2009|
For the first time since the early 1980s, the years America’s rich started getting phenomenally richer, a White House budget is linking the concentration of wealth at the top of America’s economic ladder to pain at the middle — and proposing to reverse that concentration.
In this week’s Too Much, we go beyond the numbers to show why Barack Obama’s first budget could well become a game-changer in the struggle against the great divide that separates America's rich from everybody else.
But the new White House budget still represents only a first step. Where will the next steps need to lead? We take a stab, this week, at that question, too.
The tax hikes on the wealthy in the new Obama budget, former Maryland Governor Robert Ehrlich charged last week, really boil down to nothing more than “punishing success.” Among the “successful” grateful for Ehrlich’s concern: Jeffrey Mezger, the 53-year-old CEO of KB Home, the Fortune 500 homebuilding giant. Mezger, KB Home has just disclosed, took home $9.6 million in 2008, a year that saw company revenues drop 56 percent and shares lose 64 percent of their value. The KB Home board of directors compensation committee, in a statement, called Mezger’s 2008 performance “outstanding” in the context of the current “business environment.” Mezger took the KB Home CEO reins in 2006 after an accounting scandal did in his predecessor, Bruce Karatz. The year before, the “successful” Karatz pocketed $155.9 million . . .
In our world today, notes French social commentator Louis Maurin, “we know much more about the poor than the rich.” Maurin is working hard to help change that — as the editor of l’Observatoire des inégalités, a new insight-packed online “monitor of inequalities.” Based in Tours and Paris, the politically independent l’Observatoire features stats and thoughtful analyses that probe how and why inequality, in its many manifestations, “constitutes a serious threat to democracy.” Can’t read French? The free Google service that translates Web pages offers a useful window into l’Observatoire’s trenchant observations . . .
France’s most globally recognizable person of means, designer Yves Saint Laurent, passed away last June. Last week, at the Grand Palais in Paris, 730 of his estate’s finest antiquities, paintings, sculptures, objets d'art, and pieces of furniture went on sale at auction — and returned a staggering $533 million. The most eye-popping transaction: $61.1 million for an Art Deco armchair crafted by an Irish designer who died four decades ago. A Matisse didn’t do too shabbily either, going for $45.5 million. The current global financial meltdown, art market experts believe, actually tended to inflate the auction’s winning bids. Explained one of these experts to a British reporter: “The super-wealthy are not sure where else they can safely put their money.”
Investment advisers at the Allenbridge Group have been providing, for some time now, psychological counseling for deep pockets facing the “emotional and family challenges” that come with great wealth. Now Allenbridge’s “wealth and affluenza” service, directed by Los Angeles-based psychologist Ronit Lamit, is moving into a new market: hedge fund managers no longer raking in the big bucks to which they had become accustomed. In 2007, the world’s top 50 hedge fund managers averaged over $580 million each. But hedge funds have been shuffling through hard times of late, and top hedgies are having to make do with considerably less. Some are asking for help with the condition that Allenbridge chair Anthony Yadgaroff has dubbed “reverse affluenza,” and, says the investment chief, “we are expecting to see more come in.”
“Reverse affluenza” may not be so bad — if you can hang out in a warm, caring environment. On Manhattan’s posh East Side, the royalty of high finance find that comfort in Sette Mezzo, a small Italian restaurant near the grand apartment co-ops of Park Avenue. Former PaineWebber CEO Donald Marron calls Sette Mezzo “a great neighborhood restaurant where you’ll see friends,” and that’s not surprising since many of his friends eat there several times a week. The chefs stick to homey fare — breaded veal, for instance — and the prices don’t raise eyebrows, at least not for the clientele. A typical dinner for four will run only $500. A small price to pay for a welcoming atmosphere. Says co-owner Nino Esposito: “If you are in a very powerful position in New York, you don’t eat home ever. Those people come here because they don’t need a sophisticated meal. They want a simple grilled fish. They want spaghetti with tomato sauce.”
Quote of the Week
“The New Year's party is over for those at the top of society. U.S. politics has been defined by bashing poor people (or at best ignoring them) since Ronald Reagan's time. Now, it's rich people who are on the carpet.”
Chuck Collins and Sam Pizzigati, Obama is right to take on the very rich, Christian Science Monitor, February 24, 2009.
Bill Blocher, We Must Defend The Rights of the Rich, The Ledger (Lakeland, Florida), February 26, 2009. How dare federal officials try to apply commercial airline security rules to private jets!
Amy Eilberg, Repaying Debts to Society, Minneapolis Star Tribune, February 27, 2009. “Where are the wealthy people writing into the newspaper,” this noted rabbi asks, “to say that they will still have more than enough even after paying a fairer share in taxes?”
Michael Prest, What is a banker worth? Prospect, March 2009. This thoughtful survey traces the evolution of excessive executive pay — and discusses approaches to ending that excess.
Finally, a Budget that Targets Inequality
The budget President Barack Obama presented to Congress last week, if adopted in anything close to what the President has proposed, will cut taxes for the typical American family by $800 a year and raise them for families in the top 1 percent by an average $100,000.
In an America accustomed to tax breaks — and oodles of them — for the nation’s richest, this tax increase on the privileged is striking many observers as something quite extraordinary. But even more extraordinary may be the rationale the Obama budget narrative makes for that increase.
The Obama budget does not position higher taxes on the wealthy, as President Clinton did in his first budget, as a distasteful but unavoidably necessary step to balance the budget.
The Obama budget, instead, rips “those at the commanding heights of our economy” for reckless behaviors that have “proven to be dangerous not only for their individual firms but for the economy as a whole.”
In strikingly stark terms, this new budget, entitled A New Era of Responsibility, goes on to hold the rich and their power responsible for making the “ladder into the middle class and beyond” ever “harder and harder to climb.”
Over recent decades, the budget’s background passages explain, the investments in public services that middle-class families need to succeed have been “sacrificed for huge tax cuts for the wealthy and well-connected.”
“There’s nothing wrong with making money,” the budget continues, “but there is something wrong when we allow the playing field to be tilted so far in the favor of so few.”
And the Obama White House offers plenty of numbers to document that tilting. The nation’s top 400 taxpayers, the new budget points out, averaged $263 million each in 2006, nearly quadruple their income in 1992. The net worth of America’s wealthiest 1 percent, the budget also notes, now exceeds the entire net worth of the bottom 90 percent.
“In fact,” the White House adds, the top 1 percent is now taking home “more than 22 percent of total national income, up from 10 percent in 1980.”
And this tremendous inequality has consequences, the Obama budget stresses, that go “far beyond one’s bank statement as several studies have found a direct correlation between health outcomes and personal income.”
By sheer coincidence, two of the world’s top epidemiologists — scientists who study the health of populations — drove that message home last week the day before the Obama budget’s release. The pair unveiled a new Web site that details how deeply top-heavy concentrations of wealth and income undermine the health of rich, poor, and middle alike.
“To gain substantial improvements in the real quality of life of the populations of developed countries,” this new Equality Trust site explains, “it is necessary that differences in income and wealth are greatly reduced.”
The Obama budget plan takes aim at that goal with a variety of proposals that would, if Congress agrees, substantially shave America’s highest incomes.
As expected, the budget lets the Bush tax cuts on income in the nation’s top two tax brackets expire, as scheduled in current law, after 2010. Under the Obama plan, the top tax rate on income over about $370,000 would jump from the current 35 to 39.6 percent, the top rate in effect during the Clinton years.
But the Obama budget then goes beyond the Clinton years by slicing the tax deductions high-income taxpayers can claim.
Right now, with the current top tax rate at 35 percent, the wealthy save 35 cents in taxes on every dollar they can deduct off their taxes. The Obama budget, besides upping the top tax rate to 39.6 percent, limits the deduction the wealthy can claim to 28 cents on the dollar.
These and other tax hikes on the incomes of America's richest will raise, over the next ten years, an estimated $1 trillion.
Conservatives have, predictably, already begun blasting the new Obama budget as the first salvo in a “class war.” In reality, America’s financially favored should consider themselves fortunate. If Congress adopts the Obama budget, America’s highest incomes will still face less than half the 91 percent top tax rate in effect during the Republican Eisenhower administration in the 1950s.
How much more revenue could be raised from America’s ultra rich by moving the tax rate on top-bracket income closer to Eisenhower levels? Last week, the Washington, D.C.-based Institute for Policy Studies released a seven-point tax-the-rich plan that would, among other steps, place an “economic emergency” 70 percent top tax rate on annual income over $10 million.
The total IPS plan would raise over a half-trillion a year.
“Higher taxes on the wealthy, in our current economic situation, would actually have a positive impact,” Chuck Collins, a co-author of the IPS plan, noted last week. "Appropriately targeted, these taxes would dampen the speculative frenzy of the last several decades."
The Obama budget, taken as a whole, most certainly swings federal fiscal policy in that same direction.
“The past eight years,” as the White House budget neatly sums up, “have discredited once and for all the philosophy of trickle-down economics — that tax breaks, income gains, and wealth creation among the wealthy eventually will work their way down to the middle class.”
Entrepreneurs, America's New Oppressed?
Robert Atkinson and Scott Andes, The Atlantic Century: Benchmarking EU & U.S. Innovation and Competitiveness. The Information Technology and Innovation Foundation. February 2009, 32 pp.
This past Friday, at the annual Washington, D.C. gathering of market fundamentalists known as the Conservative Political Action Conference, former Virginia Gov. Jim Gilmore headlined a session that asked, “Will Obama’s Tax Policy Kill Entrepreneurship?”
For Gilmore and his audience, the answer could hardly be more obvious. President Obama, after all, is proposing to raise taxes on the wealthy, and higher taxes on the wealthy, all good market fundamentalists believe deep in their bones, suffocate the entrepreneurial urge to innovate and create.
Will Obama’s tax hikes on the wealthy kill that urge? Of course! How, Gilmore and friends will always exclaim, could they not!
But if higher taxes on the rich really do gut innovation — and lower taxes spike it — then the United States, over the last decade, should have experienced an golden age of entrepreneurial innovation. Since 2000, taxes on the wealthy have sunk significantly. America’s entrepreneurs have luxuriated in “incentive” to innovate.
So what happened? Not innovation.
In fact, says this new report co-authored by the former project director of the Congressional Office of Technology Assessment, the United States “has made the least progress” — on a ranking of the world’s top 40 economies — in improving “international competitiveness and innovation capacity.”
The United States, the report says flatly, “is not the runaway leader in global competitiveness that some believe it to be.”
Other recent comparative business studies — studies that have sometimes ranked the United States number one on innovation — have relied mainly on opinion surveys. In this study, researchers looked instead at actual hard data on everything from corporate investment in R & D to information technology infrastructure.
The nations this business study ranks highest in overall “competitiveness and innovation capacity,” interestingly, show no common approach to public policy on taxes — or anything else.
Indeed, the study’s two top-ranking nations turn out to be Singapore and Sweden, the first an authoritarian business-dominated state that market fundamentalists applaud and the second an egalitarian-minded social democracy that market fundamentalists abhor.
Still, in the end, this new study does perhaps prove something — and that's the inanity of anyone who claims that entrepreneurs and innovation will most certainly go kaput if the rich have to pay more in taxes.
Stat of the Week
The tax hikes on Americans making over $250,000 in the new Obama budget, say critics, will overburden small business. In fact, fewer than one in ten taxpayers with small business income make over $250,000. And, adds the Center for Budget and Policy Priorities, many of these taxpayers turn out to be wealthy investors who “have little or nothing to do” with daily small business operations.
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: email@example.com.
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