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March 23, 2009 |
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Last week, in the middle of the bailout bonus furor, White House political adviser David Axelrod dismissed the uproar over AIG as a distraction. As “galling” as the bailout bonuses may be, the usually astute Axelrod contended, the AIG scandal “doesn’t go to the main issue” that faces the nation, the challenge of getting America’s economy “moving again.” Axelrod couldn’t be more wrong. Who says so? His boss, the President. In California last week, Barack Obama called AIG “a symptom of a much larger problem,” an economic culture “where people made enormous sums for taking irresponsible risks that have now put the whole economy at risk.” To fix the economy, Obama added, we must “make sure we don't find ourselves in this situation again, where taxpayers are on the hook for losses in bad times and all the wealth generated in good times goes to those at the very top.” Could the AIG bonus firestorm actually signal a start to a politics that chokes off that upward flow of wealth? In this week's Too Much, we do some exploring. |
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First came “golden parachutes,” the contract clauses that guarantee top executives multiple millions in severance bonus should their companies be gobbled up by some bigger corporate fish. Now make room for the “golden coffin,” the innovative executive-enrichment maneuver that takes the concept of “retention bonus” to its final resting place. Golden coffin contract provisions guarantee big fortunes to the heirs of top executives. The latest CEO to sport one: Verizon’s Ivan Seidenberg. His heirs will get up to $35 million in bonus when Seidenberg dials it in. Golden coffins, says Verizon, help the company keep key personnel . . .
Tax-exempt nonprofits, under federal law, may not ladle “unreasonable compensation” on their top executives. But sky-high pay in the private sector seem to have recalibrated what some nonprofits consider reasonable. At Angel Food Ministries, a Georgia-based nonprofit that distributes food for the needy to some 5,000 churches in 39 states, CEO Joe Wingo last week dubbed himself “fairly compensated.” The chief executive, his wife, and two sons collected $2.8 million in pay between 2005 and 2007, and Wingo, the AP reports, flies to meetings in a private jet Angel Food leases. The excesses at Angel Food “do not represent a sporadic problem,” noted nonprofit watchdog Gary Snyder last week in the Atlanta Journal-Constitution. Snyder sees “an explosion of comparable misdeeds” by executives who consider nonprofits “their personal piggy bank.”
Call them the “New Faux Poor,” the label Tatler magazine has affixed to comfortably rich people who feign hard times “by sacking staff and canceling parties.” Frugality has become, in certain well-heeled circles, “the must-have social badge of the credit crunch season.” But some psychologists see this anti-bling posturing among “artfully distressed millionaires” as just another stage in the ever-repeating luxury cycle. In the first stage, the newly rich show off luxury products with flashy labels. In the second, they take a more “considered” approach, rejecting off-the-shelf luxury for handmade. In the third, they nurture niche connoisseurship, going ga-ga over luxuries like rare truffles. The last stage? “Meditative” luxury, the world-weary wealthy’s labored effort to demonstrate they understand that only inner fulfillment really matters. |
Quote of the Week “A few years ago, it was common to think of the rich as a special breed. We may soon come around to George Orwell's view that the only difference between rich and poor is income.”
New Wisdom Emanuel Feldman, How To Handle the Financial Crisis: A Trans-Century Phone Call, Jewish Action, March 17, 2009. The rabbi emeritus at Atlanta's Beth Jacob explores what we can learn about the dangers of the chase after grand fortune from the Jewish religious tradition. Catherine Brahic, 'Cap the rich' to keep emissions targets fair, New Scientist, March 17, 2009. We need to acknowledge, a Princeton scholar is arguing, that poor people in rich countries often “emit next to nothing” while the very rich in poor countries “emit as much as the European average.” Robert Weissman, Lessons from AIG, Essential Action, March 19, 2009. Ronnie Ellis, Economic crisis changes attitudes about economic power, News & Tribune (Jeffersonville, Indiana), March 20, 2009. Konrad Yakabuski, When wealth became a character flaw, Globe and Mail (Toronto), March 21, 2009. Top politicos, if they had “just looked at how skewed income distribution had become,” would have been able to call the current crash.
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Is Congress Now Ready to Tax the Rich? How much has the uproar over the bonuses at AIG impacted America’s political discourse? This much: We now have elected leaders on Capitol Hill openly talking, for the first time since World War II, about slapping a 100 percent top tax rate on the income that’s cascading into rich people’s pockets. Last Tuesday, Rep. Steve Israel from New York proposed a 100 percent tax, effective this year, on bonuses over $100,000 that go to employees at companies that receive federal bailout funds. “If we can't kill the bonuses,” noted Israel, “we'll tax the bonuses.” That’s just what the full House voted, two days later, to do, adopting a proposal that would tax bailout bonuses — on any tax return that reports at least $250,000 in income — at a 90 percent rate. The federal tax code hasn’t sported a tax rate that high since 1963, when all salary, interest, dividend, and bonus income over $400,000 faced a tax rate set at 91 percent. The current top tax rate on any of the income that goes to America’s wealthiest: 35 percent. President Obama has already proposed upping that figure to 39.6 percent. But has the AIG furor — amid the escalating meltdown crisis — now placed an even higher tax rate on the rich back within the realm of political possibility? History offers an answer: maybe. Since the last quarter of the 19th century, the years when wealth in the United States first started concentrating at epic levels, taxes on the rich have only risen significantly three times. Each of those three hefty hikes took place at times of national crisis, the last nearly 70 years ago, in a situation filled with parallels to today’s furor over AIG. Back then, in 1940, the Nazis were marching in Europe, and President Franklin D. Roosevelt was anxiously trying to rearm America amid Depression hard times. “Not a single war millionaire,” the President flatly pledged in 1940, “will be created in this country as a result of the war disaster.” Top U.S. corporate leaders of FDR’s day had other ideas. They mobilized to stop Roosevelt’s pitch for a stiff excess profits tax on corporate earnings. They actually refused to enter into defense contracts until Congress gave them a more business-friendly tax bill. But then came the attack on Pearl Harbor, and FDR soon had the upper hand. In April 1942, just a few months into the war, Roosevelt proposed a 100 percent “supertax” on all income over $110,000 — the equivalent of about $1.4 million in today’s dollars — for couples filing jointly. Congress, in the end, didn’t go along with FDR’s 100 percent tax, but lawmakers did eventually agree to a 94 percent top rate on income over $200,000, around $2.5 million in today’s dollars, and the nation’s top tax rate would hover around 90 percent, under Democratic and Republican Presidents alike, until 1964. Over the course of these years of high taxes on America’s very rich, the Great Depression would end, World War II would be won, and the United States would usher onto the world stage the first prosperous, mass middle class nation in economic history. FDR’s willingness — even eagerness — to take on the rich and powerful opened the door to all this success. Elected leaders in Washington today have yet to show anything close to that courage. The bailout executive pay limits Congress enacted last month and the AIG bonus tax the House adopted last week certainly do constitute positive steps, but neither goes nearly far enough. The AIG bonus tax, for instance, won’t touch Joseph Cassano, the power suit who ran the AIG division that wheeled and dealed the company into $99 billion in 2008 losses. Cassano left AIG last March, but not before collecting over $300 million for his toxic labors. He gets to keep all that, even if the House bonus bill adopted last week becomes law. The same story holds for the executive pay bailout restrictions Congress passed in February. These place a $500,000 limit on what companies that get taxpayer bailout dollars can deduct off their tax bills for executive pay. That’s a welcome move, but this limit doesn’t in any way impact Lockheed Martin, the defense industry giant that rakes in billions of tax dollars via government contracts. Lockheed’s CEO, the company announced last week, took home $26.5 million in 2008. Under current law, Lockheed gets to deduct, on its corporate tax return, almost all that $26.5 million. One member of Congress, Rep. Barbara Lee from California, last week introduced legislation to end such taxpayer subsidies for excessive executive compensation. Her new Income Equity Act, HR 1594, would deny all corporations tax deductions on any executive pay that runs over $500,000 or 25 times the pay of a company’s lowest-wage worker. Lee, interestingly, had a similar bill before the last Congress. That bill went nowhere. Has the AIG bonus ruckus changed anything? We’ll soon see. |
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Incendiary Data in a Plain Paper Journal Kyle Mudry and Justin Bryan, Individual Income Tax Rates and Shares, 2006, Statistics of Income Bulletin, Winter 2009, Internal Revenue Service. Of all the people in the United States, 99.99 percent have never perused the pages of the Statistics of Income Bulletin, a research journal the IRS publishes four times a year. For the power suits on Wall Street, that’s a good thing. If more Americans ever really digested the sort of statistics that appear regularly in this journal, the storm of protest from average Americans might make last week’s rage over AIG seem about as fearsome as a tantrum from a toddler. The latest edition of the SOI journal popped up earlier this month, with a lead article that looks at who made what back in 2006 — and who paid how much in federal income taxes. But this article goes on to offer a good bit more than income and tax stats for 2006. The IRS authors have, rather thoughtfully, placed the 2006 income and tax data in a neat historic perspective. They go back 20 years, essentially a generation, and, in the process, tell a gripping story of greed and grasping. Back in 1986, affluent taxpayers needed to report the equivalent of $118,818 to enter the ranks of the nation’s highest income 1 percent. Average affluents in this top 1 percent, 20 years ago, paid a third of their incomes, 33.1 percent, in federal income tax. In 2006, by contrast, an annual income of $118,818 wouldn’t get you within shouting distance of the elite top 1 percent. In that year, a taxpayer needed $388,806 to hit the income ladder’s top rung. But the rich in today’s top 1 percent aren’t just making much more than top 1 percent households made 20 years ago. They’re paying much less of that income in federal income tax. In 2006, the top 1 percent paid a mere 22.8 percent of their incomes to Uncle Sam, down from that 33.1 percent in 1986. America’s rich have, in effect, seen their tax burden shrink a third since 1986. Over this same period, the top 1 percent have doubled their share of the nation’s income, from 11.3 percent of the total in 1986 to 22.1 percent in 2006. And the rest of us? The bottom 90 percent of American taxpayers took in nearly two-thirds of the nation’s income, 64.9 percent, in 1986. The bottom 90 percent’s share in 2006: 52.7 percent, or just over half. How to explain this vast shift in income from average Americans to Americans at the top? Are rich Americans working harder or longer or smarter than they did two decades ago? Or has their growing wealth simply translated into growing political clout, the power to bend the rules that regulate — or fail to regulate — how our economy operates? You won’t find an answer to these questions in this latest IRS Statistics of Income Bulletin research. But you will find plenty of reasons to ask them. |
Stat of the Week You don’t have to be a power suit at AIG to hit the jackpot off taxpayer dollars. Defense contractor General Dynamics revealed last week that company CEO Nicholas Chabraja walked off with $17.96 million in pay for 2008, a 15 percent hike over the year before. Chabraja will be retiring this year — with $48.5 million in new stock awards and pension benefits.
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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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