A half-century ago, America's very richest individuals took home a tiny fraction of the incomes the very rich take home today. Yet they paid a larger share of their incomes in taxes, a much larger share, than the rich do today.

Today's wealthy have, in effect, worked a veritable political miracle. They make much more than their predecessors and pay much less in taxes. What's the secret to their success? In this week's Too Much, we highlight a new public interest group report that offers a troubling answer.

Also this week: We apply a little history to the clever new case against higher tax rates on high incomes that cagey critics of the Obama White House are now starting to peddle.

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The latest example of “tone-deaf profligacy at work” in the nation's capital? That just may be, suggests sportswriter Sally Jenkins, pro football’s Washington Redskins. Mega-millionaire Dan Snyder, the owner of the $1.5 billion franchise, last week guaranteed one player $48 million over four years just after laying off dozens of the team’s support staff. Pro teams have to pay top dollar for stars, says Peter Roby of the Center for the Study of Sport in Society, to “justify” what they charge fans and sponsors. And the Redskins charge a good bit. The team’s overall stadium experience, notes the Washington Post’s Jenkins, sets a family of four back an average $441 — for just one game . . .

Heard the one about the spoiled brat who kills his parents and then begs for mercy — as an orphan? Hank Greenberg, the 83-year-old former CEO of insurance giant and bailout basket case AIG, has turned that tale upside-down. Greenberg last week sued AIG for the mess he created. AIG’s share price has sunk 99 percent over the last year, and Greenberg is blaming company “misrepresentations” for the resulting hit on his personal portfolio. But Greenberg himself, before his forced resignation in 2005, had led AIG into insuring subprime mortgages, the move that collapsed the AIG house of cards that Greenberg had spent decades erecting. As CEO, Greenberg bought up hundreds of companies in a takeover spree that made him $3 billion — and left AIG too big for the government to let fail. AIG eventually paid over $1 billion in fines to settle an accounting scandal that led to Greenberg’s 2005 exit. The total bill for the AIG bailout rescue has now hit $150 billion . . .

Wheeler-dealers chasing after grand fortune don’t just create economic mayhem. The fortunes they amass can also prove politically toxic. Consider Richard Scott, the CEO who “grew” the nation’s biggest for-profit hospital chain in the 1990s. Scott is now bankrolling an ad blitz designed to demonize the Obama health care reform effort. If Obama gets his way, a Scott ad announced last week, government bureaucrats will “decide the treatments you receive, the drugs you take, even the doctors you see.” Scott may have issues with government “bureaucrats.” In 1997, “bureaucrats” unearthed kickbacks and massive overbilling at Scott’s Columbia/HCA hospital empire. The scandal forced Scott, then worth over $338 million, to vacate his CEO suite. That same year, Scott lashed out against critics who charged that his business “model” — by buying up and shutting down nonprofit community hospitals — was creating monopolies that shortchanged patient care. Railed Scott: “Do we have an obligation to provide health care for everybody? Where do we draw the line? Is any fast-food restaurant obligated to feed everyone who shows up?”

The higher tax rates on America's highest incomes that the White House proposed last month won’t go into effect, even if okayed by Congress, until 2011, after the current Bush tax cuts expire. But the taxes America's rich pay could still go up before then — if Congress passes legislation introduced last Monday to shut down the offshore tax havens that help deep pockets, says Senator Carl Levin from Michigan, sidestep over $100 billion in taxes a year. Levin’s new bill, the Stop Tax Haven Abuse Act, strengthens the anti-tax haven bill he introduced two years ago. That bill went nowhere. But Levin’s new bill actually has a fighting chance. Last Tuesday, the Obama administration announced that “we fully support the legislation.”

New Yorkers, by the thousands, rallied last Thursday to protest looming state budget cuts — and press Governor David Patterson to end his opposition to a tax hike on the state’s millionaires. Patterson claims that a tax hike would drive the rich out of state and depress tax revenues. But a Princeton study, released last fall, found that New Jersey’s 2004 adoption of a “millionaire’s tax” — actually a tax rate boost on incomes over $500,000 — had no appreciable impact on “the migration of New Jersey’s wealthiest households.” In fact, between 2002 and 2006, the number of half-million-dollar annual incomes in New Jersey soared 70 percent. New Jersey’s new 8.97 percent tax rate on income over $500,000, notes the Princeton report, “has generated an average of $895 million in state tax revenues per year.”

Quote of the Week

“We may not need a new Huey Long, but we do need a movement to address inequality.”
Christian Roselund, Remembering Huey Long, Brooklyn Rail, March 2009

New Wisdom
on Wealth

David Cay Johnston, Fighting Fiscal Fantasies, Tax Notes, March 2, 2009. A Pulitzer Prize-winning reporter takes on three top right-wing myths about taxes and the rich.

Amelia Ylagan, Kicking the slumdog, Business World (Manila), March 2, 2009. India's new rich and old poor.

Collette Douglas Home, Recession offers a chance to build a fairer society, Herald (Glasgow), March 3, 2009. Rates of mental illness run five times higher in the world's most unequal nations. Time for some equality?

Rod Watson, Have-nots to haves: Bring it on, Buffalo News, March 5, 2009.

Dorothy Brown, Two Americas, Two Tax Codes, New York Times, March 9, 2009. The case for ending the preferential tax treatment of the capital gains income that goes overwhelmingly to America's rich.

Is Taxing the Super Rich a Waste of Time?

Last fall, in the Presidential campaign, candidate Barack Obama promised to raise taxes on the rich and "spread the wealth." Candidate John McCain, figuring that Obama had committed a major political gaffe, spent the next month ridiculing Obama for that promise.

The gaffe would be McCain's. Most Americans, we learned on Election Day, would welcome a bit of wealth spreading.

And that puts Republican leaders in Congress in a bit of a bind. President Obama, with the budget he proposed late last month, has made good on his promise to modestly raise taxes on the rich. Mere ridicule, GOP leaders now understand, will not derail the tax hikes this budget proposes, not this time around. Tax hikes on the rich, most voters have concluded, make sense.

Even Republican voters want to see the rich pay more in taxes. In New York State, for instance, one new poll has found that 62 percent of the GOP rank-and-file want to see higher taxes on annual incomes over $1 million.

GOP leaders, in the face of this reality, now seem to be zeroing in on a more sophisticated line of attack. They've retired the rhetoric that ridicules Obama for wanting to “spread the wealth.” Their new pitch: Beware, America. Higher tax rates on high incomes aren't going to do what you think they'll do — because the really rich have always known how to get around paying taxes.

The right's top ideologues are already busy pushing this formulation.

“Obama’s 'tax the rich' scheme,” former Reagan administration assistant treasury secretary Paul Craig Roberts argued last week, “will devastate the upper middle class and leave the super rich undamaged.”

Does this case against upping tax rates on high incomes have any merit? Do higher tax rates on high incomes merely roll off the super rich, as opponents of these higher rates charge, like water off a duck's back?

We don't have to guess at the answer here. We need only examine the historical record. Higher tax rates on income in the nation's top tax brackets, that record shows, do make a clearly discernible difference. The higher the tax rate on high incomes, the more in taxes the super rich pay.

Tax loopholes, of course, do exist, and the super rich have, down through the years, spent large fortunes on tax lawyers who know how to max out on the opportunities these loopholes offer. But they spend these fortunes whether tax rates on high incomes are rising or falling. The lower the tax rate, consequently, the less the rich will pay in taxes.

The current top federal tax rate, 35 percent, has been in place since 2001. On 2008 tax returns, this top rate will apply to ordinary income — that's wages, salaries, and bonuses, but not capital gains — over $357,700.

Back in the mid 20th century, years of much greater equality in the United States, the top tax rate hovered around 90 percent. In 1955, with Republican Dwight Eisenhower in the White House, the wealthy faced a 91 percent tax rate on ordinary income over $400,000.

America's 400 most affluent taxpayers in 1955 reported incomes that averaged, in today's dollars, $12.3 million. These taxpayers worked hard to find loopholes and exploit them. And they did fairly well at that effort. The top 400 in 1955, after loopholes, paid 51.2 percent of their total incomes in federal income tax.

In 2006, our most recent year with statistics available, the top 400 worked just as hard to find and exploit loopholes, even though they faced a top tax rate that stood at a mere 35 percent. In the end, top 400 taxpayers in 2006 — households that averaged $263 million in income — paid just 17.2 percent of their total incomes in federal income tax.

How much in taxes the super rich pay depends on how high lawmakers set the tax rate on income in the top tax bracket. That's why the rich have always fought so hard, in years past, to keep that top tax rate low. And that's why their apologists today are working so hard, in Congress, to keep that fight going.

Who Gets to Make the Rules?

Robert Weissman and James Donahue, Sold Out: How Wall Street and Washington Betrayed America. Essential Information and the Consumer Education Foundation,  Washington, D.C., March 2009. 231 pp.

Every economy has rules. Every economy has winners. The trouble comes when the winners write the rules. In the Reagan era — the decades that beget our current troubles — America's economic "winners" did just that.

The bankers, hedge fund managers, insurance execs, and real estate speculators at our economic summit spent a generation rewriting the rules of the road. They erased the "speed limits" on where and how fast they could wheel and deal. They then proceeded to drive the economy into the ditch.

How exactly did America's economic winners rewrite those rules? They essentially bought Congress — and Congress didn't come cheap.

Sold Out, a fascinating new report from Essential Information and the Consumer Education Foundation, tallies the astounding cost. Over just the last decade of the Reagan era — the years from 1998 to 2008 — the movers and shakers of America's financial sector spent $3.4 billion on lobbying and another $1.7 billion on campaign contributions, over $5.1 billion in all.

In an earlier era, the middle decades of the 20th century, our economic winners didn't have anywhere near that large a war chest to lavish on lobbying and the like. Federal taxes back then, on both rich individuals and big corporations, took a significant chunk out of their "winnings" — and, in the process, limited their capacity to make rule-changing mischief.

But the early Reagan years slashed those taxes, a move that almost immediately began concentrating America's wealth — and political power — in the hands of a relative few. Now the rest of us, amid an economy in meltdown, are paying the price. Want the nitty-gritty details? Sold Out has them.

Stat of the Week

In 2008, a year that saw Wall Street giant Merrill Lynch almost totally tank, 11 high-ranking Merrill power suits each pocketed cash and stock rewards worth over $10 million — and 143 took in rewards worth at least $3 million. Bank of America, the powerhouse that took over Merrill’s operations, is refusing to reveal the names of the 143, notes the Wall Street Journal. The reason? Releasing the names, Bank of America is claiming, “would help rivals woo its top talent.”

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.