Just over a half-century ago, in 1958, a small army of the world’s glitterati — actor Kirk Douglas, novelist W. Somerset Maugham, and ballerina Margot Fonteyn, to name just three — gathered at London’s Sotheby's auction house for what figured to be the greatest fine art sale of all time.

The auction did not disappoint. The total bidding at the black-tie event set a new fine art record. Among the masterpieces moved: a self-portrait by Impressionist Édouard Manet. The winning bid: £65,000, then the equivalent of $182,000.

Last week, that same Manet sold again at Sotheby’s. The winning bid this time: £22.4 million, now the equivalent of $33.4 million. The price for the Manet and other works sold last week, a delighted Sotheby’s executive told reporters, “demonstrated the strength of the international demand for top quality works.”

Last week’s art sales actually demonstrated something far more important: just how ridiculously much excess cash is currently sloshing in our world’s wealthiest pockets — and how incredibly much more wealthy our global rich have become over the past half-century. In this week’s Too Much: more on these rich, their “passion” investing, and a proposed new antidote to their excess.

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About 1.2 million jobless U.S. workers lost their extended jobless benefits last week because, as labor journalist Tula Connell notes, “some Senate millionaires think a $300 a week unemployment check will make people too lazy to look for a job.” Will Matthew Medeiros, the CEO at network security provider SonicWALL, soon be too lazy to look? SonicWALL, if shareholders approve, will be bought out by a private equity group next month. Private equity firms typically slash jobs after a takeover, to pay off the debt they incur to finance their wheeling and dealing. But Medeiros won’t need extended jobless checks if he gets the ax. The merger deal will net him $20.2 million . . .

The financial reform bill that emerged out of House-Senate conference in the wee hours this past Friday falls shy of where many Wall Street reformers hoped the bill would end up. But buried deep within the bill’s near 2,000 pages do appear some precedent-setting provisions, including one that will give groups battling excessive CEO pay some welcome new ammunition. This provision, originally proposed by New Jersey senator Bob Menendez, requires all U.S. firms to annually calculate and disclose the gap between what they pay their CEOs and what they pay their average workers. The disclosure of these ratios, on a firm-by-firm basis, could be a step to a much more far-reaching reform: denying government subsidies, tax breaks, and contracts to companies that pay their top execs over 25 or 50 times what their average workers are making . .  .  

The world’s super rich have lost a new playground. Local officials in the Scottish Highlands have just turned down a proposal that would have turned a “spectacular stretch” of countryside into a super-luxury resort open only to swells worth at least $150 million. The development, announced last August, would have featured everything from two world-class golf courses to a cosmetic surgery salon — and threatened “one of the last wildernesses in the British Isles.” Developer Malcolm James, in the final hearing on his proposal, promised locals they’d start seeing celebrities stopping by neighborhood pubs if they okayed his $2 billion plan. Lady Gaga and other performers at his exclusive resort, James explained, would “want to be driven around after gigs — the majority of pop stars love the public.” This public didn’t love developer James, a mega millionaire himself. The local Scottish council nixed his proposal by a 21-3 vote . . .

Britain’s rich may have lost a playground, but they last week gained something far more valuable: a reprieve from a robust capital gains tax rate hike. The new UK coalition government had been hinting at plans to hike the current 18 percent top capital gains rate to 40 or 50 percent. But the new top rate, UK chancellor George Osborne has announced, will stand at just 28 percent. In the United States, the wealthy still pay only a 15 percent tax on the capital gains they clear from buying and selling stocks and bonds, real estate, and other assets . . .

Kenneth Feinberg, America's executive “pay czar” since last June, is moving on — to administer damage claims from the BP oil disaster. Executive pay, meanwhile, remains a disaster. Feinberg had legal authority only over pay at bailed-out enterprises that hadn’t yet paid back their federal TARP program aid. But he could have used his “pay czar” bully pulpit to shame the big-bonus Wall Street execs who are still benefiting from other federal bailout initiatives. He didn’t. What did he do? Mostly dally with cosmetic moves that left executive wallets fairly full. One example: Feinberg convinced Bank of America CEO Ken Lewis not to take a base salary in 2009. But Lewis, observes financial analyst Lauren Tara LaCapra, still walked off with $4.2 million in other pay for the year and a $72 million retirement package, after collecting $63 million the previous three years. Feinberg has one last chance to make a mark: a final report, expected shortly, on executive pay at the 419 companies that received TARP bailout dollars.

Quote of the Week

“At a time when we have a record-breaking $13 trillion national debt and a growing gap between the very rich and everyone else, people who inherit multi-million and billion dollar estates must not be allowed to avoid paying their fair share in estate taxes.”
Senator Bernie Sanders (D-Vt.), June 24, 2010, introducing the Responsible Estate Tax Act, S.3533

Stat of the Week

In 2009, new data from the Economic Policy Institute show, the typical working American with a four-year college degree took home $1,025 per week, $5 a week less than Americans with a four-year degree took home, after adjusting for inflation, in the year 2000. The typical CEO at a top 500 company took home over $138,000 per week in 2009.

Bad News for Billionaires — and Chihuahuas

Progressives in the U.S. Senate have introduced a potent package of estate tax reforms that would, if enacted, start seriously trimming America's most super-sized hoards of private wealth.

Back a hundred summers ago in 1910, former President Theodore Roosevelt — a Republican — called for “a graduated inheritance tax on big fortunes,” a new tax levy that would increase “rapidly in amount with the size of the estate.”

Last week, four U.S. senators — three Democrats and an independent — introduced legislation that would subject big fortunes, before heirs can grab them, to an estate tax levy that would rapidly rise with the size of the estate.

Teddy Roosevelt would most certainly approve. Will a majority in today’s United States Senate?

By all logic — and cold-blooded political calculation — the newly introduced Responsible Estate Tax Act ought to fly through the Senate. Seldom, if ever, has a piece of progressive tax legislation had so much going for it.

Start with the budget math. Great Recession America is now going through the worst public services budget squeeze since the Great Depression. Teachers, cops, and firefighters are losing jobs. Libraries and parks are closing. Roads and bridges are crumbling.

States and local governments — and millions of jobless Americans — need federal help. The new Responsible Estate Tax Act, introduced by Bernie Sanders of Vermont and co-sponsored by Tom Harkin  of Iowa, Sheldon Whitehouse of Rhode Island, and Sherrod Brown  of Ohio, would help provide it.

Under the bill, all estates over $3.5 million, or $7 million for couples, would face a federal estate tax, just as they did under the federal estate tax in effect last year. But this estate tax, unlike last year’s, would be steeply “graduated,” with the tax rate rising as an estate's value increases.

The tax rate on estates worth between $3.5 and $10 million would be 45 percent, the same as the 2009 rate for all estates subject to estate tax. The rate would increase to 50 percent on estate value between $10 and $50 million and jump to 55 percent on all value over that $50 million.

Billionaire couples would face, on top of that, a 10 percent surtax on estate value over $1 billion, a move that would bring the overall estate tax rate on bequests over a billion to 65 percent.

The total package would raise, over the next ten years, at least $264 billion — and likely much, much more down the road. America’s 400 biggest fortunes alone, according to Forbes, now add up to a combined $1.3 trillion.

But billionaires, even with a 65 percent top estate tax rate in effect, would still be getting something of a bargain. From 1935 through 1981, the top federal estate tax rate never dipped below 70 percent. For most of that period, from 1941 through 1976, America’s richest faced a 77 percent top rate.

America’s richest, right now, face no federal estate tax at all. The Bush tax cut enacted in 2001 has eliminated the estate tax entirely for 2010. So this year, for the first time since 1916, wealthy heirs are pocketing tax-free fortunes.

These wealthy heirs include the three dogs of Gail Posner, the 67-year-old widow of a leveraged buyout king. Posner passed away in March. Her will leaves her pooches $11.3 million. Not a dime of that will flow to the federal treasury.

But four-legged heirs like Conchita, Gail Posner’s prized Chihuahua, and the two-leggeds now in line to inherit the $9 billion fortune of Houston pipeline mogul Dan Duncan, who also died this past March, could prove to be one-year wonders.

The 2001 Bush tax cut legislation, under current law, sunsets at the end of this year. The tax code next year will essentially revert back to the pre-Bush status quo, a step that would subject estate value over $2 million for couples to a straight 55 percent tax rate.

This current law reality creates an entirely unique — and favorable — political environment for progressive estate taxation. Senate Democratic leaders, notes Chuck Collins of Wealth for the Common Good, are holding all the cards.

If the Senate’s friends of the financially favored refuse to engage reasonably on the future of the estate tax, Senate leaders could simply let current law play out.

“If nothing happens,” as Collins explains, “we get a strong estate tax law.”

With leverage like this, Senate majority leaders could be aggressively pressing for a tough-on-billionaires approach — like the new Sanders bill. Instead, says Collins, those leaders have let senators Blanche Lincoln of Arkansas and Jon Kyl of Arizona set the tone for Senate estate tax debate with a “compromise” proposal that would sink the estate tax rate on billionaires down to 35 percent.

In effect, says Collins, Democratic leaders are sitting with three aces and getting “ready to fold.” And they will fold, unless public pressure forces the Senate to give the new Sanders estate tax proposal, S.3533, some serious consideration.

Wealth for the Common Good and a host of other national groups, including long-time estate tax champion United for a Fair Economy, have begun mobilizing that needed public pressure online. The first step: gaining more Senate co-sponsors for the Sanders legislation.

Under this legislation, 99.7 percent of estates in the United States would face no estate tax in 2011. And the heirs of the 0.3 percent subject to estate tax would still walk away, after taxes, with much more than enough moola to keep their Chihuahuas forever in clover.

In a democracy, numbers like these would make the passage of something like the Sanders Responsible Estate Tax Act proposal an absolute slam-dunk. Unfortunately, we live in a plutocracy. Getting a responsible estate bill through Congress is going to take hard work.

New Wisdom
on Wealth

David Cay Johnston, Master Limited Partnerships: Paying Other People's Taxes, Tax.com, June 21, 2010. How pipeline mega millionaires have perverted the regulatory process to stuff their pockets.

Arloc Sherman and Chad Stone, Income Gaps Between Very Rich and Everyone Else More Than Tripled in Last Three Decades, New Data Show, Center on Budget and Policy Priorities, June 25, 2010. A look at the latest Congressional Budget Office figures on America's gaping income divide.

Indongo Albinus, Richer rich and poorer poor, Namibia Economist, June 25, 2010. The world's most unequal nation, argues this Namibian analyst, needs tax high incomes.

A Million-Dollar Penny for Your Thoughts

World Wealth Report 2010. Merrill Lynch Global Wealth Management and Capgemini SA. June 2020.

Merrill Lynch and Capgemini, two financial firms always eager to grab more wealthy eyeballs, have just published their latest look at global fortune.

This year’s World Wealth Report 2010 doesn’t break any news we didn’t already know. The report's key finding — that the world’s richest, in 2009, almost entirely regained the wealth they lost in 2008 — showed up earlier this year in reports from financial analysts at Spectrem and Boston Consulting.

But Merrill Lynch and Capgemini do add some new twists to the underlying global wealth data, particularly on the richest of the rich, those households worth at least $30 million, not counting their “primary residence, collectibles, consumables, and consumer durables.”

These “ultra high net worth” households make up less than 1 percent of the global millionaire total, yet in 2009 they held 35.5 percent of combined global millionaire wealth, up from 34.7 percent of that total in 2008. In other words, the global financial crash that mega millionaire speculation triggered has ended up concentrating even more wealth in mega millionaire pockets.

Merrill Lynch and Capgemini researchers also offer some lusciously revealing detail on what they call “passion investing,” the vast sums the rich plow into everything from country club memberships and yachts to jewelry and fine art.

Global millionaires, says the new World Wealth Report, “returned to passion investments in 2009,” but the overall volume of these passion investments still hasn’t rebounded all the way back to pre-financial crash levels.

That complete rebound, the report adds, may come shortly, since “auction houses, luxury goods makers, and high-end service providers all reported signs of renewed demand toward the end of 2009.”

One sign of that increased demand: Late last year, an antique penny — a 1795 U.S. one-cent piece — went at auction for $1.3 million, the first time a penny had ever gone for over $1 million.

This resurgence in “passion investment” ought to give us some pause, especially in the context of the new World Wealth Report’s overall theme, that the global millionaire “segment regained ground despite weakness in the world economy.”

We have that weakness because average consumers still don’t have the buying capacity to get national economies going again. And those average consumers don’t have that buying capacity because income and wealth are getting even more concentrated at the top. An antique penny, thanks to that concentration, can now fetch more than a million dollars.

But imagine if our wealth were more equally shared. Imagine that the $1.3 million that went for a 1795 penny had been sitting instead in the pockets of average consumers. Over 1,500 of those consumers could have bought brand-new energy-efficient refrigerators with that $1.3 million.

And what do you suppose would do our economy — and our world — more good, one deep pocket spending $1.3 million on a penny or 1,500 households buying new energy-efficient refrigerators?

The good folks at Merrill Lynch and Capgemini will most likely never ask that question. We should.

Inequality Links

Working Group
on Extreme Inequality

Common
Security Clubs

United for a
Fair Economy

The Equality Trust

One Society

Wealth for the
Common Good

New Economy
Working Group

Class Action

Tax Justice
Network

Inviting Thought
(about Inequality)

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