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||May 10, 2010|
In 2008, average Americans rescued the rich. In 2010, will the rich return the favor? That may well become this year's defining political question.
America’s wealthy, thanks to the generosity of America’s taxpayers, have survived the unpleasantness of Wall Street’s near-death experience quite nicely. The bailout has turned big banks bigger, and hedge funds are once again minting money for deep-pocketed investors.
On the other hand, the Great Recession all these speculators did so much to speed our way has moved into a dangerous new phase. State and local governments are now facing record budget shortfalls — and announcing deep cutbacks in public services, especially in education. Total teacher layoffs, the U.S. Department of Education is warning, could hit 300,000.
The rich to the rescue? Not exactly. The rich aren't rescuing. They're yawning. In Virginia’s Fairfax County, the second wealthiest county in the United States, the public school system has eliminated 1,200 jobs over the past two years.
Fairfax can afford to do better. So could the rest of the United States — if our wealthiest pulled their weight and paid their taxes at anywhere near the rates they once did. Just how much revenue are we losing? In this week’s Too Much, we put a human face — albeit a dead one — on the numbers.
Too Much online
|GREED AT A GLANCE|
The U.S. economy is continuing to set records. Some 39.7 million Americans are now getting Food Stamps, an all-time high. And last week saw another all-time high in New York — at Christie’s annual spring fine art auction. A 1932 Picasso went for $106.5 million, the top bid ever for an artwork at auction. Art dealers had expected the five-by-four-foot masterwork to fetch no more than $90 million, but eight enthusiastic and well-heeled bidders sent the final price soaring. Overall, Tuesday's gaveling session for Impressionist and modern art pulled in $335.5 million, triple the take at last year’s spring auction . . .
Fine art remains, among global deep pockets, the most popular “passion investment.” But the up-and-coming passion asset class appears to be the fine classic motorcar. The estate of a New Hampshire mega millionaire has just unloaded the world’s “most desirable classic automobile” — a 1936 Bugatti — to a motorcar museum in Oxnard, California. Sources place the price at somewhere between $30 and $40 million, three times more than the previous top bid for a classic car, the $12.2 million shelled out for a Ferrari Testa Rossa last May. The Bugatti sale, says the curator of the Petersen Automotive Museum in Los Angeles, clearly demonstrates that “certain cars have reached the level of art.”
CEOs in Israel are breathing a bit easier these days, thanks to Israeli prime minister Benjamin Netanyahu. Late last month, with his cabinet’s legislative committee about to endorse a sweeping executive pay reform bill that has “fired the imagination” of many Israelis, Netanyahu ordered the vote on the reform bill postponed — for 60 days. The bill, introduced by the Labor Party’s Shelly Yachimovich and Likud’s Haim Katz, aims to cap Israeli executive pay at 50 times the pay of a company's lowest-paid workers. Netanyahu, in an obvious move to bury the pay cap notion, has appointed an executive pay “study” panel. But Yachimovich is pledging to press on. Vows the lawmaker: “We will not allow this matter to be mucked about.”
Labor leaders in Egypt appear equally committed to narrower pay gaps. Last week, Egypt’s top independent union led protests that called on the Cairo government to set a fair wage floor — and a pay cap. The Egyptian constitution actually already mandates the fixing of “a minimum and maximum limit for wages” to lessen income disparities. But the minimum wage hasn’t been raised since the mid 1980s, and over two decades of privatizing state enterprises have sent executive pay ballooning. Egypt’s current government, Khaled Ali of the Egyptian Center for Economic and Social Rights charged at last week’s protests, “represents the marriage between authority and money — and this marriage needs to be broken up.” Added labor leader Kamal Abu Eita: “For those living in castles, a maximum wage, for those living in graves, a minimum living wage.”
The Miami Herald is urging Floridians to brace themselves against a new danger: “bazillionaires gunning for public office.” Over the last month, one billionaire has jumped into Florida’s U.S. Senate race, as a Democrat, and another super-rich power suit, a Republican, has entered the gubernatorial race. Both are touting their business acumen — and arrogantly assuming that voters won’t figure out how they actually made their fortunes. The new Senate candidate, Palm Beach real estate investor Jeff Greene, cleared $800 million betting foreclosures would ravage the housing market, as they certainly did in Florida, the second-hardest-hit state in the nation. The gubernatorial hopeful, Rick Scott, built up a for-profit hospital chain empire that defrauded Medicare, not a particularly great selling point for a candidate running in the nation’s most senior-oriented state.
Quote of the Week
“In this state the wealthiest people are paying too damn little. The richest people are paying about 3 percent of their income. And the bottom 20 percent pay 16 or 17 percent, five times as much. It stinks.”
Stat of the Week
Last month, the New York-based CA, Inc. — the world’s top “independent IT management software company” — eliminated 1,000 jobs, about 7.5 percent of the firm’s workforce. CEO William McCracken noted, at the time, that the company needed to be “leaner.” Last week, CA revealed McCracken’s new “leaner” pay deal. He’ll get $1 million in salary, a $1.3 million signing bonus, another two-part bonus worth around $2.75 million, and as much as $5 million a year additional in “long-term incentives.”
|inequality by the numbers|
A Historic Breakthrough for U.S. Billionaires
In 2010 America, schools, students, and teachers share the pain. The heirs to our mega rich, meanwhile, don't have to share anything.
A moment of silence, please, for Dan Duncan. The 77-year-old Duncan, a Houston resident, passed away the end of March. He left behind a spouse, four grown children, four grandkids — and a fortune worth $9 billion.
Duncan also left behind another distinction. He has become the first American billionaire to ever leave his heirs a tax-free fortune.
America’s first-ever billionaire — John D. Rockefeller — slid into the hereafter back in 1937. At that time, a federal estate tax had already been in effect for 21 years. John D.’s heirs faced a 70 percent tax rate on the bulk of his estate.
Dan Duncan’s heirs face a 0 percent estate tax levy. His son and three daughters have now become instant billionaires.
If Duncan had passed on last year, instead of this one, his heirs would have had to share their new billions, as many as four of them, with the rest of America. But this year, for the first time since 1916, no estate tax graces the tax code.
How much will the absence of an estate tax this year cost the federal treasury? We can’t say with any certainty. No one knows, after all, how many other billionaires may kick the bucket between now and December 31. We do know that in 2008, the latest year with figures available, the federal government collected $25.7 billion in estate tax revenue.
That sum, by coincidence, would be enough to fully fund the $23 billion Rep. George Miller from California and Senator Tom Harkin from Iowa want Congress to appropriate, as soon as possible, to avert the nation’s worst teacher layoff crisis since the Great Depression.
Two-thirds of the nation’s school districts, says a new American Association of School Administrators survey, have already axed educators. In the coming school year, without additional budget help, 90 percent expect to have to let jobs go.
That help, at this point, seems a longshot. The 2009 Obama administration stimulus legislation did save tens of thousands of teacher jobs. But the stimulus dollars earmarked for education are running out, and deficit hawks in Congress say the nation can’t afford to appropriate any more.
How can a civilized nation afford to hand the heirs of the super rich billions of dollars tax-free and not afford to keep teachers in classrooms?
We can trace our current budget inanity back to 2001, the year the Bush White House pushed Congress to repeal the federal estate tax. But the White House didn’t have the votes needed, under Senate rules, for a costly permanent repeal.
So White House officials cooked the budget books to camouflage the true cost of estate tax repeal. They maneuvered a tax bill through Congress that lowered estate tax rates over the rest of the decade and repealed the estate tax only for 2010. The estate tax, under the 2001 legislation, would then reappear in 2011.
White House strategists, of course, never expected to ever see this reappearance. They figured a future Congress would extend repeal beyond 2010.
But this “breathtakingly cynical” move, as the University of Cincinnati Law School’s Paul Caron notes, would prove too clever by half. By 2007, Bush had lost his House of Representatives majority and any realistic shot at making the repeal in 2010 permanent.
Supporters of the estate tax, meanwhile, assumed that the Congress elected in 2008 would legislate away the one-year estate tax repeal slated for 2010. But that didn’t happen either. In 2009, lawmakers deadlocked.
The friends of the financially fortunate in Congress, a bipartisan group, wanted any new estate tax set at a rate that would, at worse, merely inconvenience the super rich. Lawmakers less friendly to the fortunate wanted much more: estate tax rates high enough to break up grand concentrations of private wealth, a key goal of the reformers who championed the original estate tax a century ago.
The conventional wisdom on Capitol Hill then shifted. Lawmakers, observers opined, would move expeditiously in 2010 to pass some sort of an estate tax and make the levy retroactive for the entire year.
But no one in Congress, notes legal trade journal editor Scott Martin, apparently expected that a billionaire of Dan Duncan’s magnitude would actually go and die without an estate tax on the books. Duncan’s death has changed everything.
“Big estates,” explains editor Martin, “mean big lawyers ready to fight to see those billions of dollars go to the deceased’s heirs.”
Those lawyers will likely battle in the courts, to the last billable hour, any move to make the estate tax retroactive for all of 2010. And the longer 2010 goes without an estate tax on the books, the higher the chances the courts will agree.
In the meantime, none of the obituaries for Dan Duncan that have appeared since his death explore his status as America’s first estate tax-free billionaire. The obituaries have instead gushed over Duncan’s philanthropy. He had contributed, over his last five years, more than $250 million to hospitals and other institutions.
But Duncan, by yardsticks that measure capacity to give, rates as distinctly second tier as a philanthropist. The first tier belongs to philanthropists like Judith Anderson, a teacher in Houston’s Almeda Elementary School.
Last week, on the occasion of National Teacher Appreciation Day, a local media outlet in Houston spotlighted Anderson’s long philanthropic history. Over the course of her 20-year school career, she has spent thousands of dollars on her students, all without reimbursement.
On one project alone, setting up a school soccer league, Anderson spent $2,000 — on a teacher’s salary. By comparison, Duncan’s energy pipeline empire now generates $600 million a year in annual cash flow. Next to that, $50 million in annual tax-deductible charitable contributions hardly matches the sacrifice that teachers like Judith Anderson are making year in and year out.
The reward for these sacrifices? Budget cuts that pink slip teachers and overcrowd classrooms, budget cuts that could be avoided if the rich were paying their appropriate tax share.
Dan Duncan, a close friend noted after his death, “really wanted to help everybody.” If Dan Duncan’s heirs really want to help everybody, they’ll troop over to Capitol Hill and demand the immediate reinstatement of a meaningful federal estate tax.
His billionaire heirs, odds are, won’t do that. That burden’s on the rest of us.
Steven Jones, Plutocracy and democracy can't co-exist, San Francisco Bay Guardian, May 6, 2010. An appreciation of the thought of famed public-interest journalist Bill Moyers.
Bruce Bartlett, Tax Cuts And 'Starving The Beast,' Forbes, May 7, 2010. A former Reagan administration official exposes the folly of the principal rationale that conservative lawmakers have used to justify massive tax cuts for the rich.
Jonathan Jones, Super-rich robbing us of cultural heritage, Sydney Morning Herald, May 8, 2010. How the ever grander fortunes of our wealthy are undermining the artistic vitality of our museums.
Real Life: The Board Game
Daniel Rigney, The Matthew Effect: How Advantage Begets Further Advantage. Columbia University Press, 2010. 165 pp.
“To turn $100 into $110 is work,” the billionaire Edgar Bronfman once quipped. “To turn $100 million into $110 million is inevitable.”
We’ve all heard variations on this business folk wisdom. It takes money to make money. The big dogs eat first. The first million is the hard one.
These maxims all ring true, sociologist Daniel Rigney helps us understand in this fine and wise new book, because they don’t just explain how business operates. They hint at a basic dynamic that impacts all our human affairs. Simply put: Advantage begets more advantage.
Social scientists have dubbed this phenomenon the “Matthew effect,” from the Gospel of Matthew verse: “For whosoever hath, to him shall be given.”
This Matthew effect turns out to turn up almost everywhere. A small initial advantage that favors one person or one group over another, over time, translates into remarkably large gains — and a huge gap between those with the early advantage and everyone else.
The simplest example may be the Monopoly board game. Through skill — or luck — one player starts accumulating income-generating properties. These properties generate rental income from the other players, and this income enables the advantaged player to buy more property. Everything soon snowballs. The “cumulative advantage” eventually leads to smashing victory.
In real life, unlike the board game, we don’t start with equal resources. Some of us, thanks to the accident of birth, begin our lives with more advantages than others. The Matthew effect then amplifies these advantages. Not always, of course. The Matthew effect, as Rigney stresses, constitutes no “iron law.” Advantages can be squandered away.
But the underlying reality remains. Advantage does beget more advantage. And that reality carries “disturbing implications” — “especially,” as Rigney notes, “for those of us who have enjoyed more initial advantages than most.”
“We want to believe,” as he explains, “that the advantages we were born with, and whatever further advantages we have managed to accumulate in the course of our lives, are earned and well deserved.”
Many of the advantaged simply refuse to believe anything else. They confuse the reality that everyone in America has an opportunity to succeed with the mythology that everyone has an equal opportunity. Unfortunately, they don’t stop there. They actively resist efforts, observes Rigney, “to temper or counterbalance Matthew effects through egalitarian initiatives.”
These advantaged, in essence, “employ their cumulative advantages to protect the Matthew effects that allow them to accumulate still more advantages.”
Cynics consider this “the way of the world.” The big dogs will always eat first.
Rigney disagrees. His pages lead us through the “countervailing forces” that can limit the gaps that Matthew effects widen. These countervailing forces, in the past, have helped make society less unequal. They can make that difference in the future if we “expand and extend our awareness of cumulative advantage.”
Consider this book an outstanding contribution to the expansion process.
|About Too Much|
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