Tracking Inequality

Our Plutocracy: A Sobering New Portrait

Never before, suggests a new look at America’s highest 400 incomes from the IRS, have so few made so much at the expense of so many.

By Sam Pizzigati

The IRS has released, with not a trace of fanfare, the latest figures on America’s 400 highest incomes. A shame. These new IRS figures deserve fanfare, at least a trumpet blast or two. Our top 400, the new numbers show, have moved into an exalted realm. They now rank among the greatest plunderers of all time.

Vandals and Huns, move over. Conquistadors, make room. You all have met your match — in the kingpins of high finance, hedge funds, and Silicon Valley who sit at the tippy top of 21st century America’s economic summit.

In 2007, the new IRS data show, the top 400 tax returns filed in the United States reported, on average, an incredible $344.8 million each in income.

Need some help placing this sum in perspective? How about a little history? The $344.8 million average the top 400 reported in 2007 — the year before the economy crashed — represents more than five times the average income of 1992’s top 400, and that’s after taking inflation into account.

Top 400 incomesThe IRS official figures on top 400 incomes only go back to 1992. But we can assemble comparable totals from earlier IRS data releases. For 1961, we can calculate an average income for the top 398. This near-400 averaged, in 2007 dollars, just over $14 million, or 25 times less than their top 400 peers in 2007.

Enough history? How about geography? America’s 400 highest earners in 2007 reported more income than the entire population of Kentucky, a state over 4.2 million people strong.

Want more of a workplace perspective? The typical American private sector worker in 2007 would have had to work over 11,000 years to equal the income the average top 400 deep pocket took home in just one.

We don’t know, from the new IRS stats, the identities of the top 400, in 2007 or in any other recent year. The IRS doesn’t name names. But we do have a fairly good idea, from previous news reports, about some of enormously fortunate who almost certainly spent 2007 in top 400 territory.

A good chunk of this top 400 hailed from the hedge fund world. In 2007, according to the financial industry trade journal Alpha, 50 hedge fund managers made at least $210 million each, well above the $138.8 million minimum needed over the course of the year to reach top 400 status.

The biggest hedge fund income in 2007 belonged to John Paulson. His achievement? Paulson bet that the housing bubble would pop and profited royally — to the tune of well over $3 billion — from the misery that resulted.

Other top 400 incomes in 2007 came from private equity, that shadowy world where power suits borrow other people’s money to buy out troubled publicly traded companies, then pay off their debt by axing jobs and squeezing consumers. The windfall profits — for the private equity wheelers and dealers — come when the “fixed” company gets sold back to Wall Street investors.

Private equity firms, unlike publicly traded companies, don’t have to reveal their executive pay. But sometimes details sneak out, as they did in 2007 when the Blackstone Group, the nation’s top private equity outfit, decided to sell its own shares on Wall Street. That sale handed $684 million to Blackstone CEO Stephen Schwarzman, on top of the $180.1 million he drew that year as chief exec.

Not all the top 400 of 2007 made their fortunes speculating on mortgages or playing private equity games. Some of the year’s highest incomes came out of the executive suites of America’s biggest corporations.

Oracle software CEO Larry Ellison, for instance, collected $61.2 million in annual pay for 2007 and pocketed another $181.8 million cashing out stock options he took home in previous years. Ellison’s money-making genius? He buys up competitors, grabs their customers, then fires their workers.

The most amazing aspect of the top 400 picture in 2007 may actually not be the hundreds of millions the 400 individually pocketed. That most amazing aspect may be the hundreds of millions that remained in their pockets after taxes.

signupIn 2007, the top 400 paid only 16.6 percent of their total incomes in federal income tax, down from 17.2 percent in 2006 — and down even more from the 29.9 percent effective tax rate on the top 400 in 1995. In other words, in just a dozen years, the tax rate on America’s super rich dropped by almost half.

Go back a few decades and the current tax “burden” on our super rich becomes even more remarkably light. In 1955, the nation’s top 400 — to be precise, the top 427, the total available from IRS historical records — paid 51.2 percent of their incomes in federal tax, over triple the tax rate on top 400 incomes in 2007.

How huge a tax break are today’s super rich getting? If 2007’s top 400 had paid their federal taxes at the same rate as 1955’s most financially favored, the federal treasury would have collected an additional $47.7 billion.

Those billions, in 2007, would have been enough to increase federal aid to state and local governments for infrastructure projects by over two-thirds. Or nearly double the nation’s entire 2007 outlay for scientific research.

We can’t, of course, undo the great plundering of 2007, that wild chase after grand fortune that would go on, in 2008, to collapse our economy. But we can take steps to prevent that wilding in the future. Our forbears did just that. Back in the Great Depression they started changing the rules — on everything from taxes to banking — that gave the greedy such an insatiable incentive to grab.

The new rules worked. By the 1950s, we had a top 400 that no longer lorded over us. We had an America that worked for average Americans. We don’t now.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies.

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16 comments for “Our Plutocracy: A Sobering New Portrait”

  1. The enabler for this burgeoning inequality is the corporate major media that way under reports on this and keeps the status quo confined within a narrow range.

    They spend much more time on Susan Boyle and other pop fluff.

    Kudos though to Thom Hartmann, he pounds on this issue a lot.

    Posted by Lisa M | February 22, 2010, 12:41 pm
  2. What you really miss here is not that they underpaid by having an average ratre of only 16.6%, bu that they can borrow against their unrealized gains and extract cash tax free from the rising value of investments under a fiat currency system. That impact is an order of magnitude greater, but is ignored. You can learn about the process through my book, Endless Money (John Wiley 2010).

    Posted by William Baker | February 23, 2010, 8:45 am
  3. If you want a related eye opener, see also

    Posted by Andrew D. Whitmont | February 25, 2010, 4:02 pm
  4. “…25 times less…”

    Do you mean 1/25 or 4%?

    No, you meant “25 times less”.

    Posted by Justin | February 26, 2010, 12:59 am
  5. The real benefit of high taxes on the clever is to force them to think long term and not steal their way into early retirement.

    Posted by taxee | February 26, 2010, 8:55 am
  6. Why is everyone focusing on income? At least those people are earning money. How about assets? For every $330 million earned, there’s billions owned in land, materials, factories and so on. What the US needs is an Asset Tax.

    Posted by Blue Swan | February 26, 2010, 12:46 pm
  7. I just want to add that the hedge fund people who are betting on disequalibria without inappropriate insider information are not the problem. They actually highlight the problems. It is Congress and the Presidents who have caused the plutocracy with the budget and trade deficits and the mass immigration purposefully designed to lower wages and give workers zero bargaining power and yet have to pay higher housing costs due to a skyrocketing population and government racial quota mandates on lending. Don’t blame someone smart enough to bet on where a problem is.

    Posted by Bob Oberhof | February 26, 2010, 6:12 pm
  8. Obsessing over how much or how little the richest pay in taxes is a distraction from the real issue of the Federal government taxing all of us too much to pay for its bloat.

    Prior to 1913 America did not have a national income tax. The exemption for single people was $3000 ($64,302 in 2009 dollars) and married couples $4000 ($85,736). Up to $20,000 in earnings ($428,684) were taxed at 1%. People earning over $500,000 ($10,717,121) paid the astronomical top tax rate of 7%. Only 1 in 271 Americans were subject to any tax under this scheme.

    Social Security was introduced in 1935 with a rate of 1% on the first $3000 ($64,302 in 2006 dollars) and no employer match.

    Posted by Drew Eckhardt | February 26, 2010, 6:17 pm
  9. America’s tax scheme is also the most or second most progressive out of all the OECD countries.

    We’re first for having the highest share of income taxes borne by the top 10%.

    We’re second if you look at ratio of tax percentage to income percentage.

    That’s ahead of Ireland, Italy, Australia, the UK, New Zealand, Canada, the Netherlands, Czech Republic, Germany, Finland, the Slovak Republic, Luxembouorg, Belgium, Austria, Jorean, Poland, Japan, Norway, France, Denmark, Sweden, Iceland, and Switzerland.

    At the bottom end, in 2007 43% of tax return filers had no liability or had a negative tax rate due to refundable credits.

    Posted by Drew Eckhardt | February 26, 2010, 6:21 pm
  10. Quite a few of those super riches are results of of their personal and business connections to government bureaucrats, and their ability to profit from government enforced monopolies: from fiat money to software patent.

    Some of the super rich and rich did make money by offering goods and services that the market deem worthy, including BTW John Paulson’s shorting of the real estate market, who increased supply at the market peak thereby retarding the last stages of the bubble and had to buy back and cover his short positions at the market bottom thereby providing market stabilizing influence. In other words, his did not profit from people’s misery but helped mitigate it while making profit doing it. The misery was the result of all those politicians and banker friends who “helped” people into mortgages that the latter could not afford and bid up houses prices for fellow home buyers in the process.

    Not sure why forcibly transferring wealth from people who had a clue about economics and have a track record of creating value to a bunch of losers (read: politicians and bureaucrats) who have a long track record of creating and condoning one bubble after another, one money losing Ponzi scam after another, one war after another, through the tax process, is make things any better.

    Contrary to common misconception, taxation is not money taken from the rich and given to God. It’s simply a book keeping entry where by the relatively well-off are restrained from spending and creating new jobs, so as to reduce the inflationary effect of government borrowing-and-spending (the federal government has for decades not waited for money to come in before spending it). Based on the track record of how much money it takes the government to create a job, the society as a whole would be far better off to have the money left in the hands of the entreprenuers who would have to either spend it or save it, thereby promoting job growth either way, and cut back the politicians and bureaucrats instead!

    Posted by Tim | February 27, 2010, 2:52 am
  11. Wasn’t the maximum tax rate during the Eisenhower administration 90%? Ahh, the good old days…..

    Thanks for pointing out how America is a burgeoning plutocracy, but I would add that it’s also a corpocracy where the effective tax rates for corporations are also at record lows.

    How about this: If you took the $14 trillion that the feds gave to corrupt banks and institutions and instead divided that $14 trillion between the 100 million US households, then each household would be sent a check for $140,000, which would have been used to revive the economy. Of course, the bottom up approach is not one that is considered rich friendly, so it isn’t used as it should be.

    The is ample evidence to suggest that even in this financial crises, the rich continue to rake, while the middle class and poor are getting crushed under the weight of job loss, foreclosure, exploding healthcare costs and crushing debt.

    Until we can see past partisan politics to see that no matter what party is in power they are beholden to the rich who write their campaign checks, the game will remain the same. It’s no longer that it takes a village, the rich now hum it takes a pillage.

    Posted by mike | February 28, 2010, 9:00 pm
  12. Their heads need to roll! All of em!

    Posted by Chris | February 28, 2010, 10:10 pm
  13. Yes, the top tax rate through the Eisenhower years stood at 91 percent on income over $400,000.

    Posted by Sam | March 1, 2010, 10:44 am
  14. This data – like all historical “money” data – would be better if shown adjusted for inflation.

    Posted by NOTaREALmerican | March 1, 2010, 1:55 pm
  15. Yes, these numbers are adjusted for inflation, to 2007 dollars.

    Posted by Sam | March 1, 2010, 5:02 pm

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