April 2, 2007
Lots on our inequality plate this week. A notorious but half-forgotten political con artist jumps back into the headlines. Alarming new stats on America's great divide. And an important new resource for creating a more egalitarian-minded future.
But we're going to start this week's Too Much with a consumer alert. Our target audience: folks in the market for a new TV who can't tell the difference between a plasma and a pixel.
Is Philip Schoonover, the CEO at Circuit City, more dumb than greedy or more greedy than dumb? Hard to say. The consumer electronics chain last week announced plans to fire 3,400 mid-level workers making “well above” market rates and replace them with entry-level hires. The experienced staffers Circuit City is letting go averaged around $11 an hour. The new hires will make around $8 and have plenty of trouble, analysts predict, answering customer questions about high-tech TVs — at a time when providing better customer service may be the only way Circuit City can compete against big-box retailers. Circuit City CEO Schoonover, for his part, raked in $8.5 million last year, over twice as much as the $3.9 million that went to his chief rival, Best Buy CEO Brad Anderson . . .
Wage squeezing may not bring Circuit City back to record profitability. But wage squeezing has certainly worked wonders throughout the rest of Corporate America. The share of national income going to wages and salaries, new Commerce Department data released last week show, hit a new all-time low in 2006, a year that saw corporate profits, as a share of national income, hit an all-time high. The Commerce Department data, notes an analysis of the new numbers, go back 86 years. Corporate profits, add analysts Aviva Aron-Dine and Isaac Shapiro, have now “captured a larger share of the income growth in a recovery — 46 percent of it — than wages and salaries.” That has never happened before . . .
America’s major media outlets will begin releasing, next Monday, their annual CEO pay surveys, the first such round-ups to appear since federal regulators issued new executive pay disclosure rules last summer. The new rules, early signs indicate, may end up producing some eye-opening CEO pay totals. Coca-Cola, for instance, disclosed last month that company CEO E. Neville Isdell pulled in $32.3 million in 2006, five times more than the $6.5 million Coke last year said Isdell made in 2005. But Isdell’s pay really didn’t quintuple in 2006, says Coke. If the new federal disclosure rules had been in effect when Coke filed pay numbers last year, Coke flacks note, the company would have reported Isdell's 2005 earnings at $26 million . . .
Some of the richest families in Phoenix eagerly jumped into the entertainment business not too long ago when a noted local attorney invited them to buy into a new company that aimed to bring music superstars like Garth Brooks onto Arizona’s concert stages. Phoenix deep pockets would eventually invest $26 million in the effort. Now they’re suing to get their money back. The company’s concert promoter apparently showered their invested millions on his girlfriend, not Garth. Among the snookered: the former CEO of Doubletree Hotels. A lawyer on the case, James Polese, last week told the Arizona Republic that even the financially savvy wealthy can fall for scams. Explained Polese: “I don’t want to call it a greed factor in a pejorative sense, but you know, nobody wants to leave dollar bills on the ground. No one wants to be the dummy in the locker room of the country club saying, ‘Gee, I missed out on this deal.’”
A decade ago, Virginia social studies teacher Tamara Sober Giecek felt she had become “a daily witness to America’s growing inequality of income and wealth.” Giecek had some students who drove to school in new BMWs. Others came hungry. So Giecek did what all good teachers try to do. She started helping students come to grips with the pressures so powerfully shaping their lives. Out of her work would emerge an innovative curriculum entitled Teaching Economics As If People Mattered, a set of “real-world lesson plans” on wealth and wages, stocks and CEO pay, and a great deal more. Teaching Economics has just reappeared in an updated second edition edited by popular educator Steve Schnapp and published by United for a Fair Economy. UFE has more info, including ordering details, online.
Quote of the Week
“According to research by Ajay Kapur, an analyst at Citigroup, the wealthiest 1 million people in the world account for as much spending as 60 million other households. The disparity between the bottom 99 percent and the top 1 percent has made any other class distinctions in the richest countries almost irrelevant. Welcome to the new world 'plutonomy,' where economic growth is powered by, and largely consumed, by the wealthy few.”
Jon D. Markman,
Get Rich Off the Super-Rich, TheStreet.com,
March 30, 2007
New Wisdom
on Wealth
Art Carey, Unsung fortune: A rich man's secret, Philadelphia Inquirer, March 26, 2007. A profile of a fabulously successful entrepreneur who believes "the widening gap between the rich and poor is not sustainable."
Carl Luna, Political Lunacy, San Diego CityBeat, March 28, 2007. A Mesa College political scientist explores the growth of the middle class-unfriendly "hourglass economy" in California — and the nation.
“Income inequality,” President George W. Bush acknowledged for the first time this past January, “is real.”
Last week, two indefatigable young economists — the 34-year-old Emmanuel Saez from Berkeley and the 35-year-old Thomas Piketty from the Paris School of Economics — revealed just how real.
The gap between the incomes of America’s very richest and average Americans, new data from Saez and Piketty document, now stretches almost as wide as the widest gap on record.
Back in 1928, the last full year before the Great Depression began, the families that made up America’s most affluent top hundredth of 1 percent — the richest of the rich — pocketed incomes that averaged $8.2 million, as measured in dollars inflation-adjusted to 2005 levels.
Having trouble contemplating the concept of top hundredth of 1 percent? Think about it this way. In a society of 10,000 families, the top hundredth of 1 percent would consist of a single family.
In the United States of 1928, this top hundredth of 1 percent amounted to nearly 5,000 families. These fortunate few at America’s economic summit averaged 891 times more income than families in the bottom 90 percent averaged.
By 1955, after a tumultuous quarter century of depression and war, families in the top hundredth of 1 percent took home only $3.8 million, in inflation-adjusted dollars. These mid 20th century affluents made just 179 times the average bottom 90 percent income.
That share didn’t change much over the next 25 years. In 1980, the richest of the rich took home 175 times more than Americans in the bottom 90 percent.
And today? The new Saez-Piketty figures for 2005, the most recent year with IRS data available, show that our contemporary top hundredth of 1 percent are averaging $25.7 million in income, 882 times more than the bottom 90 percent average — a gap that’s almost identical to the 891-to-1 divide in 1928.
The 2005 gap, Pulitzer Prize-winning journalist David Cay Johnston noted last week, may actually be wider than the Saez-Piketty data suggest. We have more on just why.
A federal grand jury has just indicted David Stockman, the Reagan Administration’s boy wonder budget director, on multiple counts of securities and bank fraud, all related to the wheeling and dealing around an auto parts company merged into existence — and then bankruptcy — by Stockman’s private-equity investment empire.
Prosecutors think they have the 58-year-old Stockman dead to rights. Four former officials from his bankrupt company, who've already pled guilty, are cooperating with the government. But Stockman, even so, should consider himself lucky. On the biggest fraud of his long and lucrative career, he still faces no prosecution — and never will.
Stockman committed this mega fraud, early in 1981, as the Reaganite who cajoled Congress into swallowing “supply-side economics,” the notion that the nation could slash tax rates across the board without worrying about federal budget deficits — or cuts in popular programs.
Stockman would later admit, in interviews with journalist William Greider, that the Reagan across-the-board tax rate cut enacted in 1981 served as “a Trojan horse to bring down the top rate” on America’s richest taxpayers. The Reagan White House, Stockman acknowledged, knew average Americans would never buy an economic policy that put tax cuts for the rich front and center. “Supply-side” let the Reagan crew promise tax cuts — and good times — for everybody.
That promise would be a fraud. The good times for average Americans never materialized. And the only Americans who today pay significantly less in federal tax than they did before Ronald Reagan became President just happen to be the nation’s most wealthy taxpayers.
The Center for Budget and Policy Priorities, in a new paper published last week that builds on data assembled by Emmanuel Saez and Thomas Piketty, details just how fraudulent the tax promise of the Reagan Revolution — now led by George W. Bush — has been.
Middle class Americans, after nearly 30 years of tax-cutting, are now paying about the same share of their incomes in federal taxes that they paid before Ronald Reagan entered politics. America's richest, by contrast, have seen the share of their incomes that goes to federal taxes cut by over half.
The figures: In 1960, families in the middle 20 percent of America’s income distribution — the statistical middle class — saw 15.9 percent of their incomes go to federal taxes. That’s all federal taxes, including payroll taxes for Social Security. In 2004, almost an identical share of middle class income — 16.1 percent — went to federal taxes.
What about taxpayers at the top? The new Saez and Piketty data, the Center for Budget and Policy Priorities notes, help us get the first good look at the tax savings the Reagan Revolution has generated for taxpayers in the American economy’s ultra high-rent district, those tax papers in the top hundredth of 1 percent.
In 1960, 71.4 percent of the incomes of these ultra affluent went to federal taxes, counting taxes on both individual and corporate income. The 1970 share: 74.6 percent. In 2004, only 34.7 percent of ultra affluent income went to federal taxes.
This steep tax rate dive translated, on 2004 tax returns, into a $7.2 million tax cut, on average, for each family in America’s top hundredth of 1 percent.
The one saving grace in all this? At least David Stockman knows where to go for contributions to his defense fund.
Stat of the Week
In 2005, the most recent year with IRS data available, average incomes for American families in the the nation's most affluent 1 percent rose 14 percent, or about $139,000 per top 1 percent family. Incomes for families in the bottom 90 percent actually fell, by $172, or 0.6 percent, from the previous year.
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