August 27, 2007
This Tuesday, the U.S. Census Bureau will be releasing the first data on how American incomes fared in 2006. On Wednesday, the Institute for Policy Studies and United for a Fair Economy will release their annual report on incomes at the American corporate summit. We’ll have complete coverage in next week’s Too Much.
In the meantime, analysts are still trying to digest the IRS income data on 2005 released earlier this month. We have the latest on that analysis — and a good bit more — in this week’s edition.
Leona Helmsley, the billionaire hotelier who died last week at 87, will likely long be remembered as the “queen of mean” — especially by the people who served her. Helmsley regularly terrorized employees and fired servants, the Los Angeles Times noted last Tuesday, “in fits of temper.” She had lots of servants. 
At one point, Leona and her real estate mogul husband owned a “mountaintop hideaway” near Phoenix, a penthouse with a swimming pool overlooking New York's Central Park, a condo in Florida’s Palm Beach, and a 28-room Connecticut estate with a walk-in silver vault. Leona inspired little loyalty. A disgruntled employee tipped off federal prosecutors she was having personal purchases charged off as business expenses to avoid taxes. Another employee, a former housekeeper, would later help seal Helmsley’s 1989 tax evasion conviction when she testified hearing her boss boast: “We don’t pay taxes. Only the little people pay taxes.” Helmsley leaves behind a fortune worth $2.5 billion . . .
The violence now convulsing Nepal, says a new report from the Manila-based Asia Development Bank, could soon be flaring throughout an increasingly unequal Asia. Nepal today rates as the most unequal society in Asia, the bank’s Key Indicators 2007 study points out, but nearby nations ranging from China to Bangladesh are also watching the wealth of the rich grow much faster than the well-being of the poor. These widening disparities, says bank chief economist Ifzal Ali, “can weaken social cohesion.” High levels of inequality, the new bank report adds, can “adversely impact” development prospects as well and “diminish growth prospects if concentration of incomes enables the wealthy to tilt economic outcomes and policies in their favor.” The “need for redistributive policies,” the bank concludes, “will not go away.”
How do people so rich they have money to burn actually burn their money? Bertrand Des Pallieres, a Paris-based hedge fund manager, has just offered one answer. Seems that the 39-year-old needed a car for summer-time jaunts in London. So he spent $160,000 on a “lovely” Maserati, but then found himself too occupied with hedging to spend any time in London driving it. So the car sat, unused and unloved, in London’s exclusive Knightsbridge district, picking up parking tickets. Eventually, traffic officers impounded the car. Pallieres, once located by officials from Transport for London, known locally as TfL, insisted he was “too busy” to pick the car up. Finally, after three months, Pallieres claimed his car and paid an estimated $10,000 in fines. Noted the unembarrassed hedge fund chief: “In my defense, I would say that parking in the TfL car pound is not that expensive relative to the cost of parking in central London.”
Corporate execs out to make a killing, a new history of high-end culture charges, are poisoning the global luxury industry. Luxury products, says fashion reporter Dana Thomas in her just-published Deluxe: How Luxury Lost Its Luster, used to come out of family-owned operations founded “by artisans dedicated to creating beautiful, finely made wares” — in small quantities — for movers and shakers. But those family shops, over recent years, have been gobbled up by corporate giants like LVMH, the $11 billion conglomerate that is now mass-marketing iconic brand names like Dior and Louis Vuitton to a broader public, in the process cutting corners and using sweatshop labor to “replace hand craftsmanship with assembly-line production.” LVMH CEO Bernard Arnault, with a fortune estimated at $26 billion, has become the world's seventh-richest billionaire. Today’s corporatized luxury industry, sums up Thomas, “has sacrificed its integrity, undermined its products, tarnished its history, and hoodwinked its consumers.”
Our contemporary luxury conglomerates, even with all their rushing to broaden markets, can still find time to go after the really high-rollers. LVMH this month unveiled a new Louis Vuitton handbag that will sell for $52,500. The company is offering only 24 of these for sale worldwide. This December, Chanel will be unveiling an even more exclusive bag, a diamond-studded must-have made out of white alligator skin with a chain strap forged from white gold. The company will market only 13 of these bags — at $260,150 each.
Inequality
by the numbers
Newly revised!
Quote of the Week
“There is a sense that society works more fairly in countries where the gap between the richest and poorest is closest.”
Rachael Jolley, a Fabian Society researcher, commenting on new polling that shows the British public wanting top corporate executives to make no more than four times the pay of veteran nurses, August 25, 2007
New Wisdom
on Wealth
Dmitri Iglitzin and Steven Hill, Inequality Has Run Amok. Do U.S. Leaders Care? August 22, 2007
Nick Gier, Soles Hundreds of Feet Thick: Visualizing Inequality in America, New West, August 23, 2007
“I’m pleased with the economic progress we’re making,” President George W. Bush told reporters last October.
“By virtually every measure,” New York City Mayor Michael Bloomberg observed last month, “our economy is firing on all cylinders.”
For multi-millionaires like George Bush and billionaires like Michael Bloomberg, optimism comes easy. For average Americans, new IRS data remind us, the nation’s current economic bottom line offers nothing to smile about.
The average American income in 2005 — the most recent year with IRS data now available — stood at $55,238. That’s 1 percent under, after adjusting for inflation, the $55,714 average American income in 2000.
And that 2005 average income actually overstates the economic well-being of typical American families, Pulitzer Prize-winning journalist David Cay Johnston points out in an analysis of the new IRS data published last week.
The nation’s income average may be $55,238, Johnston notes, but two-thirds of Americans reported incomes less than $50,000 in 2005.
What explains this discrepancy between the statistical income average and the dollars that actually go into average American pockets? The simple explanation: Rapidly rising incomes at the top of America’s economic ladder are skewing upward the nation’s income average.
Between 2000 and 2005, an amazing 47 percent of the nation’s total gain in personal income went to taxpayers who reported over $1 million in income. These taxpayers make up less than a quarter of 1 percent of America’s taxpaying public.
This skewing effect shows up most dramatically in deeply unequal U.S. locales like New York City. Families in New York last year averaged $73,259 in income, notes economist James Parrott, but half of the city’s families actually had incomes under $50,000.
In New York City, add researchers with the Women's Center for Education and Career Advancement, a family of four needs at least $54,000 a year in income to pay for basic necessities — from housing to health care — without having to resort to government subsidies or private charity.
How loud does money talk on Capitol Hill? We’ll find out soon — as the congressional battle over taxing private equity and hedge fund kingpins plays out this fall.
Investment fund managers currently pay taxes on their share of fund profits at the 15 percent capital gains rate, a huge savings over the 35 percent rate that would apply if this income were treated as ordinary income. Rep. Sander Levin from Michigan, this past spring, introduced legislation that would end this preferential treatment.
Congressional analysts haven’t yet released an official estimate on how much tax revenue the Levin proposal, H.R. 2834, would raise. But one academic, the University of Pennsylvania’s Michael Knoll, has just calculated that the measure’s passage would raise an extra $3 billion a year from just private equity fund managers alone.
Even more billions would come, if the Levin measure became law, from managers of hedge, real estate, and oil investment funds. Investment fund managers appear to be not too happy about that. How not happy? They’ve unleashed the most extravagant lobbying blitz in American history.
New lobbying disclosure data, released earlier this month, reveal just how record-breaking this lobbying blitz has already become. The Blackstone Group, the global private equity powerhouse, has shelled out, over the first half of 2007, what the Washington Post calls the “heftiest six-month payment to any lobbyist ever reported.”
That lobbyist, the Ogilvy Government Relations firm, took in $3.74 million from Blackstone over the first six months of 2007. Overall, Bloomberg News reports, the private equity industry has so far this year shoved $5.5 million into lobbyist pockets, nearly four times the $1.4 million in lobbying fees the industry spent all of last year.
The industry, in effect, has already spent over $10,000 per lawmaker to stop the Levin bill. If the bill does get stopped, that will be money well spent. Last year, the private investment fund tax loophole saved the top five execs at the Blackstone Group an average $30 million each.
Stat of the Week
In 1995, the average top 1 percent California taxpayer took in 25.5 times more income than the average taxpayer in the state's middle 20 percent. In 2005, California's richest 1 percent average taxpayer collected 48.5 times more than the state's middle fifth average, notes the new California Budget Project report, A Generation of Widening Inequality.
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