January 29, 2007
Candidates for the White House have already begun jostling for position in the 2008 race. Contributors are jostling, too. We have more in this week's Too Much.
Also this week: We genuflect before the genius of Steve Jobs, the superstar CEO of Apple Computers, and explain just where in the world Rolls-Royce is really rolling.
Is Steve Jobs a genius? Fans of this Apple Computer CEO certainly think so. And maybe they’re right. Who but a genius could net over 50 percent profit selling telephones? Apple’s top new iPhone, details an analysis from the iSuppli industry research group, costs Apple $280 in total expenses. The company is listing the phones for $599 — and forbidding carriers from offering any discounts. That means $319 on 
every iPhone sold amounts to “pure profit.” Jobs is currently busy trying to convince federal prosecutors that he didn’t use his genius to mastermind a massive backdating of Apple stock options. A pending shareholder lawsuit charges that Jobs, currently the 49th richest person in the United States, “netted $300 million” selling Apple shares last March 19, “just one day” after the Wall Street Journal began exposing Corporate America’s backdating scandal . . .
In an interview earlier this month, General Electric CEO Jeff Immelt diplomatically declined to comment on the $210 windfall his former G.E. colleague, Bob Nardelli, recently collected from Home Depot. But Immelt strongly hinted disapproval. Said the G.E. top exec: “I value my own reputation more than I value the money I make.” Not that Immelt doesn’t also occasionally value money. Counting stock options, he pocketed $15.4 million in 2005 and figures to pocket another princely sum for 2006, what with G.E. earnings up 11 percent for the year, to $20.7 billion. Immelt is now rushing to make 2007 another banner profits year — and doesn’t seem particularly worried about sullying his reputation, with company employees, to make it. G.E. officials have begun waging a campaign to get G.E. workers to swallow massive health benefit cuts in contract negotiations that start this May . . .
Thirty-six years ago, Swiss economics professor Klaus Schwab had a dream. He would gather together, in the mountain village of Davos, the world’s political and business elite for five days of nonstop schmoozing about the woes that ail the globe and the solutions that can fix them. Schwab’s dream has become the annual World Economic Forum, and this year’s edition last week brought to Davos over 2,400 power-brokers, including 800 CEOs and 24 heads of state. Moguls who paid the $25,000 registration tab could pick from 223 different seminars on everything from climate change to water shortages in rural India. Professor Schwab’s enlightenment strategy, unfortunately, doesn’t seem to be working too well. The latest PricewaterhouseCoopers Global CEO Survey, released in Davos last Tuesday, finds that 31 percent of the world’s big-time CEOs are “not at all concerned” about global warming, with another 28 percent “not very concerned.” Which world region has the least-worried CEOs? North America, where only 18 percent of CEOs express any climate change concern at all . . .
A few mountains over from Davos, in Zurich, Swiss watchmakers seem lately to have a bit more spring in their precision movements. The Swatch Group, the world’s biggest watch company, says soaring demand for its luxury watches — timepieces that can run around $127,000 — last year sent annual sales over $5 billion for the first time ever. The top Swatch luxury watches offer a good deal more than bling appeal. Some models, news reports note, “show everything from the time on different continents to the phases of the moon.”
China last week announced a new tax-the-rich offensive “to uphold fairness and social justice.” The new offensive, China tax commissioner Xie Xuren noted, features heavy new taxes on imported luxuries. How heavy? On January 1, the tax rate on golf clubs, luxury watches, and other high-end pleasures tripled to 30 percent. Luxury importers, meanwhile, appear rather nonchalant about this latest round of new luxury taxation — and for good reason. China’s wealthy are building fortunes so fast they barely notice any luxury tax bite. Eight years ago, only 50 Chinese rich could claim at least $6 million in net worth. Now 500 hold at least $100 million. China last year became Rolls-Royce’s third-largest market, despite taxes that nearly double the ultimate cost to Chinese consumer of the company’s $400,000 Phantom. Notes Rolls-Royce CEO Ian Robertson: “China’s market dynamics are totally different. That’s what’s so exciting. This is new territory for us.”
“When I graduated from college, the average corporate CEO made 20 times what the average worker did; today, it's nearly 400 times. In other words, it takes the average worker more than a year to make the money that his or her boss makes in one day.”
Senator James Webb
(D-Va.), in the Democratic Party rebuttal to the State of the Union address, January 23, 2007.
New Wisdom
on Wealth
Dmitri Iglitzin and Steven Hill, A fair way to shrink the wealth gap, Christian Science Monitor, January 24, 2007
Eduardo Peñalver, Tyler Cowen on Inequality, dotCommonweal, January 25, 2007: Why we really need to worry how wealthy the wealthy become.
Larry Elliott, economics editor, Guardian (UK),
Target rich or reap growing anger, warn economists, January 25, 2007
Morton Mintz, Will Congress Reform Wretched Executive Excess? January 28, 2007.
A generation ago, in the wake of Watergate, Congress had a quaint idea. Let’s get big money, legislators agreed, out of Presidential politics. Lawmakers would go on to create the nation’s first-ever public financing system for Presidential campaigns.
Under this system, candidates for the White House who agree to cap their campaign spending can receive a limited number of public tax dollars in return — as much as $25 million for the 2008 primary season and $83 million for the 2008 general election.
This entire public financing system has always been voluntary. Candidates can choose to opt out. But if they do, they get no federal dollars. So why would a candidate ever choose opting out? Candidates who exit the public system can raise privately as many millions as they can — and then spend them all.
George W. Bush, in 2000, opted out for the primaries. Four years later, both Bush and John Kerry declined primary public financing. Now Hillary Clinton has gone those two one better. Her campaign for the White House, news reports last week revealed, will forgo federal dollars totally, for the primary and the general election.
Other candidates will be under pressure to follow suit. And that has experts predicting that “the two candidates who reach Election Day 2008 will raise more than $500 million apiece,” well over three times what they can collect, in 2008, from federal public financing dollars.
The writing's clearly on the wall, observes former Federal Election Commission chair Michael Toner. The 2008 election, he forecast last week, will see “basically the death” of Presidential public financing.
Why is Presidential public financing dying? Big money, over the last quarter century, has simply become too big.
Billionaires, billionaires-on-the-make, and mere multi-millionaires have become so plentiful that Presidential candidates can, by dipping their hands in rich people’s pockets, raise sums that dwarf the federal dollars they can collect under the public finance system.
In the 2004 campaign, George W. Bush vividly demonstrated how quickly cash from deep pockets can add up. The President collected $257.4 million in individual contributions, and 58 percent of that, Yale political scientists Costas Panagopoulos and Daniel Bergan reported last June, came from donors able to hand him a check for at least $1,000.
John Kerry, for his part, collected nearly $100 million in 2004 from four-digit donors. In 2004, Panagopoulos and Bergan note, the “lion’s share of funds for both parties” came “from large ($1,000+) contributors.”
Serious contenders in 2008 will need those large contributors even more. A candidate who expects to be taken seriously, former FEC chair Toner estimates, will need at least “$100 million by the end of 2007.”
A plutocracy can certainly afford, as Toner puts it, “a $100 million entry fee.” The big question: Can a democracy?
Elected officials addicted to campaign contributions from deep-pockets don’t like to be criticized. They insist they remain totally independent, totally able to uphold the public interest, no matter what the self-interest of their affluent contributors may be.
Tempted to believe that? You should have been at last week's little-reported hearing of the Senate Budget Committee. The topic: the “tax gap,” the difference between the amount of tax taxpayers pay and the amount of tax they actually owe.
In 2001, the only recent year that the IRS has researched, the federal government failed to collect, in taxes that should have been paid, at least $290 billion.
Key point number one from last week's Senate Budget Committee hearing: Tax cheats do not represent a cross-section of Americans. Average Americans pay their federal taxes. Only 1.2 percent of wage and salary income, says the IRS, goes unreported. Average Americans get their the vast bulk of their income from wages and salaries.
Wealthy people get much less of their income from wages and salaries and much more from capital gains, income from the sale of stocks and other assets. Capital gains income goes unreported at an 8.6 percent rate, nearly seven times more than wage and salary income.
Key fact number two: The IRS, the General Accounting Office notes, knows exactly what needs to be done to crack down on rampant tax cheating. Stockbrokers, for starters, could be required to report the profits their clients are making, just as employers are required to report how much in wages they pay their workers.
“Right now,” as Citizens for Tax Justice director Bob McIntyre told the Senate Budget Committee last Tuesday, “small investors in mutual funds get all their capital gains reported, but better-off investors who work through stockbrokers do not. As a result, untold billions of dollars in capital gains go unreported and untaxed.”
Why doesn’t Congress simply require brokers to report out fully? The Wall Street financial services industry — the same industry that last month handed out $23.9 billion in holiday bonuses — says full disclosure would create an undue burden.
Congress has so far swallowed this flimsy rationale. In American politics today, flimsy goes down easy. It’s protecting the public interest that seems so incredibly hard.Since 1980, the share of income in the United States going to the nation's highest-earning 1 percent of tax returns has doubled, the share to the top one-tenth of 1 percent tripled, and the share to the top one-hundredth of 1 percent quadrupled, notes the New Republic's Jonathan Chait in a new analysis of U.S. income data studies.
Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954.
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E-mail: editor@toomuchonline.org.
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