March 26, 2007
Why are luxury cars worth over half a million dollars getting abandoned, right and left, in Bangladesh? We have the answer in this week's Too Much.
Also this week: A look at a fine new book on the quarter century that saw the United States become the developed world's most colossally unequal nation.
“So many billionaires,” goes the elegant advertising for the new CHI Tower Miami condo, “so few homes in the sky.” The 38 homes in the condo tower, once complete, will each take up a full floor in a 42-story high-rise just north of Bal Harbour. The developers are aiming at buyers looking for fourth or fifth homes where they can crash for a month or so every winter. Each condo will come with a “mineral-water pool,” climate-controlled wine cellar, and a master suite that features a “midnight kitchen.” Among the early buyers: Anna Anisimova, a Russian “20-something socialite.” She shelled out $5 million for one of the three-bedroom, four-and-a-half bath units. Anisimova already owns a $15 million condo at the Time Warner Center in New York . . .
Roseanne Barr, the former waitress who played the no-nonsense working class lead in a hit network sitcom that ran through most of the 1990s, hasn’t lost a beat. Greed, the 55-year-old Barr told the Los Angeles Times earlier this month, is “killing our country.” Hollywood glitterati, says Barr, “have these huge benefit luncheons where they get six billionaires” — and only raise $200,000. What sort of changes would Barr like to see? “Five-thousand square feet should be the limit to how big a house you can live in when people are starving,” she notes. “There should be a maximum wage, too.” Barr, overall, remains hopeful: “I think the time is coming when people who have wealth won’t be cool.”
The time may also be coming when people who have wealth will give more of it away. But that time, observes Brookings Institution fellow Gregg Easterbrook, hasn’t yet arrived. The 60 most generous wealthy Americans, as tallied by Slate magazine’s annual charity scorecard, gave away $51 billion in 2006. Most of that — $44 billion — came from one single individual, investor Warren Buffett. The remaining 59 “philanthropists” on the Slate 60 list gave away just over 1 percent of their combined $584 billion in net worth. Nike sneaker magnate Philip Knight, for instance, gave away $105 million. Forbes tabbed his net worth last year at $7.9 billion. After taxes, notes analyst Easterbrook, a fortune that large, even conservatively invested, generates at least $1 million a day in new wealth . . .
The estate tax — the only federal tax on grand accumulations of private wealth — survived another attempt to kill it last week. On Friday, by a 55-44 margin, the Senate voted down a budget amendment that would have permanently repealed the estate tax, a levy that this year subjects estate wealth over $2 million, or $4 million for couples, to a 45 percent tax rate. That vote came two days after the Senate voted, 97-1, to make permanent the estate tax rate set to go into effect in 2009 — 45 percent on estate wealth over $3.5 million for individuals, $7 million for couples — if a budget “surplus materializes.” In 2000, the year before the 2001 tax cut began slicing estate tax rates, estate wealth over $3 million faced a 55 percent estate tax. Fifty years ago, in 1957, estate wealth over $10 million faced a 77 percent tax rate . . .
Rolls-Royce, after a 50-year hiatus, has resumed operations in India, the Financial Express noted last week, just the latest car maker rushing to satisfy the fine motor cravings of India’s rapidly growing multi-millionaire population. Lamborghini and other high-end auto makers sold well-heeled Indians about 5,500 luxury cars in 2006, almost double the 3,000 cars they sold in 2005. Meanwhile, next door in Bangladesh, the wealthy aren’t buying luxury cars. They’re abandoning them — to avoid getting snared in a massive anti-corruption drive the current army-backed government launched soon after taking power this past January. Last week, Reuters reports, police found three cars, each worth over $575,000, sitting ownerless on the streets of Dhaka, the Bangladeshi capital. Bangladesh currently ranks among the world's 10 most corrupt nations, says Transparency International. About 70 million Bangladeshis, nearly half the nation, live on $1 a day or less.
Quote of the Week
“Depending on shareholders to rein in CEO pay is like relying on gamblers to rein in the owners of Las Vegas casinos. Shareholders don't care about CEO pay. All they care about is that their shares go up.”
Robert Reich, former U.S. secretary of labor, Control CEO pay by taxing the very rich, March 21, 2007
New Wisdom
on Wealth
Ross Gittell and Jason Rudokas, New England Has the Highest Increase in Income Disparity in the Nation, Carsey Institute, March 22, 2007
Barbara Ehrenreich, A $210 Million Tip? Nice Work If You Can Get It, The Progressive, March 23, 2007.
You don’t have to be a historian to know that something fundamental changed in the United States in the 25 years between 1929 and 1954.
Americans entered this quarter century a deeply divided people. The 1920s had roared, but only for America’s elites. The huge fortunes these elites had amassed had left them politically dominant in a nation where most families lived precariously, paycheck to paycheck.
Fast-forward 25 years. By the mid 1950s, most average Americans — for the first time ever — were enjoying basic middle class comforts. Rich people, meanwhile, were doing more grumbling than dominating. They grumbled, most often, about federal tax rates that claimed 91 cents out of every dollar over $400,000.
How incredibly eventful those years between 1929 and 1954 now seem. Depression. War. Recovery. Quite a story.
Dean Baker has a different story to tell in his new book, The United States Since 1980, a story about a quarter century that seems, at least on the surface, curiously uneventful. No great economic collapse. No all-consuming war-time mobilization.
But surface appearances, Baker helps us understand, can be terribly deceiving. The United States has changed as much over the last 25 years as the nation changed in the quarter century that began in 1929. To be more precise: The United States has changed back.
Over the past 25 years, we have essentially recreated the deeply divided society that existed back in 1929. Once again, an incredibly rich few lord over a nation where average families struggle to get by.
How did this happen? Dean Baker, an economist by profession, traces all the steps that created our contemporary great divide. The “free market,” he shows, didn’t turn the United States upside-down in the quarter century after 1980. Conscious political decisions did.
On everything from labor relations to trade, notes Baker, public officials have put in place policies that weakened “the bargaining power of workers in the middle and the bottom of the wage distribution.”
Some of the history that Baker relates — Ronald Reagan’s 1981 decision to fire striking federal air traffic controllers, for instance — will be familiar to those who lived through it. But much of the history that Baker relates will be unfamiliar. He does an especially apt job dissecting how “free traders” selectively practice what they preach.
Boosters of “free trade” pacts like to claim they're simply removing obstacles that keep the global marketplace from operating efficiently. But the “obstacles” that get removed, Baker posits, only seem to be those that protect “workers in the bottom three-quarters of the labor force.” So-called “free trade” exposes “these workers to increased international competition” — and shields income-earners at the top from this same competition.
One example: Doctors in the United States average over twice as much income as doctors in other wealthy nations. If the pay going to American doctors more closely tracked physician pay in other rich nations, notes Baker, consumers and taxpayers in the United States would save over “$70 billion a year.”
In 1997, Congress moved to make sure that would not happen. Lawmakers, facing protests from medical groups over rising number of foreign doctors in the United States, sliced “the number of foreign medical residents who could enter the country” and advanced new regs “to make it more difficult for foreign doctors to practice.”
The bottom line on The United States Since 1980: a fine introduction to a crucially important period whose history — and impact — has only begun to be understood.
Contrary to what you may hear on the street, a Wall Street Journal editorial argued last week, George W. Bush isn't coddling rich people. In fact, the editorial defiantly asserted, rich people are actually footing a larger share of the federal tax burden today than they did before George W. Bush started cutting taxes in 2001.
The Journal editorial came complete with a “Revenue and the Rich” chart. America’s top 1 percent, the chart documented, paid 31.6 percent of federal income taxes in 1996 and substantially more — 35.6 percent — in 2004, the latest year with stats available.
Case closed? Have the Bush administration tax cuts, as the Journal claims, actually “made the U.S. income tax code more progressive”? Hardly. The Bush tax cuts, notes a new paper by Aviva Aron-Dine of the Center for Budget and Policy Priorities, have made the rich substantially richer than everyone else.
America’s top 1 percent, Aron-Dine explains, are only paying a larger share of the nation's income tax collections because they're raking in a much larger share of the nation’s income. Top 1 percent households, thanks to these ballooning incomes, can see “a large reduction in their tax bills even if the percentage of taxes they pay is increasing.”
How large? In 2000, before the George W. Bush tax cuts, top 1 percent households paid 24.2 percent of their incomes in federal income tax. In 2004, top 1 percenters paid only 19.6 percent of their incomes in tax — an average $58,000 savings for each top 1 percent household.
In percentage terms, Aron-Dine adds, the rich are experiencing much greater savings from the Bush tax cuts than America’s less financially fortunate. Households making over $1 million a year will see their after-tax incomes jump — by the time the Bush cuts go fully into effect — by 7.5 percent. Households in the middle 20 percent of America’s income distribution will experience just a 2.3 percent after-tax increase.
Stat of the Week
U.S. corporations, thanks to new federal disclosure rules, must now reveal any executive perk worth over $10,000. Last year, companies only had to report perks that set them back over $50,000. Execs are collecting a great deal more in total perks, says a study of filings made so far under the new rules, than previously thought — over 130 percent more.
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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