March 5, 2007
CEOs the nation over figure to be squirming this week. On Thursday, Rep. Barney Frank, the feisty chairman of the House Financial Services Committee, will be hosting a congressional hearing on executive pay excess. The hearing is going to spotlight legislative reforms that give corporate shareholders the right to more information — and more say — over what top executives get paid.
This “shareholder rights” approach has won over many executive pay reformers. But new evidence suggests that shareholders don’t make particularly good CEO pay watchdogs. We have the story in this week’s Too Much.
Also this week: inequality and why flying the friendly skies so often leaves you feeling like a sardine.
Would you pay a quarter-million dollars to have Dan Quayle as your neighbor? About 300 intensely affluent 
Americans already have. These affluents have all shelled out the $250,000 membership fee for the invitation-only Yellowstone Club, a 13,000-acre private resort in Montana “where the super-rich can relax.” Former U.S. vice president Dan Quayle, a new press report notes, is enjoying the club’s “Big Sky” ambience. So may be Brad Pitt and Bill Gates, but no one quite knows for sure. The membership remains secret. Yellowstone Club members, on top of their $250,000 initiation fee and about $10,000 in annual dues, must purchase a home on club property. The minimum price: $2 million. The maximum? The club developers are now building “the world's most expensive” mansion. The asking price: $155 million . . .
Australia’s richest man, billionaire James Packer, needs some elbow room — for his mega yacht. Packer and other owners of yachts that stretch at least 115 feet long want a public beach area in suburban Sydney turned into a marina for boats too big to park in Sydney’s mainline yacht dock. A generation ago, notes Philip Bowring in the International Herald Tribune, a deep-pocket like Packer would have had no chance to prevail. Australia’s “tall poppy syndrome” — the nation’s deep-seated “lack of respect for wealth, power, and assorted pretensions” — would have stopped the Packer power grab dead in its tracks. But rising Australian inequality has blunted the Aussie inclination to level “tall poppies” down to democratic size. The latest chapter in that blunting: Australian prime minister John Howard — "If there's one thing we need to get rid of in this country, it is our tall poppy syndrome" — has put in place new workplace “reforms” that limit trade union rights. The Australia that “once looked much like Scandinavia in terms of wage equality, social welfare, and minimum living standards,” sums up Philip Bowring, now “looks like America.”
Twenty-two members of Congress, led by Barney Frank from Massachusetts, last week introduced legislation that gives corporate shareholders the right to vote on executive pay. But this right to vote — on an advisory basis — is looking less and less potent as a check on CEO pay excess. In the UK, the Wall Street Journal reported last Monday, shareholders have held the right to vote on executive pay since 2003. That right seems to have had little moderating impact. British executive pay — up 9.9 percent in 2005, the latest year with data available — is now actually rising at faster rates than executive pay in the United States. What reforms, beyond empowering shareholders, might make a real difference on executive pay? The Center for Corporate Policy and the Institute for Policy Studies have compiled a list, now available online . . .
Heavy rains didn’t cause last month’s historic floods in Indonesia’s capital city, relief agencies and journalists are charging. Heavy inequality did. The floods — Jakarta’s “worst ever” — “submerged 60 percent of the city and killed 85 people.” What brought the floods on? Corrupt local officials, over recent years, have let developers turn land intended to function as water-absorbing “greenbelt” into “shopping malls, luxury housing, and business premises.” Jakarta’s 1965-1985 master plan set aside 37 percent of the city’s area for “parks, sports grounds, urban woods, and lakes.” The lucrative “upmarket villas” in new developments have helped reduce that green space to just under 14 percent. In Indonesia, the United Nations University reports, the richest 1 percent hold 28.7 percent of the nation’s wealth, well over twice the 21.1 percent share held by everyone in the bottom 80 percent combined . . .
Commentators in the world’s most popular tourist destination — France — are worried that visitors may one day soon have a good deal less reason to visit. Wealthy foreigners, concerned French cultural leaders note, are buying up — and shipping out — the nation’s finest art treasures. Some 80 percent of “top-quality art objects” that go up for auction in France, observes national art market committee president Hervé Poulain, now end up exiting the country. Rues the weekly l'Express: “France is an attic which is in the process of being emptied.” French art-lovers are now contributing to a special campaign to help a local museum purchase one famed piece still in that attic, a masterpiece entitled The Flight into Egypt by the 17th century French painter Nicholas Poussin. The effort has so far raised about $10 million. Art dealers say the campaign must raise at least $20 million to keep the Poussin home.
Quote of the Week
“To those 18 super-rich families who spent $200 million lobbying for the repeal of the estate tax, I would ask, 'How much is enough?'”
Dallie Miessner Howerton, columnist, Carthage (Missouri) Press,
February 27, 2007
New Wisdom
on Wealth
Heather Stewart, So are the super-rich really worth having? The Observer (UK), February 25, 2007
Center for Corporate Policy and Institute for Policy Studies, CEO Pay Reform:
A Point/Counterpoint,
March 2, 2007.
They’re talking a great deal about “fiscal discipline” on Capital Hill these days, with Democrats and Republicans alike vowing to “balance the budget.” Lawmakers now have some help. The nonpartisan Congressional Budget Office has just released a massive 351-page report chock full of red ink-reducing options.
This exhaustive new CBO Budget Options document presents 65 specific revenue-generating proposals, everything from imposing user fees on the Inland Waterways to jumping gas-guzzler taxes.
But buried in this crush of fiscal detail sits a marvelously simple and straightforward reality. Congress could, if lawmakers so chose, substantially reduce budget red ink — and avoid program cuts that clobber working families — simply by modestly raising the federal income tax rate on America’s richest households.
Indeed, a mere single point increase in the tax rate on income in the highest tax bracket — that’s currently income over $349,700 — “would raise,” the CBO notes, “$28.6 billion over the 2008–2012 period.” In 2008, a single point increase would move the top tax rate on income over $349,700 from 35 to 36 percent.
The CBO report also proposes, as an option, creating an entirely new tax bracket for couples who make over $1 million a year — and taxing this income over $1 million at a 40 percent rate. A move along this line, notes the CBO, would raise $86.2 billion in revenue over five years.
This five-point hike would up the top tax rate, on the top income bracket, to 40 percent in 2008, just a tad over the 39.6 percent top rate in place from 1993 through 2000.
But America’s most wealthy, if this hike ever went into effect, would have little real reason to complain. By historical standards, they would still be getting off easy. Back during World War II, Americans on the top economic rung faced a 94 percent tax on income over $200,000. A decade later, they faced a 91 percent top rate.
Congress, in other words, could double the 40 percent tax rate on income over $1 million that the nonpartisan CBO offers as an option and still wind up with a top tax rate — at 80 percent — a good bit lower than the top rate in effect a half-century ago.
The CBO doesn’t offer any estimate on how much revenue an 80 percent top rate would raise, for an understandable reason. In today’s don’t-aggravate-the-wealthy legislative climate, even a 40 percent top rate seems an incredibly overambitious political stretch.
Thirty years ago, wealthy people in the United States flew first class when they traveled. Today, with ever more frequency, America’s richest fly the world in their own private jets.
Should the rest of us care? The economic conventional wisdom tells us not to bother. That the wealthy have become fantastically wealthier, we’re assured, makes no real difference in the lives average Americans go about leading.
Aviation experts would beg to differ. The rush of America’s ever-wealthier wealthy to private jets, the Chicago Tribune reported last week, is having an enormous impact on everyday travelers.
Private jets, the Trib reports, have emerged as a standard accessory for the super-rich lifestyle. Gulfstream now has nearly a three-year waiting list for its G550 model, a $46-million “airborne Hummer” that can fly around the world with just a single stop.
Demand for these Gulfstreams has become so intense that used, two-year-old G550s are now selling for $59.9 million, “nearly $13 million more than the list price for a brand-new model.”
Overall, says the General Aviation Manufacturers Association, private jet makers saw their sales jump 18 percent in 2006. Boeing and Airbus, the world’s two biggest makers of standard passenger aircraft, have taken notice. Both have jumped into the red-hot private jet market. Boeing has sold $3 billion worth of regular airliners retrofitted — “with showers, teak floors and queen-size beds” — for luxury use.
Airbus has a new top-of-the-line luxury model, the A830, with enough “room to house a conference room, gym, library, even a separate seating area for an owner's domestic staff.”
So what difference does this make for the rest of us? Plenty, observes Vaughn Cordle, an analyst with AirlineForecasts. The number of “high-yield passengers” — travelers who pay premium first-class rates — has dropped by over 50 percent since 2000. Airlines, in response, are squeezing more and more passengers into their regular flights — and not flying if they can’t find enough passengers to squeeze.
The result? A decade ago, the average passenger jet flight flew 65 percent full. Flights today are running over 80 percent full.
These numbers, for average travelers, translate into longer waits at terminals, cancelled flights, and less comfortable trips. A small price, some might say, for the privilege of living in a land where wealth without limits can tilt to the top.
The stock market may have sunk a bit last week, but Wall Street’s top executives are still basking in the glow from their 2006 paychecks. At Lehman Brothers, new SEC filings reveal, the top four execs took home a combined $108.4 million last year. At Morgan Stanley, the top five executives did somewhat better, walking off with $146 million. The biggest winners labored at Goldman Sachs. Just three top Goldman Sachs executives — CEO Lloyd Blankfein and co-presidents Jon Winkelried and Gary Cohn — pocketed $160 million.
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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