December 18, 2006

In this, the last edition of Too Much for the 2006 calendar year, we take a look back at 12 months of excess — and the ups and downs of the struggle against it. We also take a little peek ahead into 2007. What do we see? Some encouraging signs. This coming year might actually bring, on the inequality front, the start of something good.

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2006: The Best, the Worst, the Most, the Least

Most Telling Milestone

Back in 1982, the year Forbes started publishing an annual list of America’s 400 richest, the magazine could find only 13 billionaires in the entire United States. The nation’s entire billionaire population could stand, quite comfortably, in a living room. Not anymore. The Forbes 400 list for 2006 includes — for the first time ever — only billionaires. The 400 swells on the Forbes list unveiled this September hold a combined $1.25 trillion in total net worth. Need some context? In 2004, the latest year with stats available, the 56 million American families who make up the bottom half of America's wealth distribution held a combined net worth of $1.29 trillion. In other words, our nation’s richest 400 households hold about just as much wealth as our poorest 56 million all together.

Most Significant Victory

The estate tax lives. In 2006, the long, luxuriously funded campaign to permanently repeal the only federal tax levy on grand private fortunes finally came up short. In June, GOP leaders needed 60 Senate votes to kill the 90-year-old estate tax. They collected only 57, then frantically scrambled the rest of the legislative session to find some backdoor maneuver that could win the extra three votes — and over $1 trillion in tax savings for America's richest. At one point, GOP leaders even tried coupling estate tax repeal with a hike in the minimum wage, a hike they had been opposing — “on principle” — for years. But nothing worked. In November, voters would have the final word. Nationally, they voted out the GOP House and Senate majorities, and in Washington State, in the only election contest devoted solely to estate taxation, voters rejected a bid to repeal their state estate tax by a 62-38 percent margin. But none of this will end the estate tax debate. Repeal may now be off the table, but the final shape of estate tax “reform” still remains unclear.

Best Question

The June announcement that billionaire investor Warren Buffett would shortly start giving away over $31 billion in stock, over 80 percent of his fortune, drew wildly enthusiastic plaudits from commentators all across the world — and a simple question from the latest biographer of Andrew Carnegie, the world's most famous philanthropist a century ago. Asked David Nasaw, a historian at the City University of New York: “What becomes of a society that must rely on 'gifts' from a handful of socially conscious billionaires to save its schools, cure disease and alleviate poverty?”

Worst Corporate Scam that Starts with a 'B'

The “backdating” of stock options? Nice B-word guess, but no cigar. Backdating, a practice unknown to the public before 2006, has certainly piled plenty of cash into executive suites. At least 850 CEOs, researchers estimate, have had the dates they received stock options backdated to boost their personal bottom lines. In the decade after 1995, these manipulations added, on average, an extra 10 percent to the annual pay of backdating CEOs. But this year, another B-word — “buybacks” — added far more to executive paychecks. Over the year's first three quarters, U.S. corporations bought back a record $325 billion worth of their own stock off the open market, a sum that equaled over half their $590 billion in earnings over the three quarters. Why are corporations buying back shares instead of investing in R & D — or anything else that might make them more competitive? One reason: Buybacks typically increase executive pay, since most companies tie CEO compensation to share price and buybacks increase share price. What's another reason to “buy back”? Companies, research shows, don't need another reason.

Most Hypocritical Rich Rock 'n' Roller

Newspapers in Ireland this year headlined the news that U2 lead singer Bono and company have begun shifting their $871 million fortune to the Netherlands, where royalties face no direct tax. Bono, a world-famous anti-poverty campaigner, had been pressing the Irish government to ratchet up its level of aid to the world's poor nations. That task becomes more difficult, observed the Irish Labor Party's Joan Burton, when “everyone is not willing to be part of the social contract that stipulates that everybody should pay their fair share.” Bono may be wearing out his Emerald Isle welcome. At one concert, a November newspaper story related, Bono hushed his Irish audience and began to clap his hands rhythmically. Announced a somber Bobo: "Every time I clap my hands, a child dies in Africa." Responded a voice from the Irish rabble: "Well stop fooking clapping then."

Best Performance by an Economist

Emmanuel Saez, a young scholar at the University of California at Berkeley, this year emerged as perhaps the top expert on income trends at the tippy-top of the U.S. economic ladder. Saez and his Paris-based collaborator, Thomas Piketty, have been annually updating an incredibly detailed historical breakdown of the dollars going to America's most financially fortunate. The latest statistics from Saez, covering through 2004, show that Americans who sit in the nation's highest-income 0.01 percent are now collecting a grander share of the nation's income than the nation's very richest have collected in any year since 1929, the last year before the Great Depression.

Most Fortunate Heirs to an Ill-Begotten Fortune

Former President George H. W. Bush and over a thousand other mourners turned out this past July in Houston at a memorial service for Ken Lay, the one-time Enron CEO who died unexpectedly less than two months after his conviction for his part in the bankruptcy that cost Enron employees and retirees $1.5 billion in lost savings. Lay, said one memorial speaker, “did not have a criminal bone in his body.” The law now agrees. In the fall, the courts vacated Lay's conviction, under the legal reasoning that Lay's death meant the appeal against his conviction could never be heard. The federal government, the Jurist reports, “now has no means of seizing property controlled by the Lay estate to compensate victims of the Enron collapse.”

Most Disappointing CEO Pay Critic

Looks like William McDonough, the first chair of the federal accounting watchdog agency created after Enron, has gone over to the Dark Side. Two years ago, McDonough called CEO pay “grotesquely immoral.” In January he joined Merrill Lynch as an adviser to CEO E. Stanley O'Neal, whose pay just happened to double in 2003 — to $28.1 million — after the company completed a “restructuring” that wiped out over 20,000 jobs.

Most Revealing CEO Pay Statistic

The typical American full-time worker ended last year making $659 a week, or $34,268 a year, just 1.9 percent up from the typical paycheck a year earlier. At the other end of Corporate America's pay spectrum, the ten CEOs at the top of the annual USA Today pay list — published this past spring — averaged $34,268 every four minutes.

Most Ridiculous Conspicuous Consumption

How do you flaunt a fabulously expensive car that has to spend hours sitting in a garage? The obvious answer: You put that car in a garage with see-through walls. Such a garage now actually exists, courtesy of Tapio Spellman and Christian Grou, the architects behind the new Munich football stadium. Their new “transparent concrete garage,” a bargain at only $211,000, features “light-transmitting concrete with transparent sliding ‘doors’ to the sides.” Owners who hit their personal conspicuous limit can always “flip a switch” in the garage to make “the polycarbonate-based LCD layers turn opaque electronically.

Most Surprising Speech by a Conservative Politician

In the 1980s, British Prime Minister Margaret Thatcher may have done more to justify inequality than anyone else on Earth. This past November, in a widely publicized address, her heir as Conservative Party leader, David Cameron, essentially declared Thatcherism null and void. Thatcher had infamously claimed there’s “no such thing as society,” only individuals and families that “must look to themselves first.” We all live, Cameron countered  “as part of a community, as members of society.” Poverty cannot exist, Thatcher had argued, if everyone has basic consumer goods. Cameron urged his listeners “to think of poverty in relative terms — the fact that some people lack those things which others in society take for granted.” Cameron’s address, observers note, will help legitimize concern about inequality. But Cameron is still going only halfway. He made clear, after his speech, that the gap between the rich and everyone else doesn’t concern him. A shame, says British commentator Will Hutton: “Human beings have judged their worth by their relative position to others since the beginning of time; if the super-rich pull away so that the rest of society feels valueless, ultimately, it rebels. Britain will be no different.”

Most Admirable Top Corporate Executive

Okay, he doesn't exactly run a Fortune 500 company, but Tom Schlough deserves kudos all the same. The top exec at Park Industries, the biggest maker of stone-cutting equipment in North America, the St. Cloud, Minnesota-based Tom Schlough annually takes home less than ten times the average salary of his company's 300 employees. That attention to equity, Schlough believes, helps nurture a workplace full of people who really care about the quality of their work. “Nobody ever got excited,” he told the Minneapolis Star Tribune earlier this year, “about making the boss rich.

Most Pathetically Useless Top Corporate Executive

No company might be ending 2006 in a bigger funk than online giant Yahoo. After weeks of insider and outsider attacks on the company’s “redundant products, lack of accountability, and bloated bureaucracy,” three top executives are now headed out the door, including two hired — with considerable fanfare — by Yahoo CEO Terry Semel. But Semel, Yahoo’s CEO since 2001, is staying put and promises that the company is “going to become more focused.” Yahoo shares currently trade at under $30, down from the company’s $451 high six years ago. What’s the problem? CEO Semel obviously needs a bit more incentive to right the Yahoo corporate ship. The over $230 million in Yahoo stock option profits he cleared in 2004 apparently didn’t provide incentive enough. Nor did the $47.6 million worth of new options Semel pocketed last year. No word yet on how much additional new love Yahoo might be willing to spread Semel’s way.

Most Gross CEO Perk

America's largest corporations, the Wall Street Journal documented this year, aren't just reimbursing their chief executives for the taxes due on their ample compensation. They're reimbursing their CEOs for the taxes due on the reimbursements. This elaborate process — “grossing up” — last year added $3.3 million to Home Depot CEO Robert Nardelli's $2 million base salary and a great deal more to the take-home of David Dorman, the former AT&T CEO. Dorman took in $20 million in severance last year when he became expendable after AT&T merged into SBC. On top of that token of corporate esteem, the newly merged company graciously awarded Dorman another $11.1 million — to cover every possible cent of taxes due on the $20 million and all his reimbursements.

Most Original Research on the Consequences of Inequality

The more unequal a society, suggests research published earlier this year by Harvard researcher Maria Petrova, the less free, open, and accessible that society's mass media. Petrova's paper, Inequality and Media Capture, offers a model for understanding the relationship between media freedom and income inequality and then tests that model empirically, for over 100 nations, via data indexes that track inequality and media freedom over the decade that started in 1994. Her basic finding: In democracies where wealth tilts toward the top, the wealthy have more of a vested interested in “capturing” the media and limiting the range of policy options that media grant time and attention.

Worst Research Intended to be Taken Seriously

Corporate America's top advocacy group, the Business Roundtable, set out this spring to convince Americans that CEOs aren't really overpaid. The first salvo in the campaign — a CEO pay study released in July — argued that average shareholders have scored bigger rewards than chief executives. But the Business Roundtable study, skeptical reporters discovered, turned out to ignore several key components of executive pay, including all the stock option windfalls CEOs have registered over the past 10 years. The $250 million in option profits that Capital One CEO Richard Fairbank waltzed off with in 2005? Nowhere to be found in the Business Roundtable study. No big deal, at least to Business Roundtable President John Castellani. Claims “that large numbers of CEOs make hundreds of millions of dollars every year,” he crowed at the release of the Roundtable pay report, must be considered “simply untrue.” Untrue? In 2005, researchers at the independentCorporate Library report, nine CEOs pulled in over $100 million, with three topping $200 million.

Most Disappointing Nation

A dozen years ago, with apartheid newly smashed, South Africa seemed ready to lead the globe into a more equitable future. But South Africa instead has soared ever higher into the top tier of most unequal nations and today offers more inspiration to art dealers than egalitarians. Over 15 percent of South Africa’s 47 million people currently live on less than $1 a day. Meanwhile, the ranks of South Africans with at least $1 million to invest are jumping by nearly 6,000 a year. The value of fine art in Johannesburg private and corporate collections, one Joburg art dealer noted earlier this year, now totals over $283 million. South Africa’s swells “have bought their luxury houses and expensive cars,” explains art auctioneer Stephan Welz, “and now they want to put nice things into these houses.”

Best Pension

Who says pension security in the United States is disappearing? At least 40 top U.S. executives, the New York Times reported this spring in the paper's annual executive pay round-up, ended last year set to receive $1 million a year for life in annual pension benefits. Among the happy pensioneers: Citigroup's Sandy Weill. He'll be collecting a $1 million annual pension and then some. To help Sandy transit into his golden years, Citigroup is supplying its former top exec with a car and driver, secretarial support, and 10 years worth of free flights on Citigroup corporate jets, plus a $3,846-a-day consulting gig. Weill, for the record, collected $1 billion in his last decade at Citigroup's executive summit.

Most Off-the-Wall Financial Planning Advice for Deep Pockets

Over 1,000 Americans have so far contracted with “cryonics” labs to have themselves frozen at death — in hopes of revival at some future date. What happens to their money in the meantime? Enter the "personal revival trust,” a new money management instrument designed for the well-to-do who “have decided that, since they cannot take it with them, they are going to have it waiting for them when they get back.” Arizona resort operator David Pizer has gone the "revival trust” route to set up a holding tank for his $10 million in land and stock holdings. He's hoping to wake up in 100 years as the “richest man in the world.”

Most Off-the-Wall Financial Planning Advice for Empty Pockets

This past June, executives at Northwest Airlines forced their workers to accept an 11.5 percent pay cut — and over 1,000 job cuts. Executives at the ever-thoughtful Northwest later distributed a list of 101 money-saving ideas to workers about to be canned. Among the tips: “Don't be shy about pulling something you like out of the garbage.” Within days, workers throughout the company were angrily protesting what Machinists union leader Bobby De Pace called a “very callous” gesture. Northwest eventually apologized. The incident didn't particularly surprise De Pace. Three years ago, amid an earlier round of pay and job cuts, Northwest more than doubled top executive pay.

Most Rich People-Friendly Up-and-Coming Tax Haven

You can never have too many rich, or so Treasury officials on the Isle of Man believe. In 2006, local authorities redoubled efforts “to attract even more wealthy entrepreneurs” to their 33-mile-long island, a self-governing “crown dependency” that sits 60 miles west of the UK's Lancashire coast. Isle of Man officials announced in February a limit of £100,000 — now about $200,000 in U.S. currency — on the income tax any resident can be charged, no matter how high that resident's income may be. Before the new limit, the Isle of Man's most fortunate faced an exceedingly modest top tax rate of only 18 percent.

Petulant Plutocrat of the Year

Early in 2006, this honor appeared headed to real estate magnate — and TV superstar — Donald Trump after he filed suit against the author and publisher of a new book that charges he's not really a billionaire. But then Angelo Mozilo, the CEO of Countrywide Financial, America's biggest mortgage lender, blistered shareholder activists at his company's June annual meeting. The activists, in the wake of Mozilo's $141 million in 2005 take-home, were calling for an advisory shareholder vote on Countrywide executive pay. Retorted Mozilo: “Entrepreneurs are not going to come into the public arena if every move they make is one that is going to be criticized no matter what move they make.” Four months later, a week after Countrywide announced plans to ax some 2,500 jobs, news reports revealed that the 67-year-old Mozilo, in return for delaying his retirement until 2009, will receive $10 million from Countrywide as a “reimbursement” for the pension dollars he would have collected over the next two years. Naturally, Mozilo will also receive his regular compensation the next two years, as much as $11.9 million annually. Petulance pays.

Most Pithy Political Take on Our Current Predicament

From Dan Cantor, the executive director of the Working Families Party in New York, this past January 20: “Inequality is the core issue of our time. Over the last 30 years, America has changed from a nation that aimed to share its bounty into one that doesn’t even pretend to try.”

Best Legislative Reason to Feel Slightly Optimistic about 2007

Nearly three-quarters of Americans, relates a Bloomberg/Los Angeles Times poll released in December, now consider economic inequality a major national issue. And the next U.S. Senate will include at least two new members willing to address that inequality not just at the bottom, but at the top. The first, Bernie Sanders from Vermont, has been challenging the concentration of wealth in the United States ever since his 1990 election to the House. One typical moment: At a congressional hearing earlier this year, Sanders quizzed a top corporate lobbyist on the morality of an American income distribution that has the 13,000 richest families making as much income as the bottom 20 million combined. The second of these two new senators, James Webb from Virginia, shocked Corporate America shortly after his election with a Wall Street Journal op-ed that called America's “steady drift toward a class-based system” the “most important” — and “least debated” — “issue in politics today.” America's richest 1 percent, Webb noted, have doubled their share of the nation's income since 1980. Could be an interesting year.

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