November 13, 2006

After last week’s momentous mid-term congressional elections, all observers agree, President George W. Bush no longer sits in the domestic public policy driver’s seat. But what about the policies that the President has already driven through into law?

What’s going to happen, for instance, to all those tax cuts that put so many smiles on America’s richest faces? We take a look in this week’s Too Much.

Also this week: a victory over plutocracy in Washington State and a chilling case study from Wall Street.

Greed at a Glance: Golf Clubs Anonymous

Last week’s sharpest electoral showdown over America’s increasingly intense concentration of wealth may have taken place in Washington State, where angry mega millionaires waged a ballot referendum battle to repeal a year-old state estate tax. Developer Martin Selig, the owner of Seattle property worth at least $378 million, contributed just under $1 million to the repeal effort. Washington's estate tax, he claimed, “hurts the middle class.” But the tax only impacts 250 estates a year, just a half percent of all deaths, and no couple with less than $4 million in wealth faces any state estate tax at all. The tax currently raises $100 million a year for education, and teachers and PTAs helped lead the opposition to repeal. On Election Day, they triumphed handily. Voters opted to preserve Washington’s state estate tax by a whopping 62-38 percent margin . . .

Inequality, new data from the United Nations make clear, continues to be a matter of life and death. Japan, the nation with the world's most equal distribution of income and wealth, once again sports the world’s longest life expectancy, at 82.2 years, reports the 2006 UN Human Development Report released last Thursday. The developed world’s most unequal nation, the United States, now ranks 30th on the global life expectancy list, at 77.5 years, despite spending nearly as much on health care as the rest of the world combined. In 1970, a much more equal United States ranked 12th. Notes Dr. Stephen Bezruchka of the University of Washington School of Public Health: “I have no idea how much farther we will descend. It just means that we all die much younger than we should.”

Two of Northern California’s top sports teams, the San Francisco 49ers and the Oakland Athletics, last week announced they were moving south — to more lucrative pastures in Santa Clara County’s Silicon Valley. The move, notes a San Jose Mercury News analysis, will help the two two teams “fill luxury boxes and premium seats, the lifeblood of stadium deals and revenue opportunities for pro sports franchises.” But San Francisco officials aren’t giving up yet. This week, the Mercury News reports, they’ll talk to 49ers owner John York, who says he’d consider staying put if San Francisco comes up with a stadium that ups the team’s current luxury suite complement by 40 percent and includes 7,500 club seats, the sorts of seating “typically purchased by companies or high-rollers.”

The world’s yacht set will be partying hearty next June in Valencia, Spain’s third-largest city and site of the 32nd America’s Cup, the world’s premiere yachting event since 1851. But the party figures to leave a bit of a hangover for local residents more apt to own rowboats than yachts. Housing costs in Valencia have been soaring. They jumped 30 percent in 2004 alone, the year after the city won hosting rights for the 2007 Cup. Swells from Europe and the United States started out buying luxury villas in orange-grove towns outside Valencia. Those villas now typically go for $1.24 million, and new buyers are zeroing in on previously overlooked Valencia neighborhoods. One of these, Russafa, used to be “very working-class,” local realtor Alex Crespo observes, “but now it’s very up-and-coming.”

Why do CEOs in the United States need such huge pay packages? A new USA Today report suggests an answer: How else are they going to afford multiple golf club memberships? At least 25 top U.S. CEOs, says USA Today, belong to at least three different golf clubs — average initiation fee, $60,000 — and that total, the paper adds, “likely understates the multiple memberships.” Indeed, a Golf Digest survey earlier this year estimated that 45 percent of Fortune 1,000 company CEOs belong to four or more golf clubs. Comcast CEO Brian Roberts belongs to five. Comcast insists that Roberts pays his own annual memberships. But other CEOs have their up-to-$80,000-or-more annual dues paid, as an executive perk, even after they retire. The current executive golf club king? That has to be Cardinal Health's Robert Walter, with six club memberships to his name.

On Wall Street, Nice Work If You Can Get It

Not too many weeks from now, Wall Street investment houses will start distributing their annual multi-million-dollar bonuses. But Santa comes early on Wall Street. For movers and shakers in mergers-and-acquisitions land, every deal can bring a sweet surprise.

Take, for instance, the deal three Wall Street investor groups cut 11 months ago to buy the Hertz car rental business from its then owner, the Ford Motor Co. The three groups — Merrill Lynch, the Carlyle Group, and Clayton, Dubilier & Rice — collected $440 million in fees for arranging the $14.9 billion deal to buy Hertz.

Now they’re poised, notes business analyst Allan Sloan, to pull in another $75 million in fees for staging, later this month, an “initial public offering” of Hertz shares to the general investing public.

Merrill Lynch and its two partner firms will also be picking up another $5 million each, notes Sloan, in return for giving up their “right to a $1 million annual fee from Hertz.” But that’s mere chicken feed to the really big payoff the three firms will be reaping.

Each of the firms will be collecting, as a fee, 20 percent of the profits from this month’s IPO of Hertz shares. That should bring them, estimates Sloan, another $600 million in fee income.

The bottom line: These three Wall Street firms, says Sloan, stand “to make more than $1 billion in fees for helping buy Hertz and then convert it into a public company.” Not too shabby for 11 months of “work” that has produced not one iota of real value to the economy.

Meanwhile, Bloomberg News predicted last week that total bonus payouts at Merrill Lynch and other major Wall Street houses will be up at least 30 percent this year over last. Overall, including $14.1 million in bonus dollars, Merrill Lynch CEO E. Stanley O'Neal's pay package in 2005 totaled $38.1 million.

The New Congress: Why Deep Pockets Can Relax

The enormous windfalls that Wall Street insiders are pocketing, for essentially shuffling paper, make a mockery of the values — like hard work — that most average Americans hold dear. So can we expect the new Congress elected last week to take some steps that might limit, or at least discourage, the easy windfalls that come Wall Street’s way?

Probably not. This new Congress seems awfully indebted to people who like things just the way they are.

As of October 18, the latest date with updated figures available, candidates for the House and Senate had spent just over $1.2 billion. A huge chunk of that, notes the Center for Responsive Politics, came from donors who contributed at least $2,000 to this year’s campaigns.

These 129,731 Americans make up less than one tenth of 1 percent of the U.S. adult population. They handed over a combined $782.1 million for 2006 federal races, a sum that equals nearly two-thirds of what congressional candidates spent.

Almost half this three-quarters of a billion in contributions, $374.4 billion in all, came from donors who contributed at least $10,000 each to 2006 campaigns for federal office.

What will these deep-pockets get for their money? They appear to have a new Congress that’s in no hurry to overturn any of the tax cut giveaways to the wealthy enacted, over Democratic Party leadership opposition, during the first six years of the George W. Bush presidency.

The top Democrats on the House and Senate tax-writing committees, news reports after the election indicated, will make no move next year to repeal the cuts in the tax rates America’s most wealthy pay on either their income or their estates.

In 2007, notes Citizens for Tax Justice, the nation’s richest 1 percent — taxpayers who'll make at least $422,000 next year — will save $64.3 billion from the Bush tax cuts. Taxpayers in this elite tax bracket will save another estimated $72 billion in 2008, $87.6 billion in 2009, and $124.9 billion in 2010.

After 2010, under current law, the Bush tax cuts will expire. From 2007 until then, America’s richest 1 percent will pocket, in total, nearly $350 billion in Bush tax savings.

Still, neither Charlie Rangel, the New York Democrat who’ll take over the House Ways and Means Committee in January, or Montana’s Max Baucus, who’ll chair the Senate Finance Committee, see any reason to take any action on tax rates for wealthy Americans before 2010.

“Why should we be talking now about 2010?” Rangel quipped last week. “I’m 76 years old, and I don’t buy green bananas.”

Stat of the Week: If This Were 1970

In 1970, notes Business Week, the CEOs of the 500 top U.S. companies listed in the S&P Index took home 28 times more compensation than average American workers. These same executives are now averaging, according to the latest tally, 369 times the pay of average workers. If average workers today were still earning 1/28th of what S&P 500 execs are making, their annual pay would sit at $374,800.

Quote of the Week: Some Call It Corruption

“Greed and the lust for power are making hypocrisy of our democracy. We espouse democratic principles and we go through the motions, but we've become a de facto plutocracy, a government controlled by the wealthy. When this happens in other countries, we call it corruption. Here, it's called lobbying.”
Bill O'Brien, Dallas Morning News, November 10, 2006

---

Want to receive the Too Much online newsletter in your email box every Monday? Learn more about Too Much and then sign up here for a free subscription!