This Week

Earlier this month, we showcased the new Census Bureau figures on income — with a caveat. The Census Bureau, we explained, makes no real effort to count the dollars that go into the pockets of Americans who make over $1 million a year.

Fortunately, the IRS does count these dollars, and, last week, the IRS published the count for 2004. We contemplate the new IRS numbers — and much more — in this week's Too Much.

Greed at a Glance: Entertaining Investment Bankers

Senator Joseph Biden from Delaware feels sure that America's millionaires are every bit “as patriotic as anyone else” and just “as willing to sacrifice for the good of our nation.” But no one since 9/11, Biden told the Senate last week, “has asked them to sacrifice.” On Wednesday, Biden tried to change that. He introduced an amendment that would pump $10 billion a year into port security by upping taxes on Americans with over $1 million in annual income. In 2006 alone, Biden pointed out to his Senate colleagues, the tax cuts enacted since 2001 will save millionaire earners $60 billion, about double this year's federal budget for homeland security. Biden's arithmetic did not impress his Senate colleagues. They voted, 57 to 41, to table his amendment . . .

The editors at Fortune, the business magazine, have a habit of getting carried away. Starting in 1996, for instance, they named Enron America's “most innovative company” six years in a row. These days, Fortune is gushing about Dave Calhoun, the 49-year-old former G.E. vice chairman who has just become the CEO of VNU, the international media research company that counts the eyeballs watching TV shows. Calhoun will earn $100 million, over the rest of the decade, at VNU. That's about right, says Fortune senior editor Geoffrey Colvin, because “sometimes an executive really is worth a staggering sum of money.” The pay deal Calhoun cut with VNU, adds Colvin, “represents the market at its most efficient, ruthless best.” Maybe even more efficient and ruthless than Enron . . .

Corporate executives in America's heartland, a new St. Louis Post-Dispatch report makes clear, may not run companies as flashy as their counterparts in New York and Silicon Valley. But they're doing just fine, thank you. The 276 executives the Post-Dispatch tracks in its just-released annual executive pay survey took home over half a billion dollars in 2005, 24 percent more than the 283 executives the Post-Dispatch tracked last year. Money well spent? Top execs, St. Louis University business school analyst Carl Maertz told the paper, are “not worth 30 times what the middle managers are earning.” Added Maertz: “No one has proven that if you paid the CEO a bit under market that you wouldn't get anyone good.”

How's this for a niche market: 100,000 power-brokers worth, collectively, half a trillion dollars who this year will collect an estimated $100 billion in income. The folks at Doubledown Media, a New York publishing house, are counting on numbers like these to get luxury advertisers hyperventilating about the new magazine they plan to debut this November. The new publication, Dealmaker, will target “investment bankers, private-equity executives, and venture capitalists,” and the editors are promising a magazine that shows “sophisticated, discerning luxury consumers the best ways to enjoy what they've earned.” Doubledown Media already publishes a bimonthly that serves financial traders — average income, $450,000 — “from the canyons of Wall Street to the trading floors of Chicago to the private dining clubs in The City of London.”

Fifteen months ago, things didn't look particularly good for Richard Scrushy, the ex-CEO of the HealthSouth hospital chain who had pocketed over a quarter-billion dollars in pay from the company between 1996 and 2002. Prosecutors had charged Scrushy with running a $2.7 billion fraud to inflate HealthSouth sales — and had lined up every chief financial officer in the company's history to testify against him. But Scrushy shelled out $32 million for his legal defense and won, in June 2005, an acquittal on all charges. Last week, he won even more. An arbitrator ruled that HealthSouth must foot the bill for $17 million of Scrushy's legal costs. But Scrushy still faces a rocky road. This past June, a jury found him guilty of bribery, and the Alabama Supreme Court has ruled that this one-time owner of four mansions, two airplanes, 11 boats, and 30-odd automobiles must now reimburse HealthSouth for over $47 million in bonuses he collected from the company.

Diversity, Federal Reserve Board Governors-Style

In a healthy democracy, the people who set economic policy will look a good bit like the people impacted by economic policy.

In the United States today, the people who set our core economic policy — the appointed governors of the Federal Reserve — don't look anything like the people they impact.

The typical American family, Fed figures released earlier this year note, holds $23,000 worth of financial wealth, a category that includes everything from savings bank accounts and CDs to shares of stock. Last year, the six current Federal Reserve governors — the most important economic policy makers in the United States — averaged financial assets worth at least $14 million, 609 times the financial wealth of the typical American family.

The six governors may have actually averaged much more than that $14 million, as much as $27.1 million each, notes the annual report on Fed governor personal finances released last week by the Financial Markets Center, the national public interest group that monitors the Federal Reserve system.

Why the uncertainty? Federal disclosure law doesn't require Fed governors to reveal the exact value of their wealth holdings. They need only report holdings within ranges. A governor, for instance, can report a stock holding within a range that runs from $5 million to $25 million, leaving unclear whether that holding stands at $6 million or $24 million.

Three new governors joined the Federal Reserve Board last year. Their hefty personal wealth holdings, says the Financial Markets Center, have “widened the already substantial financial gap that exists between America's top economic policymakers and average U.S. households.”

The wealthiest new Federal Reserve governor, Kevin Warsh, owes his fortune — worth somewhere between $66 and $117.3 million — to the Estee Lauder cosmetics empire. But even without Warsh's enormous fortune, the Financial Markets Center points out, the current roster of Fed governors still stacks up as the richest Fed board in years.

John D. Rockefeller Reborn: The New IRS Income Stats

Back in May 1937, shortly after the death of John D. Rockefeller, America's richest man, newspaper columnist Walter Lippmann, America's most revered political pundit, reflected on the future of grand fortunes in the United States.

The nation, Lippmann noted, would likely never see a fortune so grand as Rockefeller's ever again. The 97-year-old John D., the columnist observed, had “lived long enough to see the methods by which such a fortune can be accumulated outlawed by public opinion, forbidden by statute, and prevented by the tax laws.”

In the United States, Lippmann added, “sentiment has turned wholly against the private accumulation of so much wealth.”

That sentiment would set the nation's economic tone throughout the mid 20th century and help guide the United States, year by year, toward ever greater levels of economic equality. By Walter Lippmann's death, in 1974, America's supersized fortunes had nearly totally disappeared. The grand mansions and estates of John D. Rockefeller's robber baron era had become, in the 1950s and 1960s, museums and college campuses.

Today, over four decades later, that more equal America seems like ancient history. Last week, the IRS published online the latest evidence that John D. wannabees are accumulating at rates that would do any 19th century robber baron proud.

In 2004, the new IRS numbers reveal, nearly 10,000 taxpayers — 9,677, to be exact — reported incomes over $10 million. The awesomely affluent in this $10 million crowd averaged $26,550,887 each.

Together, the over-$10 million set pocketed $257 billion in 2004, or 3.8 percent of the nation's total income for the year. Not bad for a group that makes up just 0.01 percent of the taxpaying public.

Decamillionaire income-earners, the new IRS figures also show, are becoming substantially more plentiful. In 2003, only 6,126 taxpayers pulled in over $10 million. They collectively pocketed $159 billion in income, just 2.5 percent of the nation's total — 34 percent less than the decamillionaire share of the nation's income in 2004.

Stat of the Week: Bean-Counters Supreme

Corporate America's “CFOs” — chief financial officers — saw their average pay jump 10 percent last year. Ten CFOs, Bloomberg executive pay analyst Graef Crystal reported last week, took home over $10 million in 2005, with the year's biggest paychecks going to the CFOs of Goldman Sachs, Occidental Petroleum, and Yahoo.

The latest CFO pay figures, says Crystal, “show that when a CEO is paid hugely, then most of his top subordinates can be expected to be paid above market levels as well.”

Quote of the Week: The Contagion Effect

“If one company is willing to pay a CEO twice as much as they're worth, then all companies will have to raise compensation by 100 percent to be able to retain their CEOs. If a few companies tend to behave in a crazy way, then other companies usually follow because top CEOs will get offers from other companies.”
Augustin Landier, New York University Stern School of Business,
Smart Money, September 14, 2006

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