September 25, 2006

This Week

The only official arm of the United States government that systematically tracks the wealth of America's wealthy, the Federal Reserve, does not — for privacy reasons — count the wealth of America's very wealthiest. Thank goodness we have Forbes.

Every year, ever since 1982, this business magazine has assembled a research team that dives deep into the nation’s business records to count the dollars of both exhibitionists eager to flaunt their wealth and the shy anxious to hide it.

The resulting annual Forbes list of America’s richest 400 may not be absolutely accurate. But the annual Forbes numbers, in a world of imperfect information, do take us inside places we otherwise could not go. The new Forbes stats have just come out. We have the story they tell — and much more — in this week's Too Much.

Greed at a Glance: Armani Takes on the Tailors

A businessman, educated in Texas, assumes his nation’s top elected office in 2001 and promises to run his country just like a company. We’re not talking George W. Bush here. We’re talking Thaksin Shinawatra, the proud alum of Sam Houston University who took office as the prime minister of Thailand five years ago and exited last Tuesday, after a military coup. Thaksin, a telecom executive, added bountifully to his family fortune during his prime ministership, at one point pocketing $1.9 billion, tax-free, off the sale of his telecom empire. Thai trade union leaders last week urged the new ruling military council to restore democracy, ensure press freedom, and explore “measures to narrow the gap between the rich and the poor” because, as the Bangkok Post reported, “the uneven distribution of wealth had led to vote-buying,” a “fundamental problem in Thai politics.”

Any Russian who flies a private helicopter over Moscow is breaking the law. But that inconvenient legality doesn’t seem to be slowing traffic at Sergei Filonov’s Aviamarket helicopter dealership. Filonov has sold 75 copters, at up to $8 million each, since he opened shop in Russia's capital three years ago — and has a two-year waiting list. What explains this whirlybird fever in Moscow, the current “home to the world’s second-largest concentration of billionaires”? Notes Filonov: “These people already have the Bentleys and the Cartier jewelry. A helicopter remains something that can still surprise friends.”

Forbidden fruit sells. At a premium. Forbidden fur, too. Many top fashion designers, the British Guardian reports, are now gratuitously slapping fur onto their catwalk creations. One example: Prada this fall is fringing fur around platform shoe soles. This past July, designer Jean Paul Gaultier’s show featured a model wearing a fur coat “with multiple fox heads bobbing along the sides.” Fur, notes Julien Macdonald, a design superstar with stints at Chanel and Givenchy, “adds ultimate luxury and glamour to my collections.” Fur sales overall have jumped 29 percent since 2000, to $11.7 billion worldwide . . .

The fur is also flying, more figuratively speaking, in men’s fashion. Armani and other global fashion houses are going mano a mano against the traditional tailors on London’s Savile Row for control over the luxury suit market. Armani last week began offering custom-fitted, made-by-hand suits at from $2,500 to $20,000 a pop, and ex-Gucci great Tom Ford will be “following suit” this spring at his own new emporium in Manhattan. Ford sees “a lot of pent-up demand for true luxury.” Men, he says, “are getting rich first, and they want to deck themselves out before they deck out their wives.” Custom suits from traditional luxury tailors currently top off at $6,000. Fashion giants like Armani, insists Mark Henderson of London’s Gieves & Hawkes, have nothing to offer “that can't be done on Savile Row.”

Memphis and mansion have, for over a generation, always added up to Graceland, the 14-acre estate that Elvis called home. But realtors in Memphis are working to shed that Elvis image. Their metro area now claims, they're boasting, 673 homes worth over $1 million, and a well-heeled buyer, says University of Memphis analyst Lew Alvarado, can get a good bit for that money. A million-dollar home in Memphis, he explains, will likely run “$4 million on the California coast.” One million or four, housing that pricey remains way out of sight for average Americans. The nation's housing-affordability index, the National Association of Home Builders reports, has dropped to an all-time low, with just 40.6 percent of homes sold the last quarter affordable to families earning $59,600, the national median income.

The New Forbes 400 List: We're Gushing Billionaires!

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 just-released Forbes 400 list for 2006 includes, for the first time ever, only billionaires.

Together, these 400 billionaires own $1.25 trillion in total net worth.

Let’s put this total in a more comprehensible context. In 2004, the most current year with stats available, the 56 million American families who make up the poorer half of America's wealth distribution had a total combined net worth of just $1.29 trillion.

In other words, our nation’s richest 400 households own just about as much of our nation’s treasure as our poorest 56 million.

That treasure appears to be concentrating at economic warp speed. In 1982, a deep-pocket in the United States needed a mere $90 million to enter the lofty ranks of the Forbes 400. In 2004, the price of admission stood at $750 million. On last year’s Forbes list, the cut-off jumped to $900 million. This year’s entry fee: a straight $1 billion.

Let’s put that number in context, too. An average American could win, three times over, the biggest lottery jackpot ever — the $315 million payout recorded in California last November — and still need over $50 million more to knock on the Forbes 400 door.

This year’s fastest-growing Forbes 400 fortune belongs, somewhat fittingly, to Sheldon Adelson, the CEO of the Las Vegas Sands, the global gambling industry giant. Worth $20.5 billion, this casino magnate holds the nation’s third-largest fortune. Adelson’s fortune, over the past two years, has grown at the rate of nearly $1 million an hour.

Taxes on the Top Then, Taxes on the Top Now

Why do we have so many billionaires in the United States?

You'll find one explanation in the fawning profiles of today's tycoons that appear regularly in our nation's business press. We have in our midst, these stories suggest, a rare breed of human being, entrepreneurs somehow able to mix equal parts genius and daring, judgment and vision. How could talents so immense, the corporate cheerleaders virtually shout out, not produce billionaire fortunes?

Any other explanations for our billionaire explosion? Here's one. We have more supersized concentrations of wealth in America today because our nation's single most important check on the accumulation of grand fortune — the progressive income tax — has become, for the super rich, little more than a nuisance.

Our very richest haven't become any smarter or more daring than their predecessors a generation ago. They just pay less in taxes. A great deal less.

Let's go back a half-century. In 1950, no business star glittered any brighter than Charles E. Wilson, the president of General Motors, America's most powerful corporation. Wilson, then one of the nation's most lavishly paid executives, took home $586,100 that year, the equivalent of about $4.5 million today, less than half the current big-time CEO average.

Wlson's tax bill on his 1950 take-home: $430,350, or 73.4 percent of his total income.

That's no misprint. Throughout the mid 20th century, wealthy Americans faced much higher tax rates than they do now. In 1950, the top tax rate on income over $400,000 stood at 84 percent. The next year, that figure would rise to 91 percent.

Today, by contrast, our top federal income tax rate sits at just 35 percent. And that rate only covers regular paycheck dollars. Capital gains income from the sale of stock and other property faces only a 15 percent tax. Dividends face this same 15 percent.

Tax rates these low make rapid wealth accumulation, for contemporary corporate moguls, a walk in the park. Just compare, for instance, the 1950 tax bill for Charles Wilson to the tax situation for the current top executive at General Motors, Rick Wagoner.

We don't know exactly how much Wagoner paid in taxes last year. But we do know, thanks to IRS statistics released earlier this month, that Americans who made what Wagoner made in 2004 — over $10 million — actually paid, on average, only 23.8 percent of their total incomes in federal tax.

Business tycoons a half-century ago, in effect, routinely paid three times more of their incomes in taxes than tycoons today. Somehow, they survived that ordeal. Average Americans back then didn't do too bad either. In the 25 years after World War II, the incomes of typical Americans more than doubled, even after taking inflation into account.

And today? We have bulging lists of billionaires and a massive middle class squeeze.

Why we have so many more billionaires, here in 2006, shouldn't be a mystery to anyone. The real mystery: why so many of the rest of us accept this distinctly unmystifying state of affairs.

Stat of the Week: High-Altitude Real Estating

The nation's real estate bubble might have popped, but high-end realtors are still thinking jackpots. With just three months left in the year, 2006 has already seen three residential properties hit the market at nine-digit prices.

Leading the year's listings so far: a mountain estate in Aspen, Colorado, that went on sale for $135 million, $10 million more than the asking price for a “Palm Beach palace owned by Donald Trump” and $25 million over the asking for a mountain property “nestled near the shores of Lake Tahoe.”

Quote of the Week: Peyton Manning in Perspective

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