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December 8, 2008 |
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Tis the season to be vetted — if you’re angling for a high-ranking post in the incoming Obama administration. Obama transition officials are currently quizzing hundreds of hopefuls, working to get them to reveal the deep, dark personal secrets that, if ever exposed, could create a distracting political embarrassment. Vetting, of course, has been going on for years, and, last month, one enterprising reporter went around and asked veteran vetters from years gone by to reminisce about the secrets they had to work the hardest to pry out. One of those vetters had grilled over 300 nominees, starting back in the Nixon administration. His most challenging vetting assignment? Probably Gerald Ford’s pick for the vice-presidency in 1974, Nelson Rockefeller. What dark secret was Rockefeller, an heir to America's greatest fortune, trying to hide? We have that secret — and much more — in this week's Too Much. |
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On American college campuses, only one expense seems to be rising faster than tuition: the take-homes of college presidents. In the 2007-2008 academic year, the Chronicle of Higher Education reports, public university presidents saw their incomes jump 7.6 percent, to an average $427,400, with private university presidents making about $100,000 more. Tuition rose 6.4 percent last year. Since the early 1980s, the National Center for Public Policy and Higher Education noted last week, tuition and fees have increased three times faster than U.S. family income. The United States, once the college grad world leader, now ranks 10th globally in the share of adults 25 to 34 with college degrees. Observes the National Center's Patrick Callan: “We're one of the few countries where our older population is better educated than the younger population.” Southern California has just about run out of beachfront — for luxury homes. The last of 26 sandy ocean lots available in Orange County are going quick, so far at up to $9 million each. What sort of home goes on a $9 million lot? Luxury California may run out of beachfront, but Switzerland will never run out of snow. Or will it? A new University of Zurich study is predicting that global warming will hike the “snow line” 300 meters over the next three-plus decades, enough to devastate the luxury ski chalet market in Switzerland’s lower-lying resort towns. Luxury chalets in Switzerland currently run up to $2.5 million each. The prices haven’t yet started down, a researcher at the Knight Frank high-end realty noted last month, but sales have already “dropped off a cliff.” The CEOs of Detroit’s Big Three all took great pains to drive to D.C. last week for their bailout return engagement before Congress. No private jet flights this time. GM and Ford even announced plans to sell off their company jets. Other companies are following suit. Worldwide, researchers at banking giant UBS point out, the share of business jets up for sale has more than doubled since last fall. So why are key figures in the business jet industry smiling? Companies may be selling off their private jets, but they’re not swearing off private jet rides. Private jet companies that specialize in selling flight time in 25-hour packages are booming. The New York-based Marquis Jet has sold over 1,000 such packages — at an average $150,000 each. Many big companies that owned their own jets, says Frank Schiavone of Concord Private Jets, are rushing to get their planes “off the books” for 2009. Concord is now hawking an introductory special to capitalize on the rush: 25 hours on a Gulfstream IV for just $299,500, with one free hour for every 25 hours purchased — and $200 worth of free catering on every flight leg. |
Quote of the Week “The CEO of the company I retired from took home more than $50 million last year, but we retirees have not had a raise in 10 years. We do get a letter each year stating our portion of health care costs will go up.”
New Wisdom Bernie Hughes, Does excessive wealth breed greed? Superior Telegram (Wisc.), December 3, 2008 Scott Mayerowitz, The Other Side of the $1 Salary, ABC News, December 3, 2008. Last year 32 CEOs took no more than $1 in salary. But their actual take-home? That's a different story. Robert Frank, Why Wait to Repeal Tax Cuts for the Rich? New York Times, December 7, 2008. A Cornell economist makes a powerful case for quickly ending George W. Bush's tax giveaway to the wealthy.
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Nelson Rockefeller's Deepest, Darkest Secret Tom Korologos, a veteran D.C. behind-the-scenes operative, still remembers what Nelson Rockefeller, the grandson of America’s richest man, told him back in 1974 when he started vetting Rocky for the then-vacant vice-presidential slot. “I've got something to worry about,” grimaced Rockefeller. The former New York governor, Korologos soon learned, didn’t want to publicly reveal his personal financial picture. “His concern,” the vetter discovered, “was that when it became public, he wasn't going to be as rich as everybody thought he was.” What had happened to the fabled Rockefeller family fortune? Taxes had happened, the steeply graduated progressive federal taxes on income and estates left behind at death that started going into effect in the 1930s. By the 1970s, these taxes had systematically leveled down the Rockefeller family fortune — and every other grand fortune amassed over the decades of America’s original Gilded Age. Beginning in the early 1940s and lasting into the 1960s, the federal tax rate on income in the nation's top tax bracket annually hovered around 90 percent. The top estate tax rate in these years, meanwhile, never dipped below 77 percent. And many states had their own progressive taxes. In New York, the state tax rate on top-bracket income stood at 15.375 percent. Deep pockets could, of course, deduct their state taxes off their federal taxable income. But those deductions, for wealthy folk like Nelson Rockefeller, didn’t change the basic bottom line: The filthy rich, in mid-20th century America, were becoming financially leaner and cleaner. Nelson Rockefeller passed away in 1979, just before the Reagan Revolution began undoing the progressive tax system that had so shaved his net worth. Today, the top-bracket state income tax rate in New York stands at a mere 6.85 percent. The top-bracket federal income tax rate has tumbled even farther, from 91 to 35 percent. The top-bracket estate tax rate: down to 45 percent. Barack Obama, in his campaign for the White House, famously proposed to reverse this downward tilt in tax rates on the rich and “spread the wealth.” Obama, to be sure, didn’t propose much of an increase, just a bump in the top federal tax rate from 35 percent to 39.6 percent. But the modesty of Obama’s proposal in no way spared him from ferocious McCain campaign attack. Voters, on Election Day, would brush this attack aside. But voter support for Obama, interestingly, has done next to nothing to change attitudes on taxing the rich among America’s mainstream policy wonks and political leaders. In New York State, Governor David Patterson, a Democrat, is insisting on billions of dollars in program cutbacks as the only viable answer to the state’s growing budget deficit. In the process, notes Lawrence Wittner, a historian at the State University of New York in Albany, the governor is ignoring the very dynamics that have driven the state into such deep budget red. “The major reason the New York State budget is out of balance today,” Wittner noted last week, “is that, for the last thirty years, the state has been cutting the tax rate for the top income New Yorkers.” Governor Patterson is actually opposing efforts to enact a “millionaire’s tax,” despite polling data that show New Yorkers overwhelmingly favoring, by a 78-to-18 percent margin, higher taxes on anyone making over $1 million a year. In Washington meanwhile, pillars of fiscal rectitude are also talking “sacrifice” for ordinary families and ignoring the sizeable sums that raising taxes on the wealthy could raise. Last week, at a forum hosted by the prestigious Urban Institute, two former directors of the Congressional Budget Office — Rudolph Penner and Robert Reischauer — declined to offer support for even a modest hike in the top tax rate on the nation's highest incomes. Powerful Washington public policy insiders like Penner and Reischauer typically advance a variety of reasons for opposing higher taxes on society’s most financially favored. Higher taxes on the rich, they argue, choke off incentives for investment and limit economic growth. Higher taxes on the rich, the argument continues, only serve to shove the wealthy into tax evasion mode. Facing high rates, the rich plow their money into unproductive tax shelters and scheme to skirt taxes by any means necessary. The actual economic evidence offers scant support for any of these claims. In the 1950s and 1960s, decades of high taxes on the wealthy, America’s economy grew just beautifully. Average Americans enjoyed unprecedented prosperity. Earlier this year, economists Christian Weller and Manita Rao updated the evidence on economic growth and progressive tax rates. The two University of Massachusetts at Boston researchers crunched global data for 1981 through 2002 and found “no evidence that progressive taxation adversely affects economic stability by reducing growth.” Nobel Prize-winning economist Joseph Stiglitz has been trying to deliver that same message. Given a choice between cutting programs for working families and raising taxes on the rich, he told New York state leaders last spring, “economic theory and evidence give a clear and unambiguous answer: it is economically preferable to raise taxes on those with high incomes.” What about the notion that higher tax rates merely give the rich an incentive to evade taxes? If higher tax rates do indeed increase tax evasion among the rich, then lower tax rates should decrease that evasion. But today's lower tax rates on high incomes have put no dent on the tax games wealthy people play. Federal prosecutors are now charging that one bank alone — the Swiss UBS — helped awesomely affluent Americans hide $20 billion in income from the IRS from 2000 to 2007. Two other major banks, in those same years, helped the wealthy conceal as much as another $30 billion. The rich, in short, don’t like to pay taxes at any rate. They don’t use public services, and they resent having to pay for them. The best antidote to that resentment? Have the IRS, as Pulitzer Prize-winning tax commentator David Cay Johnston suggested last week, hire more auditors. |
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A Moneyman's Welcome Wisdom John Bogle, Enough: True Measures of Money, Business, and Life. Someday we will have an incredibly detailed, blow-by-blow history of how the titans of Wall Street, in the early years of our current century, came to drive the global economy over the edge. In the meantime, we have this brief and breezy new book from an honorable man who has spent the last 57 years laboring — and thinking — in the vineyards of high finance.
The author, John Bogle, deserves our attention. He founded the Vanguard Group, a powerful force in today’s mutual fund industry, and pioneered one of the industry’s most consumer-friendly innovations, the “index fund.” In 1999, Fortune magazine named Bogle one of the four “investment giants” of our time. Yet Bogle, for all his financial wizardry, has amassed a rather puny personal fortune — puny, that is, by financial industry standards. Almost a quarter of America’s 400 richest, reports Forbes, hail from finance, and these finance superstars all hold fortunes worth over $1.3 billion. Bogle doesn’t even have $100 million. The 79-year-old Bogle doesn’t mind. He feels he has plenty, and he has penned this meditation on “enough” to warn us what happens when we let — when we encourage — some among us to chase after too much. This wild chase has turned Bogle's beloved profession of finance, a trade that he believes once added value to society, into a racket that extracts it. Enough takes us beyond the daily headlines of mergers and meltdowns to paint this extraction big picture. In 2007, Bogle notes, the managers of mutual funds collected an amazing $100 billion in fees and expenses. But mutual funds, he hastens to add, make up only one piece of America’s finance superstructure. “Add to that $100 billion in mutual fund costs,” Bogle advises, “$380 billion in additional investment banking and brokerage costs, plus all those fees paid to the managers of hedge funds and pension funds, to bank trust departments and financial advisers and for legal and accounting fees, and the tab comes to roughly $620 billion.” In 2006, financial firm operations accounted for 35 percent of the profits of America’s 500 top publicly traded companies, a greater share of total corporate profits than came from the nation’s energy and high-tech sectors combined. In theory, observes Bogle, finance merely “lubricates the machinery of capitalism.” In today’s world, finance no longer lubricates. Finance dominates. The rest of business dances to the financial sector’s tune. Our financial system, Bogle charges, “has, in substance, challenged our corporations to produce earnings growth that is, in truth, unsustainable.” Corporations simply cannot meet these expectations the right way — “by improving old products and creating new ones, by providing services on a more friendly, more timely, and more efficient basis,” by challenging their people “to work more effectively together.” Instead, to please Wall Street and stuff their own pockets, corporate leaders spend their days inflating sales and plotting mergers. And “if you can't merge your way into meeting the numbers,” these execs understand, you “just change the numbers.” Bogle reflects, near Enough's end, on one of his heroes, Benjamin Franklin. The inventor of the lightning rod and the Franklin stove never patented his handiwork. Knowledge, Franklin believed, should be our “common property.” Franklin’s noble values, Bogle muses, “stand in bold contrast” to the “obscene salary demands of the executives of our giant corporations and the enormous compensation paid to hedge fund managers.” Yes, Bogle goes on to acknowledge, money matters. All of us need “the security of freedom from want, the ability to pursue our chosen careers, the wherewithal to educate our children, and the comfort of a secure retirement.” “But how much wealth do these goals require?” Bogle asks. “Indeed,” he sums up, “we ought to wonder whether the super-wealth we observe at the most extreme reaches of our society — the ability to acquire an infinite number of the things of life — is not more bane than blessing.” |
Stat of the Week The 50 highest-paid corporate execs in the Carolinas, the Charlotte News & Observer reported last week, last year pulled in an average $105,969 a week, about triple what typical workers in the Carolinas made for the entire year. |
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Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org. |
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Just over a decade ago, with the stock market soaring, Nationwide Mutual Insurance sold off a chunk of its retirement savings subsidiary — Nationwide Financial — to cash in on the Wall Street frenzy. Now Nationwide is buying that chunk back — at 
This insightful small volume will do just fine.