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January 21, 2008 |
| This Week | |
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Rich people don’t particularly mind talk about helping poor people — unless that talk starts linking the wealth of the one to the poverty of the other. Suggest that link and This sort of bombast can be intimidating. But we can’t let ourselves be intimidated, not if we want to understand how our society actually operates. Some phenomena that impact our lives, we need to remember, simply make no sense unless we contemplate the ongoing interplay between rich and poor. Take, for instance, the mess around subprime mortgages. That’s just what United for a Fair Economy has done in Foreclosed, this Boston-based group’s latest annual analysis of how fares the legacy of Dr. Martin Luther King, Jr. We have the story, in this week's Too Much, on this important new report — and plenty more, too. |
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| Greed at a Glance: The $50 Lottery Ticket | |
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Telecom giant Sprint Nextel announced plans Friday to ax 4,000 of the company's 60,000 jobs. Just-hired Sprint CEO Dan Hesse, the Wall Street Journal reports, wants “to show investors a new commitment to efficiency and cost discipline.” That commitment won’t extend to Hesse’s own take-home. The new CEO’s personal pay deal, signed in December, guarantees Hesse just shy of $4 million for his first year as chief executive, plus $10 million in Sprint shares if he sticks around for three years. Hesse, with his quick-trigger layoffs, is following standard CEO operating procedure. But at least one U.S. chief exec is challenging this standard script. Business Week has just profiled Chip Conley, a California hotel chain CEO who cut his take-home to zero — and convinced his fellow execs to take pay cuts, too — to avoid having to lay off front-line workers. The best part: Conley's selfless approach to corporate crisis ended up restoring his company to financial health . . . Twenty years ago, all of Ireland held only a few hundred households with fortunes worth a million euros. Today, over 30,000 euro millionaires call Ireland home. These new Irish rich, notes Financial Times correspondent John Murray Brown, “think nothing of flying to the U.S. for a weekend of shopping, and party invitations among the elite now routinely include longitude and latitude details for the benefit of incoming helicopters.” This fantastically rapid accumulation of wealth has sent Irish property values soaring. Home prices have nearly quadrupled over the past decade, and houses now average nearly $600,000 in Dublin. Investments in public services, meanwhile, have lagged. Only one nation in the entire developed world, the United States, has a higher poverty rate. Some prominent Irish fear the nation is losing its moral compass. Brenda Fricker, an Oscar-winning actress, told reporters in November she was leaving Dublin to escape “the money-motivated” mindset of a city that has “become very tough and hard.” Last Monday, on the eve of the Michigan Presidential primary, the three top GOP candidates all stopped by the North American International Auto Show in Detroit for a photo op to underscore their commitment to reviving Michigan's reeling economy. In the mean time, elsewhere on the auto show floor, luxury carmakers were underscoring their commitment, as Lamborghini CEO Stephan Winkelmann put it, to “serve islands of wealth around the world.” Maserati’s James Selwa defined the U.S. wealth “island” as the top one half of 1 percent of the nation’s income-earners. For this top-end crowd, Maserati last week introduced a new $147,000 model. Worldwide, Maserati sold 7,350 motorcars last year, 12 times more cars than the company sold back in 1998 . . .
In Texas, elected officials don’t like to tax. But they sure love lotteries. The state now spends $33 million a year “promoting the games that inspire dreams of instant riches,” the Houston Chronicle reported last week, and nothing on “programs to help problem gamblers.” Critics consider the Texas lottery a backdoor tax on the poor — “The lottery was never designed for rich people,” says state lawmaker Garnet Coleman — and last winter Texas lottery chiefs moved to blunt that critique. They unveiled a $50 lottery ticket, the “priciest” in the nation, in a move designed to bring “people with higher disposable income into our customer base.” On that goal, the state has fallen somewhat short. Sales of the $50 ticket are running far higher in Texas zip codes with median incomes below $20,000 than zip codes with incomes over $90,000. Complains Texas Baptist lobbyist Rob Kohler: “The most expensive lottery ticket has gone from costing no more than a candy bar to now being the most expensive item in convenience stores. The state should not be in the business of separating citizens from their dollars.” That separation may soon speed up. Lottery execs are now conducting market research on lottery tickets than run $100. |
Quote of the Week “We have created in the United States, largely in the last thirty years, a whole series of programs — a few of them explicit, many of them deeply hidden — that take money from the pockets of the poor and the middle class and upper middle class and funnel it to the wealthiest people in America.”
New Wisdom Aviva Aron-Dine, Another Misdiagnosis: Marginal Rate Reductions and Extensions of Tax Cuts Expiring in 2010 Not the Right Medicine for the Economy’s Current Ills. Center for Budget and Policy Priorities, January 15, 2008. Explains why making the Bush tax cuts — for the wealthy — permanent makes no sense as an anti-recession stimulus. Jenni Russell, Inequality is closing down our concern for others, Guardian (UK), January 18, 2008. We need to “increase taxes on the very wealthy” — because we can't afford, as a society, to make grand wealth “the standard against which the rest of us are measured.” |
| In Focus: Law and Order's Next Spin-Off? | |
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Turn on your TV, any evening of the week, and you’ll find an assortment of hour-long dramas that chronicle the workdays of all manner of law enforcement personnel. Urban detectives. Medical examiners. Missing person investigators. But you won’t find, amid this dramatic universe, any IRS agents. Think about that a moment. IRS agents have been making headlines ever since they snared Al Capone. And what could be more dramatic than an audit that has a tax agent confronting a corporate executive desperately trying to conceal multi-millions in ill-gotten gains? That ought to be fodder for some great TV. Yet no tax fraud dramas, no IRS “procedurals,” appear on our plasmas. Here’s one reason why: If TV producers really tried to show how IRS agents currently go about spending their time, TV viewers would dismiss the resulting shows as hopelessly unrealistic. Today’s IRS agents, the public interest watchdog group OMB Watch documented last week, are actually spending more time auditing poor taxpayers than rich ones. The working poor in the United States — single adults who made under $12,590 last year, couples with kids who made under $39,783 — can qualify for tax refunds via the Earned Income Tax Credit. The IRS audits 2.25 percent of these EITC recipients. That’s nearly double the audit rate for taxpayers making over $100,000 a year. EITC audits now make up 40 percent of all the individual taxpayer audits the IRS conducts. But these audits generate little revenue, mainly because so many of the errors on EITC tax filings reflect the complexity of the earned income credit filing process — the instruction manual runs 50 pages — and not any attempt to defraud. The IRS, OMB Watch points out, could significantly reduce errors on EITC filings by offering low-income taxpayers more help at the front-end of the application process. Instead, the IRS has upped the audit pressure on poor people — and let high-income tax returns, by the many thousands, go unchecked. Back in 1992, the IRS audited 5.28 percent of high-income tax returns. The high-income audit rate in 2006: just 1.3 percent. But rich tax cheats have even more reason to smile than these numbers suggest. IRS audits come in two flavors, face-to-face audits and “correspondence” audits, where tax agents ask tax-filers to submit additional information by mail. Correspondence audits, OMB Watch observes, don’t unearth nearly as much fraud as face-to-face audits. In 2006, the typical high-income taxpayer subjected to a face-to-face ended up coughing up an average $54,934 more in taxes. Correspondence audits, by contrast, only generated an average $31,912. An IRS serious about narrowing the “tax gap” — the $345 billion divide, at last count, between taxes owed and taxes paid — would start conducting more audits face-to-face. The IRS has gone in the exact opposite direction. In 2006, less than one out of every 200 high-income filers — 0.44 percent, to be exact — sat through a face-to-face audit. In 1992, six times as many high-income filers had their audits done face to face. IRS agents themselves find these numbers sickening. Their union has repeatedly spoken out against the budget cuts and management moves that are undermining the IRS capacity “to discourage and deter non-compliance, particularly among high-income individuals.” IRS decisions, National Treasury Employees Union President Colleen Kelley told Congress last March, have focused “enforcement efforts too much on wage earners and not enough on high-income individuals and large businesses and corporations.” That’s a hard story to tell within the confines of a 60-minute TV drama. We need to find some other way to tell it. |
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| In Review: The Subprime Color Line | |
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Foreclosed: State of the Dream 2008. This latest edition of the annual United for a Fair Economy State of the Dream report zeroes in on the escalating subprime mortgage crisis — for a single powerful reason. This subprime lending debacle, as the report bluntly puts it, “has caused the greatest loss of wealth to people of color in modern U.S. history.” And this awesome loss of wealth to people of color, Foreclosed patiently details, has its roots in the reckless behavior of people in power suits — from mortgage brokers and bank executives to Wall Street underwriters and hedge fund managers. These players created a financial house of cards that offered fabulous rewards for turning a mortgage tool “intended to be used sparingly and discerningly to help people with poor credit” into a “ruthlessly hawked” con game “disproportionately and systematically aimed at people of color.” All this unfolded virtually overnight. In 1994, subprime lending — the making of high-interest loans to households considered too risky for conventional mortgages — amounted to a mere $35 billion market. By 2005, subprime mortgages had become a $665 billion bonanza. In 1998, only one out of every 10 new mortgages ranked as a subprime. By 2006, nearly a quarter of all new mortgages would be subprimes. What drove this subprime demand? Above all else, inequality. The vast transfer of wealth up the U.S. economic ladder since the 1970s, Foreclosed relates, had left working households with stagnating incomes — and affordable housing in short supply. Developers were too busy building mansions to worry about ordinary families. “The higher profit margins that come with building expensive homes,” Foreclosed points out, “have made the affordable housing market less attractive for private home development companies.” In deeply unequal early 21st century America, no new affordable Levittowns would arise to offer working families entry into the middle class. Instead, mortgage brokers steered families into high-interest, high-commission subprime loans. The more they steered, the more they raked in. But the raking went far beyond the brokers. Banks and other finance firms “securitized” the subprime loans. They bundled them up into high-yielding investments for hedge funds and the like, creating, in the process, powerful incentives to cajole — by any means necessary — still more families into taking out subprime loans. The financial industry's great subprime money-making machine needed to be fed. Foreclosed introduces us to the tricks of the subprime trade: the pre-payment penalties, the teaser rates, the interest-only loans, and, most of all, the calculated targeting of “asset-poor communities whose members were eager to acquire homes.” In most cases, these would be communities of color. Almost half of all African-American households with mortgages, Foreclosed notes, now hold subprime loans. Huge numbers of these loans have already — or will soon — go bad, a turn of events that’s leaving homes vacated and neighborhoods ravaged, tax bases eroded and municipal budgets decimated. Communities are suffering. And the power suits? Big banks on Wall Street are writing off billions in bad loans. Some executives have lost their jobs. But they’re exiting their suites with billfolds flush. Former Citigroup CEO Charles Prince, for one, walked off with a package valued at over $29 million. At Merrill Lynch, chief exec E. Stanley O'Neal departed with $161 million. Angelo Mozilo, the CEO of Countrywide Financial, will take away $115 million in severance from the subprime debacle. That’s on top of the $650 million Mozilo has pocketed over the past decade. So what can be done? Back in the middle of the 20th century, Foreclosed reminds us, the United States taxed the rich — at rates well over double today’s rates — to help fund programs that offered families safe, low-cost home loans. Those families would be overwhelmingly white. The great wealth-building programs that created the modern American middle class all discriminated, directly or indirectly, against African-American households, and since the end of legal segregation, Foreclosed observes, we have not seen “any comparable federal mass investment in homeownership that would benefit disenfranchised people of color.” Foreclosed proposes a variety of new programs — funded by higher taxes on the wealthy — that could remedy this historic deficit. “Wealth taxation and wealth development,” says the report, “need one another.” “The challenge facing our nation,” Foreclosed sums up, “is not a lack of wealth but a destructive distribution of wealth. Over the last 40 years, the U.S. economy has shifted from one that was producing a strong middle class, to an economy that serves the richest among us almost exclusively and concentrates wealth among the wealthiest in society.” To fix the subprime mess, Foreclosed helps us understand, we need to concentrate on ending that concentration. |
Stat of the Week In 2008, the best-off 1 percent of Americans will earn an average $1.5 million in income, says a new Citizens for Tax Justice report. To enter the ranks of the top 1 percent, a household this year will need to make at least $466,000, the equivalent — if all the income were in wages — of two spouses each working at jobs that paid $112 an hour.
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| About Too Much | |
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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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the cheerleaders for grand fortunes go apoplectic. How dare you intimate, they'll huff, that the wealthy get wealthier by exploiting the poor!
This past Thursday, two days before Nevada’s primary caucuses, the “