The ideologues who manage the Wall Street Journal’s editorial pages have emerged, over recent years, as America’s most unrelenting — and shameless — defenders of wealth and privilege. They enjoy the work. They do it well. No one turns reality upside-down any better.   

Take the Journal editorial last week that defended George W. Bush from charges that his administration tilts to the wealthy. George W.’s tax policies, the Journal pronounced, have actually “caused what may be the biggest increase in tax payments by the rich in American history.” Any Bush “giveaway to the rich,” the Journal editorial added, exists only as “a figment of the left's imagination.”

Is your imagination overheated? Or is the Journal blowing smoke? And what do John McCain and Barack Obama think about all this? Last week their surrogates told us. McCain and Obama had their top tax people in the nation's capital Wednesday for a revealing — and even riveting — debate on tax policy. In this week’s Too Much, a look at this encounter's surprising drama.

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Congress had a chance last week to put the brakes on out-of-control CEO pay. Instead, lawmakers punted. The chance came in voting on legislation that bails out Fannie Mae and Freddie Mac, the two troubled, privately run enterprises that together hold or guarantee almost half America’s mortgages. The CEOs at the two companies last year took home over $30 million, and many observers — like bank analyst Richard Bove — trace the current Fannie and Freddie crisis straight to executive decisions made “for the purpose of massive personal aggrandizement.” Current regulatory law “expressly forbids capping” Fannie and Freddie executive pay. Last week’s House and Senate voting gives a new Fannie and Freddie regulator the power to “restrict” executive pay but sets no standard that meaningfully defines what “reasonable” executive pay might be. Rep. Barbara Lee has proposed one such standard in her pending Income Equity Act. That legislation would deny corporations tax deductions on any executive pay that runs over 25 times the pay of a company’s lowest-paid worker . . .

Some scapegoats have an easier time of it than others. Consider, for instance, Joseph Gregory, the fall guy for the financial mess at Wall Street's Lehman Brothers. Last month, Lehman gave Gregory the heave-ho from his chief operating officer slot — after paying him $34 million the year before. But Gregory does have some cushion to fall back on. He has picked up $52.1 million over the last 18 months selling off shares of his Lehman stock and will soon have some additional cash in hand from the sale of his eight-bedroom vacation home in the Hamptons. The asking price: $32 million. Elsewhere in the Hamptons, meanwhile, police are “cracking” down on immigrants who wait on and clean up after the wealthy swells who pack this plush Long Island getaway every summer. The crackdown, says the director of one local church aid agency, is generating a new wave of deportations. Employers in the Hamptons, adds Sister Margaret Smyth, regularly cheat immigrant workers out of pay owed them — and then report them for failure to pay taxes when they protest . . .

The Hamptons — for the fabulously fortunate — have become America’s most prestigious summer address. And Europe’s? That just may be Ibiza, a Mediterranean isle 50 miles off the Spanish coast. A one-time “hippie haven” back in the 1960s, Ibiza now sports 10-bedroom supervillas that rent for $60,000 a week in the summer season. Earlier this month, 43 private jets landed at the island airport in just one day. Beachfront properties typically fetch $12 million, but they do come fully furnished. Explains Paloma Bonder, who runs an Ibiza luxury concierge service: “Clients want to be given the key and not have to think about the details, or even whether there are any towels.”

Every modern nation has a “cost-of-living index,” a yardstick that tracks what average families spend every month on a market basket of essential goods and services. But what about the cost of living for wealthy families? No nation has yet seen fit to start tracking an official “cost-of-luxury” index. Fortunately, private researchers have come to the rescue, none with more panache than the Stonehage Group, a London-based wealth management firm. The Stonehage Affluent Luxury Living Index keeps tabs on goods and services that range from private school tuition to upkeep for polo ponies. The latest Stonehage index has luxury prices nudging up at a 3.3 percent annual rate. Down over the year: the price for an Aston Martin DBS, off 14.9 percent to $320,000. Rising: the price for two days of grouse hunting, up 23.1 percent to $9,000 . . .

Harvard University, with its massive $35 billion endowment and alumni network that includes 50 billionaires, has come to symbolize the economic inequality that divides American higher ed — and America overall. Ironically, Harvard also hosts what may be the academic world’s largest cohort of experts on the social, political, and economic damage societies invite when they tolerate enormous concentrations of private wealth. The work of these scholars has just become more accessible, thanks to a fascinating cover story — available online — in this month’s Harvard Magazine. The piece spotlights scholarship that reveals how “high inequality reverberates through societies on multiple levels, correlating with, if not causing, more crime, less happiness, poorer mental and physical health, less racial harmony, and less civic and political participation.”

Quote of the Week

“Could it be that great rewards for Wall Street mean great risks for the rest of us?”
Doug Henwood, radio host and author, Los Angeles Times, July 25, 2008

New Wisdom
on Wealth

Sarah Waldeck, The Coming Showdown Over University Endowments: Enlisting the Donors. A Seton Hall law professor explains how the billion-dollar endowments of elite universities undermine higher education and explores strategies for curbing endowment excess.

A Tax Debate with a Flash of Suspense

America’s richest 1 percent, according to just-released IRS statistics, paid 40 percent of all income taxes in 2006, their “highest share in at least 40 years.” Editorialists at the Wall Street Journal, the nation’s chief apologists for Bush White House economic policy, consider that stat crystal-clear proof that “no President has ever plied more money from the rich than George W. Bush.”

In one sense, that’s true. The rich, as a group, are indeed paying more in taxes, but only because they’re pocketing a larger — a much larger — share of the nation’s income. As individuals, the new IRS data show, the rich are actually paying less — far less — of these incomes in taxes than they have in years.

In fact, if average top 1 percent taxpayers had paid taxes in 2006 at the same rate as top 1 percenters paid taxes in 1986, those top 1 percent taxpayers would have each paid $136,518 more in 2006 taxes than they actually did.

What do the McCain and Obama campaigns feel about this top-tilting tax status quo? Both campaigns had a chance to explain last week in the nation's capital, at the 2008 race’s first debate devoted purely to taxes. The host for the event: the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, two bedrock pillars of the capital’s policy wonk community.

Tax Policy Center researchers last month published a preliminary analysis of just how the McCain and Obama tax plans would likely play out. The researchers unveiled an updated analysis at last Wednesday’s debate, 56 dense pages of numbers and charts.

But one set of numbers stood out in that numerical mass: the Tax Policy Center’s comparison of which Americans would pay more in taxes under the McCain and Obama plans and which would pay less.

Under the McCain plan, the Tax Policy Center figures indicated, Americans in the top 0.1 percent — that’s everyone making at least $2,871,682 — would average $192,645 less in taxes in 2012 than they would if the current tax situation were simply extended.

After-tax incomes for the top 0.1 percent, if the McCain tax plan became law, would jump five times faster than after-tax incomes for taxpayers in the middle of the U.S. income distribution and 15 times faster than average incomes for the poorest fifth of Americans.

Under Obama’s tax plans, the top 0.1 percent would pay more in taxes, not less — an average $788,959 more. Middle- and low-income Americans, by contrast, would see sizeable tax cuts. These cuts, according to the Tax Policy Center analysis, would save Americans in the middle almost four times more than the savings they would see from the McCain plan, poor Americans 30 times more.

At last week’s debate, Obama’s lead expert — University of Chicago economist Austan Goolsbee — spoke first. Not surprisingly, Goolsbee welcomed the Tax Policy Center numbers. McCain’s tax plan, he energetically charged, would “magnify” the “regressive” legacy of the George W. Bush years.

Onlookers in the packed Urban Institute meeting room then hunched forward for the McCain campaign response — from Douglas Holtz-Eakin, a former White House Council of Economic Advisers chief economist.

Would Holtz-Eakin blast the Tax Policy Center for propagating misleading information? Would he try to deny that the lion’s share of the tax savings from the McCain plan would go to taxpayers at the top of the nation’s economic ladder? He would not.

Holtz-Eakin made no challenge whatsoever to the Tax Policy Center’s numbers on the distributional impact of the McCain tax plan. He simply ignored them — and orated instead on “what John McCain is trying to accomplish” with his tax proposals. And what’s that? McCain's plans, Holtz-Eakin asserted, focus on “creating jobs and economic growth.”

That sound familiar? Here's why: The Bush White House used the exact same rationale, back in 2001 and 2003, to justify its tax cuts for the wealthy. But don't credit George W. with any originality on that score. Two decades earlier, in 1981, Ronald Reagan made the same case — that tax cuts for the rich bring an economic growth that benefits everybody.

Ronald Reagan's tax cuts and George W.'s tax cuts delivered nothing of the sort. These cuts didn't “grow” a healthy economy. They merely grew the wealthy's share of America's economic pie. And they didn't just grow the wealthy's share of that pie. They doubled it.

In 1986, this month's newly released data from the IRS document, America's top 1 percent collected 11 percent of the nation's income. In 2006, these top 1 percent taxpayers took home twice that share, 22 percent.

In sum, tax cuts for the wealthy clearly work. For the wealthy.

The Crime of the Century

Michael Perelman, The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression. Palgrave Macmillan. 239 pp.

Economist Michael Perelman has written a whodunit about a heist, but not just any heist. His new book dissects the grandest bit of thievery in modern human history, the robbery that snatched away the economic security of the great American middle class and made America’s rich the richest rich the world has ever seen.

How did all this happen? Perelman takes us back to the initial crime scene, the United States of the early 1970s, a society then completing a quarter-century of unparalleled prosperity. Most Americans had shared in those good times. Most expected them to continue.

But not everyone felt that way. Corporate America’s movers and shakers, back in the early '70s, sensed a world spinning out of — their — control. They feared marketplace challenges from abroad. Western Europe and Japan had rebuilt their war-torn economies. They also feared challenges at home, from social activists and angry workers. Even consumers were organizing.

Corporate leaders, amid these challenges, panicked. They rejected the basic assumption behind America's good times, that balance in economic life — and prosperity for all — requires an active role for trade unions and government regulators. Corporate leaders would instead link up with radical conservatives and help speed what Michael Perelman calls a “right-wing revolution.”

That revolution would rewrite the nation’s economic rules and leave in its wake a deeply and ferociously unequal United States.

Michael Perelman names names as he fills in the outline of this broad sweeping story with intriguing detail on who did what when. He introduces us, for instance, to Lewis Powell, the corporate lawyer — and future Supreme Court justice — whose 1971 memo for the U.S. Chamber of Commerce rallied the nation’s power-suits to rise up and “save” free enterprise.  

“Each time the United States has increased income inequality,” author Perelman reminds us along his story-telling way, “disaster has followed.”

And disaster, Perelman notes, will surely follow our contemporary right-wing revolution. Perelman explains why, patiently laying out how top-heavy distributions of wealth deflate broad-based consumer demand, pump up speculative asset bubbles, and invariably invite a “culture of corruption.”

Perelman ends his whodunit with a look at “the presumptive cops” on the beat, his fellow economists, the academics who could have and should have blown the whistle on the right-wing’s frontal assault on American prosperity. They did not. Michael Perelman has. More power to him.

Stat of the Week

Last year, hedge fund king John Paulson pocketed a record $3.7 billion, and another 49 of his fellow hedge managers each made at least $210 million, mainly by borrowing money to bet big against financial companies neck-deep in shaky mortgage-related investments. Top hedge fund managers couldn’t possibly repeat last year’s haul, could they? They could. One example: Paulson’s hedge fund, over this year’s first six months, has so far seen earnings jump up to 20 percent.

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.