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August 24, 2009 |
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Switzerland’s largest bank, UBS, last week agreed to turn over to U.S. tax authorities information about 4,450 previously secret accounts owned by Americans of means. That leaves over 47,000 secret American-owned accounts still sitting in the bank’s Swiss vaults. Rich people in the United States, we would do well to remember, face close to the world's lowest tax rates on high incomes. These rich ought to be grateful for how little they have to pay in taxes. Instead, many of them seem to be scheming to pay even less. But have America’s deep pockets finally overplayed their hand? Are they making average Americans angry enough to call for a tax system that starts cracking down on the rich and stops coddling them? Last week, in another major rich people-friendly nation, a prestigious citizen grouping made just such a call. In this edition of Too Much, we have that call's story. A quick publishing note: Too Much will be off next week, on summer break. We'll be back in gear on Labor Day. |
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Billionaires don’t pile up their billions letting assets sit idle. Take media mogul Rupert Murdoch, for instance. Three years ago, Murdoch shelled out an estimated $30 million for a 183-foot yacht he calls the Rosehearty. He’s apparently enjoying his investment. Billionaire-watchers have sighted him holidaying offshore with actor Mel Gibson and crooner Billy Joel. But what do billionaires do when they can’t find an aging celebrity to join them aboard? They rent their boats out, says Superyacht World editor Hugo Andreae — discreetly, of course, through charter agencies that never reveal the boat’s actual owner. But sometimes that identity does slip out. Murdoch’s Rosehearty, an enterprising reporter has just disclosed, charters for just under $300,000 per week. Murdoch’s “exceptionally solicitous staff” comes included in the fee . . . What’s the most expensive liquid you can buy? Oil? Perfume? Try computer printer ink. Computer giants like Hewlett-Packard depend on ink that can retail at the equivalent of $8,000 a gallon for a huge share of their earnings. Now ink sales are falling, and analysts can’t figure out whether to blame hard times or changing user habits. Hours spent on Facebook, one study noted last week, seldom end up “stirring the inky rivers.” With quarterly profits down 19 percent, Hewlett-Packard is feverishly shoving out software to get people printing again. One new app lets teens turn photos they dump into social networking sites into foldable cubes. Innovations like this must explain why H-P CEO Mark Hurd continues to rake in the big bucks. Hurd took in $26 million in salary, bonus, and new stock awards last year — and made another $25.3 million cashing out stock options and vesting share grants he pocketed in previous years . . .
After eliminating guaranteed bonuses for commodity speculators — whose wheeling and dealing drives up the cost of basic consumer staples — the world’s finance ministers might want to take a look at some other games bailed-out bankers have taken to playing. One popular new gambit: making “bonuses” disappear by replacing bonus dollars with increases in straight salary. Wells Fargo CEO John Stumpf earlier this month signed a new pay deal that essentially guarantees him $8.4 million this year, just a tad under the $8.8 pay package he accepted a year ago, before Wells Fargo swallowed $25 billion in bailout dollars. Stumpf’s salary this year will run six times higher than his salary last year . . . The newest justice on the U.S. Supreme Court, Sonia Sotomayor, will shortly be jumping into an issue her nomination fight never raised: excessive executive pay. Sotomayor and her fellow supremes will hear a case this fall that involves the annual $100 billion in fees mutual funds pay their investment advisers. A lower court has ruled, in Jones v. Harris Associates, that mutual fund investors can’t challenge lavish fee deals that mutual fund boards have legally approved. The high court has actually already touched on a related question — in 1933. The court ruled back then, in Rogers v. Hill, that board of directors approval can’t be used “to justify payments of sums as salaries so large as in substance and effect to amount to spoliation or waste of corporate property.” Over recent decades, NYU business school dean Thomas Cooley observed last week, state and federal courts have been notoriously “reluctant” to apply that precedent. |
Quote of the Week “This is the perfect time to call for a new progressive tax schemes on the super-rich. In fact, if we had in place a fair system, there would be no deficit problem at all.”
New Wisdom Jack Metzgar, Taxing Only the Rich CAN Pay for Everything, Center for Working Class Studies at Youngstown State, August 17, 2009. In the interests of "transparency," shouldn't wealthy pundits reveal how much they'll personally save if the tax-the-rich proposals they attack were actually enacted? Sunny Hundal, An end to dizzying pay, New Statesman, August 18, 2009. Why, for all our sakes, we need to rebalance pay differentials between the lowest and highest earners. Carol Jensen, The rich are different from you and me, Desert Dispatch, August 23, 2009. A closer look at the fortunes wealthy Americans have been stashing away offshore. |
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A Promising Pitch for a Maximum Wage The Great Depression gave us the minimum wage. Might we now see a “maximum wage,” thanks to the Great Recession? That prospect now seems to have entered into the realm of political possibility. Last week, in a top British daily, 100 progressive luminaries published an open letter that has shoved the notion of a maximum wage onto the global public policy radar screen. These 100 leaders — a group that included nationally known members of Parliament, Britain’s top labor union official, scholars, journalists, and widely respected human rights activists — called on the UK government to “take the moral lead” and establish a “High Pay Commission” to end the “unjust rewards” still cascading into the pockets of Britain’s financial and corporate elite. “Banking and executive remuneration packages have reached excessive levels,” read the open letter. “We believe now is the time for government to take decisive action.” What sort of action? The High Pay Commission, the letter urged, “should consider proposals to restrict excessive remuneration” via “maximum wage ratios and bonus taxation.” In Britain, as in the United States, billions in taxpayer dollars have gone to bail out banks whose top executives recklessly drove their enterprises straight into the ditch as they chased after personal pay windfalls. Those same banks, buoyed up by bailout subsidies, are now restuffing power-suit pockets. Virtually every leading politician in the UK is “talking tough” against this new bonus binge. But in Britain, again as in the United States, the tough talk has generated little action. Earlier this month, for instance, Britain’s top bank regulator backed down on bonus restrictions announced this past February. The original rules would have mandated banks to defer two-thirds of all bonus outlays for three years. The new rules redefine that mandate into a “guidance” banks can park in some obscure file cabinet and ignore. This continuing failure to challenge rewards at the top can only spell trouble, notes the organizer of last week’s call for a High Pay Commission. “I think all of us understand that greed and excess fueled the economic crisis and brought down the whole economy,” explained Gavin Hayes, the general secretary of the London-based Compass think tank, on a BBC national broadcast. “Now is the right moment to rein in high pay. Otherwise months, years down the line, we could end up having another crash.” British banking and corporate leaders are, predictably enough, already scoffing at the Compass-organized pay limit call. “As for implementing an arbitrary maximum wage ratio across the board,” Britain’s Management Today observed, “we have no idea how that would work.” The Compass statement actually suggests several possibilities. One example: The government could insist that companies, to qualify for a government procurement contract, must limit executive pay to a specific multiple of what their lowest-paid workers are making. But the 100 signatories behind the Compass statement purposefully did not propose a specific maximum wage ratio. “It would be wrong to pre-empt the findings of any commission,” Compass general secretary Gavin Hayes told Too Much last week. “We believe a High Pay Commission could play a crucial role in coming up with the evidence-based solutions we need to curb excessive pay and ensure an economy run for the many, not just the few.” A High Pay Commission, the Compass campaigners believe, would have the potential to make as valuable an impact on British life as a widely praised “Low Pay Commission” made back in 1997. That independent official panel came up with the specifics for the UK’s first national minimum wage. The drive to establish a “High Pay Commission” will now move to the September national conference of the UK’s governing Labor Party. The goal: getting a party endorsement of the commission notion. In the weeks ahead, Compass will also be conducting extensive polling on the level of “public support for ideas like maximum wage ratios.” Top government officials on Downing Street, meanwhile, have so far “reacted coolly,” to the call for a High Pay Commission. But government ministers, the daily Independent reports, also believe the commission “would be popular with most voters.” Popular for a reason, notes sociologist and Compass statement signer Ruth Lister. “The growing gap between high earners and the rest of society is politically, socially, and economically damaging,” sums up Lister, the former director of Britain’s Child Poverty Action Group. “Inequality must be addressed at the top as well as the bottom.” |
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A Look Back at the Billionaire as Rarity Nancy Kriplen, The Eccentric Billionaire: John D. MacArthur — Empire Builder, Reluctant Philanthropist, Relentless Adversary. AMACOM (American Management Association), 224 pp. In 1965, the entire United States sported only five billionaires. The current U.S. billionaire total: 359. What explains the difference? Certainly not inflation. If today’s super rich had 1965’s fortunes, adjusted for inflation, we’d now have about three dozen American billionaires, not well over 300. America’s richest in 1965 simply had to “make do” with far less personal treasure than America’s richest today — or America’s richest earlier in the 20th century, before the Great Depression. And that suited the great majority of the American people just fine. That majority had put in place a tax system that actively discouraged the accumulation of grand private fortunes. Between the early 1940s and the mid 1960s, the federal tax rate on income over $400,000 hovered around 90 percent. The top estate tax rate, in these years, never dipped below 77 percent.
How did MacArthur, a struggling life insurance salesman in the 1930s, go on to amass a billion-dollar fortune? Essentially, we learn in these pages, he devoted himself single-mindedly to making money — by any means necessary. MacArthur made his initial fortune selling what we might call today “subprime” life insurance. He sold policies to people who couldn’t afford the $10 monthly minimum most established life insurers were then charging for premiums. In exchange for minimal premiums, as low as $1 per month, MacArthur delivered minimal — sometimes nonexistent — service. In his early years, MacArthur used to boast openly, he would have his insurance company's clerks sort the incoming mail into two stacks, the letters with premium checks in one, the letters with insurance claims in the other. The claims stack would go into the wastebasket. At the headquarters of his Bankers Life and Casualty, biographer Nancy Kriplen relates, MacArthur would “take parsimony to new levels.” “Once he walked into a room where the office wall was being painted, an unneeded improvement, in his opinion,” Kriplen writes. “The painting was stopped, and the wall stayed half-painted for years.” State insurance regulators tried repeatedly to nab MacArthur’s Bankers Life for shady practices. But MacArthur almost always kept one step ahead of the law, and, by the mid 1950s, had amassed a fortune worth over $50 million. He dumped a huge chunk of that into Florida real estate — and hit another jackpot. The profits MacArthur reaped from real estate wheeling and dealing would multiply quickly, mainly because capital gains on property sales, then as now, received plenty of preferential federal tax treatment. MacArthur paid taxes at no more than a 25 percent rate on his capital gains income. His “ordinary” income, throughout the 1950s, faced a maximum 91 percent rate. MacArthur would eventually pass from among us in 1978, three years before Ronald Reagan began extending kid-gloves treatment for the rich throughout the tax code, not just on capital gains. At his death, the 80-year-old MacArthur had a fortune but virtually no relationship at all with his children. But this story has a relatively happy ending. America's mid-20th century tax system may not have been loophole-free enough to prevent MacArthur from amassing a billion-dollar fortune. But that tax system would be potent enough to limit that fortune to one lifetime. MacArthur, an ultraconservative politically, hated the estate tax. To shield as much of his fortune as possible from estate tax liability, MacArthur would eventually establish his own private foundation and will it the bulk of his assets. This institution that MacArthur created to sidestep the estate tax — the John D. and Catherine T. MacArthur Foundation — today underwrites the celebrated MacArthur “genius” awards, the annual grants that go to people who devote their talents to making the world a better and more beautiful place. The MacArthur genius awards honor, in effect, people who have totally spurned the get-rich approach to life that John D. MacArthur so rabidly followed. So some good, on balance, seems to have come from MacArthur’s grand fortune. Unfortunately, we can’t say the same for all the other fortunes on the 1965 billionaire list. We’ll have that story in Too Much’s next edition. |
Stat of the Week Ever wonder what happens to all those dollars your cable TV company drains from your wallet every month? In 2009’s second quarter alone, the Associated Press reported last week, the Comcast cable empire spent $3.3 million lobbying Congress. Among Comcast’s top lobbying goals, according to the AP: blocking a House bill that would deny corporations tax deductions on any executive pay that runs over 100 times the pay of average workers. Comcast CEO Brian Roberts took home $24.7 million last year, 763 times the pay of the year’s typical American worker.
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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 world’s biggest banks have embarked on a madcap dash to lock down “top talent” — with guaranteed “
These progressive tax rates worked — to dampen grand fortunes. But these rates did not work perfectly. Some grand fortunes did emerge in mid-20th century America. One belonged to John D. MacArthur, the subject of this engrossing new biography.