Wall Street bankers, some might say, have just wrapped up one of their best weeks ever. We'd like to disagree. Yes, Goldman Sachs did indeed last week announce $3.44 billion in second-quarter profits, the single largest quarterly profit in the bank’s 140-year history, and, yes, Goldman’s top 50 execs now could actually make more this year than the $20 million each they pocketed three years ago.

And, we'll acknowledge, JPMorgan Chase certainly did last week declare an all-time record profit for this year’s first half, a windfall that puts the over 25,000 power suits in JP’s investment banking division “on course” to collect an average $462,000 in 2009 bonuses, $150,000 more than they averaged two years ago, before the global financial collapse.

But something else happened last week, something that ought to send a bit of a chill down Wall Street’s spine. Members of Congress actually showed some backbone. In the House, a key committee vote gave the thumbs up to a health care plan that would, if enacted, raise taxes on America’s richest to their highest level in nearly a quarter century.

We have that story — and lots more — in this week’s Too Much.

ExtremeInequality.org

Too Much archive

About the editor

Subscribe to Too Much  

Innovation is flourishing again in high finance. Take Bank of America, for instance. Executives there are busy innovating end runs around the U.S. Treasury Department’s restrictions on bailout pay. These restrictions currently cover bonuses that go to the bank’s top 100 earners. But Bank of America, despite the restrictions, recently signed a 46-year-old bond trader to a deal that guarantees $6 million in first-year earnings. How can that deal pass bailout pay muster? The bailout pay restrictions don’t apply to new hires. Citigroup is having a tougher time on the innovation front. The chief at Citi’s energy-trading division, Andrew Hall, is threatening to jump ship if Citi tries to slash the estimated $100 million he took home last year. To keep Hall happy, the Wall Street Journal reports, Citi is contemplating spinning Hall’s division off as a separate company not subject to bailout bonus curbs . . .

Not all pay hikes in the United States are funneling up to the top. The minimum wage is rising, too. This Friday, the federal minimum will jump to $7.25 an hour, in the last of three annual increases that Congress approved back in 2007. The new rate will mean a 10.7 percent pay boost for America’s lowest-paid workers. That’s the good news. The bad: A full-time worker making the new minimum will earn $14,500 a year, notes the Economic Policy Institute, an income below the poverty level for a family of two. Back in 1979, the minimum wage, in today’s dollars, stood at just under $8. Since then, the incomes of America’s top 1 percent have increased 256 percent, after inflation. Incomes of America’s bottom 20 percent, over the same span, have inched up 11 percent . . .

Top execs at U.S. pharmaceutical firms have been fretting something fierce lately. They fear Congress may soon make moves on health care that, as Eli Lilly CEO John Lechleiter laments, will “make our situation worse.” What's Big Pharma doing to keep lawmakers on the straight and narrow? The drug industry has so far this year, says the Center for Responsive Politics, upped its lobbying outlays to about $1.2 million for every day Congress sits in session. Why this intense interest in not making “our situation worse”? Chief execs in health care last year made more than CEOs in any other U.S. economic sector. Their median take-home, $12.4 million, outpaced the next highest sector by $3.6 million. Eli Lilly’s Lechleiter has some catching up to do. In 2008, he only took in $10.5 million . . .

SOS. All hands on deck. Batten down the hatches. The luxury yachting industry has hit rough waters. Really rough. The biggest boat builder in the United States filed for bankruptcy last month. In Europe, two yacht-builder powerhouses have keeled over since April. No matter. At least one entrepreneur sees smooth sailing ahead — in timeshares. Alberto Castagna, the luxury guru at Italian yacht-maker Rodriquez Cantieri Navali SpA, has just put out to sea the first of 10 luxury boats that will offer five-week timeshares at $2.8 million apiece. Twenty different owners have already signed up. The Ocean Emerald, the first of the seven-deck yachts, will cruise the Mediterranean and Caribbean with a seven-member crew . . .

Commentators in Taiwan are worrying about that nation’s rapidly increasing inequality. A decade ago, in 1998, the most affluent 5 percent in Taiwan earned 32 times more income than the bottom 5 percent. The most recent stats now place that gap at 62 times. Taiwan, an editorial in Taipei’s China Post last week urged, needs to tax the wealthy “more heavily to help stop the rich-poor gap from getting out of control.” In the United States, the income gap between the top and bottom 5 percent is currently running close to 120 times.

Quote of the Week

“The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage.”
Paul Krugman, The Joy of Sachs, New York Times, July 17, 2009

New Wisdom
on Wealth

Patricia Robertson, CEO pay justification insults most people, Jackson Citizen Patriot, July 13, 2009. A family ministry director from Mississippi on the notion that corporations have to pay top execs top dollar to get the brightest and the best.

Matt Taibbi, The real price of Goldman’s giganto-profits, True/Slant, July 16, 2009. How Goldman Sachs leveraged “the power of the state to redirect society’s resources upward, on a grand scale.”

The Inequality Quiz, Cornell University Center for the Study of Inequality. A pop quiz to determine your “IQ” — for “Inequality Quotient.”

A Promising Health Care Surtax on the Rich

The push to overhaul the system that takes care of America’s health may be on the verge of morphing into something even grander, a promising new offensive against the unhealthy concentration of America’s wealth. The entire House Democratic leadership now stands united behind health care reform legislation that hikes taxes on America’s richest well beyond the levels that pundits, over recent years, have deemed “politically feasible.”

At the heart of this legislation: a 5.4 percent surtax on income over $1 million.

Taxpayers who make over $1 million, under the bill now moving through House committees, would pay $88,582 more to Uncle Sam in 2011, the year the bill would kick in. Taxpayers who make over $2.4 million — America’s most affluent 0.1 percent — would see their tax bills go up by an average $280,000.

Overall, if the House surtax ever became law, 2011 would likely see the largest single-year tax hike on America’s rich since 1935.

That’s because the George W. Bush tax cuts enacted in 2001 and 2003 — a bonanza for the awesomely affluent — all expire at the end of 2010. President Obama has pledged repeatedly that he won’t let any of these tax cuts for the rich be extended.

If the President sticks to that promise, the tax rate on the nation’s top income bracket — currently 35 percent — would revert back to 39.6 percent, the rate in effect when Bill Clinton left the White House. The House health care surtax would bring that top rate, on income over $1 million, to 45 percent.

The United States hasn’t seen a tax rate on the rich that high since 1986.

The health reform surtax would actually take a bigger bite out of rich people’s income than these numbers suggest, Citizens for Tax Justice points out, for two reasons. The first: The surtax would apply to “adjusted gross income,” the IRS label for income before taxpayers subtract deductions and exemptions.

Rich people do far more subtracting than average taxpayers. They’ve lobbied hard, over the years, to fill the tax code with loopholes, and they aggressively exploit these loopholes to lower their “taxable” income.

Rich people, under the House health care reform, wouldn’t be able to do this exploiting on the surtax. They'd have to pay surtax on what they actually make.

And none of the income the rich make, in the House surtax plan, would get preferential tax treatment. Under current law, income from dividends and capital gains gets preference aplenty. The dollars the rich pocket buying and selling assets get taxed at only 15 percent.

This preferential rate adds up to an enormous tax break for America’s wealthiest. Taxpayers making over $10 million, according to the most recent IRS stats, take in just under 60 percent of their income from tax-advantaged capital gains and dividends.

What’s this tax break mean for the richest of the rich? In 2006, the nation’s top 400 taxpayers averaged $263.3 million in income. They paid, thanks largely to the capital gains discount, only 17.2 percent of that income in federal tax.

These rich would get no such break on the surtax. The 5.4 percent surtax would apply equally to all income over $1 million, capital gains and dividends included.

Over a decade’s time, the congressional Joint Tax Committee estimates, the House health care reform surtax would raise $540 million from wealthy Americans, over half the cost of ensuring all Americans affordable health care.

The surtax would start at $350,000 for couples filing jointly. Incomes between that level and $500,000 would be subject to a 1 percent tax. The charge would rise to 1.5 percent on incomes between $500,000 and $1 million.

In the end, a mere 1.2 percent of the nation’s households would pay any surtax whatsoever under the House Democratic plan. For many of these households, the surtax would be modest. Families making $500,000, for instance, would pay $1,500 in surtax, just 0.3 percent of their total annual income.

These families would, in fact, likely come out financially ahead if the House health care reform became law. They would pay modestly more in tax, but they would also pay less for health care insurance premiums — maybe much less — after the reforms in the House bill start impacting the health care system.

But even far wealthier families ought to count themselves fortunate. In 2011, if the House health care reform legislation became law, they’d face at most a 45 percent top federal income tax rate. Fifty years ago, under Republican President Dwight D. Eisenhower, America’s richest faced a top tax rate at 91 percent.

When People Become Prey

James K. Galbraith, The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. The Free Press. 221 pp.

Those of us who live in the United States often encounter, in the news media we consume, the term “oligarch.” Our reporters and pundits use that word routinely — to refer to the filthy rich and venal moguls elsewhere in the world, places like Russia, who wield immense political power and exercise that power to line their own pockets.

Economist James Galbraith, the former director of the congressional Joint Economic Committee now working out of the University of Texas, believes we have oligarchs right here in the US of A.

In this his latest book, Galbraith highlights a recent history most of us still ill understand. He traces “the constitution of top corporate officers into a predator class” that “set out to take over the state and to run it” — in a manner that brings “the most money, the least disturbed power, and the greatest chance of rescue should something go wrong.”

We read these words, think about the headlines we’ve been reading ever since last September’s global high-finance meltdown, and nod in agreement. Galbraith, we say to ourselves, has the big picture down just right.

And then we realize something else. Galbraith wrote this entire book before firms like Goldman Sachs became daily headline fodder. The book came out last August, a month before Lehman went under and the economy tanked.  

And this realization, in turn, triggers a more profound reflection. We don’t need an economic “recovery” that brings us back to where we stood before the meltdown. We need a deep and thorough change in the economy that made that meltdown inevitable.

Most of all, Galbraith helps us see, we need more equality.

The Predator State dissects, piece by piece, the conservative case that has sought to justify inequality’s growing presence in American life over the last 30 years. That case has revolved, mindlessly and endlessly, around one basic article of faith, the notion that the “free market” always knows best.

History, as actually lived, has now exposed this claim as bogus and bankrupt. But faith in market magic still dominates how our political leaders, of both parties, think about the economy and act upon it. Big mistake.

“To concede the authority of the market,” as Galbraith puts it, “is to affirm the legitimacy of the hierarchies that markets produce.”

The hierarchies that deliver up unto us the modern American oligarch.

Stat of the Week

The number of millionaire households in the United States — families with at least $1 million available to invest — has dropped 14 percent over the last two years, reports Phoenix Marketing International, a New York-based firm. Millionaires currently make up 6.4 percent of the population of Hawaii, the state with the highest millionaire share in the nation. Rounding out the top five: Maryland, New Jersey, Connecticut, and Virginia.

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.