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February 22, 2010 |
| THIS WEEK | |
The IRS has released, with not a trace of fanfare, the latest figures on America’s 400 highest incomes. A shame. These new IRS figures deserve fanfare, at least a trumpet blast or two. Our top 400, the new numbers show, have moved into an exalted realm. They now rank among the greatest plunderers of all time. Vandals and Huns, move over. Conquistadors, make room. You all have met your match — in the kingpins of high finance, hedge funds, and Silicon Valley who sit at the tippy top of 21st century America’s economic summit. In this week's Too Much, we spotlight the most eye-opening of the new top 400 stats. We offer up plenty of perspective, too, to take us beyond the numbers. Also this issue: We look at last week's gathering of celebrity conservative “small government” graybeards at George Washington's historic Mount Vernon homesite. The most enlightened of our Founders, these graybeards insist, feared a government too big. But why did those Founders do that fearing? Today's “small government” crowd dodges that question. In this week's Too Much, we won't. |
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| GREED AT A GLANCE | |
Can’t seem to catapult yourself into the ranks of the super rich? Why not try the next best thing: Start managing the money of super rich people. “Wealth management” has become a lucrative career option. Just ask David Greene, who has spent his last few years leading a seven-person Goldman Sachs team that manages the fortunes of 140 deep-pocketed Goldman clients. Greene took home over $1 million last year. He’ll take home quite a bit more this year. Credit Suisse, a Goldman banking rival, is paying Greene $11 million to park his wealth management skills in its Atlanta office. Goldman is crying foul — and may sue Credit Suisse for poaching its employees . . . Also exiting off the Goldman gravy train: Ruth Simmons, the president of Brown University. Simmons has sat on the Goldman board of directors since 2000, and a most rewarding stint her board decade has been. She now holds $4.2 million in Goldman stock. Directors like Simmons, says a new Pearl Meyer & Partners study, are working harder than ever to earn their pay. Back in 2003, for annual fees that averaged $129,667, big-time corporate directors typically had to attend four board meetings a year. These days directors usually have to attend six board meetings a year, plus additional committee sessions. Last year, for all this new labor, U.S. corporate directors averaged $216,000. Some get much more. Last year’s most highly compensated board member, Edward Kangas, pulled in $1.3 million serving on the boards of Tenet Healthcare and three other firms . . . Can the world’s most discriminating palates no longer afford high-end champagne? Or are those palates just switching to other sensations? Overall French champagne sales dropped 17 percent last year, and Olivier Krug, chief of the world’s most celebrated brand, is calling 2009 “a black year for the industry.” Krug’s entry-level Grand Cuvée goes for about $200 a bottle. Across the channel in the UK, London’s Lanesborough Hotel has opted to showcase a different pleasure. The Lanesborough is offering samplings from a 1770 bottle of cognac — at £4,000, about $6,200, per shot glass. The hotel has so far sold two shots . . .
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Quote of the Week “The wide gap between the richest and poorest people brings mental and physical illness, rising crime and fear of crime, and lowers educational results. We want to see a concern for the well-being of others, a sense of community.”
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| inequality by the numbers | |
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Stat of the Week Between 1992 and 2007, notes Pulitzer Prize-winning journalist David Cay Johnston, the bottom 90 percent of Americans saw their incomes inch up by 13 percent, in 2009 dollars. Incomes for the top 400, over the same years, soared 399 percent. |
| IN FOCUS | |
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Our Plutocracy: A Compelling New Portrait Never before, at least not in the lifetime of any American now living, have so few made so much at the expense of so many.In 2007, newly released IRS data show, the top 400 tax returns filed in the United States reported, on average, an incredible $344.8 million each in income. Need some help placing this sum in perspective? How about a little history? The $344.8 million average the top 400 reported in 2007 — the year before the economy crashed — represents more than five times the average income of 1992’s top 400, and that’s after taking inflation into account. The IRS official figures on top 400 incomes only go back to 1992. But we can assemble comparable totals from earlier IRS data releases. For 1961, we can calculate an average income for the top 398. This near-400 averaged, in 2007 dollars, just over $14 million, or 25 times less than their top 400 peers in 2007. Enough history? How about geography? America’s 400 highest earners in 2007 reported more income than the entire population of Kentucky, a state over 4.2 million people strong. Want more of a workplace perspective? The typical American private sector worker in 2007 would have had to work over 11,000 years to equal the income the average top 400 deep pocket took home in just one. We don’t know, from the new IRS stats, the identities of the top 400, in 2007 or in any other recent year. The IRS doesn’t name names. But we do have a fairly good idea, from previous news reports, about some of enormously fortunate who almost certainly spent 2007 in top 400 territory. A good chunk of this top 400 hailed from the hedge fund world. In 2007, according to the financial industry trade journal Alpha, 50 hedge fund managers made at least $210 million each, well above the $138.8 million minimum needed over the course of the year to reach top 400 status. The biggest hedge fund income in 2007 belonged to John Paulson. His achievement? Paulson bet that the housing bubble would pop and profited royally — to the tune of well over $3 billion — from the misery that resulted. Other top 400 incomes in 2007 came from private equity, that shadowy world where power suits borrow other people's money to buy out troubled publicly traded companies, then pay off their debt by axing jobs and squeezing consumers. The windfall profits — for the private equity wheelers and dealers — come when the “fixed” company gets sold back to Wall Street investors. Private equity firms, unlike publicly traded companies, don’t have to reveal their executive pay. But sometimes details sneak out, as they did in 2007 when the Blackstone Group, the nation’s top private equity outfit, decided to sell its own shares on Wall Street. That sale handed $684 million to Blackstone CEO Stephen Schwarzman, on top of the $180.1 million he drew that year as chief exec. Not all the top 400 of 2007 made their fortunes speculating on mortgages or playing private equity games. Some of the year’s highest incomes came out of the executive suites of America’s biggest corporations. Oracle software CEO Larry Ellison, for instance, collected $61.2 million in annual pay for 2007 and pocketed another $181.8 million cashing out stock options he took home in previous years. Ellison’s money-making genius? He buys up competitors, grabs their customers, then fires their workers. The most amazing aspect of the top 400 picture in 2007 may actually not be the hundreds of millions the 400 individually pocketed. That most amazing aspect may be the hundreds of millions that remained in their pockets after taxes. In 2007, the top 400 paid only 16.6 percent of their total incomes in federal income tax, down from 17.2 percent in 2006 — and down even more from the 29.9 percent effective tax rate on the top 400 in 1995. In other words, in just a dozen years, the tax rate on America’s super rich dropped by almost half. Go back a few decades and the current tax “burden” on our super rich becomes even more remarkably light. In 1955, the nation’s top 400 — to be precise, the top 427, the total available from IRS historical records — paid 51.2 percent of their incomes in federal tax, over triple the tax rate on top 400 incomes in 2007. How huge a tax break are today’s super rich getting? If 2007’s top 400 had paid their federal taxes at the same rate as 1955’s most financially favored, the federal treasury would have collected an additional $47.7 billion. Those billions, in 2007, would have been enough to increase federal aid to state and local governments for infrastructure projects by over two-thirds. Or nearly double the nation’s entire 2007 outlay for scientific research. We can’t, of course, undo the great plundering of 2007, that wild chase after grand fortune that would go on, in 2008, to collapse our economy. But we can take steps to prevent that wilding in the future. Our forbears did just that. Back in the Great Depression they started changing the rules — on everything from taxes to banking — that gave the greedy such an insatiable incentive to grab. The new rules worked. By the 1950s, we had a top 400 that no longer lorded over us. We had an America that worked for average Americans. We don't now. |
New Wisdom Moshe Adler, ‘Say on Pay’ Won’t Prevent Bonus Gluttony, Truthdig, February 18, 2010. Why giving shareholders the right to vote on executive pay packages isn't going to end executive excess, or even come close. Dean Baker, The Big Bank Theory: How Government Helps Financial Giants Get Richer, Boston Review, January/February 2010. How out tax dollars have helped the movers and shakers of high finance quadruple their share of the U.S. economy. Eduardo Porter, The Power of Art, New York Times, February 16, 2010. On the latest evidence that the plutocracy believes it successfully eluded financial Armageddon.
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| In Review | |
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Did the Founders Want Government Small? James Huston, Securing the Fruits of Labor: The American Concept of Wealth Distribution 1765-1900. Baton Rouge: Louisiana State University Press, 1998. 483pp. The pillars of American right-wing thought and action — top officials from over a dozen national groups — assembled along the Potomac last week. At Northern Virginia’s historic Mount Vernon, the home of George Washington, these luminaries met to “recommit” themselves to the one ideal they believe all conservatives can share. That ideal: small government.
That “principle of limited government,” the Mount Vernon Statement urges, ought to be applied to “every proposal” that comes before America’s lawmakers. Americans of a more progressive bent tend, of course, to consider all this solemnity around the “principle of limited government” just so much mumbo-jumbo meant to keep the rich and powerful safe and secure from any challenge to their wealth and power. And progressives also don’t much appreciate conservative moves to claim the generation of 1776 as the source of contemporary conservatism. But right-wingers, on this one, have a point. The Founders, the most progressive of them included, did believe in limited government. The question for us today: Why? Today’s conservatives don’t bother with that question. For good reason, as historian James Huston explained over a decade ago in his still timely epic, Securing the Fruits of Labor: The American Concept of Wealth Distribution 1765-1900. The Founders believed in “limited government” because they wanted to limit what today’s conservatives celebrate: the concentration of wealth. America’s revolutionaries had read their history. Every previous attempt to establish republican rule, they knew from that history, had failed. Athens. Rome. Venice. Florence. The cause of that failure, as the Founders came to see it: a deep and divisive maldistribution of wealth. The Founders came to believe, notes Huston, that a republic could only endure with “an equal or nearly equal distribution of landed wealth among its citizens.” To the generation of 1776, Huston goes on to add, equity seemed nature’s way. Most colonials lived on small, semi-subsistence family farms. In this overwhelmingly agrarian setting, grand fortunes hardly ever accumulated. Some farmers did work harder than others, but the Earth could yield, no matter how much work was performed upon it, only so much wealth. That reality, observes historian James Huston, kept gaps in colonial income and wealth relatively limited. And those gaps would stay limited, the generation of 1776 devoutly believed, so long as all who labored were guaranteed the “fruits of their labor.” Republican liberty would surely fail, the revolutionaries agreed, if their new nation ever let elites expropriate what average citizens labored so hard to earn. And how did elites expropriate? By manipulating politics to gain economic advantage. The aristocrats of Europe did that manipulating all the time. If the economy were just let alone, America’s original revolutionaries believed, equality would grow naturally. No one could ever become fabulously wealthy in an economy where labor, and labor alone, determined a citizen’s worth. The Founders, in sum, cared deeply about the link between democracy and equality — and worried that vast extremes of wealth and poverty would doom their new republic. You won’t find one whit of that worry in last week’s Mount Vernon Statement. The Founders would not be pleased. Interested in reading more about early American attitudes toward economic inequality? Too Much editor Sam Pizzigati's award-winning 2004 book, Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives, traces the history of those attitudes. The book's full text now appears online. |
Inequality Links Working Group
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| About Too Much | |
Too Much is published by the Institute for Policy Studies: Ideas into action for peace, justice, and the environment. 1112 16th St. NW, Suite 600, Washington, DC 20036. (202) 234-9382. E-mail: editor@toomuchonline.org. Unsubscribe. |
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“Through the Constitution,” the solemn conservatives declared in a position paper they dubbed the Mount Vernon Statement, “the Founders created an enduring framework of limited government based on the rule of law.”