Too Much (Chronicles of Inequality—May 12, 2014)
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May 12, 2014 |
| THIS WEEK | |
| Who’s winning the debate over why the United States has become so unequal? Those who point to the rule changes over recent decades — on everything from taxes to trade — that have so concentrated wealth at the top? Or those who believe that any of us could get rich if we just worked hard enough at it?In the United States today, we do certainly have no shortage of high-profile pols and pundits who lean toward the latter and delight in lecturing our most squeezed on the error of their ways. But new polling suggests that vast majorities of Americans reject those pols and pundits.Fewer than 1 percent of Democrats and just 9 percent of Republican rank-and-filers, Pew Research has found, blame our divide on the work ethic of the poor.And what do our wealthy feel? CNBC has just polled Americans with at least $1 million available to invest. Within these millionaire ranks, two-thirds of Repubs and one-quarter of Dems feel that “anyone can become wealthy in America if they work hard.” More on our deep pockets, as always, in this week’s Too Much. |
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| GREED AT A GLANCE | |
Bad news for burrito lovers: The cost of avocados has been surging, and Chipotle, the big burrito chain, is responding with a price hike. In some locales, a chicken burrito may rise up to $8.20 levels. What’s already rising: paychecks for the company’s co-CEOs Steve Ells and Monty Moran. The pair last year took home $58 million. That rather generous compensation has some of Chipotle’s institutional shareholders less than pleased. They’re planning to vote against the company’s executive pay plan at Chipotle’s annual meeting this Thursday. Says New York City comptroller Scott Stringer: “A combined $58 million in CEO pay for a fast food company isn’t just excessive — it’s indefensible.” Securities and Exchange Commission honcho Drew Bowden last week revealed that his federal watchdog agency has found private equity funds filching cash from their investors “over 50 percent of the time.” Yet “we believe,” a deferential Bowdenassured a private equity gathering last week, “that most people in the industry are trying to do the right thing.” Added the SEC official: “We are not engaged in a game of ‘gotcha.’” Maybe the SEC should be. Finance expert Gregg Polsky earlier this year leveled charges that private equity execs “may be underpaying federal corporate taxes by hundreds of millions of dollars a year.” Underpaying Uncle Sam, overpaying themselves: Private equity’s top 10 deal makers collected $1.7 billion in dividends last year. Apollo Global’s Leon Black, with $369 million, led the way . . .What a weird world we live in: Alibaba, China’s online answer to Amazon, is making America’s richest rapidly richer. Alibaba will be hawking shares of its stock this summer in an “initial public offering” expected to raise about $20 billion. The investment banking group handling the sale — a gang that includes Goldman Sachs, JPMorgan Chase, and Citigroup — expects to split an estimated $400 million in fees. Yahoo has reason to celebrate as well. America’s troubled online giant owns 23 percent of Alibaba, and that stake has Yahoo’s own shares booming. The big winner: Yahoo CEO Marissa Mayer. Alibaba’s smashing success ups the value of her own pay the last two years to a potential $214 million, a nice reward, observesbusiness journalist Steven Davidoff, for “doing nothing.” |
Quote of the Week “I have spent more than thirty years working as a consultant with businesses in over fifty different industries. I have seen at first hand the deleterious effects on business productivity that inevitably arise when top executives earn hundreds of times the pay going to other employees.” |
| PETULANT PLUTOCRAT OF THE WEEK | |
 Sandy Cutler runs Eaton, a 101,000-employee maker of circuit breakers and truck transmissions, out of an office in the Cleveland suburbs. Last year he also made time for “Fix the Debt,” the CEO group that decried federal budget deficits and loudly demanded cuts in basic federal programs. Orated Cutler in one speech: “The time to act is now.” Cutler has been actinghimself — to make the deficit worse. In 2012, he switched Eaton’s home address — but not his personal office — to Ireland, a move that has knocked Eaton’s effective corporate tax rate from 20 to 5 percent. Cutler’s response to critics who attack label him an American corporate tax evader? Says Cutler: “We are not a U.S. company employing offshore-type activities. We are an Irish company.” Cutler has averaged$19.35 million in pay over the past six years. |
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| IMAGES OF INEQUALITY | |
 Not a bad backyard view, eh? This particular vista — with accompanying home — has just sold for $147 million, the highest price ever for a residential property in the United States. The home and lavishly landscaped grounds sit on 18 acres in the Hamptons, the Long Island summer getaway for Wall Street’s most financially favored. The buyer: hedge fund manager Barry Rosenstein of Jana Partners. Rosenstein pulled in a tidy $140 million for his hedge fund labors in 2012. |
Web Gem Super Zips/ This handyWashington Post interactive map lets you search and gauge economic inequality levels in the United States by zip code. |
| PROGRESS AND PROMISE | |
| Tens of millions of Americans devote major shares of their psychic daily energy to rooting for their local professional sports teams. And huge shares of these sports fans sooner or later end up furious at the super rich who own these teams and exploit that ownership to gouge fans and taxpayers alike. Now fans of basketball’s Los Angeles Clippers are mobilizing to turn last month’s banning of their billionaire racist team owner into an opportunity to recreate the Clippers as a community-owned franchise. This particular crowd-sourcing effort may not bear fruit, but more and more fans, notes the Roosevelt Institute’s Alan Smith, are beginning to see pro sports franchises as potential fan-owned “anchor institutions” that give back, not take away, from their local communities. |
Take Action Ask your Rhode Island pals tourge state senators to support S. 2796, landmark legislation in the struggle against CEO pay excess. |
| INEQUALITY BY THE NUMBERS | |
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Stat of the Week One reason why America’s super rich ought to be paying a lot more in taxes: Over the past five years, estimatesanalyst Paul Buchheit, the nation’s richest 1 percent have added an average $5 million each to their personal fortunes. |
| IN FOCUS | |
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In High Finance, Humming a Happy Tune The latest annual hedge fund industry pay stats have suits smiling — and ordinary mortals worrying about public education’s future. Pharrell Williams has reason to be happy. The singer and music producer has had the world’s hottest pop single over the past six months. His Happy has been topping the charts everywhere, from the United States to Lebanon and Bulgaria. If this bouncy ditty keeps selling, Williams might even end up 2014 as happy as Taylor Swift, the most lavishly compensated musical artist in all of 2013. Swift took home $39.7 million for the year. But Pharrell Williams, if he should hit that lofty mark, probably still wouldn’t be feeling nearly as tickled and giddy as the over 3,000 power suits who were swaying to his Happy last Monday. Those suits — an assemblage that included most all the major domos of hedge fund America — were attending an annual high-powered investment conference in Manhattan. At the conference close, reports Businessweek, the attendees all rose asHappy’s infectious beat filled Lincoln Center’s Avery Fisher Hall. What had the hedgies so happy? The rest of us found out the next day. In 2013, the trade journal Alpha revealed, the hedge fund industry’s top 25 earners collected$21.15 billion, a whopping 50 percent over their total the year before. A hedge fund manager in 2013 needed to take in $300 million just to make the top 25. Ten years ago, in 2004, an aspiring hedge fund kingpin only had to grab $30 million to enter the industry’s top 25 elite. Numero uno on this year’s hedge fund pay list: David Tepper, with $3.5 billion. Three other fund managers pulled in over $2 billion. Totals this grand essentially make Taylor Swift’s millions look like a paycheck for a Holiday Inn lounge act. Swift averaged $109,000 a day in 2013. Tepper’s daily average: $9.6 million. But the real enormity of America’s annual hedge fund jackpots only comes into focus when we contrast these windfalls to the rewards that go to ordinary Americans. Kindergarten teachers, for instance. The 157,800 teachers of America’s little people, the Bureau of Labor Statistics tells us, together make about $8.34 billion a year. Hedge fund America’s top four earners alone last year grabbed $10.4 billion. Cheerleaders for hedge fund America consider such comparisons unfair. Hedge fund titans, they trumpet, are making a huge contribution to education. They’re investing, for instance, millions upon millions in the charter school cause. True enough. Hedge fund billionaires are indeed investing colossal millions in charters, educational entities — often tied closely to for-profits— that take in public tax dollars but operate independently of local school board oversight. Hedge fund manager cash has gone both to individual charter schools directly and into political war chests to support candidates who want to see charter networks expanded. Thanks to this cash, charters have become a major fact of American educational life, with a “market share” that rivals traditional public schools in many big cities. Hedge fund flacks hail this growing charter presence as a new window to opportunity for underprivileged kids in failing traditional schools. But many educators consider charters a diversion of badly needed public tax dollars into unaccountable private entities that cream off top students and refuse to take in the most challenged. Plenty of research reinforces this perspective. One survey of recent studies, released last week, sees a charter school landscape full of “bad education, ridiculous hype, wasted resources, and widespread corruption.” Also in that landscape: plenty of high-return investment opportunities. A federal tax break known as the “New Markets” tax credit lets hedge funds that invest in charters double their money in seven years. Charters have become, notes one education analyst, “just another investor playground for easy money passed from taxpayers to the wealthy.” Like this article? Sign up The final indignity? The families of those kindergarten teachers who make less in a year than the average top 25 hedge fund manager makes in 15 minutes pay a greater share of their incomes in taxes than hedge fund moguls pay on theirs, thanks largely to a notorious tax code loophole — known as carried interest — that Congress has not yet seen fit to plug. Hedge fund masters of our universe, with this loophole in place, will continue to rake in hundreds of millions and pile those millions into billions. And they’ll continue to use those millions and billions to distort our political process, in education and every other public policy realm they happen to dance into. That should not leave us happy. |
New Wisdom Diane Ravitch, What Powerful and Greedy Elites Are Hiding When They Scapegoat the Schools,Common Dreams, May 6, 2014. A top historian ties inequality to the current assault on public schools. Tom Streithorst, Democracy, Oligarchy, and the Fractile Nature of Inequality, Pieria, May 6, 2014. Inequality as a basic political decision. Mark Thoma, Why Economists Are Finally Taking Inequality Seriously, Fiscal Times, May 6, 2014. The mainstream moves. James Kwak, Tax Policy Revisionism, Baseline Scenario, May 7, 2014. Just how hard did the White House battle to get the top tax rate to 39.6 percent? Brian Czech, The One Percent: Not Kristallnacht but Lebensraum, Center for the Advancement of the Steady State Economy, May 7, 2014. On deterring reckless consumption. Paul Krugman, Now That’s Rich, New York Times, May 9, 2014. Hedge funds rate as a bad deal for everyone, except their managers. Dan Kedmey, Pope Francis to World: Redistribute The Wealth, Time, May 9, 2014.Address says “sharing and justice” should start and end “all political and economic activity.” Mary Wakefield, Being rich makes you mean: here’s proof, Spectator, May 10, 2014. Power and wealth, scientific experiments confirm, do corrupt.
In 1912, three-quarters of the presidential election votes cast went to White House hopefuls blasting wealth’s concentration. Too Mucheditor Sam Pizzigati’s new book on the triumph over America’s first plutocracy has that story and more. The details. |
| NEW AND NOTABLE | |
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State Taxes: The Exodus That Isn’t Michael Mazerov, State Taxes Have a Negligible Impact on Americans’ Interstate Moves, Center for Budget and Policy Priorities, May 8, 2014. We don’t see many “sure things” in life. But here’s one: Go before a state legislative committee and suggest a higher tax rate on the state’s richest residents. At least one state legislator will — guaranteed — immediately respond that a such a tax hike will produce no new revenue. If we raise rates on our state’s rich, the legislator will intone, the rich will simply exit our fair state and move to some lower-tax destination. Center for Budget and Policy Priorities analyst Michael Mazerov probably has heard this old canard as much as anyone. Now he has prepared the ultimate response, an incredibly thorough and detailed review of all the data, surveys and studies that demonstrate — well beyond any reasonable doubt — that state tax hikes on the rich have never generated mass or even minor exits of the wealthy. Mazerov’s statistical revelations can be delicious. One example: If income taxes did constitute a major reason why people move from high-income-tax states like California to no-income-tax states like Texas, then we would expect to see a much greater representation of high incomes among California-to-Texas migrants than among Texas-to-California migrants. But the reverse happens to be the case. Mazerov’s final conclusion: “To be sure, some individuals relocate because they think their taxes are too high or take state and local tax levels into account in deciding where to live.” But these cases, says Mazerov, remain “sufficiently rare that they should not drive state tax policy formulation.” |
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| ABOUT TOO MUCH | |
| Too Much, an online weekly publication of the Institute for Policy Studies | 1112 16th Street NW, Suite 600, Washington, DC 20036 | (202) 234-9382 | Editor: Sam Pizzigati. | E-mail: editor@toomuchonline.org | Unsubscribe. | |
