It’s not your rich uncle’s 1% Raucous Caucus, posted by Tom Cushing, a resident of the Danville neighborhood, on Dec 6, 2011 at 11:23 pm Tom Cushing is a member (registered user) of Danville Express
What’s the first image that pops into your head when you think of the super-rich? Is it a mustachioed Monopoly card personage, a Thomas Nast cartoon fat cat, Bernie Madoff? Do you ponder on the dynastic blue bloods – the Vanderbilts, DuPonts and Rockefellers, or recent Silicon Valley titans like Jobs and Ellison?
It turns out that the current reality is more complicated than that -- that economic mobility is alive and chaotic in the contemporary USA. “Shirtsleeves to shirtsleeves in three generations” is not only still true, but a new book suggests that the pace of rise-and-fall of great American fortunes has quickened dramatically.
Author Robert Frank, a Wall Street Journal scribe, has coined the term ”The High-Beta Rich” as the title of his book, to describe both the phenomenon and its protagonists. “Beta,” in the parlance of high finance, is a term that describes a stock’s volatility – how it has tended to move with broader market fluctuations. If a “beta” is around 1.0, the stock movements will mirror the ups-and-downs of the market. A high-beta factor, then, means that the shares will rise higher and fall farther than less volatile securities.
Applied to incomes and accumulated wealth, the “beta” term refers to how a person’s fortunes will relate to the American economy’s performance. The Rich have traditionally been thought-of as a low-beta bunch, with established fortunes well-protected against dips in the market. That this safety margin also meant that they tended to under-perform in prosperous times went relatively less-noticed – their “blue-chip” incomes were ever ample.
That model worked to describe the 1%ers up through the end of the 1970s. Since then, however, there has been a steady sea-change in income volatility at the top end – they have gone from being among the most stable to the least – their collective “beta” has skyrocketed. Further, their uses of their accumulated good fortunes have changed dramatically. Their lifestyles have revolved around consumption to a degree previously unheard-of. Multiple mansions, jets and auxiliary yachts to fetch along their smaller toys have been conspicuous emblems of their prosperity.
Poster couple for the high-betas is an Orlando couple who have run out of money while building a ninety-(count-em)-thousand square foot home they modestly titled “Versailles” (If you hurry, you might be able to pick-up this unfinished tombstone to their excess for a mere $75 million). The trend has also spawned a new breed of repo-man, skilled in the more refined arts of reclaiming boats, aircraft and other baubles.
The reasons for this phenomenon are several, including the rapid scalability of newer enterprises, the accessibility of broad, global markets and the popularity of blush-worthy compensation schemes for the many senior execs and owners. Prime among those causes is the so-called “financialization” of wealth – it is increasingly tied to the stock market, and tends to be made by moving money around, rather than creating “better things for better living.” The tying stock market is itself dramatically more volatile than the economy, so we have piled one beta factor on another to create these wild swings.
The new and temporary 1%ers do not fit neatly into the models of wealth espoused by either liberal or conservative ideologies. They are not the idle coupon clippers of a former day, but neither are they stalwart Edisons of new prosperity and higher standards of living. To the extent they create jobs, they tend to do so in a perverse kind of Stimulus fashion – Versailles needed construction workers to build its several layers of infrastructure, after all. But like the Stimulus-financed repaving of our local roads, those jobs are a temporary booster – not a factory that will provide steady work to many, and for decades. (Of course, they also vary the stimulus model because I can drive on 680 every day – I’m unlikely to be invited to sup at Versailles.)
From a public policy standpoint, does it matter who the 1% are, and how long they remain in the club? Coming from my own end of the spectrum, it seems to me that their existence more undermines the Republican argument for lightly taxing these fortunate citizens. That argument is founded on the notion that the 1%ers are plowing their well-gotten earnings back into the pie, and making it bigger. The apparent fact that it’s not the pie, but the mansions and jets that are growing suggests that the public would be better-served if the wealthy either contributed more to the common fisc, or had better reasons to make better uses of their gains, as by tax-deductible donations.
The existence of the High-Beta Rich seems to demonstrate a very traditionally American, continuing mobility of wealth. The reasons for its mobility, and the uses of these fabulous fortunes, reflect rather less well on the current state of our culture.
Posted by RWR, a resident of the Danville neighborhood, on Dec 7, 2011 at 8:29 am
Instead of increasing taxes for those who work hard, make sacrifices, play by the rules, and prosper via the American dream, we should instead increase taxes on liberal, misguided, and ill informed "journalist" who write nonsense like this. Ironically, the "1%" that you and your occupy buddies like to talk about, is full of liberal hollywood actors and the like who own "mansions and aircrafts". You people include us hard working Danville people who may make $200,000 to $300,000 a year, and do not own mansions or aircrafts, with the super rich, and want to increase the huge taxes we are alreay paying to support the druggies and other criminals who show up at the occupy protests.
If you want to solve the budget problems, pass a law that adds a 10% tax on the income of the Hollywood liberals who are making zillions of dollars a year, and let them take care of their allies in the occupy movement.
Posted by Tom Cushing, a resident of the Danville neighborhood, on Dec 7, 2011 at 9:23 am
Do you know what I love about the DX Town Hall? It's a unique forum for a rational discussion of the important issues of our day -- devoid of all that name-calling, those personal attacks and angry mythology that's so rampant on the web. It just does a body good to be a part of it all.
Anyway, you may be relieved to learn, RW, that your hard-working, sacrificing, playing-by-the-rules prosperous self doesn't qualify for membership in The Club, at a $quarter-million/year. The bottom of the top 1% starts at about $400K. So it's not about you and your back-breaking tax burden. By the way, that burden is also the lowest % rate on your income of any time in the last three generations.
Posted by underdog, a resident of another community, on Dec 7, 2011 at 12:39 pm
funny, i don't recall any Hollywood liberals marching and getting arrested in the occupy movement. don't see the connect to the occupy movement in the article either. doubt that the "conseratives" will allow increased taxes on the hollywood liberals, bankers, inside traders, or any billionaires. they just want to ensure that we continue our course of unsound tax policy at the expense of the middle class.
Posted by C. R. Mudgeon, a resident of the Danville neighborhood, on Dec 7, 2011 at 12:52 pm
I'm not part of the so-called "1%", as my income is well south of $400k, or whatever the current 1% cut-off is.
But I'm not part of the "99%", either, at least not as viewed by the Occupiers.
What I AM part of is the 53%. The 53% of our households who actually pay federal income tax. The 53% of us who are paying for everything that the federal government does.
Not all, but many of the Occupiers seem to be more aligned with the 47%. The 47% who receive or take benefits from the federal government, without paying anything in.
And yes, I understand that many of the people who pay zero federal income tax, still pay FICA and Medicare taxes. But they are also going to be recipients of those programs, so that's somewhat of a different argument.
I have no problem with closing loopholes, and some other aspects of "tax reform". Nor do I disagree with a generally progressive income tax formula. But to me, a bigger problem is that we have far too many people paying nothing. Of course they want more.... They have zero skin in the game.
Posted by Tom Cushing, a resident of the Danville neighborhood, on Dec 7, 2011 at 1:09 pm
I agree with CRM that nearly everyone ought to pay Something into the kitty. Skin-in-the-game is an important part of citizenship.
I also think that the 53/47 point is too often made (not by CRM here) to deflect the argument away from the inadequate (my view) amounts being paid by the crusty uppers. It is often combined with some statistic about the relative proportions of the total that come from the Wealthy vs. the Everybody Else. My understanding is that the % of the total paid by the rich is impressive, not so much because the burden is a big part of their incomes, but that those incomes have grown astronomically.
A corollary is that, even if everybody else Does contribute, it won't be a major part of the revenue-side solution to the deficit.
Posted by RWR, a resident of the Danville neighborhood, on Dec 7, 2011 at 1:56 pm
"underdog": If you simply google Hollywood and Occupy Movement, you will find numerous articles and interviews of your usual liberal, Hollywood actors who have publicly supported the Occupy Movement, from Brad Pitt to George Clooney, Russell Brand, and Myley Cyrus. Of course, this is the same Brad Pitt who was paid $15 million for the first photographs of his out of wedlock twin children. Yes, these typical, high school drop out, think they are Rhodes Scholar actors, are lecturing us Danville residents who actually are college educated and will never earn in our life time what they make for one movie, on why we are part of the evil 1%.
Of course, liberal "journalist" never want to discuss the liberal Hollywood actors who have the mansions and planes that professor Cushing mentions, but instead focus on Wall Street and other banking industries that tend to be run by Republicans.
Fact is this occupy movement is nothing but a political movement by liberal democrats that seeks to gain political advantage by attacking industries that tend to be run by Republicans, while being silent on industries(like Hollywood) that are run by liberal democrats.
Posted by spcwt, a resident of the Danville neighborhood, on Dec 7, 2011 at 2:04 pm
There’s a big difference between the “rich” Top 1%, and the “super rich” Top 0.01%, whose excesses Tom loves to demonize.
Ninety percent of the Top 1% earn between $380,000 - $2 million per year (before tax). These high income people are typically small business owners, doctors, and other professionals, who took significant risks to create their wealth. Many started out poor, with no guarantee they’ll stay rich. They generally do not own “multiple mansions, jets, and auxiliary yachts,” as Tom asserts.
These “lower tier” 1%’ers also carry a heavy tax burden, despite what Tom claims. They face marginal tax rates of around 58%:
• Federal income tax rate: 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000).
• Payroll tax: 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap).
• California income tax: 10.5% (the highest in the U.S.)
• 0.9% increase in payroll taxes to fund ObamaCare
Tom likes to point to the 80% - 90% tax rates of the 1950’s – 1970’s to assert that the 1% are lightly taxed. He ignores that those rates kicked in at much higher income levels relative to today and were applied to a more narrow definition of taxable income than today. Also, back then, the tax code allowed for greater opportunities to shelter income from income tax.
My question for Tom: Why isn’t 58% on wages a “fair share”?
Also, in previous columns, Tom has complained that dividends and capital gains are lightly taxed, being subject to Federal and California tax of only 25%. But that ignores that such investments have already been subject to 35% corporate income tax. Thus, the true tax burden on investment income is currently 60%. And it’s scheduled to rise! In 2013, the tax rate on dividends and short term capital gains will rise to 39.6% and long term capital gains will rise to 20% (again, ignoring that such investments have already incurred 35% corporate tax), resulting in an overall tax burden on investment income of a whopping 65% to 75.6%!!!
Why isn’t 65% to 75.6% tax on investment income a “fair share?”
Tom, please stop demonizing all the small business owners, doctors, dentists, accountants, and other professionals who work hard for a living and happen to be in the Top 1%. They’re not like the people you describe in your article. You are not being fair to your readers.
Posted by Mike, a resident of the Alamo neighborhood, on Dec 7, 2011 at 3:58 pm
I agree that everyone should have skin in the game. However, the low end of the tax rate spectrum should still be very low and the upper end should be a lot higher than it is now.
I do not buy that enabling mega-wealth in big businesses and a relative few individuals has much, if anything, to do with a healthy economy or creation of jobs, especially good jobs. Nor do I think that small business owners or professionals are being demonized. When I was growing up in the 50's, the top marginal tax rate was 91%, reducing to about 70% by 1980. Whatever the differences in deductions and shelters were, I sincerely doubt that they were double what they are today. The economy was generally good and governmental debt was reasonable. Then in the 80's, we began a national cognitive dissonance that government is bad, taxes are bad, let the free market do it and still have a huge military and a social net. Tax rates dropped precipitously (top rate now at 35%) and both the government and "we the people" started operating on a credit and debt. It worked (erratically) for a while to have our cake and eat it too.
But now we have a hollowed out economy and an increasingly stratified and polarized society. We need both increases in government revenues and reductions in government responsibilities. Otherwise we will just keep fighting each other like a pack of starving animals. Given that I would prefer to have the best society we can afford rather than the worst one that we are willing to tolerate, I would prefer to see what we can afford after we have established governmental revenues at a more reasonable level. Given the commentary in this forum I’m sure there are plenty that disagree. How about some compromise?
Posted by 55 percenter, a resident of the San Ramon neighborhood, on Dec 7, 2011 at 10:40 pm
More focus should be on the Hollywood set. They 'talk' a good line, stirring the class warfare. But, occoupier dummies don't seem to notice the hypocricy. In fact the new New York occupy 'office' in a lush bank complex is being paid by "DONORS".... I doubt the DNC (Dem Nat Com) would be that obvious, but 'the word' went out. I have no doubt several stars mentioned above are bankrolling the occupy operations. And now the talk is coming around to ....needing 'leadership', working within the 'political' system...and WA-LA, I betcha come Spring, about the time primaries start, occupiers will be full fledged 'area assigned" Obama campaigners operatives....community organizers....all part of the plan.
Posted by underdog, a resident of another community, on Dec 8, 2011 at 8:52 pm
Let's just get the proper perspective here (rich get richer, poor get poorer).
The Congressional Budget Office says that between 1979 and 2007 incomes of the top 1% of Americans grew by an average of 275%. During the same time period, the 60% of Americans in the middle of the income scale saw their income rise by 40%. Since 1979 the average pre-tax income for the bottom 90% of households has decreased by $900, while that of the top 1% increased by over $700,000, as federal taxation became less progressive. From 1992-2007 the top 400 income earners in the U.S. saw their income increase 392% and their average tax rate reduced by 37%. In 2009, the average income of the top 1% was $960,000 with a minimum income of $343,927. In 2007 the richest 1% of the American population owned 34.6% of the country's total wealth, and the next 19% owned 50.5%. Thus, the top 20% of Americans owned 85% of the country's wealth and the bottom 80% of the population owned 15%. Financial inequality[specify] was greater than inequality in total wealth, with the top 1% of the population owning 42.7%, the next 19% of Americans owning 50.3%, and the bottom 80% owning 7%. However, after the Great Recession which started in 2007, the share of total wealth owned by the top 1% of the population grew from 34.6% to 37.1%, and that owned by the top 20% of Americans grew from 85% to 87.7%.  During the economic expansion between 2002 and 2007, the income of the top 1% grew 10 times faster than the income of the bottom 90%. In this period 66% of total income gains went to the 1%, who in 2007 had a larger share of total income than at any time since 1928.
Oregon,by the way, has the highest progressive tax rates (like Californita) at any level across the board in the U.S.
Don't believe Tom is demonizing anyone, much less the professionals who don't quite make that 1% cut.
Hollywood liberals who support the occupy movement are the problem? Can't quite make that connection. Looks like a numbers game and it's rigged against the "new" poorer middle class including those in the 53%.
Posted by Tom Cushing, a resident of the Danville neighborhood, on Dec 9, 2011 at 8:00 am
RW: I had never seen the term "professor" used as an epithet before -- kinda makes you think, or maybe not. As to being "demonized" along with Brad Pitt's great residential rebuilding work in Nawlins, or Clooney's leveraging his considerable skills and influence to save lives in Sudan, I'm okay with that -- and on the internets, I'm better-lookin' than either one. Anyway, you're at the head the Advanced Placement class in sneeronomics, but you haven't done the reading in Civics.
As to your conspiracy theory regarding the grassroots Occupy movement, and continuing the lyrical theme of my prior blog on the subject: "Paranoia strikes deep."
sp: I recognize that you have a career choice and clients to defend, and your use of statistics is clever, but they're not really on-point.
For example, without being drawn into a numerical food fight, I note that you use marginal and capped rates to kite the numbers, and ignore deductions, credits and other shelters practically available mostly to the 1's. And what's worse, you never, ever actually talk about the real outcomes, the individual burdens as a percentage of income, comparing any "then" to "now," or the rich to the middle class. Your numbers appear to demonstrate much more than they do, upon further review.
I was particularly interested in your ascribing the income tax on a corporation to the shareholder in your cap-gains analysis. Now, you can either consider a corporation to be "people, too" with Mr Romney, in which case that's not the shareholder's tax, or you can consider the corporation to be a financial vehicle for aggregating money -- in which case its ample campaign contribution and lobbying investments also have to be ascribed to the shareholder. You can't have it both ways.
Posted by spcwt, a resident of the Danville neighborhood, on Dec 9, 2011 at 2:24 pm
Contrary to what you assert, it's practically impossible for the rich to shelter their wages from tax via deductions, credits, and shelters. If you're a high wage earner, like a doctor or other professional, your wages bear the full brunt of that 58% tax rate. And that's the truth. It's especially true for a double income family.
Sure, you can still hide a little bit of your wages with the mortgage deduction, 401(k), charitable deductions and a few other small tricks. But not much. And most lower-tier 1%'ers are subject to AMT, so they miss out on the great deductions the rest of middle America enjoys, like deductions for property taxes and state income taxes, and you can contribute to a Roth IRA, you get a $3,700 personal exemption and a $3,700 exemption for each dependent, you get the earned income credit, the making work pay credit, child tax credit, deductions for student loan interest, IRA deduction, on and on. 1%'ers don't get any of that.
So, I ask you again, Tom, why isn't 58% a "fair share?" And let's assume for arguments sake that a person really could use some magical deductions and credits and somehow shave that tax burden on wages down to 50%. Why isn't 50% a "fair share"? Just answer that simple question.
Instead of cutting and pasting things you find on the internet, may I suggest you do your own critical thinking and writing?
In the past 30 years, through globalization, America has created about 1,500 super wealthy individuals, Bill Gates, and the like. If you lump all those guys in with the rest of the 1%, then of course it appears that the entire top 1% are making out like bandits. But if you remove those 1,500 super wealthy from the equation, you will see that not much has changed. The reality is, 90% of the top 1% are small business owners and professionals who actually work for a living.
Posted by underdog, a resident of another community, on Dec 9, 2011 at 3:16 pm
Hmmm, so you dispute facts because they have been "cut and paste". That somehow invalidates them and, oh you have some advice for me on how to think. Thanks for the tip. Yet your "critical thinking" is a hash of numbers that you use to support a predisposed opinion. You seem to have quite a superiority complex going there. Have to agree with Tom that your so-called "critical thinking" is flawed and unsupported. Those aren't facts you're citing they are simply specious numbers and opinions. I'll do it my way, thanks anyway, and leave you to suffer with the tax burden brought on by the occupy movement and the hollywood liberals? No matter how you interpret it, and you can't really take all of the super-rich out of the equation, you are not representing the 1% accurately. They are not small business owners and professionals like my employers and myself.
Posted by Mike, a resident of the Alamo neighborhood, on Dec 9, 2011 at 9:44 pm
Spcwt, condescension doesn’t become you. I have to agree that citing marginal rates by themselves, taxes that apply to only a minority (if not a sliver) of a high income or lumping corporate and individual taxes together is unconvincing. I think that widening disparity of wealth, the economic health of the government, the health of the economy overall and the increasing perversion of governance by money are threats to our society that can’t be denied. Taxation is one tactic to address them. What else would you suggest? Or do you think they really aren’t problems?
Posted by underdog, a resident of another community, on Dec 10, 2011 at 6:14 am
RW-Your comments don't make me uncomfortable. They just show your lack of understanding and prejudice, and as Mike says, they are flavored with condescension. Thanks for the good wishes though, being an underdog has always served me well. We work harder and think smarter because we have to, even when the game is rigged. Happy Holidays.
Posted by Tom Cushing, a resident of the Danville neighborhood, on Dec 10, 2011 at 8:56 am
sp: Once again, you have failed to come forward with any evidence of Actual Tax Burden, which is the point here, not rates which are a poor and partial proxy.
For example, I would suggest that Warren Buffett's statement that his % tax burden on his several gazillions is LOWER than that of his Admin, who makes something like $60K, is useful information, apples to apples. Your stuff is just so much self-serving obfuscation.
It's as if you want to sell me your car, and you spend lots of time describing the discounts you'll give me on the tires, the paint and the engine -- but you won't tell me the price of the car! No, thanks.
Further, fairness of a Shared burden cannot be usefully considered in isolation, but only relative to the burdens borne by others. So no, it's not a "fair" burden, whatever the trumped-up rate percentage, since fairness can't be determined from your hypothetical.
Posted by spcwt, a resident of the Danville neighborhood, on Dec 10, 2011 at 9:38 am
As a member of the evil 1% club and as a tax lawyer, I have tried every possible way I can think of to reduce the tax burden on my wages. Unfortunately, I regularly pay more than 50% of my wages in taxes. All of my tax colleagues say the same thing. If you know a way around this, please let me know, as I would love to hire you as my tax adviser.
I have better luck with my investment income. Like Warren Buffett, I have ways to shelter my investment income, so if you add my wages and investment income together, my overall tax rate is not the 50% rate I mentioned above. But like most lower tier 1%'ers, my investment income is still a much smaller than my wages as a percentage of my annual income. It varies from year to year, and sometimes it is dismal (remember 2008?).
But logically, I cannot understand why corporate taxes shouldn't be included as part of an investor's tax burden.
Consider this example:
if I operate a retail clothing business, my profits will be subject to 45% tax (35% Federal tax and 10% state tax).
If a bunch of people form a corporation to operate a retail clothing business (e.g. The Gap), the corporation's profits will be subject to corporate tax (35% federal tax and 10% state tax). And when the corporation distributes a dividend to the shareholders, the shareholders will be subject to 25% tax (15% federal and 10% state tax).
Obviously, this example is an oversimplification, as the corporation can deduct the state taxes as an expense on its federal taxes, it doesn't reflect state AMT, NOL carryforwards, credits, etc., but do you see how the overall tax burden on dividend income is not merely the dividend tax alone?
Why shouldn't the corporate tax be included in the overall tax burden of the investor? Ultimately, it is the investor who bears the corporate tax burden in the form of a reduced dividend amount.
Similarly, a capital gain is merely a representation of the value of the earnings reflected in the share price, which have already been subject to 35% federal corporate tax and 10% state tax. So the overall tax burden on capital gains is more than just the 15% federal and 10% state tax on the shareholder. It also includes the 45% corporate income tax (35% federal corporate tax and the 10% corporate state tax).
Like Warren Buffett, I agree that the mega wealthy (in his view, the top 0.3%, in my view the top 0.1%) are getting too good a deal on taxes, and I would support changes in the tax code to address this.
I do not believe the tax code should be used for social engineering, however, nor should the government destroy wealth merely to make things "fair." A nation cannot tax itself into prosperity.
Middle class folks who want to soak "the rich" should consider how they would feel if a big government (e.g. UN) decided that middle class Americans should share 58% of their paychecks with the rest of the world in order to combat global inequality. After all, the average person lives on $2 a day or less. No matter how poor you are, chances are you're richer than 99% of the rest of the world. Are you ready to give up most of your salary in the name of fairness? If not, then it would appear that the Top 1% aren't the only greedy ones in America.
We should strive for equal opportunity rather than equal results.
Finally, we should also recognize the limits of the government's ability to solve problems. According to the OECD, one of the major causes of the rise in American poverty in the past 30 years is due to the rise in the number of single family households. The government should consider whether its welfare programs and other policies are contributing to this result. It could be that sometimes the government cannot solve every single one of our problems, particularly problems that result from personal lifestyle choices.
I'll see what I can do to come up with some real life examples for you beyond my own, which I have shared previously. I have a wife, three kids and a thing I'd like to consider "a life" so I may need to get back to you. Maybe I'll respond in one of your next columns when you again try to whitewash the entire 1% as all merely concerned with building their next personal Versailles. Surprised you didn't include a quote, like "Let them eat cake."