The number that sticks in my mind today, and has since I heard it, is 40 percent. While over half a million people in the U.S. have died of COVID in one year, while millions of people have become sick, while millions of people have lost their jobs, savings and homes, and many people have been forced to wait in long food lines to get enough to feed their familiesâwhile all that was happening, the billionairesâthe top 0.05 percent in the country, the Waltons, the Jeff Bezosâ of the worldâsaw their collective wealth go up 40 percent. Which is one good reason to have a wealth tax.
This week, Sen. Elizabeth Warren and Rep. Pramila Jayapal rolled out an âUltra Millionaireâs Taxâ. The tax would only be on the wealthiest 100,000 households in America, or the top 0.05%, who have a net worth of $50 million, and it would raise $3 trillion over a decade. Since, and Iâm just spit balling here, I donât think my audience falls into the over $50 million-net-worth category, I figured it would be safe to engage the always-brilliant Amy Hanauer, executive director of the Institute for Taxation and Economic Policy, in a conversation about the great benefits of a wealth tax.
Some good news! Last May, I talked about an effort to raise two trillion dollars for poorer countries to battle the pandemic and the economic collapse. The money, so-called Special Drawing Rights (SDRs), can be created by the International Monetary Fund (IMF) but the Trump Administration blocked the moveâeven though it comes at no cost to taxpayers here. But, now, thereâs movement: Treasury Secretary Janet Yellen appears to be in favor of some level of the SDRs, if not the full two trillion now in the newly resurrected bills in the Senate and House. Mark Weisbrot, co-director of CEPR and an expert in international affairs who has been leading the campaign since last year, joins us for an update.
I also have a few thoughts about the video Joe Biden made about the rights of workers to have a union. Itâs a good thingâbut it also shows how narrow the debate is about true union organizing rights. Check it outâand let me know your thoughts!
This blog originally appeared atÂ Working LifeÂ on March 3, 2021. Reprinted with permission.
About the Author: Jonathan Tasini is a political / organizing / economic strategist. President of the Economic Future Group, a consultancy that has worked in a couple of dozen countries on five continents over the past 20 years.
The path toward economic recovery in the U.S. has become sharply divided, with wealthier Americans earning and saving at record levels while the poorest struggle to pay their bills and put food on the table.
The result is a splintered economic picture characterized by high highs â the stock market has hit record levels â and incongruous low lows: Nearly 30 million Americans are receiving unemployment benefits, and the jobless rate stands at 8.4 percent. And that dichotomy, economists fear, could obscure the need for an additional economic stimulus that most say is sorely needed.
The trend is on track to exacerbate dramatic wealth and income gaps in the U.S., where divides are already wider than any other nation in the G-7, a group of major developed countries. Spiraling inequality can also contribute to political and financial instability, fuel social unrest and extend any economic recession.
The growing divide could also have damaging implications for President Donald Trump’s reelection bid. Economic downturns historically have been harmful if not fatal for incumbent presidents, and Trump’s base of working-class, blue-collar voters in the Midwest are among the demographics hurting the most. The White House has worked to highlight a rapid economic recovery as a primary reason to reelect the president, but his support on the issue is slipping: Nearly 3 in 5 people say the economy is on the wrong track, a recent Reuters/Ipsos poll found.
Democrats are now seizing on what they see as an opportunity to hit the president on what had been one of his strongest reelection arguments.
“The economic inequities that began before the downturn have only worsened under this failed presidency,” Democratic presidential nominee Joe Biden said Friday. “No one thought they’d lose their job for good or see small businesses shut down en masse. But that kind of recovery requires leadership â leadership we didn’t have, and still don’t have.”
Recent economic data and surveys have laid bare the growing divide. Americans saved a stunning $3.2 trillion in July, the same month that more than 1 in 7 households with children told the U.S. Census Bureau they sometimes or often didnât have enough food. More than a quarter of adults surveyed have reported paying down debt faster than usual, according to aÂ new AP-NORC poll, while the same proportion said they have been unable to make rent or mortgage payments or pay a bill.
A historic House vote on marijuana legalization will take place later this month. We break down why Democrats are voting on the bill despite the fact that it’ll be dead upon arrival in the Senate.
And while the employment rate for high-wage workers has almost entirely recovered â by mid-July it was down just 1 percent from January â it remains down 15.4 percent for low-wage workers, according to Harvardâs Opportunity Insights economic tracker.
âWhat thatâs created is this tale of two recessions,â said Beth Akers, a labor economist with the Manhattan Institute who worked on the Council of Economic Advisers under President George W. Bush. âThere are so obviously complete communities that have been almost entirely unscathed by Covid, while others are entirely devastated.â
Trump and his allies have seized on the strength of the stock market and positive growth in areas like manufacturing and retail sales as evidence of what they have been calling a “V-shaped recovery”: a sharp drop-off followed by rapid growth.
Some economists have begun to refer to the recovery as “K-shaped,” because while some households and communities have mostly recovered, others are continuing to struggle â or even seeing their situation deteriorate further.
âIf you just look at the top of the K, itâs a V â but you canât just look at whatâs above water,â said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth. âThere could be a whole iceberg underneath it that youâre going to plow into.â
The burden is falling heavily on the poorest Americans, who are more likely to be out of work and less likely to have savings to lean on to weather the crisis. While recessions are always hardest on the poor, the coronavirus downturn has amplified those effects because shutdowns and widespread closures have wiped out low-wage jobs in industries like leisure and hospitality.
Highly touted gains in the stock market, meanwhile, help only the wealthiest 10 percent or so of households, as most others own little or no stock.
The disconnect between the stock market and the broader economy has been stark. On the same day in late August that MGM Resorts announced it would be laying off a quarter of its workforce, throwing some 18,000 workers into unemployment, its stock price jumped more than 6 percent, reaching its highest closing price since the start of March.
âThe haves and the have-nots, thereâs always been a distinction,â Sahm said. But now, she added, âwe are widening this in a way I donât think people have really wrapped their head around.â
Without further stimulus, the situation appears poised to get worse. Economic growth until now had been led by increasing levels of consumer spending, buoyed by stimulus checks and enhanced unemployment benefits that gave many people, including jobless workers, more money to spend.
Low-income consumers have led the way, and they spent slightly more in August than they did in January, according to the Opportunity Insights tracker â even as middle- and high-income consumers are still spending less.
But those low-income consumers were also the most dependent on the extra $600 per week in boosted unemployment benefits, which expired in July. Since that lapsed â and since Congress appears unlikely to extend it any time soon, if at all â âweâre likely to see other macroeconomic numbers really fall off a cliff in the coming weeks,â Akers said.
The expected drop in spending, paired with the expiration of economic relief initiatives like the Paycheck Protection Program, could also spell trouble for businesses in the coming months. Many economists expect a wave of bankruptcies and business closures in the fall, contributing to further layoffs.
In that sector, too, owners are feeling disparate impacts. More than 1 in 5 small business owners reported that sales are still 50 percent or less than where they were before the pandemic, according to a recent survey from the National Federation of Independent Business, and the same proportion say they will need to close their doors if current economic conditions do not improve within six months.
At the same time, however, half said they are nearly back to where they were before, and approximately 1 in 7 owners say they are doing better now than they were before the pandemic, the survey showed.
Those diverging narratives could be understating the need for further stimulus by smoothing over some of the deeper weaknesses in the labor market and the economy, experts say.
âThis is a case where the averages tell a different story than the underlying data itself,â said Peter Atwater, an adjunct economics professor at William & Mary.
While Republicans appear to be embracing the idea of further âtargetedâ aid, they are also touting what Trump has called a ârocket-shipâ economic recovery and emphasizing record-breaking growth while downplaying the record-breaking losses that preceded it.
âThereâs no question the recovery has beat expectations,â said Rep. Kevin Brady (R-Texas), the top Republican on the House Ways and Means Committee, this week on a press call with reporters.
âPeople are in these bubbles,â Atwater said. âAnd if people arenât leaving their homes, are not really getting out, itâs unlikely that theyâre seeing the magnitude of the downside of this K-shaped recovery.â
ThisÂ articleÂ originally appeared at Politico on September 7, 2020. Reprinted with permission.
About the Author: Megan Cassella is a trade reporter for POLITICO Pro. Before joining the trade team in June 2016, Megan worked for Reuters based out of Washington, covering the economy, domestic politics and the 2016 presidential campaign. It was in that role that she first began covering trade, including Donald Trumpâs rise as the populist candidate vowing to renegotiate NAFTA and Hillary Clintonâs careful sidestep of the Trans-Pacific Partnership.
A D.C.-area native, Megan headed south for a few years to earn her bachelorâs degree in business journalism and international politics at the University of North Carolina at Chapel Hill. Now settled back inside the Beltway, Meganâs on the hunt for the cityâs best Carolina BBQ â and still rooting for the Heels.
At racetracks all across America, lucky bettors every so often rake in small fortunes when the horses they pick to finish one, two, three â a trifecta â just happen to finish in that order. Last spring at the Kentucky Derby, for instance, a $1 trifecta betÂ returnedÂ a tidy little $11,475.30.
But Americaâs awesomely affluent donât have to place any bets to rake in windfalls. Theyâre essentially hitting jackpots on a daily basis, as a âtrifectaâ of timely just-released research reminds us.
The first of these three newly released blasts came in late September from the Census Bureau. The gap between Americaâs haves and have-nots, the new Census data show,Â has grownÂ âto its highest level in more than 50 years of tracking income inequality.â
The first week in October then brought the second blast, an Institute for Policy Studies analysis on the latest trends in corporate executive pay. In 2018, the IPS reportÂ details, 50 major U.S. corporations paid their CEOsÂ over 1,000 timesÂ the compensation that went to their most typical workers.
The third blast comes from two of the worldâs top inequality scholars. In 2018, economists Emmanuel Saez and Gabriel Zucman inform us, Americaâs 400 richest households paid taxes atÂ a lower rateÂ than any other income cohort in the nation, the first time thatâs happened since the modern federal income tax went into effect in 1913.
The combined federal, state, and local tax rate on the nationâs richest 400 households, Saez and Zucman have calculated, last yearÂ fellÂ 2.5 percentage points to 23 percent. In other words, the nationâs richest 400 households paid less than a quarter of their income in taxes.
Households in the nationâs poorest 50 percent, by contrast, paid 24.2 percent of their incomes in combined 2018 federal, state, and local taxes.
These disturbing new numbers appear Saez and Zucmanâs new book,Â The Triumph of Injustice. The book traces how tax rates on the richest of Americaâs rich have nosedived since the middle of the 20th century. In 1950, the two economists point out, our top 400 households had a combined tax bill that averaged 70 percent of their incomes. A generation later, in 1980, that combined rate took 47 percent â about half â of top-400-household incomes. That rate has since fallen to last yearâs 23 percent.
The bottom line: Americaâs richest used to pay over three times more of their income in total taxes than they do now. The predictable result? Americaâs richest have become phenomenally richer than they used to be.
The business magazineÂ ForbesÂ began publishing its annual list of the nationâs 400 richest in 1982. The shipping magnate Daniel Ludwig topped that first annualÂ ForbesÂ list. His total fortune: just $2 billion.
ForbesÂ earlier this month released the 2019 ranking of the top 400. The fortuneÂ now neededÂ toÂ enterÂ the ranks of Americaâs 400 richest: $2.1 billion.
Admittedly, weâre not taking inflation into account with this comparison. So letâs do that. Adjusting for inflation, Ludwig â the richest single individual in the inauguralÂ ForbesÂ list â had a 1982 fortune worth $5.3 billion. A stash that size today wouldÂ rank himÂ just 125th.
In that initial 1982Â Forbes 400, Americaâs richest averaged $230.8 million in net worth each. In todayâs dollars, that would come to nearly $633 million. The 2019 top 400 average: $7.4Â billion, 32 times the top-400 average net worth in 1982.
Wages for the typical American worker, meanwhile, have been âincreasingâ on average by less than aÂ half percent a yearÂ over the last four decades.
âItâs the economy, stupid,â Bill Clintonâs top campaign guru quipped during the 1992 presidential campaign.
No, itâs the inequality, stupid, the vast gap between the rich and everyone else thatâs poisoning nearly every aspect of modern American life, from ourÂ crumbling infrastructureÂ to ourÂ endangered environment. Hitting an occasional trifecta at the racetrack wonât close that gap. Taxing the rich â and confronting their corporate power â will.
This blog was originally published at OurFuture.org on October 22, 2019. Reprinted with permission.
About the Author: A veteran labor journalist, Sam Pizzigati has written widely on economic inequality, in articles, books, and online, for both popular and scholarly readers. Sam Pizzigati co-edits Inequality.org. Follow him at @Too_Much_Online.
While rising capital share and greater concentration of wealth explain some of the story of economic inequality, the largest part of the story is the growth in wage inequality over the last several decades. AvailableÂ data from the Social Security AdministrationÂ unfortunately doesnât go past 1990, overlooking considerable upward distribution of wages beginning in 1980. However, wage distributions from 1990 to 2015 show a clear, and unequal, upward trend.
The share of wages earned by the top 0.1 percent of wage earners increased 36 percent in that time period, from 3.5 percent of all wages earned to 4.8 percent. These earners are largely Wall Street bankers and top executives from private companies, as well as hospitals, universities, and other non-profits. Although the data from such a small pool of workers is erratic, they show soaring gains over ordinary workers that coincide with stock market peaks. Wages at this income level are likely paid in part in stock options, so that connection is unsurprising, but the magnitude of wage increases for this group compared to the others supports the argument that wages are part of the inequality picture.
The top 1 percent of wage earners (excluding the 0.1 percent) are largely doctors, dentists, and other highly paid professionals with an average pay of around $333,000 a year. These workers have experienced impressive gains in their share of wages, although they do not compare to those of the 0.1 percent. From 1990 to 2015 the share of wages earned by this group increased 24 percent from 10.7 percent to 13.2 percent.
Lawyers, general practitioners, university professors, and other professionals with advanced degrees make up the top 5 percent of earners (excluding the aforementioned groups). Since 1990 their share of wages earned has grown 18 percent, from 24.0 percent to 28.5 percent. Most of the difference between the share of wages earned by this group and the next lowest, the 90th to the 95th percentile, was gained between 1994 and 2000. Prior to that period both percentile groupsâ share of wages grew at a similar rate, and since 2000 the two groups have had similar growth.
The final group of workers included in this analysis adds those who mostly have college degrees but not necessarily advanced degrees. The share of wages earned by the top 10 percent taken as a whole grew 14 percent from 35.5 percent in 1990 to 40.3 percent in 2015.
This blog originally appeared at CEPR.net on May 30, 2017. Reprinted with permission.
About the Authors: Sarah RawlinsÂ is a Domestic Program Intern at the Center for Economic and Policy Research.Â Dean Baker co-founded CEPR in 1999. His areas of research include housing and macroeconomics, intellectual property, Social Security, Medicare and European labor markets. He is the author of several books, includingÂ Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.Â His blog, “Beat the Press,” provides commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in Economics from the University of Michigan.
In a new op-ed for the Hill, AFL-CIO President Richard Trumka explains the key reasons why the Trans-Pacific Partnership is bad for working people, both in the United States and overseas. Trumka describes the deal by saying that “the TPP is a giveaway to big corporations, special interests and all those who want economic rules that benefit the wealthy few.”
Weâve been down this road before. The Wall Street and Washington elite always tell us that this time will be different. The truth is these trade deals have ripped apart the fabric of our nation. We see the shuttered factories. We visit towns that look like they are stuck in the past. We talk to the workers who lost everything, only to be told they should retrain in another fieldâbut Congress has been slow to fund and authorize those programs. From NAFTA to CAFTA to Korea and now the TPP, these agreements have continually put profits over people. By driving down our wages, they make our economy weaker, not stronger.
In many ways, the TPP is a new low. A quick search of the agreement shows no mention of the terms âraising wagesâ or âclimate change.â And by ramming through fast track legislation earlier this year, Congress effectively barred itself from making a single improvement to the TPP.
Working people deserve a better process and a better product. We understand better than anyone that the TPP is just another tool to enrich corporations at the expense of everyday families. We cannot and should not accept it.
Because it canât fix the TPP, Congress has to take the step of saying to 11 other countries, âNo, not this TPP.â Taking that brave step is necessary to create trade rules that lift people up, not crush them under crony capitalism.
This blog originally appeared in aflcio.orgÂ on February 3, 2016. Reprinted with permission.
Kenneth QuinnellÂ is a long time blogger, campaign staffer, and political activist. Â Prior to joining AFL-CIO in 2012, he worked as a labor reporter for the blog Crooks and Liars. Â He was the past Communications Director for Darcy Burner and New Media Director for Kendrick Meek. Â He has over ten years as a college instructor teaching political science and American history.
We know how bad income inequality has gotten in the past few years in America, thanks largely to the work of economist Emmanuel Saez and his colleagues at University of California at Berkeleyâs Center for Equitable Growth. But Saezâs latest paper finds that the share of the nationâs wealth going to the bottom 90 percent of Americans has declined to where it was in the 1940s, erasing decades of hard-won gains due to pro-worker, pro-middle-class economic policies.
Meanwhile, the top 0.1 percent of Americans â the 160,000 families with net assets in excess of $20 million in 2012 â now hold 22 percent of the nationâs wealth, up from 7 percent in 1978. That monopolization of a large share of national wealth by an elite few hasnât been seen since the late 1920s.
The bottom 90 percent, by contrast, saw their wealth share fall from 35 percent in the mid-1980s to about 23 percent in 2012, the paper said. It was about 20 percent in the 1920s, it said.
The paper, âWealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data,â focuses not just on wages and income but on the accumulation of overall wealth, including the value of real estate, stocks and certain other assets. It explicitly refutes the view that while nearly all of the gains in national income since the 2008 recession have gone to the top 1 percent, that hasnât translated into a substantial increase in the concentration of overall wealth at the top. To the contrary, the paper said, âwe find that wealth inequality has considerably increased at the top over the last three decades.â
âWealth concentration has increased particularly strongly during the Great Recession of 2008-2009 and in its aftermath,â the paper said. Largely because of the decline in housing prices, the share of wealth held by the bottom 90 percent fell more than 10 percent from the middle of 2007 to mid-2008. Afterward, real wealth continued declining at a rate of 0.6 percent a year on average through 2012, while it increased at a rate of almost 6 percent a year for the top 1 percent and almost 8 percent a year for the top 0.1 percent.
The bottom line: âWealth is getting more concentrated in the United States,â and is in fact âten times more concentrated than income today.â
How did this happen? âThe share of wealth owned by the middle class has followed an inverted-U shape evolution,â the paper said. Middle-class households reached the apex of the upside-down âUâ in the mid-1980s, driven by the accumulation of housing wealth and, more significantly, pensions. Since then, housing values for the bottom 90 percent as a share of total household wealth has fallen by as much as two-thirds, and most workers have IRAs or 401(k) defined contribution plans instead of pensions. And these households have significantly higher debt than they did in the 1980s.
What can we do about it? The paper points out that it was New Deal policies of the 1930s that began reversing the effects of Gilded Age inequality in the 1930s, particularly âvery progressive income and estate taxationâ that made it difficult for the wealthy to accumulate large fortunes and pass them to their heirs. âThe historical experience of the United States and other rich countries suggests that progressive taxation can powerfully affect income and wealth concentration,â the paper said.
Other steps that can help include âaccess to quality and affordable education, health benefit cost controls, minimum wage policies, or, more generally, policies shifting bargaining power away from shareholders and management toward workers.â Finally, the paper suggests policies that ânudgeâ workers toward sound investment and savings vehicles and offer alternatives to short-term debt at high interest rates.
The fact that a group of people equal to the population of Salem, Oregon controls as much of the nationâs wealth as 90 percent of the rest of the country speaks to the fundamental unfairness of our economy. It is a level of imbalance that is as unsustainable today as it was before the crashes of 1929 and 2008. It also stands as a dire warning that we cannot afford to elect more politicians whose policies of giving more relief to the wealthy and more pain to the working class would only make wealth inequality and, and economic inequity, even worse.
This blog originally appeared in Ourfuture.org on October 20, 2014. Reprinted with permission. http://ourfuture.org/20141020/wealth-inequality-and-middle-class-decline-is-worse-that-we-think.
About the Author: Isaiah J. Poole has been the editor of OurFuture.org since 2007. Previously he worked for 25 years in mainstream media, most recently at Congressional Quarterly, where he covered congressional leadership and tracked major bills through Congress. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. His work has put him at the front lines of ideological battles between progressives and conservatives. He also served as a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.
It’s back. No matter how many times working people reject the Bowles-Simpson “B-S” budget plan that cynically claims it would “promote economic growth “âbut would actually snuff out the recovery and cut lifelines for working familiesâitÂ keeps coming back to the table.
Erskine Bowles and Alan Simpson releasedÂ another tired plan todayÂ that would cut Social Security COLAs to pay for lower tax rates for corporations and the wealthiest Americans, among other things.
Once again, Bowles and Simpson have produced a plan that tells working people to âdrop dead.â In December 2010, Bowles and Simpson put forward a budget blueprint that proposed to cut tax rates for corporations and the richest Americans and eliminate taxes on overseas corporate profits, and then pay for these lower tax rates by cutting Social Security benefits, shifting Medicare costs to individuals, taxing health benefits and cutting federal employeesâ pay, benefits and jobs. The updated budget blueprint Bowles and Simpson put forward today cuts tax rates for the richest Americans and corporations and pays for these lower tax rates by cutting Social Security COLAs, taxing health benefits and cutting federal employeesâ health and retirement benefits. For working people and the future of our nation, it is dead on arrival.
In recent actions and a call-in day to Congress, working families have urged their representatives and senators to:
Protect Social Security, Medicare and Medicaid from benefit cuts.
Repeal the âsequesterâ and close loopholes for Wall Street and the wealthiest 2% of Americans instead.
This post was originally posted on AFL-CIO on Feb. 19, 2013. Reprinted with Permission.
About the Author: Jackie Tortora is the blog editor and social media manager at the AFL-CIO.
When I wrote the “The Audacity of Greed” in 2008, I had a chapter called “Vodka and Penises” which detailed a rather unique birthday party thrown in Sardinia, Italy, in 2000 by Tyko CEO Dennis Kozlowski in honor of his wife–it featured vodka spraying from the penis of a replica of Michelangeloâs David. Kozlowski, who eventually went to jail for stealing lots of company money including the funds to pay for this little soiree, flew seventy-five guests to the Hotel Cala di Volpe where the privileged invitees played golf and tennis, ate fine food, listened to a performance by the singer Jimmy Buffett (who was paid a fee of $250,000 to appear) and enjoyed a birthday cake in the shape of a womanâs breasts festooned with sparklers on top.
It was a symbol of the greed and avarice coursing through American business.
And it ain’t over–as Leon Black is happy to demonstrate.
Let’s set the backdrop first: millions of Americans are without work, millions more can’t find decent paying work, we still are trying to dig out of a financial crisis caused largely by greed and avarice on Wall Street, we have the greatest divide between rich and poor in 100 years, and we are enduring a longer-term attack against the people by a bankrupt “free market” system that values a few CEOs over the rest of us.
Last Saturday night, the financier Leon D. Black celebrated his 60th with a blowout at his oceanfront estate in Southampton, on Long Island. After a buffet dinner featuring a seared foie gras station, some 200 guests took in a show by Elton John. The pop music legend, who closed with âCrocodile Rock,â was paid at least $1 million for the hour-and-a-half performance.
Mr. Black had his backyard transformed into a faux nightclub setting, constructing a wooden deck over his swimming pool and building a tent for Mr. Johnâs concert. After a buffet of crab cakes and steak, partygoers sat on couches with big puffy pillows.
Who was there?
The stars of music and fashion collided with a whoâs who of Wall Street. Revelers included Michael R. Milken, the junk-bond pioneer and Mr. Blackâs boss at Drexel Burnham Lambert in the 1980s; Julian H. Robertson Jr. , the hedge fund investor; Lloyd C. Blankfein, the chief executive of Goldman Sachs; and Mr. Schwarzman, head of Blackstone Group.Rounding out the guest list were politicians including Mayor Michael R. Bloomberg and Senator Charles E. Schumer of New York, who rubbed elbows with the media celebrities Martha Stewart and Howard Stern.[emphasis added]
On Saturday night, to be sure, there was little talk of carried interest at the Blacksâ home on Meadow Lane, one of the Hamptons most desirable addresses for its panoramic views of the Atlantic Ocean and Shinnecock Bay. He counts among his neighbors Calvin Klein and David H. Koch, the billionaire industrialist.[emphasis added]
So, here is what is important to glean from this obscene affair, which underscores how we have been robbed–and how we will continue to be robbed in the future.
In my most recent book, “It’s Not Raining, We’re Being Peed On,” I wrote about “carried interest”. Private equity firms get a special tax breakâitâs called “carried interest”, Rather than being taxed at the top rate of 35 percent, the private equity fund managers like Black only pay 15 percent through a loophole called “carried interest.” To understand carried interest, you have to first understand how money managers get paid in the yacht-sailing, mansion-buying world of private equity.
First, they receive a fee, which is a percentage of the funds they invest. This fee is usually in the range of two percent, and is taxed like your run-of-the-mill wage income.
Second, and far more lucratively, money managers get a fee based on the performance of their fundâa fee in the range of 20 percent. Itâs the second fee that is the so-called “carried interest”âand itâs how the money managers of private equity really rake in the big bucks that pay for their Picassos, yachts and mansions.
In the normal world of taxable income (and let me say that nothing in the tax code is simple when it comes to schemes that allow people like Black to shelter their money), carried interest is taxed as investment incomeâat the capital gains level of 15 percent (much lower than the top wage income rate), even though most of these managers invest very little, if any, of their own money.
So, a private equity big shot honcho hauling down millions of dollars in “incentive” is taxed at a 15 percent rate, while the receptionist who works in his office, or the police officer who guards the equity baronâs property, probably earn $50,000 or so if theyâre luckyâand those average working people pay a 25 percent tax rate on that income (not to mention payroll taxes), a far larger share of their income than the fellow who banks “carried interest.”
Which is how Black can afford to throw obscene birthday parties.
I understand the movtivation: Wall Street is a huge honeypot for campaign contributions. That is Schumer’s obsession.
But, keeping “carried interest” costs billions of dollars in money lost to our government’s treasury–money for schools, health care for seniors, research, and jobs.
One final point on the private equity world. Even if the “carried interest” is eliminated, we need to keep another point in mind: private equity firms make their huge profits by buying up companies and stripping them of hundreds of thousands of workers in the name of “efficiency”. The longer-term economic crisis is, at heart, a hammering down of wages–which has led to deep despair among the people who can’t make ends meet. Private equity firms have been at the leading edge of feeding that disastrous economic system.
Which is why we should care–and take notice–of the people who party and rub shoulders at these kinds of obscene events.
They just do not care.
Ultimately, for all the rhetoric, this is about the power and wealth of the business and political elite.
It is not about us. Until we torch this system.
*This blog originally appeared in Working Life on August 19, 2011.
About the Author: Jonathan Tasiniis the executive director of Labor Research Association. Tasini ran for the Democratic nomination for the U.S. Senate in New York. For the past 25 years, Jonathan has been a union leader and organizer, a social activist, and a commentator and writer on work, labor and the economy. From 1990 to April 2003, he served as president of the National Writers Union (United Auto Workers Local 1981).He was the lead plaintiff in Tasini vs. The New York Times, the landmark electronic rights case that took on the corporate mediaâs assault on the rights of thousands of freelance authors.
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