Apologists for the Rich Are Scraping the Bottom of the Barrel

By Sam Pizzigati, Too Much: A Commentary on Excess and Inequality. Posted July 1, 2009.

All true. Hedge fund managers are taking home rewards that dwarf the pay of even the highest-paid CEOs. But CEOs are taking home far more than average American workers, and the gap between CEO and worker pay has increased even wider and faster than the gap between CEOs and hedge fund managers.

In 1970, as Labor Institute director Les Leopold has calculated, America's top 100 CEOs made 45 times more than average American workers. In 2006, they made 1,723 times more.

Given that gargantuan gap, might a reasonable observer conclude that “(good) CEOs” have become, in the grand scheme of things, grossly overpaid? Might this same observer wonder why the University of Chicago's Kaplan compares CEOs and hedge fund managers but not CEOs and average workers?

For this choice, Kaplan offers no logical explanation. He may not have one.

Apologists for grand fortune who've been beating the drums against the federal estate tax haven’t been particularly big on logic either. They’ve taken, instead, to spinning ever more fantastic narratives on the dangers estate taxation forces upon us.

A recent report from the American Family Business Foundation, a research group bankrolled to plug away for estate tax repeal, has elevated this fantasizing to fairly surreal heights.

The estate tax currently applies only to the wealth over $3.5 million, or $7 million for couples, that the wealthy plan to pass on to their heirs. Taxing this wealth, economists Cameron Smith and Douglas Holtz-Eakin argue in their new assault on the estate tax, discourages the rich from saving and investing.

Smith and Holtz-Eakin, the top economic adviser in John McCain's 2008 campaign, go on to argue that estate taxation actually encourages the affluent to waste their money on creature comforts like round-the-world cruises. By engaging in such frivolous spending, after all, a person of means “reduces his estate and lowers his estate tax liability.”

In the process, contend Smith and Holtz-Eakin, wealthy people end up frittering away their fortunes instead of investing in businesses that create jobs.

Citizens for Tax Justice earlier this month subjected this claim to a little reality check. To appreciably spend down their estates and avoid estate taxation, the CTJ researchers point out, the wealthy would have to make a great many purchases that have no lasting asset value. That’s not easy to do.

If a billionaire buys a yacht, for instance, that yacht becomes an asset and adds to the value of the billionaire’s taxable estate. Only those purchases that have no asset value can lower a wealthy person’s estate tax liability.

“Can extremely wealthy people,” asks the CTJ analysis, “really spend away their millions on expensive dinners and cruises?”

To pull that off, answers CTJ, deep pockets eager to avoid estate tax would have to spend their “entire estate on caviar or cruises or cocaine,” things that “won’t be around” after they die. An unlikely outcome.

“We won’t say it’s impossible,” quip the Citizens for Tax Justice analysts, “because we really don’t want emails from over-eating, drug-addicted trust fund babies arguing this point.”

So what, in the end, does the growing inanity of the apologetics for grand fortune tell us? Is this inanity a sign that the days of the super rich may be numbered?

Unfortunately, not necessarily. The super rich have never depended on logic or statistics or credible narratives to make the case for their dominance. They’ve depended on the political power that great wealth creates. They still have that power. They remain a formidable force — even if their flunkies do look silly.

See more stories tagged with: accountability, corporate greed, wall street journal, too much, harvard review

Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.

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