Apologists for the Rich Are Scraping the Bottom of the Barrel
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In tough economic times, work for some people can suddenly become significantly more difficult. Take, for instance, the analysts and academics who have decided, for whatever reason, to devote their careers to justifying the wealth of the wealthy. In normal times, these flacks for grand fortune can waltz through their workdays with the greatest of ease. They merely invoke the prospect of catastrophic economic collapse whenever anyone dares propose anything that might leave the wealthy even just a little less wealthier.
Without the rich getting richer, these shills will note smugly, we’ll have no one to create jobs or keep the stock market humming.
But what can apologists for the awesomely affluent threaten after an economy has already collapsed? What do they do then? Here’s what they do: They get desperate — and even more reckless than usual. They play games with stats. They torture logic. They invent ever more fanciful gloom-and-doom scenarios.
The statistical games, of late, have revolved around the rich as “refugees.”
The wealthy, fans of fortune have long argued, will flee any jurisdiction goofy enough to raise taxes on high incomes. Over the last year, a number of jurisdictions have raised taxes on the wealthy anyway, and that seems to have upped the pressure on the apologist crowd to “prove” the exodus effect.
Editorial writers at the Wall Street Journal made just such an attempt late last month when they jumped on a news report that one-third of Maryland’s millionaires had disappeared from the state’s tax rolls.
That “substantial decline,” the Journal editorialized, demonstrates the “futility of soaking the rich.” The “fleeced taxpayers” of Maryland, the Journal asserted, had decided to “fight back.” They were leaving the state.
And what “soaking” had Maryland done? In 2008, the top state tax rate on income over $1 million had risen from 4.75 to 6.25 percent.
Could an increase this modest actually drive Maryland millionaires to pull up stakes and leave hearth and home behind? Perhaps. But so far, despite the feverish claims of the Wall Street Journal editorial page and similarly minded media outlets, no evidence is actually showing any Maryland millionaire exodus.
The number of taxable returns with over $1 million in 2008 income, the Institute on Taxation and Economic Policy notes in a detailed analysis of the Wall Street Journal’s exodus stance, has indeed dropped. But the number of returns with income just under $1 million “has risen noticeably.”
The supposed “exodus” of Maryland’s rich, in other words, likely reflects a decline in the number of Marylanders with $1 million in income. Last year, amid the Wall Street nosedive, wealthy Marylanders simply made less money.
In any case, the data the Journal cites to back up the exodus claim all come from a “preliminary” report on Maryland's 2008 tax collections. The final report won’t be out until October. Last year’s final report featured over three times more $1 million returns than the preliminary.
So much for the great Maryland millionaire exodus. Ready for some tortured logic? Last week the Harvard Business Review presented a hefty helping — from University of Chicago economist Steve Kaplan.
Kaplan’s Harvard Business Review contribution, entitled (Good) CEOs Are Underpaid, offers a provocative take on corporate executive compensation. The evidence, Kaplan contends, “indicates that CEOs typically aren't overpaid.”
What evidence? Paychecks for top CEOs, says Kaplan, aren’t rising as fast as paychecks for top hedge fund managers and other financiers. In 2007, he informs us, the hedge fund industry’s top 20 earned over $20 billion, almost triple the $7.5 billion combined income of the nation’s top 500 CEOs.
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.