Baloney, Inequality and Mitt's Family Fortune
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Want to really understand how dramatically the distribution of wealth and income in the United States has changed over the past half-century? To gain that understanding, you could go poring through reams of dense research data. Or you could take a shorter route. You could simply consider the family financial history of Mitt Romney, Wall Street's favorite son in the race for the 2008 Republican Presidential nomination.
This Romney family history encapsulates, over the span of a single generation, just about every dominant trend that has shaped our increasingly unequal times. The tilt to the top. The squeeze on the middle. The assault on honest labor. Mitt Romney, for his part, appears to have precious little interest in telling this story -- or discussing anything else about inequality. "I don't believe," he opined at a recent campaign stop in New Hampshire, "in this baloney that there are two Americas."
But we don't need Mitt to narrate the story of his family's evolving financial fortunes. The details are already sitting in the public record.
Our story starts in 1954, the year that Mitt's dad George became the chief executive of American Motors, the newly created company that had just emerged from what qualified, at the time, as the largest corporate merger in U.S. business history.
George Romney's new executive status, not surprisingly, quickly catapulted the Romney family into the nation's economic elite, the most affluent 0.01 percent of U.S. income-earners. But here's the surprising part. George Romney's new status did not make him super-rich.
In fact, as the top exec at American Motors, George Romney never made more than $225,000 a year. His total annual income over these years -- his auto industry take-home coupled with gains from his personal investments -- only averaged $275,000. That's just $1.8 million in today's dollars, points out New York Times reporter David Leonhardt, a sum not even close to the near $10 million that a corporate executive needed to make in 2005 to enter the ranks of America's topmost 0.01.
And that's also not the only difference between the wealthy in George Romney's time and ours. Back in 1960, taxpayers who reported $275,000 in income paid on average, after exploiting every loophole they could find, just under 44 percent of that income in federal taxes. By contrast, in 2005, the most recent year with IRS data available, taxpayers in America's most affluent 0.01 percent -- average income, $27.3 million -- paid only 20.9 percent of that to Uncle Sam.
In other words, back in George Romney's heyday, America's most affluent one-hundredth of 1 percent paid over twice as much of their income in taxes as their counterparts do today. And they started out, after adjusting for inflation, with considerably less income! What about average Americans, then and now? In George Romney's 1960, American workers were enjoying their most prosperous years ever. Over the quarter century right after World War II, the real incomes of average Americans more than doubled. Indeed, incomes for average Americans jumped faster in these postwar years than incomes for wealthy Americans like George Romney. In 1940, the last full year before U.S. entry into World War II, the most affluent 0.01 percent of U.S. households took home 336 times more income than the average household in the bottom 90 percent. The gap in 1960: only 158 times.
The gap today? A stunning 893 times. What has made today's United States so much more unequal? The quick answer: The twin pillars of growing economic equality back in George Romney's time -- a vital trade union presence throughout the economy and a steeply graduated progressive income tax -- have both crumbled. George Romney's American Motors paid good union wages, as did, at the time, almost all major U.S. companies outside the South. Widespread collective bargaining -- a third of private-sector workers carried union cards -- helped make sure that companies shared the wealth their operations created.
The federal income tax, meanwhile, reinforced this sharing impulse. In 1960, the top tax rate on income over $400,000 stood at 91 percent. Corporate boards then, as now, could pay their top executives whatever they chose. But why bother -- when so little above $400,000 would actually end up in executive pockets? Mitt Romney, George Romney's son, hasn't had to worry about 91 percent top marginal tax rates -- or unions either. He came of business executive age in the early 1980s. By that time, the Reagan "revolution" had already begun sharply shrinking both unions and tax rates on high incomes.
Mitt, first as a private equity company CEO and later as an "anti-tax" pol, has done his best to help this shrinking along. George Romney's American Motors regularly bargained with unions over wages, hours, and working conditions. Private equity companies don't bargain with the workers at the companies they take over. They demand concessions from them. These concessions in hand, private equity execs then quickly turn around and sell their acquisitions, now lusciously profitable, at steep premiums, in the process reaping personal paydays that can routinely reach $50 or even $100 million.
And on these millions, private equity kingpins pay taxes at just a 15 percent rate, the current tax rate on capital gains. On income that doesn't qualify for this preferential capital gains treatment, deep pockets like Mitt Romney today never need to pay taxes at rates higher than 35 percent. Thanks to these precious low tax rates, Mitt now holds a fortune worth as much as $350 million. Out of that sum, he has already spent more on his own Presidential campaign -- over $17 million -- than his dad George earned in his entire business career.
Mitt sees nothing wrong with this picture. Do the American people? In 2008, we'll find out.
Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.