The Ten Million Dollar-per-week Club
posted by Frank Pasquale
Many commentators on inequality have focused on bonus culture at financial firms. Finance professionals do represent about 18% of taxpayers in the top tenth of one percent, as Bakija & Heim have shown. (In 2005, the minimum income for joining the top 0.1% was $1,246,000.) But Bakija & Heim also found that “executives, managers, and supervisors” at nonfinancial firms made up about 41% of the top 0.1% earners. And when we look at recent payroll tax data, as David Cay Johnston has, the unequal share of income at the very top of this rarefied group is nothing less than spectacular:
The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story. The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That’s nearly $10 million in weekly pay! . . . .
Since 1980, the bottom 90 percent of Americans have seen their incomes go nowhere, while on the highest steps of the income ladder, the further up you are, the greater your gains.
Johnston’s analysis is worth reading in full. We’re moving from a “winner take all society” to a “winner take all politics,” as Hacker and Pierson have shown. Many in the ostensibly populist “Tea Party” resist any taxes to address this inequality, while somehow the “left” position seems unable to distinguish between the taxation of a surgeon making $400,000 and a tycoon making $400,000,000. Indeed, the main goal of some key Clinton and Obama era advisors seems to be to join the club: Robert Rubin collected more than $115 million in compensation.
We often hear about “shared sacrifice” today. If we don’t see more graduated income tax rates at the very top, it will be difficult to resist the suspicion that “austerity” is a guise for, once again, increasing the share of national income at the very top.
October 25, 2010 at 9:42 am
Posted in: Law and Inequality, Tax, Uncategorized
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Responses (8)
Orin Kerr - October 25, 2010 at 10:14 am
Johnston writes:
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The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story. The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That’s nearly $10 million in weekly pay! . . . .
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Given that we’re only talking about 74 people in a country with more than 300,000,000 people, isn’t it likely that this figure was the result of a few specific incomes by a handful of specific people that dramatically altered the mean rather than some broader trend in the national economy? For example, Mark Zuckerberg of Facebook made $3.4 billion in 2010, which is going to throw off the averages.
Frank Pasquale - October 25, 2010 at 1:08 pm
True, people like Zuck may skew the data for the “over-50 million crowd.” But to the extent they do, I think that supports a more graduated tax. If a centimillionaire deserves to be taxed at a higher rate than a millionaire, then a billionaire ought to be taxed at a higher rate than a centimillionaire. Neither the centimillionaire nor the billionaire will face financial hardship in life (unless they make spectacularly bad investment choices), but the billionaire is even further away from hardship than the centimillionaire.
Lawrence Cunningham - October 25, 2010 at 2:20 pm
“Mark Zuckerberg of Facebook made $3.4 billion in 2010″? I’d like to know how. My reckoning suggests Zuck’s income this year will probably be closer to zero than to that figure.
Facebook’s business value may currently be in the multi-billions, as estimated by investors like Microsoft and magazines like Forbes. And Zuck reportedly owns a big chunk of that, which Forbes guesses is worth about $4.9 billion. But, that’s an asset, not income, so isn’t subject to income taxation.
As I understand it, Facebook as a business isn’t yet ringing up regular profits, though the potential is there. Zuck’s personal taxable income can’t be but a small fraction of these figures, probably small enough to mean he isn’t even close to the $50 million per year income club. And depending the timing, form and treatment of his reported $100 million charitable donation to Newark schools, he may not have taxable income for many years to come.
Of course, that’s just my reckoning and I may be way off, since Facebook isn’t a public company. I’d be eager to be corrected.
Orin Kerr - October 25, 2010 at 5:00 pm
Larry,
I found that off the web but now I think it was wrong — my apologies.
Frank,
If the only question is financial hardship in life, then presumably 100% of income in the many millions should be taxed. Do you favor that?
Frank - October 25, 2010 at 8:36 pm
I would favor international agreements gradually ratcheting up taxation to near an 80% marginal rate for earnings above $100 million per year, along with strong international surveillance mechanisms to prevent earnings from migrating to “secrecy jurisdictions.” Without international agreements, it would be very hard for any country to go that high, though the Scandinavians may well be near that level.
I would allow certain fortunes not to be taxed the full 80% marginal rate, for those who found or funded solutions to problems that are pressing needs (cures for chronic diseases, green energy–and happy to entertain plenty of other possibilities).
I would hope that “libertarians of the second-best” might find some appeal in this proposal, particularly to the extent they worry about regulatory capture and mutual favors between big government and big business. Many of the largest fortunes owe a great deal to sweetheart government contracts, favorable regulatory decisions, etc. (Think of Carlos Slim’s telecom extravaganza in Mexico.)
Ante Uppasta - October 26, 2010 at 3:28 am
And mean while as the government allows them to enjoy their golden parachutes and disgustingly large bonuses, students everywhere are facing education debt at levels never seen before in our country. How about giving them at least the chance to file bankruptcy to discharge their loans, huh Obama??: http://lawblog.legalmatch.com/2010/10/25/should-jobless-graduates-get-a-tuition-refund/
john chung - October 29, 2010 at 12:55 pm
Frank, I think you’ve identified a big part of the problem against higher taxes. Many who oppose higher taxes on the rich think that rich means making high six-figures a year because those are the only kind of rich people they know. Very few people have met anyone who makes $1 million a month, a week, or even a day. I would guess most tea-partiers fall into this category because of their demographics. There are more people than one might think who live a life that is beyond comprehension to most people.
Etienn Couret - December 29, 2012 at 1:40 am
If a centimillionaire DESERVES to be taxed at a higher rate than a millionaire, then a billionaire OUGHT to be taxed at a higher rate than a centimillionaire. Neither the centimillionaire nor the billionaire WILL FACE FINACIAL HARDSHIP (unless they make spectacularly bad investment choices), but the billionaire is even further away from hardship than the centimillionaire.
These judgements have no place in policitcs. The politics of fairness. It makes no sense. These aren’t small town common sense ordinances that help us form our local society.
The tax system is a all encompassing resource allocation program meant to address the cumulative societal ills that cost our society more because we ignore them. We should talk about optimal tax rates rather than more progressive or regressive. Rates that maximize both revenue generated and economic output. While i tend to agree that lowering taxes is stimulative, lowering tax rates isn’t always offset by increased productivity and therefore increased tax revenues.
We should frame our public debates around optimal solutions and efficiency. Too often the issues are framed around equity, fairness, and balance between haves and have nots. This necessarily divides people. If optimal solutions are sought than no one can argue that their viewpoint is better for the country. The alternative is “things are fairer this way because I’m in power.”
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