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For the American wealthy, the year 1932 always conjures The Nightmare Scenario.
It was the year of reckoning both financially and politically.
After the 1929 crash and anemic recovery, American voters rose up in a wave of populist anger and sought to bring down the powerful cartels and plutocrats that they blamed for the country’s ills. Labor unrest was rife. In 1932, thousands of war veterans marched on Washington to demand their promised cash bonuses.
The year 1932 was the year Huey Long, “The Kingfish,” became a U.S. senator and launched his “Share Our Wealth” crusade, announcing that 4% of the American people own 85% of America’s wealth. (Today it’s closer to 60%). Long proclaimed, Michael Moore-like, that new limits had to be placed on the nation’s millionaires and billionaires:
“Giv’em a yacht! Giv’em a Palace! Send ‘em to Reno and give them a new wife when they want it, if that’s what they want. [Laughter] But when they’ve got everything on God’s loving earth that they can eat and they can wear and they can live in, and all that their children can live in and wear and eat, and all of their children’s children can use, then we’ve got to call Mr. Morgan and Mr. Mellon and Mr. Rockefeller back and say, come back here, put that stuff back on this table here that you took away from here that you don’t need. Leave something else for the American people to consume.”
The same year, FDR was elected President and pushed through a tax increase on the wealthy that included a hike in the top rate to 63% from 35%.
The year 1932 was also the year that many of the wealthy recorded their biggest losses, as the “false bottoms” of 1930 and 1931 finally caved. In 1929, there were 413 Americans earning more than $1 million a year. In 1932, there were only 20, marking a 95% decline.
It was, in short, the annus horribilis for the American rich – both politically and financially.
Will 2012 mark a replay? It’s unlikely in politics, but financially, anything is possible.
Obama is no Huey Long, of course. His proposed tax hikes on the rich are more Clinton than FDR. Yet the big fear among the wealthy is that the election-year political rhetoric will fan the flames of the Occupy movement and create another historic assault on the wealthy, where the rich are universally vilified by the public, taxed more by Washington and targeted in the broader culture.
There are already signs of this coming true. The Occupy movement is planning a new phase of “guerilla” tactics next year. Coverage of inequality and anger against the wealthy have reached a fever pitch (even if inequality is actually declining). New York has led the way to raising taxes on the wealthy, after promising not to. And even the Republicans are using “wealthy” as the ultimate insult against each other.
But the likely reality is that when it comes to policy, 2012 won’t come anywhere near 1932. National politics may shift slightly to the left next year, they won’t go as far as 1932. In the end, Americans care more about growth than inequality.
The real risks for the rich are in financial markets. As we’ve seen among today’s High-Beta Rich, financial markets make or break today’s big fortunes. Given the recent volatility, the real risk of a return to 1932 lies in the stock market – not in Washington.
Do you think 2012 will bear any similarities to 1932 for the rich?
Call it the “Great Sandy Weill Yard Sale.”
Ex-Citigroup CEO Sandy Weill just sold his penthouse in 15 Central Park West for a reported $88 million, making it the most expensive home ever sold in Manhattan. (Apparently, it will be used as a kind of second dorm room for university student Ekaterina Rybolovleva, the 22-year-old daughter of Russian billionaire and fertilizer magnate Dmitry Rybolovlev).
Now Weill is trying to sell his boat. The 200-foot Feadship, named April Fool, can be yours for a mere $69.5 million. The boat has a huge master stateroom, a Jacuzzi on the fourth-level sun deck and a sprawling outdoor eating lounge. (More pics here.)
Weill has only had the boat about five years, after upgrading from his smaller, previous yacht.
It’s unlikely that he needs the cash, since he has vowed to give his penthouse proceeds to charity and he recently paid $31 million for a 362-acre estate and vineyard in Sonoma County, Calif. Maybe he and his wife, Joan, are just “downsizing a little bit,” as he told the Wall Street Journal last month.
Weill’s office didn’t immediately return a call for comment.
Selling a yacht these days, however, is not as easy as selling a penthouse on Central Park.
The sad truth for yacht sellers is that the world simply has too many unsold boats at the moment. Financing is tight. The global financial outlook is uncertain. And as much as we hear about the rich getting richer, there are only so many Russian billionaires to go around.
“The market’s tough,” said Jonathan Beckett, CEO of Burgess, the yacht broker that’s selling April Fool. “There just aren’t a lot of people around who are looking to spend money on large super-yachts. There are plenty of people looking for a bargain, but not a lot of people willing to pay full price.”
Beckett declined any comment on the boat’s ownership or reasons for the sale. But he April Fool is in pristine condition, since it “was rarely used and never chartered.” Feadships, he adds, are the “Rolls Royce” of yachts. It also has an elevator, which is rare for a boat of less than 250 feet.
Lost in the hyper-politicized debate over taxing the rich is one critical fact: the wealthy are bad taxpayers.
I don’t mean that they avoid taxes (though they do). I mean that of all economic groups in the U.S., the wealthy are the most unpredictable and unstable. (For more on their booms and busts, see here).
In an op-ed in the Philadelphia Inquirer, conservative author Brendan Miniter argues that raising taxes on the 1% would make an already precarious revenue stream even more dangerous. Take California, which derives more than 40% of its personal income-tax collections from the 1%. A study showed that the decline in incomes among those making $200,000 or more accounted for 93% of the state’s revenue decline between 2007 and 2008.
In other words, what’s wrong with California? The manic incomes of the rich.
He also cites New York as an example of the dangers of depending on the rich.
“The truth is that the wealthy are unreliable taxpayers because their income is volatile,” he writes.
His answer is to avoid taxes on the wealthy and to cut government spending – the usual conservative position.
Yet the volatility argument doesn’t have to lead to lower taxes on the wealthy. Another solution to the problem is to keep or raise taxes on the wealthy, but allocate their boom-time revenues to one-time infrastructure projects, like roads, bridges and school buildings. If the incomes of the rich crash (which they always do), the state won’t have to cut ongoing programs.
Another solution, ala Massachusetts, is to create a real rainy day fund, with enough money put away during a bubble to fund the aftermath.
What do you think is the solution to the extreme volatility of revenues from the rich?
We hear it every day: “Inequality is at an all-time high.” America has woken up to the real crime — the gap between the rich and the poor. The President says it. Pundits say it. The Occupiers are living, breathing proof.
There’s just one flaw: Americans as a whole aren’t more concerned about inequality.
According to a recent Gallup poll, 52% of Americans say the rich-poor gap is “an acceptable part of our economic system.” A slightly lower 45% said the gap “needs to be fixed.”
Those are high numbers, no doubt. But Gallup says Americans are less concerned about inequality now than they were in 1998. In 1998, 52% of Americans wanted to “fix” inequality.
The survey found that Americans prefer growth over a reduction in inequality. Some 82% said growth was either “extremely” or “very” important; only 46% said “reducing the income and wealth gap between rich and poor” was “extremely” or “very” important.
“In short, the public wants fairness but retains a healthy skepticism about the federal government’s ability to achieve it,” as Charles Lanewrites in the Washington Post.
Inequality crusaders will say Americans just don’’t understand the problem. If they knew the real numbers, that 45% who said the gap “needs to be fixed” would be much higher. Others say Americans have simply become numb to the problem.
But there is another possible explanation for why Americans care less about inequality today than they did in 1998. Inequality itself is lower than it was in 1998.
I know this is hard to believe. But the most recent data from the IRS and Federal Reserve show that income inequality was lower in 2009 (the latest period available) than it was in 1995. The top 1% of earners held 16.93% of the nation’s income in 2009. In 1998, their share was 18.47%.
Their share of wealth is flat or down. “The share of the wealthiest one percent has shown no significant change since 1995,” according to arecent study by the Federal Reserve. In 1998, the richest 1% held 33.9% of the wealth. In 2009, it was 33.3%.
Would Americans notice the declines? Not likely. And the numbers may have changed since 2009.
But the stats showing flat to lower inequality may help explain why Americans aren’t more concerned about inequality than they were in 1998 – especially given how much it’s being covered in the media.
Why do you think Americans are less worried about the wealth gap than they were in 1998?
Yale University just released its top 10 quotes of the year. The rich, as is their wont, held a disproportionate share of the top.
The number one, two and three quotes were all about the rich, or more specifically, about the anti-rich. They were, in order:
1. “We are the 99 percent.” — slogan of Occupy movement.
2. “There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for.” — U.S. Sen. candidate Elizabeth Warren, speaking in Andover, Mass., in August.
3. “My friends and I have been coddled long enough by a billionaire-friendly Congress.” — Billionaire Warren Buffett, in a New York Times op-ed on Aug. 15.
As a full-time Wealth Watcher, I spotted some other quotes that should rank right up there. And not all were anti-rich.
To round out the top 10, here are seven of my favorites from this year’s Wealth Report:
4 - “He’s a wealthy man, a very wealthy man. If you have a half a million-dollar purchase from Tiffany’s, you’re not a middle-class American.” — Mitt Romney (who has a net worth of $160 million-plus on lesser millionaire Newt Gingrich)
5 - “Rather than assume that the wealthy are a monolithic, selfish and unfeeling lot who must be subjugated by the force of the state, set a tone that encourages people of good will to meet in the middle.” — Leon Cooperman, open letter to President Obama.
6 - “My personal taxes are 53% of my taxable income. That’s 36% on the federal level and 17% for state and local.” — Private-equity chief Steve Schwarzman on taxing the rich more.
7 - “When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.” — Nick Hanauer, entrepreneur who supports higher taxes on the wealthy.
8 - “That would probably be the largest support order in the history of the Family Court.” — Manhattan Family Court Support Magistrate Matthew Troy, on Linda Evangelista’s request for $46,000 a month in child support for her three-year old.
9 - “As with the onset of sudden celebrity, for the newly rich, the world often becomes a darker, narrower, less generous place; a paradox that elicits scant sympathy, but is nonetheless true.” — British millionaire Felix Dennis in his new book, “The Narrow Road.”
10 - “It only lasted 15 minutes but the flavors will last in the memory forever.” — Businessman Carl Weininger after eating his $34,000 pudding.
What are some of your favorite wealth quotes of the year?
On Saturday, we published a new test designed to allow readers to test their “Wealth Beta.”
It’s a kind of risk diagnosis for today’s wealthy and future wealthy. In my book, I describe our new age of the High-Beta Rich – i.e., millionaires and billionaires who experience manic booms and busts – the test is designed to determine the respondent’s vulnerability to wealth shocks.
I’ve received dozens of emails from readers who took the test. Many were proud of their results. “I’m a Low Beta and proud!” wrote Richard from Florida.
“As someone who fell out of the top 1 percent and has made and lost money four times now I certainly understand this roller coaster ride called life,” wrote a reader named Danny.
A few readers wondered if the results applied equally to the nonwealthy. For instance, a reader named Patrick wrote: “We own the home we reside in year long and a summer cottage which together form probably 30% of our net worth. But to say that increases our Beta may be misleading.”
All in all, however, the readers were surprised to learn how little debt and how little wealth concentration can put a fortune at risk
My hope is to improve and expand the test to be more precise. Here is the test below. What questions would you add or change?
To find out your “beta” rating—a measure of the volatility of your wealth relative to everyone else—answer these seven questions.
1. Is your total debt relative to net worth …
Less than 10% (1 point)
Between 10%-20% (2 points)
More than 20% (3 points)
2. Is your total annual spending relative to net worth …
Less than 3% (1 point)
Between 3%-5% (2 points)
More than 5% (3 points)
3. Your most valuable asset is what percentage of your total net worth?
Less than 10% (1 point)
Between 10%-20% (2 points)
More than 20% (3 points)
4. What percentage of your total wealth is illiquid—that is, invested in a house, company or investment that can’t quickly be converted to cash?
Less than 10% (1 point)
Between 10%-20% (2 points)
More than 20% (3 points)
5. How often do you gamble, bet or play the lottery?
Never or almost never (1 point)
Once a month (2 points)
More than once a month (3 points)
6. In social or business situations, do you believe you are the smartest person in the room?
Never (1 point)
Sometimes (2 points)
Most of the time or always (3 points)
7. Do you think your lifestyle five years from now will be …
Worse (1 point)
Unsure or the same (2 points)
Much better (3 points)
SCORE
7–10: Low beta
11–15: Medium beta
15–19: High beta
19 or higher: High-beta crash waiting to happen
The GOP is supposed to be the party that celebrates individual success and achievement. Leave the politics of envy to the Democrats, Republicans always say. The GOP is about dynamism, unleashing the creative forces of growth and rewarding the hard-working, job-creating wealth builders.
Or they used to be. Last night saw a remarkable moment in the changing politics of wealth. One Republican candidate accused the other of being “wealthy.” And it wasn’t mean to be a compliment.
Mitt Romney – net worth $190 million plus – told CBS News that rival Newt Gingrich (net worth more than $6 million) is too wealthy to be in touch with the middle class.
“He’s a wealthy man, a very wealthy man,” Romney said. “If you have a half a million dollar purchase from Tiffany’s, you’re not a middle class American.”
Let’s set aside for a moment the issue of pots calling kettles black (or pearls calling the diamonds blingy). And we all know this is Romney’s effort to deflect criticism from his “$10,000 is mere pocket change” betting gaffe.
The important message here is that even among Republican voters, wealth may now be a dirty word. The real class warfare is between the 1% and the top 1% of the 1% — between the millionaire politicians and the centi-millionaire candidates. The Democratic anti-wealth narrative is creeping into the supposedly wealth-protecting ranks of the GOP.
Romney, who once touted his financial success in business as a qualification for his presidency, now uses “wealthy” as the ultimate insult.
The question is whether any rich candidates can win voters in the current wave of populist rhetoric. Recall the elections of 2010 – most of the self-financed, rich candidates failed.
There was Jeff Greene in Florida, who spent his whole Senate campaign defending his yacht. There was Meg Whitman in California, who spent more than $140 million of her own money and was attacked for being overly cavalier about money.
And there was Linda McMahon, the pro wrestling queen who lost her Senate bid in Connecticut despite contributing around $50 million of her own cash.
Of the 58 federal-level candidates who contributed at least a half-million dollars to their own campaigns, fewer than one in five won the seat they had sought, according to the Center for Responsive Politics.
There were lots of reasons for the losses. But even before the Occupy movement, voters clearly showed a lack of enthusiasm and maybe even a distaste for wealthy candidates.
The question is: Can any wealthy candidate become president in 2012?
The butler economy may be slow to rebound in the U.S., but it’s booming in China.
According to Bloomberg, Britain’s Guild of Professional English Butlers has trained 20% more butlers in 2011 than 2010, and demand is outstripping supply. The Bespoke Bureau in London, which also trains butlers, said butler training is up 52%. Bespoke recently placed a butler with a salary of $158,390 for a rich family in the United Arab Emirates, the article said.
“There is a shortage of them,” Bespoke’s owner told Bloomberg.
One big reason: China.
The newly wealthy in China, India and the Middle East want a classic British butler to accessorize their newly purchased mansions, villas and London townhouses.
“They are discovering that if you spend $8 million on a villa with marble flooring, you need someone to come along who knows what they are doing,” Robert Watson of Britain’s Guild told Bloomberg.
As for the U.S., the butler bust of 2008 and 2009 is subsiding but salaries and demand have yet to return to 2007 levels. In my book, I profile a few of the laid-off butlers who are trying to make a comeback in a tepid staffing economy.
One butler, Lloyd White, decided that the whole butler gig needed a rethink. After losing his job working for a former billionaire, he started his own company called “The Occasional Butler.”
As an occasional butler, he charges about $50 an hour to create and staff parties and events for the semi-wealthy and affluent. He said he often gets his party supplies at Costco and can throw a good bash for about $300 – a far cry from his days serving sushi on the Gulfstream.
“These aren’t the ultra-rich, like I used to work for,” he said. “But they still like to have a nice party once in a while.”
It’s the perfect business model for our times. The occasional butler for the occasionally rich.
Do you think butlers will make a comeback in the U.S.?
The Occupiers cite inequality and the ill-gotten gains of the wealthy as a chief cause for the nation’s economic ills.
Yet as I’ve written before, inequality today (by any measure) is lower than it was during the boom times of 2007.
The New York Times looks at the data today and notes that the income share of the top 1% fell to 17% in 2009 (the latest period available) from 23% in 2007. The average income of the one-percenters fell a surprising 32%, to $957,000 from $1.4 million.
We shouldn’t shed a tear for these sub-million-dollar earners, of course. (As The Times says: “Hold the condolence cards.”) And their incomes probably rebounded (somewhat) with the markets in 2010.
But the income stats highlight the swings of the “High-Beta Rich” – the new class of rich people who have huge jumps and crashes in wealth and income because of their reliance on financial markets.
They also highlight the fact that recessions have been the only regular reducers of inequality over the past 30 years. The declines are temporary. But recession-induced equality has had the desired effect for the Occupiers — a smaller gap between the 1% and the rest.
All of which raises a key question: Is inequality a necessary side-effect of growth, or a disease that ultimately reduces growth?
Steven Neil Kaplan of the University of Chicago’s Booth School of Business tells the Times: “If you want to reduce inequality, all you need to do is put the economy in a recession. If you want the economy to do well, as all of us do, then you’ll get more inequality.”
Others disagree. In a piece in The Economist, Mark Thoma argues that inequality can reach such high levels that it reduces economic growth. Perfect equality lowers growth because people lose incentives to get ahead, while extreme inequality (where one person or group gets all the growth) also reduces incentives.
“We may be near or even past the level of inequality where growth begins falling,” Thoma writes.
For the past 30 years, however, the surest way to reduce inequality in America has been to have a recession. And when the rich lost, the rest didn’t gain.
Do you think inequality is a necessary by product of economic growth?
President Obama was criticized by conservatives for suggesting that an income of $250,000 a year made people rich.
If anything, however, Mr. Obama may have been aiming too high.
A new Gallup poll shows that Americans say they would need to earn a median of $150,000, or have $1 million in total net worth, to consider themselves rich. The $150,000 in income puts you roughly in the top 10%.
On the income side, 30% said they would need to earn less than $100,000. And another 18% said $60,000 a year would make them rich. Fully 15% said they would need to earn $1 million or more a year to think of themselves as rich.
Those who lived in cities said they would need twice as much ($200,000) than what those who live in towns or rural areas said they needed ($100,000).
Men also say they need more than women: $150,000 compared with $100,000.
As a whole, the results show that “Americans would need quite a bit less than what the wealthiest 1% of Americans earn to consider themselves rich,” Gallup says.
Income, however, differs from wealth. And to be rich in net worth requires a median of $1 million, according to the survey. That’s the same response Americans gave in 2003. Fully 26% of respondents said they needed $1 million or more to be rich, while 14% said $5 million or more and 13% said $100,000 or more.
What do you think counts as rich in income and net worth?
The biggest winners in the world’s most winning economy are losing confidence.
According to a survey from Allianz China Life Insurance, the Chinese wealthy are putting more money into cash and less into stock, real-estate and other investments.
“Compared to three years ago, the rich people care more about the safety of their wealth than the returns,” said Liu Jian, the survey’s chief researcher.
They still have big exposure to risk –especially to real-estate. The survey, which polled individuals with more than $78,520 and $157,000 in investments (which apparently counts as “rich” in China for survey purposes) , said that property makes up 75% of the respondents’ assets.
The survey bolsters recent evidence that the froth may be settling on the Chinese luxury and auction markets. A recent Christie’s auction of Chinese contemporary art came up far short of expectations, with six of the 14 lots failed to sell for the minimums and four sold below their low estimate.
Christie’s wine sales have also been tepid. Recent sales saw higher unsold lots than previous auctions.
“I did really expect it to go better,” Christie’s wine sales chief, Charles Curtis told Reuters. “I knew that Lafite was soft and that it had struggled in my competitor’s auctions in recent months but I didn’t realize the depth of the problem.”
The depth of the problem is indeed the problem. The Chinese rich have been supporting markets for everything from Bordeauxs to Birkin bags and Gulfstreams, making up for slack demand in the U.S. and Europe. If the Chinese economy has a hard landing, the newly rich are sure to take a hit.
If they lose their consuming confidence, the business of selling to the global rich will become a lot tougher.
Do you think the Chinese rich will have a hard landing?
The definition of “rich” keeps rising.
It started with $250,000 a year in 2008. Then it went to $1 million a year for the initial Buffett Rule. Now, New York has decided that $2 million a year ranks as rich.
Governor Cuomo’s latest budget plans calls for raising $1.9 billion from households earning $2 million or more a year. If passed, the tax rate for the $2 million plussers (bi-millionaires? Duo-millionaires?) would be 8.82% until December 2014.
Currently, they pay 8.97% under the so-called millionaire’s tax that was scheduled to expire Dec. 31 and that covers those making $500,000 or more. Without the new levy, the tax rate for the bi-millionaires would have gone down to 6.65%.
So how many $2 million-plussers are there in New York?
The state doesn’t break out $2 million-plus earners. But they do break out $1 million-plus and $5 million-plus taxpayers, which gives us a ballpark.
According to their latest data in 2008, there were 35,763 taxpayers who reported AGI of $1 million or more. Of that group, 4,459 reported AGI of $5 million or more. The $1 million-plussers represented 0.6% of the state’s tax filers and earned a total of $143 billion, or a quarter of the state’s personal income. They paid more than 32% of the state’s personal-income taxes.
Of course, 2008 was a long time ago in rich people terms, since their incomes have gone through huge swings in the subsequent years. Wall Street has been rapidly shedding jobs and incomes, which is a big reason New York has such a large budget gap.
But if the 2008 numbers are roughly accurate, those 20,000 people would each contribute an average of $82,000 to the new revenue pool.
(The state tax department says there are about 31,500 taxpayers are in the new tax bracket but about half are non-residents).
D0 you think $2 million is the right cut-off for the new tax?
I’ve written before about the myth of sudden inequality. While income inequality has increased dramatically over the past 30 years, it’s declined since 2007 and wealth inequality is actually lower than it was in 1995 – raising questions about the link between inequality and the current unemployment rate.
A new report puts an even finer point on changes in inequality.
“Basically,” the report finds “income inequality hasn’t changed in 25 years.”
The study, by Ronald M. Schmidt, of the William E. Simon Graduate School of Business Administration University of Rochester, challenges the recent CBO report that found that income inequality expanded dramatically between 1979 and 2007. That report said the incomes of the top 1% grew by 275% over the period, while incomes for most Americans grew by 40% or less.
Schmidt’s study said that most of the CBO’s cited growth in inequality happened between 1979 and 1986. “Most of the increase from 1979 and 2009 had occurred by 1986,” he writes.
Any increases in inequality during the 2000s was “wiped out” by the current recession, which saw incomes at the top fall more than the rest as of 2009. “In fact,” he writes, “there was a marked decline in income inequality over the entire decade” of the 2000s.
I should note that the post-2009 data may tell a different story. Inequality may well have dipped temporarily in 2009 but rebounded with stock markets in 2010 and 2011. Inequality may actually be higher today than it was in 2007. And even if it’s not, inequality in America is still high compared to other developed countries.
But as Schmidt points out, the most current data shows that the difference in average after-tax incomes between those making more than $500,000 and those making less than $500,000 was $1.5 million in 2000. That distance shrunk by $450,000 by 2009.
“A careful analysis reveals no significant deterioration in economic inequality that could serve as a pretext for raising taxes,” Schmidt argues.
Do you think “rising” inequality is a good reason to raise taxes on the rich?
If you’re feeling guilty about spending $40 for that Harry and David “Tower of Treats” this holiday season, consider Carl Weininger.
He’s a wealthy businessman who reportedly just paid $34,000 for a chocolate pudding.
British press reports say that Weininger forked over the princely sum for a chocolate-laced confectionary made at Lindeth Howe Country House Hotel in Windermere, Cumbria. The hotel is hoping to win the Guinness Book of World Records title for the world’s most expensive dessert — usurping the title from Serendipity 3 and it’s $25,000 “Frozen Haute Chocolate.”
This may well be a classic British publicity stunt. Press reports say Weininger brought the pudding to a ball recently and allowed others to have a taste – with each bite costing him an estimated $1,200.
“It was absolutely delicious, as you would expect, ” the 60-year-old businessman who told the Daily Mail, adding that he bought the pudding as a “pick-me-up” after being dumped by his girlfriend. “It only lasted 15 minutes but the flavors will last in the memory forever.”
(A spokesman for the Lindeth Howe hotel confirmed the reports).
What did he get for his $34,000? A 3” by 3” pudding made with a cover resembling a Faberge egg.The pudding is made with a light biscuit joconde and champagne jelly, infused with peach, orange and whiskey. The outside is garnished with edible gold leaf and handmade flowers and a diamond. (The British use the word “pudding” as a more general term for dessert, while Americans sue the word to refer to the creamy custard-like stuff).
A spokesman for Serendipity 3 said that he hadn’t heard of the pudding until I called him.
“I’d like to see how it compares to our own record-breaking dessert,” the spokesman said. Asked if the company would plan to top the $34,000 pudding, he said “In this tough economy, we’ll probably leave that alone.”
Yet you can already hear the Occupiers chant: “Let them Eat Pudding!”
Congress may be deadlocked on the issue of taxing the rich, but states are increasingly leaning toward raising revenues from the wealthy.
News that New York governor Andrew Cuomo is no longer ruling out raising taxes on the wealthy follows reports that California governor Jerry Brown may file a ballot initiative asking voters to hike taxes for those making more than $250,000 a year.
These are two liberal states, of course. But together, they account for more than 20% of the nation’s millionaires. And until recently both governors had resisted pressures to raise taxes on the wealthy.
Many say the Occupy Wall Street movement has helped change the debate over inequality and taxing the rich. And it probably played a role. But the real catalysts for taxing the rich are gaping and growing state budget holes. States need money, so (Willie Sutton-like), they’re going where the money is.
New York faces a possible $3 billion to $3.5 billion deficit for 2012-2013. California’s could be upwards of $13 billion over the next 18 months.
The tax increases, along with others that are sure to come in more liberal states, may cheer the majority of voters who support them. And with high inequality, it may even be smart politics.
But from an economic perspective raising taxes on the rich will cause already volatile state finances to become even more manic.
As I’ve written before, states are already highly dependent on the taxes of the 1%. Both California and New York already get more than 40% of their personal-income tax revenue from the top 1% of earners. Our new age of “High-Beta Wealth” means that those 1% are the most volatile segment of the population, with violent swings both up and down driven by stock markets.
But markets are more volatile today than they’ve been in years. And in the long term, states are piling more and more risk onto the most risky part of the tax base.
If going to increase their dependence on the rich, states should also create real rainy day funds that can smooth out the high-beta spikes and crashes that are sure to accompany any tax hikes on the rich.
The Wealth Report is a daily blog focused on the culture and economy of the wealthy. It is written by Robert Frank, a senior writer for the Wall Street Journal and author of the newly released book “THE HIGH-BETA RICH.”
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