IRS Steps Up Audits of Millionaires

The $105,000 Bar Tab

The Twitter world is atwitter with a photo of a spectacular  bar tab in Dubai.

The now infamous receipt is from the Cavalli Club, the posh bar at the Fairmont Hotel in Dubai. It’s dated 3:19 a.m. on Monday. The amount:  $105,000.

And that doesn’t include dinner – only drinks. Apparently, however, it did include a birthday cake, suggesting that this epic drinking binge at least had a celebratory purpose.

The identity and nationality of the payer is not known. Yet the bill, confirmed by the club,  is being seen as a sign that extravagance has returned to Dubai, which you might recall had some cash flow problems in 2009. According to the Cavalli Club’s operations manager, tabs of $105,000 or more are now commonplace.

“Spend of this nature is not unusual at Cavalli Club,” he told the The National.

What was the mystery drinker (or drinkers) drinking? Here’s are some of the items on the receipt, which says as much about the mark-ups at the Cavalli Club as the state of hyper-consumption in the Middle East.

– One 6 liter bottler of Cristal Champagne – $35,000

– Two 2-litre bottles of Cristal for $19,000

– 13 Bottles of Roederer Cristal for $23,000 (or about $1,800 each).

– 24 Diet Cokes at $6 each.

– 10 Red Bulls at $7.80 each

– One 3 liter bottle of Cavalli vodka at $1,341.

– Four bottles of Chivas for $1,181

The cake slice was the bargain of the night, coming in at only $32.

What’s the biggest bar or restaurant tab that you’ve ever seen?

Pawnbrokers to the Rich Boom in Britain

Here’s more proof that the age of High-Beta Wealth is going global.

An article in the Times of London notes that the business of pawning for the rich is exploding in London.

“Bankers whose bonuses have not materialized, entrepreneurs suffering temporary lulls in cash flow and other formerly wealthy individuals are seeking respite at the pawnshop, more typically the refuge of the destitute,” the article states.

Apparently, the business of pawning Ferraris, fine art, Rolexes and and Cartier jewels has never been better. A pawn business called borro is sending tow trucks to posh enclaves like Kensington, Chelsea and Fulham to pick up an ever growing list of Porsches and BMW’s.

He said that the the volume of clients has more than doubled and the average size of loan has tripled. Clients can borrow up to $1.5 million as long as they have good credit, but the interest rates on the biggest loans can top 60%.

Why would the rich pay such rates?

Just as we’ve seen in the U.S., today’s rich are increasingly reliant on financial markets and therefore more prone to sudden income shocks that can leave them short of cash. Sometimes those shortages are temporary. Sometimes they signal long-term collapse. Either way, the over-leveraged, over-spending High-Betas continued to fuel a rise in high-end repo men and pawn shops to the wealthy.

This year’s bad bonus season (bad still being relative if you’re unemployed) will only add to the business.

The fact that the rise of High-Beta pawn shops is happening at the same time as the rise in luxury sales is not inconsistent. First, most of the luxury growth is in Asia. Second, the 1% is such a fast-changing group that some of the newer arrivals to wealth are celebrating with bling while the departing rich are headed to the pawn shops.

Why do you think high-end pawn shops are booming at a time when the rich are supposedly getting richer?

Romney Is Richest Candidate in a Decade

Large wealth is an asset for most things in life – except, perhaps, running for President.

Mitt Romney is facing increasing criticism (even among fellow Republicans)  for his personal fortune and his perch atop the American elite. For anyone who doubts the voter unease with the rich, look no further than Romney himself, who called Newt Gingrich “a wealthy man.” And he didn’t mean it as a compliment.

A new study shows that Romney is, in fact, the richest Presidential candidate since Steve Forbes in 2000.

The study, by Wealth-X, shows that Romney’s net worth of around $250 million puts him easily ahead of the Bush family, John Kerry, John McCain, John Edwards and the Clintons. The only two candidates over the past 20 years who were richer than Romney were Forbes and Ross Perot.

Needless to say, their wealth didn’t get them elected, and may have been a negative.

“Romney’s among the 0.001 percent in the U.S with a net worth of at least US$250 million,” said  David S. Friedman, Co-Founder and Executive Vice President of Wealth-X. “There’s a lot of attention on the wealth of these presidential candidates as the race heats up.”

You can click the chart to see the full list.

Do you think Romney’s wealth will help or hurt him with voters ion 2012?

China Beats U.S. in Buying Rolls-Royces

When it comes to mapping the world’s changing plutocracy, the Rolls-Royce Index is among the more useful tools.

Simply put, it measures which country is buying the most Rolls-Royces. The index not only gives us a sense of the country’s with the most excess wealth to burn (a base model Rolls will set you back at least $245,000), but also the citizens who are most anxious to display it. For ages, America has topped the list.

But 2011, China beat out the U.S. to top the index for the first time.

According to a report in the L.A. Times, the country known only a decade ago as the bicycle capital of the world now leads in Rolls Royce buying.  To honor their new best customers, Rolls is unveiling “Year of the Dragon” models “with hand-embroidered versions of mythical animals on leather headrests.” The sticker price: $1.6 million.

Many of China’s Rolls buyers are heirs and heiresses, rather than self-made rich.

“Our customers are super-rich, second-generation young people who have inherited money or whose parents buy them cars,” Wilson Ho of the dealership and luxury group Sparkle Rolls. “Chinese parents love their kids. They’ll buy them whatever they like.”

Rolls Royce said the official numbers for 2011 won’t be out until Jan. 9, and it never breaks out country by country sales. In 2010, the company had its best year ever with 2,711 cars sold globally and 2011 will be even better.

The company said that as of June of 2011, Asia Pacific led the world in Rolls sales growth. While sales in North American grew 40%, sales in Asia/Pac grew 170%. Here is the 2010 Rolls Index, which will presumably be updated soon.

Largest markets in the world for Rolls-Royce in 2010:

1. US
2. China
3. UK
4. UAE
5. Japan

Do you think China will hold onto its #1 Rank in the Rolls Index?

Will 2012 Be The Next “1932″ for the Wealthy?

For Sale: Sandy Weill’s Yacht

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.

Why the Rich Are ‘Unreliable Taxpayers.’

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?

Americans Not As Worried About the Rich-Poor Gap

Top 10 Wealth Quotes of the Year

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?

How High Is Your Wealth Beta?

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 New Four-Letter Word in GOP Politics: Rich

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?

China Needs Butlers

How to Solve Inequality? A Really Bad Recession

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?

Americans Say $150,000 a Year is ‘Rich’