The super-rich 1 percent

April 28, 2011

The wealth of the super-rich has grown astronomically for the last three decades. But that doesn't mean the rich are without their own troubles, writes Eric Ruder.

THROUGHOUT HISTORY, the persecution of minorities has haunted the "world's greatest democracy." But today, while many forms of discrimination have been put behind us in the U.S., fear and anxiety stalks one of America's last despised minorities--the top 1 percent.

The conditions of their torment are poorly understood by the rest of us, especially the 60 percent of workers who report that they scrape by paycheck to paycheck. As a consequence, the 1 percenters endure their suffering in private, further increasing their sense of social isolation and feelings of self-pity.

But thanks to the work of researchers at Boston College's Center on Wealth and Philanthropy, we have been afforded a peek into the psyche of this fragile group--Americans with fortunes worth at least $25 million.

"Sometimes I think that the only people in this country who worry more about money than the poor are the very wealthy," explains Robert Kenny, a psychologist who helped devise the survey. "They worry about losing it, they worry about how it's invested, they worry about the effect it's going to have. And as the zeroes increase, the dilemmas get bigger."

The winner take all economy

Those dilemmas are often painful--can we really afford that $3 million yacht? How is the housing crisis affecting the property value of our vacation home in Aspen, Colo.? And how does that compare to the mansion in Palm Springs or the villa in St. Tropez?

In fact, the survey reveals that almost all the respondents are preoccupied with the inadequacy of their vast fortunes. "Most of them still do not consider themselves financially secure," writes the Atlantic's Graeme Wood in "Secret Fears of the Super-Rich." "For that, they say, they would require on average one-quarter more wealth than they currently possess."

WELCOME TO the delusional world of the super-rich--where too much is never enough, and enough is more wealth than any individual in the history of the world has ever possessed.

Roughly 115,000 households in the U.S. contend with the psychological strain of possessing a $25 million treasure chest. The challenges are obviously daunting, but few realize that the super-rich can't even enjoy the simple pleasures that the rest of us occasionally take comfort in. As Wood explains:

A vast body of psychological evidence shows that the pleasures of consumption wear off through time and depend heavily on one's frame of reference. Most of us, for instance, occasionally spoil ourselves with outbursts of deliberate and perhaps excessive consumption: a fancy spa treatment, dinner at an expensive restaurant, a shopping spree. In the case of the very wealthy, such forms of consumption can become so commonplace as to lose all psychological benefit: constant luxury is, in a sense, no luxury at all.

On the other hand, those who can't afford even occasional "excessive consumption" at a luxury spa or expensive restaurant--such as the people who work at such spas and restaurants--at least enjoy the psychological benefit of providing high quality services, even if many patrons are ungrateful due to "luxury fatigue syndrome."

For trust-fund babies, the hardships are even more excruciating, Wood reports:

These inheritors sometimes display the stereotypical arrogance of privilege--the fast cars and wanton lifestyles--but the more introspective among them contend with worries that they'll lack the motivation to accomplish anything in life or to escape the shadows of their parents. This self-doubt is magnified by the knowledge that they're unlikely to find sympathy from anyone other than their fellow inheritors.

The absurdity of studying the psychological pain of the most powerful and pampered people on the planet might be more amusing if the top 1 percent didn't genuinely believe their own personal stories of turmoil--and if the bulk of the political establishment didn't share the same outlook.

According to the mantra of political leaders in both parties, lower taxes on the super-rich are good for all of us. The assumption is that the rich create jobs for the rest of us, they bravely bear the risks of investing in these fragile economic times, and their oh-so-generous philanthropy helps the less privileged.

Of course, the truth is that the 1 percenters have trillions stashed away in offshore tax havens that do nothing to create jobs, that governments bailouts insulate the super-rich from the bearing the brunt of the Great Recession, and that statistics show working people contribute a larger portion of their incomes to charity.

The idea that the super-rich should pay more taxes infuriates the wealthy and their apologists. An April 18 editorial in the Wall Street Journal ridiculed the idea that taxing the rich would make a dent in the nation's troubled finances, asserting the "fiscal futility of raising rates on the top 2 percent, or even the top 5 percent or 10 percent, of taxpayers to close the deficit"--even if the tax rate were 100 percent.

The next day, Columbia University economics professor Jeffrey Sachs ripped the editorial apart:

The top 10 percent reported $3,856 billion in [adjusted gross income], equal to 46 percent of total reported income in the United States, almost 27 percent of GDP. On that, they paid $721 billion in personal federal income taxes, or an average of 18.7 percent of income. If the remaining 81 percent of income were paid in federal income taxes, the increment in tax revenues would be more than $3.1 trillion, or roughly 21 percent of GDP. The budget deficit would obviously be closed many times over.

The real point is obvious. The money received by the richest households is vast, and higher taxes on the rich will make a major contribution to closing the deficit.

Taxing the rich not only makes financial sense, it's also what the majority of people living in the "world's greatest democracy" want to do. Nearly three-quarters of Americans support raising taxes on those with incomes of more than $250,000 a year, according to a Washington Post-ABC News Poll from mid-April.

So what's the hold up? In the May 2011 issue of Vanity Fair, Nobel Prize-winning economist Joseph Stiglitz provides a simple and compelling explanation: The top 1 percent themselves:

Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent...

It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.

Nevertheless, politicians across the political spectrum perpetrate the myth that the rich pay a disproportionate share of taxes in the U.S.

According to tax expert David Cay Johnston, "It's true that the top 1 percent of wage earners paid 38 percent of the federal income taxes in 2008 (the most recent year for which data is available). But people forget that the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government." Once payroll taxes and other federal taxes are taken into account, the burden shifts disproportionately to workers and the poor.

FOR THE last 30 years, income and wealth for the super-rich have grown astronomically, while living standards for the bottom 90 percent stagnated or declined. As Johnston explains:

Since 1980, when Reagan won the presidency promising prosperity through tax cuts, the average income of the vast majority--the bottom 90 percent of Americans--has increased a meager $303, or 1 percent. Put another way, for each dollar people in the vast majority made in 1980, in 2008, their income was up to $1.01.

Those at the top did better. The top 1 percent's average income more than doubled to $1.1 million...The really rich, the top one-tenth of 1 percent, each enjoyed almost $4 in 2008 for each dollar in 1980. The top 300,000 Americans now enjoy almost as much income as the bottom 150 million.

Large numbers of Americans have seen their home values and retirement funds take a nosedive in the last couple years because of the economic crisis. But members of the Forbes 400 list of the richest Americans appear to be holding their own. In 2010, their combined net worth rose to an estimated $1.37 trillion, up 8 percent from 2009.

The number of billionaires and millionaires in the U.S. continues to grow--and that's feeding a global luxury industry dedicated to catering to the "needs" of the obscenely wealthy.

For example, whether you're a billionaire in San Francisco, Istanbul, the United Arab Emirates or Rome, you should be able to find one of a growing number of $25,000-a-night hotel rooms.

That may sound expensive, but remember what the experts tell us about the 1 percenters' diminishing capacity to enjoy the pleasures of consumption. And truthfully, $25,000 a night isn't even that much. A billionaire could stay in one of those hotel rooms every night for the next 100 years and still have money in the bank.

But now, let's imagine what we could do with this wealth to meet the pressing needs of humanity--here and around the world. We can even leave 10 percent of it to the Forbes 400, meaning they'll have to figure out how to get by with only $340 million each:

The Global Fund to Fight AIDS, Tuberculosis and Malaria needs a mere $13 billion to fully fund existing programs to address the HIV/AIDS crisis in Africa.

In 2008, the UN's Food and Agriculture Organization estimated that $30 billion would be needed to give 862 million hungry people around the world enough to eat. Since eating is important, let's dedicate $60 billion.

We can set aside another $100 billion for other global epidemics, emergencies and scourges. The first $14 billion could be used to rebuild Haiti in the wake of last year's devastating earthquake.

In the U.S., we could eliminate the need for painful budget cuts that all state politicians--from Wisconsin Gov. Scott Walker to California Gov. Jerry Brown--are demanding by setting aside $142 billion to plug the combined budget gap for all 50 states.

Another $120 billion could finance a federal jobs initiative that would create 3 million jobs in education, health care and other community services. This would both address the double-digit unemployment crisis as well as provide badly needed services to kids in need of child care and education and the elderly in need of in-home health care.

About $120 billion would provide health care to the roughly 50 million Americans without health insurance; $36 billion would rebuild the nation's 33,000 crumbling schools; $138 billion would provide 1 million affordable housing units; $74 billion would provide four-year scholarships to 3 million college students; $5 billion would double spending on federal assistance for the poor and elderly who can't afford to pay for heat.

And with the remaining $422 billion, we could give a $6,000 bonus to every American worker making less than the median income--roughly 70 million people.

Now remember that these suggestions would redistribute 90 percent of the wealth of the richest 400 Americans. The wealth of the top 1 percent is 10 times greater than this, so multiply all these numbers by 10--or find dozens more productive ways to spend the money.

If you're tired after trying to find ways to spend that much money, perhaps you should check in to one of those $25,000-a-night hotel rooms to unwind.

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