Merrill Lynch and CapGemini have put out their 11th annual report on the wealth of the wealthy--high net worth individuals. It's called World Wealth Report 2007, and available to anyone who registers at the CapGemini site.
The number of wealthy individuals in the world has increased--there are now about nine and a half million individuals who have worth more than $1 million in financial assets (not counting their primary residences). Not surprisingly in this age of flat taxes on consumption and declining taxes on corporations or capital gains, the amount of the world's assets that are held by these few individuals has continued to skyrocket. The growth of wealth is concentrated in the "ultra HNWIs" with financial assets of more than $30 million. There are not quite 95,000 of those people in the world, and those few thousands hold assets worth $13.1 trillion dollars. The amount of the world's assets held by people of such enormous wealth has increased by 16.8% between 2005 and 2006. As the report puts it: "Global wealth is rapidly consolidating among this ultra-wealthy segment."
North America ranked number one in both number of HNWIs and the amount of accumulated assets those HNWIs hold. For a society that was able to create incredible broad-based growth, this is in many ways a revolting development. We are a nation of increasing inequality, as wageearners take home a smaller pie and those at the top are spending their millions on Boeing wide-bodied jets outfitted as "mobile mansions" in the sky (the report notes orders worldwide for f 11 of them at about $150 million apiece).
So what's the great source of these gains? The report notes that real GDP and market capitalization are huge factors. It also states that the "main driver was government consumption, which grew at an overall rate of 2.1% in 2006, up from .9% in 2005." Sounds like the lucky contractors who get no-bid contracts for useless trailers in Louisiana and high-paying security work in Iraq are making lots of hay. Of course, there are also the "gentlemen farmers" who reap hundreds of thousands of dollars of taxpayer money out of a farm bill gone crazy. See this op-ed by Timothy Egan on "Red State Welfare" in the June 27 New York Times.
And what do these ultra HNWIs spend their money on? Try luxury collectibles (vintage yachts, airplanes), jewelry, art, sports (professional teams, racehorses) and other collectibles. Playboys playing. They also invest their money and get more money--increasingly overseas, for US HNWIs.
To be fair, the report notes that really wealthy individuals, especially those in the US, also spend a fair portion of their assets--between 7 and 10%--on philanthropy, often with "donor-advised funds." Entrepreneurs tend to give considerably more than those with inherited wealth (almost double).
So should we just note anecdotally this interesting information, a kind of celebrity-following that we can gaze on for a minute and then forget and go our way. I think not. I think we need to come to grips with the impact on society of having such obscenely wealthy individuals who are favored now by our tax system that taxes capital gains at less than half the amount of the highest tax on compensation income. As Warren Buffet noted when he spoke at a Clinton fundraiser, see this item in the Washington Post, there is something wrong with a tax system that lets someone who has more than $45 million in taxable income pay tax at a rate (17.7%) that is only about half the rate that a clerical employee in that person's firm pays. We should eliminate the capital gains preferential rate.
We could also get rid of the many ridiculous subsidies for industries that are making windfall profits--many of the tax subsidies for the oil and gas and other extractive industries must be eliminated. Some stalwart souls in Congress tried to do that, but the lobbyists were successful in pushing back and casting the long overdue elimination of excessively favorable tax provisions as though it were a tax increase. Here's how Citizens for Tax Justice described the reluctance to at least shift subsidies from oil and gas to renewable forms of energy in its June 22 newsletter.
Experts can certainly debate whether or not energy policy should be implemented through the tax code, but perhaps the more important point is that Congress has already showered oil and gas companies with numerous tax breaks that CTJ has criticized in the past. The energy tax legislation being debated now would generally shift some tax breaks away from oil and gas towards more sustainable types of energy. Lobbyists from the oil and automotive industries convinced many Senators that the tax package would "raise taxes" on oil and gas companies, but most of the provisions would really close loopholes for these companies that have no justification.
With the inequality gap growing ever wider, our tax policies should shift from ones that favor wealthy individuals and Big Oil to ones that favor ordinary Americans. From AMT reform (make capital gains a preference item, protect those who make less than $75,000 from the AMT but dont' worry about those that make more than $150,000) to energy tax reform (eliminate most if not all of the numerous tax subsidies for extractive industries; consider incentives for renewable energy instead) to basic tax policies that promote a more egalitarian society (tax income, not consumption; keep a reasonable estate tax at a 45% rate that exempts no more than about $2 million in assets), there are a number of issues that Congress should be considering from the perspective of ordinary Americans. Will Congress find its spine anytime soon?