The headline story: many more Americans now believe that strong conflict exists between the rich and the poor. The surprising backstory: our attitude has NOT changed about how the rich got to be that way.

This follows up on my last blog about the very recent report by the Pew Research Center titled “Rising Share of Americans See Conflict Between Rich and Poor.” In just the last couple of years there has been a major spike in public perceptions that serious class conflict exists in our society. I would think that with a big shift like this, people’s attitudes about how the wealthy acquired their wealth would have changed, too. But it hasn’t.

So how would you answer this survey question?

“Which of these statements come closer to your own views—even if neither is exactly right: Most rich people today are wealthy mainly because of their own hard work, ambition or education.  Or, most rich people today are wealthy mainly because they know the right people or were born into wealthy families.”

In the Pew survey, slightly more people—46%—said that a person’s wealth is the result of connections and birth, than those—43%—who said that it is a result of that person’s own efforts. Those percentages have virtually not shifted in the last three years. So if I’m reading this right, at the same time that many more Americans are feeling there’s more class conflict, no more of us are feeling that wealth is only for those born into it. In other words, just as many people continue to believe that wealth is attainable for those willing to work hard for it.

That belief may be a false hope for many since there is a lot of evidence that upward class mobility has taken a serious hit in America in the last decade or two. This may be reflected in the Pew report where it breaks down the differing responses among different categories of people:

  • Age:  More young people than older ones believe that wealth is a matter of birth and connections than personal effort. The percentage of people who believe that wealth is a result of personal effort went down with each younger age category—65+, 50-64, 35-49, and 18-34. It would be interesting to know if this greater doubt among younger people about not being able to gain wealth has persisted over time. Or are younger people just more keenly aware of –and in fact daily experiencing—serious challenges to their upward mobility.
  • Race:  Although Whites are split right down the middle—44% to 44%—on this question, a full 10% more Blacks—54%—believe that wealth is a matter of birth and connections. It’s hard not to see in this difference a greater lingering perception of discrimination among Blacks.
  • Politics:  My favorite breakdown is this one: Republicans and Democrats have the exact same percentages—32% and 58%—but on the opposite sides of the question! 32% of Republicans believe wealth is primarily a matter of birth and connections while 58% believe it’s a matter of hard work; 58% of Democrats believe it’s a matter of birth and connections and 32% believe it’s a matter of hard work. And independent voters? THEY are split down the middle. It all sounds like a fitting metaphor for our current political stalemate.

U.S. corporations are making record profits quarter after quarter, yet unemployment seems to be stuck at a devastatingly high rate. Why aren’t these financially flush big businesses hiring?

I’ve been writing a string of blogs about how tax debts are dealt with in bankruptcy, and I’ll get back to that after today. This is the time of year when the nation’s major corporations report their 3rd quarterly profits, and so I found myself scratching my head about the disconnect between their huge profits and their lack of hiring. So I read a number of news stories and editorials and this is what I got out of them:

1.  Big businesses have gotten to be more “productive,” in the sense of producing more goods and services with less labor. That has happened partly through investments in labor-saving technology and partly by requiring employees to work harder and faster for the same pay. With the cut-throat labor market, companies don’t need to increase salaries to retain or replace their employees.

2.  Profits have increased because a larger percentage of sales for large U.S. corporations have been overseas. Around 40 per cent of their profits are from foreign sales. For many companies, sales are growing modestly in the U.S. while growing much faster elsewhere, especially in the “emerging markets” of China, India, and South America.  

3.  Relatively strong overseas sales come with job growth overseas instead of here. According to the U.S. Commerce Department, in the past decade, U.S.-based multi-national corporations added 2.4 million jobs outside the country while cutting 2.4 million jobs here. Jobs naturally grow where sales are growing–someone has to take customer orders at the 3,000+ KFCs in China! But of course there’s also increased foreign outsourcing of work that used to be done here, from manufacturing to computer programming.

4. Normally when businesses are more productive, resulting in more profits, they tend to expand, thus creating more employment opportunities. But this has not been happening for three reasons.

a. With the double-whammy of very high unemployment and loss of home values, U.S. consumers either don’t have the means or the attitude to spend money, so companies are leery about expanding to increase production.

b. The international business environment—particularly the European sovereign debt crises in Greece, Italy and elsewhere—is making big business cautious.

c. Political gridlock in Washington, D.C. makes business planning very difficult. With the Congressional deficit-reduction “super committee” scheduled to issue its report very shortly, big businesses have been sitting tight to see if this “super committee” will come up with its momentous compromise, and what it’ll consist of.

The bottom line: big businesses don’t need to hire to produce the goods and services they are producing, at least within the U.S., and they don’t want to expand and hire here because of lackluster consumer demand and high uncertainty in the world economy and in domestic politics.

Not only do the majority of the wealthy think that they should be taxed more, so do a majority of Republicans. These are the surprising conclusions of two recent polls.

When the second-richest American, Warren Buffett, wrote an op-ed column in the New York Times a few months ago advocating increased taxes for himself and everybody else with an annual income over $1 million, that wasn’t such a big surprise. He has been pushing similar policies for quite a while. For that matter so has the # 1 richest American, Bill Gates.

But that column by Buffett generated such a firestorm of opposition that it would have been easy to think that he and Gates don’t have much support among their wealthy colleagues.  Not true, according to a survey of millionaires taken during October 2011 by the Spectrem Group, “the premier research and consulting firm in the wealth and retirement industry.” More than 67 percent of those millionaires surveyed said that the U.S. economic situation would be improved by increasing taxes on those with more than $1 million in annual income, pretty much what Buffett is advocating.

Well, OK, that’s surprising. But maybe they’re so rich they can easily afford to pay taxes. Or maybe those in the top 1% being made infamous by the Occupy Wall Street folks are not as greedy as they are being made out to be. Or maybe just not that anti-government. As Mark Cuban, another of the ultra-rich, has said straight out in his own blog a couple months ago: “Pay your taxes. It’s the most Patriotic thing you can do.”

Now Gates, Buffett, and Cuban may not exactly be representative of all wealthy Americans. And who knows how reliable that Spectrem Group survey is. But if true, it’s noteworthy that a full two-thirds of millionaires think that if their taxes were higher that would help our economy instead of hurt it.

But what about everyday Republicans? I would have thought that a very strong majority of Republicans would oppose “increasing the taxes paid by people who make more than one million dollars a year.” This was the wording of the question asked in a CNN/ORC poll taken in mid-October.  But instead about 56% of Republicans favored increased taxes for these high-earners, while 43% opposed them.

I don’t pretend to know what this means. It may be as simple as an attitude—even among Republicans–of “tax the other guy to plug the deficit.” There are only about 250,000 U.S. households with incomes of more than a million dollars, so they don’t get a lot of votes in a national poll. Whatever the cause for this willingness for a selective tax-increase among the Republican electorate, it seems to reveal a disconnect between them and their single-mindedly anti-tax representatives in Washington.

Luxury Sales—Some Very Tangible Evidence of the Widening Income Gap

Rich Americans are buying again. The rest of us—not so much. The difference between the sales figures at luxury stores versus middle- and low-end ones is stark evidence showing who has been coming out of the Great Recession doing pretty well and those who have not.

An article in the business section of the New York Times a couple of weeks ago made the point that “the retail economy is locked on two tracks: one for businesses that cater to the well-to-do, and the other for everyone else.”

On the low-to-medium end, retailers such as Target and JC Penney posted modest single-digit gains for sales in July compared to a year ago, while others such as Kohl’s actually had lower sales this July than last. On the higher end, it seems like the more luxury-oriented to store, the better the improvement in sales. Nordstrom sales were up 6.6% this July, Neiman Marcus up 7.7%, and Saks Fifth Avenue up a whopping 15.6%.

The article I referred to above points out some ways that retailers see what’s going on inside the wallets of their customers, particularly the low- to average-income shopper. They see a pronounced dip in sales in the weeks or days before shoppers’ paydays. People have less discretionary income, and tend to be living paycheck to paycheck.  And instead of buying clothing and other seasonal items as much for upcoming seasons, more people tend more to buy only what they need when they need it. This also enables them to take advantage of seasonal sales. In turn these retailers have to cut their prices to bring in shoppers, which lowers their gross receipts.

In contrast, luxury stores are now able to sell much more of their merchandise without discount, and have even been able to increase their prices. According to Saks Fifth Avenue’s chief executive Stephen Sadove, “There’s a dramatic decline in the amount of promotions in the luxury sector — we’re seeing higher levels of full-priced selling than we saw prerecession.” Example: their Christian Louboutin “Bianca” platform pumps just about sold out, at full price, for $775 a pair. And while three years ago his store’s most expensive Louboutin suede boots cost $1,575, the top of the line  version now sells for $2,495.

But before we get out our pitchforks to storm the gated mansions of the wealthy, here’s a bit of reality to chew on: “the top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of spending,” said Mark Zandi, chief economist of Moody’s Analytics. “That was key to why we suffered such a bad recession — their spending fell very sharply.”

Sounds like we need the wealthy to continue their spending.

It sure doesn’t feel like it, especially during this maddeningly slow “recovery,” but it’s true: we’re all in this together.


 The two richest people in America think they are under-taxed. Do they know what they are talking about?

I noticed on the latest list of the country’s wealthiest that Bill Gates and Warren Buffett are #1 and #2. They both have been publicly arguing in favor of increased taxes for themselves and their very rich colleagues. Whether this is good policy is a matter of intense political debate. It’s a particularly important one considering what the country just went through a couple of weeks ago with the exhausting debt-ceiling battle. A central part of its last-minute compromise was to hand over responsibility for finding $1.5 trillion cuts in federal spending to a 12-person super-committee of U.S. Senators and Representatives. And to do so by the day before Thanksgiving.

With this timing clearly in mind, Warren Buffett wrote an op-ed column in last Sunday’s New York Times titled “Stop Coddling the Super-Rich.”

He makes two primary arguments:

1. The rich currently pay less in taxes as a percent of their income than the middle class:

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

… .  It’s nice to have friends in high places.

… .

The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

2. Refuting the “job-killing” argument of fiscal conservatives, Buffett says that he and his fellow investors aren’t affected by higher tax rates :

I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Buffett closes his piece by asking for an immediate higher income tax rate for those making more than $1 million, and an even higher rate for those making more than $10 million. He concludes:

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.