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Republicans' "Missing Millionaires" Turn Up Safe and Sound

August 20, 2011

For Republicans hoping to preserve the Bush-era tax cut windfall for the wealthy, the past week was not a happy one. While billionaire Warren Buffett asked Congress to "stop coddling the super-rich," GOP representatives found themselves under attack from constituents who polls show overwhelmingly support debt-reducing tax increases. So, it should come as no surprise that the Wall Street Journal and the right-wing echo chamber sought to drum up sympathy for the tragically rich by lamenting the "missing millionaires" supposedly beaten down by the Bush recession.
As it turns out, conservatives like Michele Bachmann who fretted that "we're running out of rich people in this country" need not have worried. As the data show, millionaires are not only making a rapid comeback. For the gilded class, the economic downturn is already over.

Neverthless, in "Millionaires Go Missing," the Wall Street Journal grumbled this week that "if equality of income is the priority, liberals should be thrilled with the last four years":

This month the IRS released more detailed tax data for 2009, and the nearby table records the decline of the taxpaying rich.
In 2007, 390,000 tax filers reported adjusted gross income of $1 million or more and paid $309 billion in taxes. In 2009, there were only 237,000 such filers, a decline of 39%. Almost four of 10 millionaires vanished in two years, and the total taxes they paid in 2009 declined to $178 billion, a drop of 42%.
Those with $10 million or more in reported income fell to 8,274 from 18,394 in 2007, a 55% drop. As a result, their tax payments tanked by 51%. These disappearing millionaires go a long way toward explaining why federal tax revenues have sunk to 15% of GDP in recent years. The loss of millionaires accounts for at least $130 billion of the higher federal budget deficit in 2009. If Warren Buffett wants to reduce the deficit, he should encourage policies to create more millionaires, not campaign to tax them more.

Fox News host Stuart Varney dutifully regurgitated the claim, declaring that "the number of millionaires, of people making the million dollars a year, down very, very sharply."
Of course, that won't be the case very long. As Froma Harrop explained the easily solved case of the "missing millionaires" earlier this year:

Did they really go poof? Or did the financial collapse of 2008 turn many million-dollar incomes into less-than-million-dollar incomes? Stock market crashes tend to do that.

A recent Deloitte presentation for wealth managers made precisely that point. Reaping most of their income from stocks, bonds and other assets, millionaires took a big hit in 2008, but are already making their way back:

The number of millionaire households in the U.S. seemed to peak in 2006. The most significant drop may have occurred during the financial crisis, although the number of millionaire households seems to have returned to its pre-crisis levels.

And to be sure, Deloitte predicts that for America's millionaires, happy days will be here again - soon. The total household wealth of American millionaires will more than double by the end of this decade:

Our analysis indicates that aggregate wealth of millionaire households in the U.S. in 2020 will likely reach $87 trillion, from $39 trillion in 2011.

The 97% of Americans who earn under $200,000 a year haven't been so quick to recover. As Reuters explained three weeks ago, "Average income in 2009 was at its lowest level since 1997 when it was $54,265 in 2009 dollars, just $18 less than in 2009."
That dip is explained in part by the temporary loss in stock market and other asset wealth for the 3% of Americans who earned over $200,000 a year. And it probably has a lot to do with the fact that in 2009, as Politico reported, a rising number of millionaires paid no taxes at all:

Though the tax rate for Americans earning a gross adjusted income of $1 million or more averaged 24.4 percent, up from 23.1 percent in 2008, that's still lower than the 28.5 percent rate they paid in 2002 when President George W. Bush was in office.
And, the data shows, the 235,413 taxpayers who reported earning seven digits or more in 2009 took in a total of $726.9 billion -- yet 1,470 paid not a penny of income taxes. In 2007, 959 Americans earning $1 million or more paid no income taxes.

But while America's so-called "job creators" didn't create jobs after receiving their decade-long Bush tax cut windfall, they did buy a lot of expensive shoes. That's word from the New York Times, which reported earlier this month that "sales of luxury goods are recovering strongly":

Nordstrom has a waiting list for a Chanel sequined tweed coat with a $9,010 price. Neiman Marcus has sold out in almost every size of Christian Louboutin "Bianca" platform pumps, at $775 a pair. Mercedes-Benz said it sold more cars last month in the United States than it had in any July in five years.
Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering -- they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price.

As Arnold Aronson, managing director of retail strategies at the consulting firm Kurt Salmon, put it, "If a designer shoe goes up from $800 to $860, who notices?"
Certainly not America's rich and famous. After all, the recession that has proved so devastating for most Americans for the wealthy has been merely a hiccup.

Two years ago, David Leonhardt and Geraldine Fabrikant of the New York Times concluded, "After a 30-year run, [the] rise of the super-rich hits a sobering wall."

They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.
But economists say -- and data is beginning to show -- that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

As it turned out, that time wasn't just soon. It's now.
The Los Angeles Times announced the return of record-setting income inequality in June 2010 in an article titled, "Millionaires Make a Comeback." After getting pummeled as Wall Street plummeted in 2008, the rich have begun to recoup their losses. The short period of Gilded Interrupted is over:

In 2008, as the financial crisis raged, the stock market hit bottom and the Great Recession ate into the economy, the number of millionaires in the United States plunged.
But last year the number of millionaires bounced up sharply, new data show.
And after that decline and rebound, the millionaire class held a larger percentage of the country's wealth than it did in 2007.
"It's been a recession where everyone took a hit -- with the bottom taking a bigger hit," said Timothy Smeeding, a University of Wisconsin professor who studies economic inequality. But "the wealthy alone have bounced back."

Bounced back, it turns out, with a vengeance. The Boston Consulting Group found that "the number of U.S. households with at least $1 million in "bankable" assets climbed 15% last year to 4.7 million after tumbling 21% in 2008." Despite there being 10% fewer millionaires than in 2007, the percentage of Americans' total wealth held by those households was slightly higher, growing to 55%. Executive pay rose by 23% last year. By last summer, the Wall Street Journal proudly proclaimed, "U.S. Economy Is Increasingly Tied to the Rich."
Writing in the Washington Post in June 2010, Ezra Klein neatly summed up the dynamic which has restored income inequality to record highs even as the U.S. economy struggles to recover:

The basic story here is that assets have recovered so much more quickly than the broader economy that in 2009, "the millionaire class held a larger percentage of the country's wealth than it did in 2007." In other words, inequality has actually gotten worse. If you want to see why that's unexpected, check out the chart I cadged from the Center for Budget and Policy Priorities: After the Great Depression, inequality fell and didn't recover until 2007. That's about 80 years. After the Great Recession, inequality fell and didn't recover until ... 2009? That's one year.

For his part, Larry Mishel of the Economic Policy Institute argued, "The recession is going to end up accentuating the inequalities of income and wealth we've seen for 30 years," adding, "This requires attention if we're going to see robust wealth growth going forward."
And, as it turns out, begin paying down the national debt.

Between 2001 and 2007- a period during which poverty was rising and average household income had fallen - the 400 richest taxpayers saw their incomes double to an average of $345 million even as their effective tax rate was virtually halved. As Seth Hanlon of the Center for American Progress explained:

"As a percentage of their incomes, millionaires are now paying about one-quarter less of their income to federal taxes than they did in the mid-1990s...Millionaires paid an average tax rate of 22.4 percent in 2009, down by a quarter since 1995, when they paid an average of 30.4 percent."

But as Americans learned during the Republicans' just concluded debt ceiling hostage taking, the suggestion that the wealthiest people and most profitable corporations pay even a penny in new taxes produces a predictable response from the GOP.
At a time of record high income inequality and historically low federal taxes, Senators Dan Coats (R-IN) and Kelly Ayotte (R-NH) quickly called that common sense idea "class warfare." Utah's Orrin Hatch wasn't content to lament "the usual class warfare the Democrats always wage." (The poor, Hatch insisted, "need to share some of the responsibility.")
As for the sacrifice to be asked from the rich, Illinois Republican Rep. Randy Hultgren has a response to Warren Buffett and a plan. His proposal? More tax breaks for the upper class:

"I'm not out there trying to coddle anybody. In fact, I support a bill that allows the super-rich if they want to give more money to the federal government it could be a charitable contribution."

Five years before writing his New York Times op-ed this week, Warren Buffett explained that the side decrying the class war is the one winning it:

"It's my class, the rich class, that's making war, and we're winning."

And in this tale of two recessions, if you have to ask who won the class war, the answer is simple. Not you.


About

Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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