econscius

Archive for the ‘Top 1%’ Category

Why Applaud “Reverse Robin Hood”, Regressive Lotto?

In Inequality, Top 1% on March 30, 2012 at 11:34 pm

Sorry, you didn’t win! 

At the risk of sounding curmudgeonly, may I ask why large Lotto prizes are covered breathlessly in the media?  Why are so few of the people who generally complain about what they call “Reverse Robin Hood” wealth transfers so quiet about PowerBall?

Today, the media has been focused on the $640 million MegaMillions payout.  Why?

A new “1%”er will be minted.

Tens of millions of Americans, many poor, working class and struggling, will have used some of their meagre excess money to purchase losing tickets.

Wealth will be more concentrated.

Please do not get me wrong.  It is every adult’s personal choice whether or not to play Lotto.  For many, a $5 or $10 purchase is not a major financial imposition.  I suspect many do it for the psychological thrill of what they would do with the money if they win the jackpot. 

Full disclosure:  I have never played any form of Lottery in my life.  Perhaps I am no fun.  🙂  Perhaps I am too mathematical and analytical; I cannot overlook the fact it is a sucker’s bet. 

Illinois Lottery.svg

Interestingly, many studies have found scientific evidence the poor are the most likely to play Lotto. [1] [2] [3]  A study by the University of Georgia found, “respondents with more education, especially a post-graduate degree, were least likely to have purchased a lottery ticket in the past year.”  [3]

Just for fun, I ran the numbers on what a hypothetical poor lottery player is foregoing.  If a person plays $10 per week for 30 years, they give up $15,600.  That is more than many low-income people even save for retirement.  When you add the impact of compounding, assuming an annual return of 6%, the amount that would have been saved is a sizable $41,100.  If those $10/week were used to pay down debt, most loans are above 6%.  Six percent also is a reasonable long-term stock market return. 

Yes, I understand people playing lotteries for fun.  I question, though, why the media needs to hype large jackpots.  I am surprised the Occupy crowd is so silent about the “Reverse Robin Hood” effect of lotteries.  I also recommend anyone who is struggling financially, please use the $5 or $10 or $20 to pay a little extra against credit cards or car loans, rather than squander it on making someone else worth a half billion dollars overnight.

Then you wouldn’t be bothered tossing your losing ticket out.

If you enjoy lotteries, why?  Do you also save?  Please comment below.

[1] http://old.post-gazette.com/pg/08207/899406-298.stm

[2] http://arkansasnews.com/2009/07/26/sc-studies-show-poor-blacks-most-likely-to-play-lottery-often/

[3] http://www.cviog.uga.edu/free-downloads/70.pdf

Pictures from Wikipedia Commons.

Government Backed Fisker Car Breaks Down for Consumer Reports

In Electric Cars, Obama Administration, Top 1% on March 12, 2012 at 1:14 am

Consumer Reports tests new cars.  Sometimes flaws are exposed but the US government backed Fisker, a subsidized $107,850 car for the ultra-rich, gave Consumer Reports a new experience when it suffered a catastrophic malfunction with less than 200 miles on the odometer. [1]

We the taxpayers are playing venture capitalists through the US government’s backing of start-up electric car companies.  Fisker, which builds its cars in Finland, received a $529 million US government loan. [2]

Consumer Reports wrote: 

We have owned our [Fisker] car for just a few days; it has less than 200 miles on its odometer…. After calling the dealer, which is about 100 miles away, they promptly sent a flatbed tow truck to haul away the disabled Fisker.

We buy about 80 cars a year and this is the first time in memory that we have had a car that is undriveable before it has finished our check-in process.

We encountered other problems with a Karma press car that visited the track for a few hours, and we have heard of problems at press events. In addition, we see that some owners are experiencing a variety of issues, as evidenced by forums such as FiskerBuzz.com. [1]

Financing a brand new venture is always a risk.  The US government deals to back private car companies are wrong on many levels. 

First, the risk is asymmetric: if a company like Fisker is successful, the benefit goes to its investors.  They might become very rich.  At best, the US taxpayer gets its money back, but the interest rate charged Fisker is below market rates, meaning it is a lousy deal, even if successful.  At worst, companies like Fisker fail and the taxpayer is never repaid.

Second, it is an improper role of the government to back private, for-profit companies.  It is picking winners and losers.  It amazes me we hear so much about bank bailouts and the “1%”, yet few decry this sort of corporate welfare. 

Thirdly, there is no need.  Venture capital and banking are long-established in the US.  Private companies with promising outlooks will find financing without burdening the already stressed US Treasury.

Fourth, the money is subject to politics and it may or may not be coincidence Obama campaign contributors just happen to back a private electric car company that received a government loan. [2] 

 

[1] http://autos.yahoo.com/news/bad-karma–our-fisker-karma-plug-in-hybrid-breaks-down.html

[2] http://abcnews.go.com/Blotter/car-company-us-loan-builds-cars-finland/story?id=14770875

For more on electric car subsidies, specifically Tesla, see also: https://econscius.wordpress.com/2012/02/01/road-trip-to-see-your-tax-dollars-at-work-140000-car-for-the-1/.  Pictures from Wikipedia.

$10,000 Government Cash For The Rich: $175K Earners Get Volt Rebates

In Electric Cars, Obama Administration, Tax Breaks, Top 1% on February 28, 2012 at 10:44 am

I hope you enjoy subsidizing the rich because President Obama loves the rebate checks sent to the crème-de-la-crème who can afford ultra-expensive electric cars.  Mr. Obama is proposing expanding the free money to $10,000 per vehicle.  Is this a good idea?

Sure, if you are a rich buyer of an electric car.  The average annual income of a Chevy Volt buyer is $175,000. [1]  By comparison, Nissan Leaf buyers are relative paupers, earning a mere $125,000 a year. [2] No wonder they need the check from Uncle Sam!   It turns out the Leaf isn’t attracting buyers new to hybrids for all that money, either, most Leaf buyers already have owned a hybrid. [2]  But they will get your taxpayer money, anyway.

Electric cars still have problems like short battery lives and high costs, thus the Obama Administration is determined to sell thousands more of these expensive cars through highly expensive subsidies.  I would prefer to have people use their own money to buy their cars; this is doubly so for the rich consumers who buy Teslas and Volts. [4]

[1] http://autos.aol.com/article/why-the-chevy-volt-is-attracting-wealthy-buyers/

[2] http://www.greencarreports.com/news/1049202_just-who-is-a-typical-2011-nissan-leaf-buyer-we-find-out

[3] http://content.usatoday.com/communities/driveon/post/2012/02/president-obama-budget-electric-car-subsidies-chevrolet-volt/1

[4] Rebates were $7,500 from the US Treasury (an additional $5,000 available from the State of California), pending the President’s proposed expansion to $10,000 per car.  http://www.mychevroletvolt.com/chevrolet-volt-tax-incentives-and-rebates

Pictures from Wikipedia Commons.

Road Trip to See Your Tax Dollars at Work: $140,000 Car for the 1%

In Electric Cars, Federal Deficit, Obama Administration, Tax Breaks, Top 1% on February 1, 2012 at 11:30 pm

In the interest of optimizing your blog reading experience, econscius went mobile today to see what all the taxpayer subsidies are doing for us in the world of electric cars. 

I took my blog on the road to see a Tesla Roadster at a Tesla Motors showroom.  More precisely, the Tesla vehicle at a Tesla Motors showroom.  These things aren’t exactly flying off the shelves and there is only one at the nearby dealership.  The car is very sharp, indeed, but it runs about $140,000.  The base price is supposed to be $109,000 so I am unclear why they were quoting me a much higher price.  Perhaps this yellow one has some upgraded options or maybe it is just supply and demand, they only have the one for sale here.  Perhaps I’d need to negotiate better.  Nevermind, though.  If you can afford $109,000 plus Illinois sales tax, you probably can afford $140,000.

The car is an example of fine design and engineering.  If I ever sell advertising on this blog and become filthy rich, sure, it would be nice to have one or two of these in an expanded garage!

“Filthy rich”?  Does that imply the 1% to you?  You know, the folks who earn over $343,927 a year? [1]  There are not many working class people who can afford to purchase a Tesla.

I hope you don’t mind a few Reverse Robin Hood manuevers subsidizing your 1% neighbors who’d like a Tesla!  Because you are doing exactly that.  According to the IRS, this Tesla Roadster qualifies for a $7,500 tax credit under Internal Revenue Code 30D, the “Qualified Plug-In Electric Drive Motor Vehicles”. [2]

There was a tax break of up to 50% of the cost of a battery charger installed in your garage, but the new frugal Congress just ended that credit. [3]

Tesla also received a $465 million loan from the Federal Government to develop an electric sedan. [4]  Unlike some other bankrupt Obama Administration green initiatives (think Solyndra, Beacon Power or Ener1), Tesla has not yet defaulted on its loan.  Also, there actually is a car here that runs and is freeway legal in every state.  Perhaps even more surprising, the Tesla is mostly made here in America unlike the Fisker electic car which is backed by a $529 million US government loan, only to be made in Finland! [5]  Tesla liked its first loan from you, the taxpayer, so much it was requesting a new one, but that financing need seems to have died down in the wake of the Solyndra scandal. [6]   Oddly enough, Tesla has never been profitable and continues to rack up a half billion in losses, despite the taxpayer assistance and the high price of the Roadster. [5]

This roadster will only go 244 miles on a battery charge [7], so it is best for cruising around and showing off to the yard help in a 1% neighborhood; it is not for driving the kids to camp or seeing the relatives in Ohio.

Thank you for reading, but please get back to work; President Obama and your Tesla desiring wealthy neighbors would appreciate you working a bit harder to provide the taxes to fund these cool toys for the 1%!  The Obama campaign contributors who will reap the rewards if Tesla is successful [5] surely would appreciate you putting in a little ovetime so they can get richer.

I know, I know, you say “what ever happened to Venture Capital?”  Yes, it is true that way back, before 2009, private investors used to invest their own money in new business ventures.  It worked for Microsoft, Groupon, Facebook, eBay, Amazon and thousands of other companies.  But that is so pre-Obama.  Today, private investors still put forward new companies but instead of turning to Venture Capitalists for funding, you the taxpayer are to be on the hook for tens of billions in government “investments”.  Enjoy the view of the Tesla, you paid for it!

Roadster 2.5 windmills trimmed.jpg

[1] https://econscius.wordpress.com/2011/11/17/who-are-the-top-1-most-arent-in-finance-fewer-still-in-mortgages/

[2] http://www.irs.gov/businesses/article/0,,id=214841,00.html and http://www.fueleconomy.gov/feg/taxevb.shtml

[3] http://www.usatoday.com/money/autos/environment/story/2011-12-30/electric-car-charger-tax-breaks/52234182/1

[4] http://www.wired.com/autopia/2009/06/tesla-loan/

[5] http://abcnews.go.com/Blotter/car-company-us-loan-builds-cars-finland/story?id=14770875

[6] http://blog.sfgate.com/energy/2011/09/28/tesla-fed-loan-update/

[7] http://www.carsdirect.com/electric-cars/how-much-does-the-tesla-roadster-cost

Showroom picture by author.  Windmills and roadster picture from Wikipedia Commons.

Who Are the Top 1%? Most Aren’t In Finance, Fewer Still In Mortgages

In Finance, Occupy Wall Street Protests, Top 1% on November 17, 2011 at 2:17 am

Some chant “We Are The 99%”.  But who are the “1%”? 

The income cut-off for the Top 1% of earners is $343,927 of income, using 2009 IRS data. [1]   The 1% is a rather broad category.  While $344,000 is certainly a good salary, the “1%” metric lumps a $324,000 earner in with a film star earning $30 million each movie.

The Top 5% begins at $154,643.

The Top 10% starts at $112,124.

The Top 25 kicks in at $66,193 and the Top 50% cut-off is $32,396.

We hear often the 1% are Wall Streeters who “caused” the recession.  Occupy Wall Street is specifically organized as the “99%” vs. “1%” (Wall Street).  That is wrong.

A recent paper by Bakija-Cole-Heim show only one out of seven 1%’ers even work in Finance.  [2]  Larger proportions are corporate managers and executives or doctors and dentists.   The chart below shows the breakdown:

Profession Share of the Top 1% of Income: 2005 Data  
Executives, managers (non-finance) 31.0%
Medical 15.7%
Financial Professions (incl. Management) 13.9%
Lawyers 8.4%
Computers, Math, Engineering (non-finance) 4.6%
Not working or deceased 4.3%
Skilled Sales (non-finance, non-real estate) 4.2%
Blue collar or misc. service 3.8%
Real Estate 3.2%
Business Operations (non-finance) 3.0%
Entreprenuers not otherwise classified 2.3%
Professors and scientists 1.8%
Arts, media, sports 1.6%
All Other 2.2%
Chart by Author  
Source: see note [2] below.   

The vast majority of the Top 1% do not work in finance or banking, and of those who do, only a tiny percentage have anything to do with mortgages.   We are long past most people seeing a member of a minority group commit a crime and then extrapolate the crime as if every member of that minority group were somehow involved.  It is just stereotyping when people say ‘the top 1% caused the crisis’.  Surgeons, media celebrities and corporate executives at widget makers are no more guilty of causing the financial crisis than any average American.

When we think of high pay financial employment, what comes to mind?  Corporate finance managers like Controllers and CFOs, Wall Street stock analysts, investment bankers, stock brokers, venture capitalists, private equity principals, hedge fund managers, financial consultants, investment managers, mutual fund managers, stock market floor traders, commodity brokers and the like.  Not very many ever touch securitized mortgages or supervised the people who do.  Mortgage securitization included a very small group of people, some of whom worked at government sponsored enterprises Fannie Mae and Freddie Mac.   It is very probable some of those who actually worked in that corner of the financial world are unemployed or underemployed today, and a lot less likely to be in the Top 1%, Top 5% or even Top 10% of earners.

Occupy Oakland 99 Percent signs.jpg

The average age of the “1%” is 47.  [2]  This is not surprising as those are typically peak earning years.  It is worth noting some of the “1%” of the Reagan or Clinton boom years are retired or even deceased now because it often takes decades of schooling and experience to reach the upper echelons of income.  The “1%” of a pre-crisis year like 2007 is certainly a bit different than today’s “1%” on account of retirements, 2008-9 downsizing and the fact high earners often have highly variable income.   MC Hammer was a millionaire one year, bankrupt the next.  A full 26% of the Bakija-Cole-Heim sample own a closely held business (a/k/a entrepreneurs). [6] 

It is also interesting to look at the 1%’s marital status.  An atypically high 81% are maried.  About half of those have working spouses. [3]  Of the married top earners, 31% of the spouses are executives, supervisors and managers (non-financial), 21% of spouses are in Medical professions, 17% are blue-collar and miscellaneous service, and 14% work in government, teachers and social services. [2]   This shows very clearly people are marrying people from similar socioeconomic status (doctors marrying each other).  This is one probable cause of greater income inequality in recent decades.  As more women have entered the workforce, they have tended to marry men of similar socioeconomic status.  If workers marry similar workers at each level of income (e.g. $30,000 worker marries a $29,500 worker, $100,000 manager has a $99,000 manager spouse, etc.), it has the impact of doubling the differential between the families because of the second working spouse.  The impact is even more pronounced when comparing married upper earners (e.g. two $250,000 doctors) with a $30,000/year single parent. 

The chant “we are the 99%” rings false.  A $325,000/year lawyer is in the top 2% but honestly can say she is in the “99%”.  Should that $325,000 lawyer really stand at the edge of her cubicle and scream “I am the 99%!” to the (presumably oppressive) $345,000/year lawyer in the next cubicle?  The difference between the 2nd percentile and the 100th percentile is vast; it is the difference between our $325,000 lawyer and a minimum wage teenager who works part-time after school.

Despite claims to the contrary, top earners have actually been getting poorer during the last four years of IRS data.  The Top 5%’s income declined each year 2007 to 2010, dropping by more than 10% between 2006 and 2010 in inflation adjusted dollars. [4]  No surprise here because the wealthier have more variable incomes (e.g. self-employment business income, stock capital gains, bonuses, etc.), doing better than average in economic booms but drop by greater percentages in recessions.

Most of the “1%” do not work in finance.  Even of the 13.9% of  the “1%” who work in finance, most had nothing to do with subprime mortgage lending.   The idea of punishing today’s “1%” for mistakes made by the government and those few who worked in mortgage securitization in the 2000’s is just plain wrong.  The top 1% paid 38% of all federal income taxes and the top 1% paid more than the entire bottom 95% of taxpayers in 2007. [5]  Paying a “fair share” is subjective but it cannot be argued, as it often is, that the rich ‘do not pay taxes’ because they actually pay most of the income taxes.

For more on income inequality in New York City, please see my recent posts https://econscius.wordpress.com/2011/10/28/which-city-has-the-most-inequality-new-york-or-salt-lake/ and https://econscius.wordpress.com/2011/10/21/which-state-has-the-most-inequality-texas-or-new-york-why/.

 

[1] http://taxfoundation.org/publications/show/250.html

[2] Demographics on page 71 of http://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf.  Spouse data on page 52.  Occupation data on page 54.

[3] Page 59 of http://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf

[4]  http://cafehayek.com/2011/10/the-top-1.html

[5] http://economix.blogs.nytimes.com/2009/07/30/top-1-paid-more-in-federal-income-taxes-than-bottom-95-in-07/

[6] Sample metrics on page 69 of http://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf

 Pictures from Wikipedia Commons.

Occupy Wall Street Deposits At Bank Under FDIC Consent Decree For Falsifying Books

In FDIC, Financial Fraud, Occupy Wall Street Protests, Top 1% on November 9, 2011 at 12:21 am

Occupy Wall Street has raised over $500,000, depositing the money in a bank operating under a FDIC consent decree for falsifying its books – which is exactly the sort of bad banking behavior OWS claims to be protesting against on Wall Street. [1] [2] [3]

The FDIC enforcement action against Amalgamated Bank of New York, dated August 23, 2011, can be found here: http://www.fdic.gov/bank/individual/enforcement/2011-08-06.pdf.  The FDIC demands Amalgamated “shall take all steps necessary, consistent with provisions of this ORDER and safe and sound banking practices, to eliminate and correct unsafe or unsound banking practices, violations of law or regulation, all contraventions of regulatory policies or guidelines cited in the Report of Examination.” [4] 

OWS chose Amalgamated because it was the only union-owned bank in the United States [1], but Amalgamated recently sold a 40% position to, drum roll please, two billionaire investors, Wilbur Ross and Ron BurkleYes, OWS deposits are benefiting some of the very richest of the top 1%. [2] 

Day 14 Occupy Wall Street September 30 2011 Shankbone 49.JPG

Talking down the money raised thus far, Mr.Pete Dutro of the Occupy Wall Street finance committee said,”People see like $500,000 and they say ‘Wow that’s a lot of money’ but the reality is it’s not that much money.” [2] 

That is an interesting view coming from someone who is protesting the “1%” because many “1%” entrepreneurs would agree $500,00 is “not that much money”.  How much does it take to reach the top 1% of wage earners?  Just $343,927 pre-tax. [5]

Question: if Amalgamated Bank fails because of its bad loans and dodgy books, would Occupy Wall Street stand by its principles and oppose a bail out of Amalgamated depositors, including OWS itself, who hold funds in excess of FDIC insurance limits?

 

[1] http://www.fastcompany.com/1792790/for-some-financial-companies-occupywallstreet-is-a-great-marketing-hook?partner=rss

[2] http://www.teribuhl.com/2011/10/17/occupy-wall-streets-new-bank-under-fdic-enforcement-action/

[3] http://www.cnbc.com/id/44935914

[4] Page 20 of http://www.fdic.gov/bank/individual/enforcement/2011-08-06.pdf.

[5] http://www.taxfoundation.org/news/show/250.html

Occupy pictures from Wikipedia Commons.