Editore"s Note
Tilting at Windmills

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May 7, 2008
By: Kevin Drum

LIFESTYLES OF THE RICH AND FAMOUS....From the Wall Street Journal's Real Time Economics blog:

Nearly 80% of affluent Americans believe a recession has already hit the U.S., and optimism about the U.S. is at a record low among the well-to-do, according to the Annual Survey of Affluence and Wealth in America by American Express Publishing Corp. and Harrison Group.

....Survey respondents, who have an average discretionary income of $342,000, aren't highly sensitive to recent economic shocks, but the poll found that they are still the same "emotional recession." As a result they are cutting debt, saving more and scrutinizing spending.

....Six in 10 respondents believe there can be no rebound without a new president. John McCain leads the current field of candidates among the affluent with 37% support, followed Barack Obama at 20% and Hillary Clinton at 15%.

Hmmm. So even among the well-to-do, support is split pretty evenly between the Republican candidate and the Democratic candidates. I guess McCain's promise to cut taxes on the wealthy by $5 trillion wasn't quite enough.

Kevin Drum 2:29 PM Permalink | Trackbacks | Comments (33)

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Comments

I guess the gold-plated bidet can wait another year...

Posted by: Cheney's Third Nipple on May 7, 2008 at 2:34 PM | PERMALINK

Well piss on this. I make too much money to qualify being middle class, but somehow I am way, way, way being below affluent.

How come us career developed boomies keep getting stuck with all the tax bills?

Posted by: optical weenie on May 7, 2008 at 2:48 PM | PERMALINK

Well then, cut taxes by $10 Trillion then, dammit! We workers need our trickle down nickels!

Posted by: CT on May 7, 2008 at 2:49 PM | PERMALINK

If they want a *new* president, then why are they supporting McCain?

Posted by: Bush Lover on May 7, 2008 at 3:00 PM | PERMALINK

I can relate. I was regaling Charles and Patricia the other day with my oh so woeful tale of having to let the pool boy go. I took it much better than my wife, for she was just dreadfully crestfallen over the matter. Strange that............

Posted by: steve duncan on May 7, 2008 at 3:02 PM | PERMALINK

I guess McCain's promise to cut taxes on the wealthy by $5 trillion wasn't quite enough.

Even the top few per centers, will see a reduced standard of living at some point with a system that rewards growing income inequality. They can only cannibalize the poor and the middle class so far and make only so much money off cheap labor elsewhere. I think they have begun to reach the limits of their ability to become more wealthy. They *should* be waking up to the fact that the geese are starting to lay fewer eggs and they are going to have to feed them better and let them see a vet now and then.

Posted by: Doc at the Radar Station on May 7, 2008 at 3:09 PM | PERMALINK

Doc, failing that just breed a lot more damn geese.

Posted by: steve duncan on May 7, 2008 at 3:17 PM | PERMALINK

Maybe because $342K a year in income is certainly high, it isn't really "rich". The people who get the big help from the tax cuts are typically those who derive substantial portions of their income from capital gains or make all their money running things that count as capital gains (i.e., hedge funds). Changes in the AMT or lowering the top rate doesn't do a lot for you unless you are making closer to 7 migures.

Further, if the U.S. economy completely goes into the toilet, the investment class looks at a ruinous end being very possible.

Posted by: do on May 7, 2008 at 3:19 PM | PERMALINK

Hey! We make far less than 7 figures and we pay AMT! We dont get a tax rebate and we've never seen much from a Bush tax cut for the wealthy. Just the AMT, which popped up in the tax software one year and made itself at home in our finances.

Posted by: troglodyte on May 7, 2008 at 3:30 PM | PERMALINK

So the rich are only hit by "emotional recessions," while the rest of us are hit by actual ones. Well I guess that means when I finally hit the big time I'll merely feel recessions without actually having to live through them.

Posted by: Cynthia on May 7, 2008 at 3:35 PM | PERMALINK

60% say we need a new president to rebound, which means 40% believe a rebound can occur with a continuation of Bush's policies.

I'm willing to bet that the overwhelming majority of the McCain supporters in this group fall in that 40% --- after all, the 40% 'true believers' lines up nicely with McCain's 37% level of support.

Posted by: David Bailey on May 7, 2008 at 3:35 PM | PERMALINK

I trust the rich to know, before the rest of us, when we are in a restructuring.

"How come us career developed boomies keep getting stuck with all the tax bills?"

I loved this line and was ready to say, "Asked and answered" but that is too trite.

Middle income gets stuck with the bill because they are the easiest target, middle incomers are, by definition, the average consumer who gets an average set of products from government.

So, the asked and answered part is, the middle pays because they are the ones ordering government products.

Posted by: Matt on May 7, 2008 at 3:43 PM | PERMALINK

do,

The people who get the big help from the tax cuts are typically those who derive substantial portions of their income from capital gains or make all their money running things that count as capital gains (i.e., hedge funds)

I know what you are saying but I got different info from Turbo Tax. After figuring out my return it lets me compare myself to everyone else. I don't recall the exact figures but it said about 80% of households with a combined income of 100K (which isn't really that high with two workers) got most of their money from investments.

I'd love to see the distribution but I bet investment income accounts for 50% of households making 100K and it gets greater soon after that.

I'm guessing that a household with 100K or more of investment income no longer has to earn a wage. Lower than that and they probably work at least some.

As I said I might be wrong about this and would like to know the true distribution.

Posted by: Tripp on May 7, 2008 at 3:49 PM | PERMALINK

So the stockbroker comes home and says to his wife, "Luvvy, things are getting tight out there and we need to cut back a little. If you'd just learn to cook we could fire the chef." To which she replies "Sure, and if you'd learn to make love, we could get rid of the pool boy."

Posted by: RollaMO on May 7, 2008 at 3:55 PM | PERMALINK

Matt,

I kinda agree with you, but I think your reasoning may be a little off.

The way I see it the easiest targets are the poor, then middle, then rich.

Obviously the ones with the most money are rich, then middle, then poor.

Making a business analysis to get the most return I'd target the middle who are fairly easy and have a fair amount of money. The poor have nothing to give and the rich are protected too well.

So we in the middle are too poor to buy a politician and too rich to claim poverty.

Posted by: Tripp on May 7, 2008 at 3:55 PM | PERMALINK

RollaMO,

Good one.

So the stockbroker drives home with bad news for his wife - things are getting tough out there. At a stoplight a hooker comes up and says "Hey big boy, I'll do anything for $100." "Anything?" says the stockbroker. "Then climb in."

When he gets to his house the stockbroker gets out and says to the hooker "Okay, paint my house."

Posted by: Tripp on May 7, 2008 at 3:58 PM | PERMALINK

I first noticed the rich getting nervous about the economy while watching the Barrett-Jackson collector car auctions this January. Last year they set records; this year the buyers sat on their hands.

Posted by: mantooth on May 7, 2008 at 4:34 PM | PERMALINK

Four in five polled in the survey, which examined the opinions of 638 households representing the wealthiest 10% of the U.S., . . . Survey respondents, who have an average discretionary income of $342,000. . .

I hate this kind of lazy summarization. Interpolating between Wikipedia numbers, I think that the top 10% of wwealthiest households starts somewhere between $100,000 and $150,000 of income. (Discretionary? Who knows?) That's a lot, but it's way less than $340K, which again per Wikipedia only includes about 1.5% (or somewhere thereabouts) of U.S. households. Yet again, it's averaging the Bill Gates of the country with the just-well-off. . .

Posted by: RSA on May 7, 2008 at 4:35 PM | PERMALINK

Worse than a recession...a decline. Our standard of living has been held up by massive borrowing, but the national credit card is about maxed out. Comes from being on the wrong track for decades. The solution is to expand Michael Jackson's Neverland ranch to encompass the entire country so we can have our cake and eat it too.

Posted by: Luther on May 7, 2008 at 4:48 PM | PERMALINK

I don't recall the exact figures but it said about 80% of households with a combined income of 100K (which isn't really that high with two workers) got most of their money from investments.

This is quite obviously not true.

Posted by: Stefan on May 7, 2008 at 4:58 PM | PERMALINK

I don't know if the truly well-heeled care as much about taxes as about income.

Officially, Clinton tripled the investment income of the well-heeled while less than doubling their taxes--that's a net gain of, well, of a lot.

Unofficially, their slogan is 'keep the money coming in, and we'll figure out how to hide it.'

Posted by: Benjamin on May 7, 2008 at 5:02 PM | PERMALINK

Four more years! Four more years!

Posted by: gab on May 7, 2008 at 5:23 PM | PERMALINK

So, just a tic, if the dollar lost 40% of its value...did tax cuts really help?

Posted by: Jet on May 7, 2008 at 5:27 PM | PERMALINK

Grr -they seem to be getting wealthy and high-income mixed up. I'm lucky to have a six-figure income but I'm pretty young so have a four-figure wealth (maybe 5 if I sell all my stuff). my grandpa is the other way round - not much income, plenty of cash in the bank. Economic policies affect us in completely different ways, and economists are usually careful to distinguish between types - journalists not so much

Posted by: Anon on May 7, 2008 at 5:38 PM | PERMALINK

Tripp,

I would think that it would be more like 5% for 100K and going up astronomically after about 1-3M. And, it would be best if you could take out retirees. If I save my whole life and manage to get myself a retirement income of 100K a year, I would hardly like to be thought of in my golden years as some sort of upper class trust fund baby.

Posted by: do on May 7, 2008 at 6:13 PM | PERMALINK

Kevin wrote:

Hmmm. So even among the well-to-do, support is split pretty evenly between the Republican candidate and the Democratic candidates.

How well-to-do?

My guess is the cut-off for the survey was pretty high net worth- I had been under the impression that if you took a sample of, say, the wealthiest quarter of Americans, the numbers would skew more sharply in favor of the Republican. But, maybe it's that the wealthy Republicans in the sample are smart enough to realize the Republicans are doing bad for us now, and the party is really riding on its popularity with the poor and ignorant more than it used to be.

Posted by: Swan on May 7, 2008 at 6:19 PM | PERMALINK

Oops, I see it was top 10% of Americans by wealth. Anyway, I'm sure someone who knows better than me will have the more typical figure of Republican support among the rich at the top of their head.

Posted by: Swan on May 7, 2008 at 6:21 PM | PERMALINK

As RSA said, the WSJ was polling the top 10%: about $100K on up. That ain't so rich, although it is certainly comfy. No wonder it is half-Democratic.

The interesting poll would be the top 1%, or the top 0.1%. My guess is that this group better represents McCain's base.

Posted by: Joe S. on May 7, 2008 at 9:06 PM | PERMALINK

So... 28% of the affluent prefer "None of the above" or are they just undecided? With such indecisiveness, how did they become affluent? Must be the Paris Hilton crowd...

Posted by: josef on May 8, 2008 at 10:04 AM | PERMALINK

do,

I didn't mean to comment on what certain incomes and distributions should be called.

Like you do I had assumed that the line between those who earn wages and those who 'earn' investments happened much higher than 100K/year.

I'll take another look at the turbotax figures when I get home. I'm not saying there is anything wrong with living off investments, I was just surprised to find out how many people do it.

Posted by: Tripp on May 8, 2008 at 10:49 AM | PERMALINK

Like you do I had assumed that the line between those who earn wages and those who 'earn' investments happened much higher than 100K/year. I'll take another look at the turbotax figures when I get home. I'm not saying there is anything wrong with living off investments, I was just surprised to find out how many people do it.

I would be extremely surprised to find that that figure was true. My friends and colleagues generally all earn high six figure incomes, and yet none live primarily off investment income as opposed to salaries, etc.

Assuming very generously that you can count on a 10% annualized return, you'd need to have more than 10 times your annual salary in investment income to produce a return that exceeded your salary. (Ex. a mid-level attorney earning a $300K a year paycheck from his job would need to have $3mm plus $1 in investments to get over $300K in investment income).

Posted by: Stefan on May 8, 2008 at 11:41 AM | PERMALINK

Assuming very generously that you can count on a 10% annualized return, you'd need to have more than 10 times your annual salary in investment income to produce a return that exceeded your salary.

Correction, that should have read: Assuming very generously that you can count on a 10% annualized return, you'd need to have more than 10 times your annual salary in income-generating investments to produce a return that exceeded your salary.

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Posted by: Hedya on March 21, 2010 at 8:57 PM | PERMALINK
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