The talk of economists recently has been about Thomas Piketty’s Capital in the Twenty-First Century – a book which uses data stretching back more than a century from different countries. It also provides lessons for us today in New Jersey about inequality, the Super Rich, income distribution, Super Salaries, inheritance, corporate taxes, social investments, declining middle class and the rise of the poor.
In this segment we look at how inequality is more severe in NJ than nationally, at the billionaires in NJ many of whose income provides little social benefit, and at a specific New Jerseyan whose corporate “super salary” was disproportionate in comparison with that of other employees.
Piketty traces the rise of inequality during the “Gilded Age” to a decline after World War II with its growing middle class and then another rise in inequality today with the super rich. The rise of inequality in New Jersey has been even more striking than the national rise. Reducing it will not be easy.
In NJ, according to the State Treasurer’s Office,“the top 1% of State Income taxpayers accounted for almost 40% of our Gross Income Tax,” whereas nationally according to Piketty “the top 1 % has 20% of the share of income.” Likewise the top 10% in New Jersey accounted for approximately 70% of total income tax revenue, whereas nationally the top 10% accounted for 50%. The NJ data was released in a memo while disclosing the now $800 million shortfall in our budget’s revenue. Even more revealing is that “just 400 taxpayers have accounted for almost 10% of New Jersey’s Gross Income Tax.” Talk about income inequality and a budget dependent on the super rich.
From Forbes 400 List of the nation’s individuals with a net worth of $1 billion or more are four from NJ: Donald Newhouse, $8.2 billion from media and inheritance, David Tepper, $7.9 billion from hedge funds, Leon Cooperman, $3 billion from hedge funds, and Peter Kellog, $3 billion from investments. For some of the Super Rich great wealth has come not by socially beneficial methods such as building businesses but by dealing in financial instruments which can result in fabulous earnings for the individual but little benefit for the economy or the average worker. The Super Rich may pay substantial taxes but also can take advantage of tax laws, such as holding NJ tax-free bonds. Here we have income trickling up not down, often by shrewd manipulation in the market.
An example of a person less wealthy but having enjoyed a “super salary” would be John Degnan, recently nominated by Christie to be Board Chair of the NY/NJ Port Authority. The Wall Street Journal reports, “Now 69 years old, Degnan joined Chubb in 1990 … retiring in 2010 as vice chairman and chief operating officer. That year, he earned a salary of $874,500, part of a compensation package worth $7.5 million, according to Securities and Exchange Commission filings.” His salary was approximately 58 times higher than the lowest paid full-time employee (at a minimum wage of $15,000) and his compensation package was worth 500 times more than the annual lowest salary.
Did Degnan deserve an excellent salary and compensation package? Probably yes. But that staggeringly high? Probably no. Other qualified people would most likely have accepted less. Did the minimum wage employees deserve only $7.25 per hour? No. Whereas years ago great wealth was often acquired through inheritance, today we also have the rise of “super salaries” which create an unnecessary chasm of inequality between the ordinary person and those paid so exorbitantly. In a vicious cycle the wealthiest also have the lobbying and donation funds to perpetuate their own best interests.
It would not be surprising if the lowest salaried employees in Chubb paid no or almost no income tax and lived in poverty. Therefore the tax burden naturally falls on the wealthiest. However, do we want to rely on a few high-salaried individuals who place their income in stocks and bonds or on a broader segment of the population who could spend more of their money on goods and services, grow the economy, rise above poverty, and even invest in their own small business?
The path toward more inequality in New Jersey may seem inexorable. Gov. Christie’s policies, which favor the wealthy, only hasten such an outcome. Fortunately New Jerseyans and the Legislature took a positive step recently in increasing the minimum wage. Piketty has other general recommendations, and even common sense could lead us in the opposite direction. More on the matter in Part II.