You may have been hearing a lot of doom and gloom about the economy recently.
OK, so the news on jobs, real estate and retail sales has been dismal. Yes, maybe it's true the middle class is broke, in debt, under water, out of work and in despair.
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But look on the bright side. One group of people is doing just fine. The rich.
The New York Times this weekend tried to find signs they were easing up -- maybe somebody put their new Ferrari on hold because of the Greek crisis. But any such suggestion should be viewed in context.
Tiffany & Co. (NYSE: TIF - News) says sales at its flagship New York store jumped 26% in the first quarter. International luxury goods giant Louis Vuitton Moet Hennessy -- whose brands range from Fendi to Givenchy to Moet & Chandon Champagne, plus, of course, those cliched Vuitton bags -- says U.S. sales boomed 20% in the first quarter, including a remarkable 58% boost for sales of jewelry and expensive watches like Tag Heuer.
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Indeed the Swiss watch federation says exports of luxury watches (those $2,000 "timepieces") to the U.S. rose 12% in May and are now ahead 9% for the year. Nordstrom Inc. (NYSE: JWN - News) says same-store sales zoomed ahead 14% in June. They're up 11% year to date. Super-luxury goods purveyor Richemont -- which owns such brands as Cartier, Dunhill, and Van Cleef & Arpels -- says U.S. sales are up.
The Sunseeker Club in New York, America's biggest dealership in the multi-million dollar British luxury power boats, tells me business is strong again. Those who have the money to spend, they say, are spending it.
At times like these, cash buyers are king.
These are not isolated incidents. According to consultants Cap Gemini, the wealthy saw their net worth bounce back sharply last year. And while those with $1 million or more did pretty well, the real story was the boom among the ultra rich: Those with more than $30 million to invest. "Ultra-HNWIs (High Net Worth Individuals) increased their wealth by a striking 21.5% in 2009, far more than the average in the HNWI segment as a whole," Cap Gemini reported, adding: "A disproportionate amount of wealth remained concentrated in the hands of Ultra-HNWIs."
There are fewer than 100,000 ultras around the world. A third of those are here in the U.S. Ultras make up 1% of the high net worth, according to Cap Gemini, but held 36% of the high net worth's wealth.
Talk to any rich person, and they won't tell you they're doing well. They're more likely to complain. After all, taxes are going up. And there's that Black Panther communist in the White House spending us to rack and ruin on all this socialism.
Are they right?
The rich are always complaining. Back in Edwardian England the aristocrats moaned about the servants.
Sure, the top rates of tax expected to go up at the end of this year, when the Bush tax cuts are due to expire (the debate about the new tax regime rages on). But that will only take rates up a bit -- to the levels seen in the late 1990s. You remember how tough things were for the elite back then.
And who pays the top rate anyway?
Right now it only kicks in on each dollar of ordinary income over $374,000 a year. A recent study by the Congressional Budget Office found that the top 1% of Americans paid an average federal income tax rate of just 19% in 2007, the last year when data were available. The top 5% of earners paid an average rate of less than 18%. There are ways and means to minimize tax -- like calling your income "capital gains." That's what private equity honchos do, where possible. In many cases, it means people making tens of millions a year are paying lower tax rates than their chauffeurs and receptionists. (There are proposals to change that, with predictable screaming).
As for socialism: The Federal Reserve reports that the private sector is doing so badly that corporate profits just, um, rocketed to a new record high. The after-tax profits of corporate America rocketed 43% in the first quarter.
And let's not overlook, too, this year's gigantic one-off tax cut for the very wealthiest: The one-year abolition of the federal estate tax. When it comes to inheritance, we are, at least for a year, back in the age of President Taft. That, for example, saved George Steinbrenner's richly deserving heirs hundreds of millions in taxes. For years we've heard the wealthy rage against the estate tax and express their fervent wish they could avoid it. This year they have their chance.
The truth is, this is a great time and place in which to be rich. The average Fortune 500 chief executive pocketed $10.5 million in 2008, the last year for which data are yet available. That's more than 300 times the average worker's pay. Back in the Dark Ages -- the 1940s through 1980 -- the ratio was typically about 40 times. From 1979 through 2007, says the CBO, the top 1% saw their average household income skyrocket from $346,000 to $1.3 million in constant, 2007 dollars. That's after taxes. Meanwhile the average middle-class family saw their income rise from $44,000 to $55,000.
And according to an analysis by the Central Intelligence Agency, the U.S. has one of the most unequal income distributions in the world. In this field, most of the developed world is pretty much in line -- Japan, Italy, Australia, Canada, Norway, Great Britain. Some are more unequal than others, but all are comparable. In each case, of course, the rich make more than the middle class, sometimes a lot more. But they generally occupy the same economy.
The U.S.? Our income distribution is more in line with Zimbabwe, Argentina, and El Salvador. We think of Russia as the land of oligarchs, but America's inequality is actually slightly greater than Russia's.
Maybe we should all be investing in luxury goods companies, and launching overpriced "designer" labels targeted at oligarchs with more money than sense. As for all those millions out of work: Maybe they can get jobs as servants.
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