Well, do I ever stand corrected. They’re paying a terrible price. Terrible:
“A lot of those people will have to sell their homes, they’re going to cut back on the private jets and the vacations. They may even have to take their kids out of private school,” said Frank. “It’s a total reworking of their lifestyle.”
He added that it’s going to be no easy task.
“It’s going to be very hard psychologically for these people,” Frank said. “I talked to one guy who had to give up his private jet recently. And he said of all the trials in his life, giving that up was the hardest thing he’s ever done.”
Oh! Who will weep for the man who now must fly first class, like some…some commoner!
But it gets worse for the plutocrats:
And the city’s leading real estate broker, Kathy Sloane, says the worst is yet to come for New York real estate. Some say it’s too soon to know but she estimates the value of a $5 million apartment has already dropped almost a million dollars in value, with no end in sight.
“Because a month from now, that same $5 million apartment may be lucky to achieve $3.5 million,” Sloane said.
The humanity! The humanity!
(Via.)
What I really don’t get is why so much media attention is focused constantly – not just now, but constantly – on this tiny minority of people. Sometimes we’re even given to understand that everyone should aspire to what they have. What’s with that?
They employ a lot of people. Or did, anyway.
Robert, one could rightfully feel terrible for the problems and trauma of the employees these people have had to fire. That’s not what’s being bemoaned here. Instead they’re bemoaning the horrible trauma to the people who are now merely extremely well-off, rather than mind-bogglingly rich.
The same way that if an apartment building burns down, one should empathize with the tenants who are now homeless more than the landlord who must now get along with his measly nine other properties.
I don’t have much sympathy for the people who are having to cut down to one limo driver.
But this is the class of people who fuel the investment economy. It’s worrisome if they feel poorer, because it means the rest of us will be poorer.
And yet, somehow, it doesn’t work in reverse.
It seems to me that if we want ‘the rest of us’ to generally have higher wages and a higher standard of living, then we ought to pursue that as a goal, rather than relying on trickle-down voodoo.
Making the very top of the totem pole as ludicrously wealthy as possible in the hopes that they’ll share come crumbs with the rest of us simply doesn’t work.
—Myca
But this is the class of people who fuel the investment economy.
Is it? How many people are directly employed by, say, the wealthiest 5% of the population? Is unemployment going to go up because of the laid off limo drivers? And are the hyper-rich really the ones who fuel investment more than, say, middle class people with retirement accounts? (These are meant as real, not sarcastic questions: I haven’t the slightest idea how much the very wealthy actually contribute to the economy.)
Funny we should bemoan the poor poor dears who now have to get rid of a private jet… and not, you know, the homeless who have no idea if they’ll even eat on any given day. Of the poor-but-not-homeless who has to decide if they get behind on rent, or eat less than 700 calories a day.
As a side note, that apartment going down to 3.5 mil, wouldn’t that also lower their property taxes? Isn’t that a good thing?
As a side note, that apartment going down to 3.5 mil, wouldn’t that also lower their property taxes? Isn’t that a good thing?
Not for the states, counties and municipalities that wrote their budget based on levying taxes that are a certain percent of property values. The demand for services has not dropped. Teachers have to be paid, roads have to be fixed, healthcare for the indigent provided, etc., etc.
Also, given that the marginal income tax on a million dollars in income is about $390,000, the Federal government is crying some bitter tears.
Dianne, I don’t know the breakdown in terms of what you asked for – it would be possible to find out, but it would involve a lot of research. The middle class investor is very important overall, I do know that. I am pretty sure that the bulk of the more speculative, venture-capital oriented investment comes from people who can afford to lose it.
Dianne, It’s not just limo drivers. It’s the artists whose work they buy, the restaurants they eat at, the taxis they take for short rides, the contractors who renovate their apartments, the nannies and housekeepers and dogwalkers and children’s clothing boutique owners whose services they use. I’m not saying this is good, just that it is what it is.
” The CEOs get no sympathy from Lorraine Hankinson, whose husband worked for decades in the mailroom at Bear Stearns. ”
” Like thousands of others, she’s been hit hard, losing more than $7,000 of her retirement money, with no estate in Greenwich or golden parachute to fall back on. ”
retirement benefits.
its all fine and good to have this schadenfreude for the rich who lose homes and private jets and to rail against trickle down economics. the real tragedy however is the loss of actual hard money benefits by the support workers who need the wealthy to be successful in order to maintain wages and retirement benefits for themselves. concern for support workers does not necessarily translate to sympathy for the wealthy.
Here’s a conservative (sort of) who’s not very happy with the bailout.
http://www.foxnews.com/story/0,2933,425903,00.html
ADS: Clearly the rich employ people. However, middle class people also ride in taxis, hire nannies, eat in restaurants, etc. My question is how relatively important is the contribution of the very wealthy to the overall economy? If, say, the wealthiest 1% of US-Americans were raptured by the FSM or eaten by Chthulu, clearly some people would lose their jobs. But how many? Would it really have a significant effect on the economy overall? (This really is, as far as I’m concerned, an open question. I have no idea if the effect would be miniscule or the economy would come to a halt. As Robert pointed out, it’s hard to say without a good deal of research.
Actually if they died, the money would be inherited same as always and the capital simply transferred to the next generation (usually). There would be some disturbances in the force as new owners shuffled assets (“Why do we own 37% of Dollyworld? Sell it and buy Planet Hollywood!”, “Ha! Some moron is selling Dollyworld! Grab all of that.”) but nothing would be unusual other than perhaps the simultaneity of the mass shuffling off the ol’ mortal coil.
It’s if they’re alive, and their incentives/circumstance change, that we can make meaningful guesses about what will happen.
Your question about the 1%’s impact on the economy, unlike your first question, is easy to answer in at least some ways. The top 1% of US citizens pay about $368 billion in income taxes alone – a smidge less than 40% of the total. (They pay 40% of the total on about 21% of the income – twice the theoretical “fair” even distribution.) Income taxes alone from the richest 1% pay for about 10% of the Federal government.
At the state and local level it’s a bit harder to say because the rates vary everywhere, but the property taxes on the mansions are what pay for the computer science labs at the middle school, and rich people pay at least their share of the consumption taxes that keep most states afloat. Plus income taxes paid at the state level, most places.
The cutoff point to join that top 1%, by the way, is about $350k a year. Which is not a bad living – I’d take it – but not Lifestyles-worthy either. You could barely afford a different Lexus for each day of the week.
I’ll just pick on one point of yours, Robert – that paying 40% of taxes on 20% of income is “unfair.” Based on your statement, you seem to believe that the only “fair” tax is a flat tax. I’d say it’s overstating to suggest that everyone, or even a majority of people agree taht a flat tax is the fairest method of taxation. I think a progressive income tax system is the fairest, myself, and given that that’s what we (for the most part) have in this country, it seems to me that there’s enough of a general consensus about that to suggest that the majority of the population would say that paying 40% of taxes with 20% of income is perfectly fair.
Well, I don’t mind a bit of progressivity. The poorest ought to get a break, and that has to come from somewhere.
But right now we have a situation where nearly all taxes are paid by nearly no taxpayers – meaning that (a) the average American has little sense of connection to the fact that government has to be paid for, and (b) there exists a small and discrete group of people who are powerfully motivated to control the tax system, because it powerfully affects their lives. I have no objection to the richest 1% of Americans being politically active, but I don’t necessarily think it healthy for them to be motivated grossly out of proportion to the rest of society.
But that’s wandering far afield.
I’m not going to get too far into this, but I will point out that that 40% is the marginal tax rate, not the effective tax rate. Also, it doesn’t take into account deductions and tax shelters. The actual rate paid by the rich is much, much lower.
Correspondingly, the marginal rate paid by the poor is deceptively low, as it doesn’t take into account regressive taxes such as sales tax and payroll taxes.
You are correct about the regressive taxes, but incorrect about the percentages. The claim isn’t that the top 1% pay a 40% rate, it’s that the top 1% pay 40% of the total receipts, even after all the shelters and tricksies. The marginal rate is something different.
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You make fun of the drop in NYC real estate prices, but this actually might create some bad incentives for the property owners unless credit remains tight.
Think about this scenario: a little over a year ago, before the decline in values hit Manhattan, you bought an $800k studio. You live within your means and carry no debt other than the mortgage on that studio. You’ve been paying $4k a month on the mortgage ($52k altogether), but b/c of how those are structured, it’s mostly interest and little equity. Now your studio is worth half of what it was last year.
Rationally, it makes sense for you to declare bankruptcy and get out of the mortgage. It’s a secured asset, so your bank can’t go after you for the remaining money you owe. Instead, it’s stuck holding a studio for which it loaned $700k that is now worth $300k less than that. You’ve paid $152k in down payment and $18k in all the costs of getting the mortgage, closing on the studio, moving in and out, etc. So you have $160k less than you did in August 2007, but in that meantime you did have a studio that would have rented for $3k in the good times and still $2k in the lean times — so you got about $30k of rental value. Overall, to get out of a $400k decline in value, it cost you $130k.
Now you’re out of bankruptcy. Normally one would think that a former bankrupt is the LAST person a bank would want to lend to. But that’s not necessarily true. You don’t have any remaining debt to pay b/c it was a secured asset, and you still have the good $200k annual income that allowed you to get that first mortgage. You’re a pretty good prospect for a lender who still needs to make loans in order to make money. You wait for the market to hit what you consider bottom, and buy back the studio at its new $400k price by borrowing $350k from a different lender. Now you’re back in the same place, but with making the same monthly mortgage payments on a 15 instead of a 30 year loan.
The house economy is a problem as it is, it grows at rates 5-10 times the inflation, which also makes rents go higher, because taxes go higher. Not only are the rich affected, but those who even only own one block – and those that stay in said block – are the ones that pay.
You get a 2% raise at work, but a 10% raise in cost of living, did you really get a raise? Especially if you had to invest 50% of your money into rent, food etc. Now it went up to nearly 55% and you’re supposed to be paid more…
In numbers, if you had 20,000 a year, get 2% raise, you have 20,400$ a year. Your costs of living were 10,000$ but now have increased to 11,000$ thanks to rent, gas prices etc combining together in such a big increase.
Your discretionary income went from 10,000 to 9,600 – before income taxes.
I work at 15,500$ a year. If I did not live with my mother, I would have nearly no discretionary income after all expenses. I’d be paying over 10,000$ (if I lived alone) and would still live extremely modestly. No new wardrobe every month. Ha I’ll be lucky if I renew it every 2 years, and at shops where I can get a whole wardrobe for 200$, not 5000$.
What those rich don’t say, is that with 350,000 and more, a year. Even if they had like 175,000$ only left after income tax. They’d still be filthy rich compared to the poor. Their mortgage on their ‘mansions’ would still eat a lesser portion of their income than it does for the one with 15 or 20k a year.
Say I make 350k a year, have 175k a year net. I could live extremely comfortably on 100k a year, save 75k or give it to a charity or whatever floats my boat. At 15k a year, while it may seem cheap not to call Telethons to give even 10$, that 10$ might be your last meal ticket til next paycheck.
From 1996-2002 my father owned a house worth about 120k, it devalued (due to property defects) to 100k. His mortgage payments totalled about 10k a year. The house was big enough for a couple and 3 or 4 or 5 children, a nice backyard with place for a pool, nice neighborhood, parks nearby and such…That example guy with 175k net, if he lived there and wanted a 25 years mortgage…would have 165k$ for food, car, clothes and the rest. 165k$ is a lot more than what an average whole household income (my father my mother had less than half that together, but with 4 children to raise) gets – and that’s him alone, net.