A Finely Tuned Wealth
Concentration Machine

At Exxon Mobil, and throughout Corporate America, a new business as usual is funneling income and wealth from America's middle to America's top.

February 6, 2006

The United States has witnessed, over recent years, the most massive redistribution of wealth in modern world history, a redistribution entirely upward, with dollars rushing from folks at the middle and the bottom of our economic order to a fortunate few at the top.

Centuries ago, in the heyday of chief executives like Genghis Khan, societies only saw massive shifts in who owns what when the powerful felt a sudden hankering for pillage and plunder.

We don't, these days, run much into pillage and plunder anymore. So just how, today, do massive amounts of wealth percolate up? Last week's record-breaking earnings report from Exxon Mobil offers us what may be the ultimate opportunity to “follow the money” and see.

In 2005, the American people, as a whole, spent $42 billion more than they earned, the first negative savings rate for an entire year since 1933. By contrast, Exxon Mobil last year “earned” over $36 billion more than the company spent, the largest single-year profit in American corporate history.

How much, in everyday terms, does $36 billion equal? With the mega profit announced last week, Exxon could hand every household in the United States ten free tankfuls of gas.

But Exxon's record earnings aren't flowing to America's households. That's where these earnings came from, via higher prices at the pump.

Where are Exxon's earnings going? Some of Exxon's record profit dollars are going to taxes. But not many. In 2005, Exxon Mobil's profits rose over 40 percent, its taxes only 14 percent, thanks to various tax “incentives” that Congress has, of late, bestowed upon the energy industry.

So who is getting Exxon's profit dollars? Most of them are flowing to the company's shareholders, directly and indirectly, via dividends and share “buybacks.” Companies “buy back” their own shares to increase demand for their stock — and, in the process, pump up their share price.

In 2005, according to a New York Times analysis published last week, Exxon funneled over an amazing $25.4 billion back to shareholders, over two-thirds of the company's record profits.

This generosity actually represents quite a substantial departure from Exxon's traditional operating procedure.

A generation ago, Exxon routinely plowed over half its profits back into the company, into exploration, research and development, and capital expenditures for new equipment. But since 1997 over half the company's profits have simply gone to shareholders.

One sign of the times: In 1995, Exxon's executives invested back in their company over $2 for every one dollar turned over to shareholders. In 2005, Exxon invested in its corporate future only 70 cents for every dollar that went the shareholder way.

Exxon isn't breaking any new ground here. Major companies in the United States are almost all ratcheting up rewards for shareholders.

In 2005, the U.S. corporate giants that make up the S & P 500 index upped their dividend payouts 11 percent over 2004, to $202 billion, and also devoted 60 percent more of their cash, over $315 billion, to share buybacks.

These stunning figures amount, of course, to great news for shareholders, especially at Exxon. And Exxon, with 6.3 billion shares of stock outstanding as of last fall, certainly has plenty of shareholders.

Who owns all these shares? How many average Americans stand to see windfalls from the profits Exxon Mobil is so energetically distributing to shareholders?

No one can answer these sorts of questions with any certainty. Exxon keeps no statistics on the net worth of its individual shareholders.

But we do have some new overall statistics on who owns America's corporate wealth. These stats emerged in December, from research conducted by the nonpartisan Congressional Budget Office. Last week, the Center on Budget and Policy Priorities, a Washington, D.C. think tank, released a fascinating analysis of what the new CBO figures have to tell us.

The basic message from this eye-opening analysis: The ownership of America's corporate assets has become significantly more concentrated — at the top — over the past quarter-century.

In 1979, the richest 1 percent of American households held 37.8 percent of the nation's corporate wealth. In 2003, the top 1 percent — households with at least $237,000 in income — owned 57.5 percent.

This hearty boost in corporate wealth holdings has helped America's top 1 percent households more than double their after-tax income, from an average $305,800 in 1979, after adjusing for inflation, to $701,500 in 2003.

Incomes of top 1 percent households, over this 24-year span, soared by 129 percent. Incomes of households in the middle fifth of America's income distribution, over the same span, saw just a 15 percent cumulative increase in after-tax income.

Americans in the bottom fifth, add Center on Budget and Policy Priorities researchers Isaac Shapiro and Joel Friedman, didn't even do that well. Their after-tax incomes, from 1979 through 2003, increased just 4 percent.

That 4 percent translates into $25 a year, not even enough any more to pull up to a gas pump and fill up a tank.

And there you have it, the energy industry's contribution to the Great American Wealth Concentration Machine. Average Americans pay more at the pump, oil companies translate higher prices into record profits, then pass those profits on to the distinctly unaverage Americans who own an ever-growing share of America's corporate assets.

Now Congress could, of course, give this story a more egalitarian ending. By upping taxes on income from corporate assets — the dollars that come from dividends and capital gains, for instance — Congress could give corporate executives an incentive to invest their excess cash back in their companies.

But Congress has been moving in the exact opposite direction. In 2003, lawmakers passed and President Bush signed into law a tax bill that cut the top tax rate on dividends and capital gains, all the way down to 15 percent.

That tax bill climaxed a half-dozen years of tax cutting that began with a 1997 cutback on the capital gains tax rate. Before this tax-cut frenzy started, top 1 percent households were paying in taxes up to 39.6 percent of their income from dividends and stock market wheeling and dealing.

The 2003 tax cuts on capital gains and dividend income will expire, under current law, after 2008. President Bush wants Congress to send him a bill that make these cuts permanent. He would sign it in a minute.

More pillage and plunder, with just a stroke of the pen, 21st century-style.

Want to receive the Too Much online newsletter in your email box every Monday? Learn more about Too Much and then sign up here for a free subscription!