This Week

Do you work too much? Would you work less if you lived in a more equal society? Two top economists have released some new research that helps answer questions like these. We outline what they have to say in this week's Too Much.

Also this week: why deregulation has the power-suits smiling.

Greed at a Glance: Tuition Sticker-Shock

From Germany, the nation that gave us the kindergarten, comes a new departure in early education: super day care for the super-rich. The new Villa Ritz center for kids three to six, soon to open in a trendy neighborhood outside Berlin, will feature a sauna, bodyguards, and chauffeurs — at just $1,200 a month. Villa Ritz, says co-founder Stephan Knabe, will stay open from 6 a.m. to 10 p.m., hours that will make the center ideal for “anyone who earns a lot of money, but doesn't have much time for their children.”

Parents with deep pockets in New York seem to be paying a good deal more for day care than their German counterparts — and getting less. New York City's Riverdale Country School, the Associated Press reports, charges over $2,000 per month for preschool tuition, with apparently no sauna. Middle and high schools tudents at Riverdale pay $31,200 in annual tuition, about $3,300 over the current tuition going rate at Harvard . . .

Where do elite New York private schools find parents with pockets deep enough to pay over $200,000 for a secondary education? Try Wall Street. Firms like Merrill Lynch and Morgan Stanley devote about half their revenues to bonus pay for top executives, bankers, and traders. Last year, Merrill's top five execs raked in $127 million. This year looks even better. In 2006's first quarter, news reports last week noted, Goldman Sachs set aside $5.3 billion for bonuses, 66 percent more than last year's first quarter. In 2005, Goldman CEO Henry Paulson took home $38.3 million, and company president Lloyd Blankfein, at $30.8 million, did quite well, too . . .

New Yorkers who didn't do so well last year included the 700,000 city residents eligible for food stamps who didn't receive them. Anti-poverty experts call New York's abysmally low food stamp enrollments a hangover from Rudy Giuliani's days as mayor. Giuliani, who now collects at least $100,000 a pop on the lecture circuit, repeatedly denounced food stamps as “welfare dependency” during his years in office, and his caseworkers, the Washington Post reported last week, “routinely and illegally denied food stamps to tens of thousands of poor people.”

Meanwhile, over in California, filmmaker Rob Reiner is devoting his lecturing this spring to advocacy for Proposition 82, a ballot initiative that would, if enacted this June, raise taxes on the wealthy to fund preschool for every four-year-old in the state. Prop 82 would hike the tax rate on income over $400,000 for individuals — over $800,000 for couples — from 9.3 to 11 percent, a move that would impact just 0.4 percent of California taxpayers yet still raise $2.4 billion annually. Lined up against Prop 82: a “Stop the Reiner Initiative” cohort of veteran anti-taxers who, Los Angeles Times analyst George Skelton noted last week, “wouldn't favor raising taxes on the rich regardless of the cause.”

A Deregulation Bill Comes Due

Why has wealth in the United States become so unequally distributed over the last quarter-century? A good part of the reason: The rules have changed — the rules, that is, that govern how our economy operates.

These rule changes, on everything from taxes to regulating corporations, have privileged the already privileged, at the expense of everybody else.

Just ask the 1.1 million Maryland families that get their electricity from Baltimore Gas & Electric. This July 1, seven years after state lawmakers voted to deregulate the state power industry, customers of BGE will see a 72 percent hike in their electric bills, for an annual extra cost of $743 per household.

Maryland energy consumers are having a hard time understanding why BGE needs all those extra dollars. Last year, BGE cleared a $150 million profit. BGE’s parent company, Constellation Energy, saw its profits soar an amazing 45 percent in last year's final quarter.

With profit rates already so high, why did top execs at Constellation go ahead with a 72 percent rate hike sure to create a firestorm of ratepayer fury? The answer, charged an editorial last week in the Annapolis daily that serves the Maryland state capital, sits in the $11 billion merger with Florida Power & Light that Constellation executives spent last year negotiating.

“It appears to us that Constellation executives dressed up the company finances with a fat rate hike that makes the merger more attractive,” last week's editorial in The Capitol argued. “They were more focused on feathering their nests than on sparing Maryland consumers the largest utility rate hike in state history.”

The merger with Florida Power & Light, still not final, will leave Constellation Energy CEO Mayo Shattuck and four other top company executives with $78 million in bonuses.

“America,” summed up Baltimore Sun columnist Dan Rodricks last week, “land of the free, home of the knave.”

Helping Workaholics, Helping Ourselves

Higher taxes, modern societies have come to agree, can help us battle socially noxious addictive behaviors. That's why we impose, without much political controversy, high excise taxes on cigarettes.

These taxes make a difference. Smoking levels have sunk dramatically over recent years.

Levels of “workaholism,” by contrast, show no sign of sinking. Could changes in tax policy help here, too? Two respected economists, Daniel Hamermesh from the University of Texas and Joel Slemrod from the University of Michigan, think they certainly could.

Our society could place a significant damper on workaholism, the two argue in a newly published paper, if we set higher tax rates on high incomes.

High taxes on cigarettes, Hamermesh and Slemrod contend in The Economics of Workaholism: We Should Not Have Worked on This Paper, have a regressive economic impact. These taxes fall disproportionately on lower-income people, who smoke more than people at higher income levels.

But workaholics — people who could earn decent incomes without working unreasonably long hours but work unreasonably long hours anyway — tend to come disproportionately from the ranks of the affluent.

Given this addiction pattern, note Hamermesh and Slemrod, the “appropriate corrective tax” for workaholism needs to be highly progressive. To fight workaholism, we need an income tax system that “not only features higher marginal tax rates than otherwise, but also marginal tax rates that rise with income more rapidly than otherwise.”

In the United States, we once had a tax system so oriented, back in the middle of the 20th century. Throughout the Eisenhower and Kennedy years, the high-income set faced steeply rising marginal tax rates that went as high as 91 percent on income over $400,000.

Tax rates that high send a powerful message: Working yourself to exhaustion isn't going to make you fabulously wealthy, only tired. So why not spend your time on something other than making that extra buck?

We have more on Hamermesh and Slemrod and their take on workaholism, wealth, and taxes.

Stat of the Week:
An Early Tally on 2005 CEO Pay

Pay for the typical American CEO rose 11.29 percent in fiscal 2005, says the Portland, Maine-based Corporate Library, in the first of this spring's national reports on top executive pay. But this tally, cautions Corporate Library senior researcher Paul Hodgson, only covers corporations that had filed their required pay data through March 13.

These early filings, notes Hodgson, tend to “contain a high proportion of low-paying industries.”

Median weekly earnings for America's full-time wage and salary workers, according to the U.S. Department of Labor, ended 2005 up 1.9 percent over the year before, not enough to match the year's 3.8 percent hike in inflation.

Quote of the Week:
Katherine's Little Truth Stretch

“I'm going to put everything on the line. I'm going to commit my legacy from my father, $10 million . . . This is everything that I have.”

Rep. Katherine Harris, the Florida secretary of state during the 2000 Presidential election recount battle, March 15, 2006, on the Fox News Hannity & Colmes show, explaining her pledge to devote her inheritance from her father's estate to her campaign for the U.S. Senate.

Turns out that Harris may have a good bit more than $10 million to her name. She filed financial disclosure forms, before her father's death in January, that put her net worth at up to $37 million. Her grandfather, Ben Hill Griffin, the Florida citrus baron, held a fortune worth over a quarter-billion dollars when he died in 1990.

In Congress, Harris is currently cosponsoring legislation to repeal the estate tax.

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