The rich are richer than us
We knew there were folks living in America who were more prosperous than most of the population, but the gap wasn’t always as large as it is now. There once was a time when the top executives running the companies we work for were “normal rich.” But now these executives are luxuriating with insane wealth, their pay having skyrocketed 400 percent in the last 40 years. The rest of us, whose income has been essentially static, are just trying to keep our jobs and homes.
“The evolution of executive grandeur — from very comfortable to jet-setting — reflects one of the primary reasons that the gap between those with the highest incomes and everyone else is widening,” wrote Peter Whoriskey in The Washington Post’s award-winning series “Breakaway Wealth.”
The series written by Whoriskey, Steven Mufson and Jia Lynn Yang, just received top honors from the Society of Professional Journalists. The special report focused on business executives who make up more than 40 percent of the top earners. A mounting body of economic research indicates that the rise in pay for company executives is a critical factor in the growing income gap.
The largest single chunk of those highest-income earners, it turns out, are company executives and other managers, according to a landmark analysis of tax returns by economists Jon Bakija, Adam Cole and Bradley T. Heim. These are not just Wall Street executives, but also those from firms in relatively mundane fields such as the milk business.
Other recent research indicates that executive compensation at the nation’s largest firms has roughly quadrupled in real terms since the 1970s, even as pay for 90 percent of Americans has stalled, the series found.
As the series points out, defenders of extremely lucrative executive pay have argued that today’s chief executives are worth more because, among other things, companies are larger and more complex. But critics (and I) question why so much of the income growth should go to those who already have the biggest bank accounts in the country.
Read the series, and tell me what you think. The Color of the Money Question of the Week: “How do you feel about the growing disparity between the super wealthy and everyone else?” Send your response to firstname.lastname@example.org, and put “Breakaway Wealth” in the subject line. Be sure to include your full name, city and state.
Well, some people who were rich aren’t anymore.
Add former NFL player Warren Sapp to the long list of athletes, actors and entertainers who spend themselves poor – or at least relatively poor, compared to the riches they used to have.
TMZ.com broke the story that Sapp has filed for Chapter 7 bankruptcy protection and owes his creditors more than $6.7 million. The debts include hundreds of thousands of dollars in child support payments, $853,000 to the IRS and more than $90,000 in medical bills.
Sapp, a former defensive tackle for the Tampa Bay Buccaneers and the Oakland Raiders during his 13-year NFL career, was also once a contestant on ABC’s “Dancing with the Stars.”
Sapp’s average monthly income is $115,881, with expenses of $111,170, according to the filing. Sapp’s assets of $6.45 million includes 240 pairs of Michael Jordan athletic shoes worth almost $6,500. Sapp also reported that he lost his 2002 Buccaneers Super Bowl ring and his 1991 National Championship ring from the University of Miami, reports the Associated Press.
It’s always amazing to me to see people with that kind of money seeking bankruptcy protection.
I’m always telling people not to mess with the IRS. Find out what you owe and pay your taxes -- because it’s the right thing to do and because if and when the government catches up with you it may not be pretty.
Still, there are people who test the law. They come up with all kinds of ways to convince the IRS that they don’t have to pay their taxes.
One taxpayer claimed that his Social Security number was the “the mark of the beast,” referring to Bible passages, and that if he filled his taxes he would go to Hell.
“I believe that the individuals making this claim are more motivated by the alleged tax savings than by their sincerely held religious beliefs,” Frank Sommerville, a tax lawyer at Weycer, Kaplan, Pulaski & Zuber, P.C in Texas, told Blake Ellis of CNNMoney.com. “When these claims wind up in court, all the judges dismiss the ‘mark of the beast’ claims and hold that the scheme is just another tax scam.”
Here are some other bizarre arguments concocted by taxpayers who are trying to get out of paying Uncle Sam:
--My state isn’t part of the United States of America. A man from Indiana refused to pay his taxes by claiming that “he is not a citizen of the United States, but rather, that he is a freeborn, natural individual, a citizen of the State of Indiana, and a `master’ -- not a `servant’ -- of this government,” according to federal court documents. The claim didn’t work.
The 14th amendment of the Constitution states that anyone born or naturalized in the United States is a citizen of both the country and the state where they reside. Fines for making this argument can range as high as $25,000, depending on the severity of the case and the amount owed, reports Ellis.
--I am not human. The IRS has rejected claims from taxpayers who don’t consider themselves to be a “person.”
---It’s against my religion. One man said his First Amendment rights exempt him from paying taxes because of his religious objections to the government’s military spending. The case was dismissed. The man was fined $5,000.
National Financial Literacy Month
April has been designated as National Financial Literacy Month. Take some time this month to further your financial education. To get you started, here are two articles: a primer on investing and a guide to teaching children how to manage their finances before they have to take on adult responsibilities.
-- Janet Bodnar, editor of Kiplinger’s Personal Finance magazine, has been writing about kids and money for years. I love her advice. She recently revisited her four-point plan to help parents groom their kids to be good stewards over their finances.
Here are the first two steps:
-- Cash is the core. Let your children get used to cash before handing them plastic, Bodnar recommends. “Kids need to feel the pain and learn this discipline before they move on to more sophisticated payment systems,” she adds.
--Debit with a purpose. For older teens and college graduates, Bodnar suggests using a debt card to manage money. She says this step “adds more discipline.”
-- Mint Life (mint.com) is taking a look at a basic investing topic every week this month. This week, Mint.com contributor Cyrus Sanati explains equities – a simple, yet often misunderstood investing tool.
So, what does equity mean?
“The word equity basically denotes some sort of ownership in an asset. You have equity in your home, car, Beanie Baby collection, etc.,” Sanati writes. “Your equity is the difference between the market value of the item minus whatever debt you owe on it. It isn’t always a positive number. For example, a lot of Americans owe the bank more money for their home than what they could get if they sold it today. That means they have ‘negative equity’ in their homes.”
And so, what are equities?
Sanati writes: “When people talk about ‘equities’ they are usually referring to stocks issued by companies. So if you buy stock in Apple, you actually own a piece of the Silicon Valley dynamo.”
If you’re confused about these terms or have tried to explain them to others and weren’t sure you had it right, Sanati’s piece is a good basic explanation.
Spend Well, Live Rich
Many PBS-affiliated stations are still airing my pledge special, “Spend Well, Live Rich.” Here’s a link for a video preview.
Even if you missed the program, you should order it and support your local PBS station.
On Saturday, April 21, at 11 a.m., I’ll be speaking at Columbus Metropolitan Library in Columbus, Ohio. The library is sponsoring “Money Smarts for You: A Day of Free Financial Help.” The address is 96 S. Grant Ave., Columbus, Ohio 43215. There will be free parking and child care for children 3 to 9 years old. To learn more, call 614-645-2275, or click this link.
Tia Lewis contributed to this report.
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