Rich gain as companies seek to beat Obama tax increases
More than 150 companies, from Costco Wholesale Corp. to Las Vegas Sands Corp., have declared special dividends totaling about $20 billion this quarter to avoid anticipated tax increases in 2013, according to data compiled by Bloomberg. Others, including law and private-equity firms, probably will pay bonuses, partnership distributions and commissions early for tax reasons, according to Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, N.J.
"We're going to have a big jump in household income in the fourth quarter" said Crandall, whose company is a subsidiary of ICAP, the world's largest broker of transactions between banks. "It's going to be in excess of $50 billion."
Much of that will go to upper-income Americans, the very people Obama has targeted to pay higher taxes, including Las Vegas Sands controlling shareholder and chief executive officer Sheldon Adelson.
Of the $123.6 billion in qualified dividends reported to the government for 2009, about 52 percent was received by those making more than $250,000 for the year, according to the latest data available from the Internal Revenue Service.
Americans working on the production line are not seeing the kinds of gains the rich are enjoying. Average hourly earnings for production workers rose 1.3 percent in the 12 months to November after a 1.2 percent increase the prior month, the weakest since Labor Department records began in 1965.
"This is just another indication of how incredibly unequal the income distribution has become over the past 28 years," said Josh Bivens, research and policy director at the Economic Policy Institute, a Washington group that says it focuses on the economic condition of low- and middle-class Americans. "Wages are less equal than they used to be and capital income is less equal than it used to be, and there's been a shift from labor income to capital income."
The money won't have much impact on consumer spending or economic growth because the wealthy are more likely to save rather than spend it, said Michael Feroli, chief U.S. economist for JPMorgan Chase in New York.
"If they really wanted to spend, they would have spent by now," the former Federal Reserve economist said.
Adelson will get $1.2 billion as a result of the special dividend the casino company declared, according to Citigroup credit strategist Erin Lyons in New York. Adelson and his wife, Miriam, contributed $33 million to two super-political action committees in the last three weeks of the presidential election campaign in an unsuccessful effort to defeat Obama, Federal Election Commission filings show.
U.S. households probably will have their incomes squeezed next quarter as a temporary payroll-tax cut expires and emergency unemployment benefits are scaled back, Feroli said.
And unlike the year-end boost to incomes, the hit to paychecks in 2013 will affect spending and the economy - for the worse - because cash-strapped Americans will feel the pinch, he added. He reckons that budget belt-tightening on the federal, state and local levels will shave two percentage points off growth next year. The economy will expend 1.7 percent in 2013, after climbing 2.2 percent this year, according to Feroli.
Obama has said an increase in tax rates on income above $200,000 for individuals and $250,000 for married couples must be part of a deal to prevent the rest of the more than $600 billion in automatic spending cuts and tax increases from taking effect in 2013.
Under the president's proposal, the top statutory tax rate on ordinary income would reach 39.6 percent, up from 35 percent, and the top rate on capital gains would be 23.8 percent, up from 15 percent. The maximum rate on dividends would go to 43.4 percent from 15 percent.