Thursday, December 06, 2012

It's an unequal world

Between 2007 and 2010, the median net worth (assets minus its debts)  of U.S. households fell by 47 percent, reaching its lowest level in more than forty years, adjusted for inflation said Edward Wolff, an economist at New York University. In June, the Federal Reserve released its own analysis of household finances, which found that median net worth fell closer to 39 percent from 2007 to 2010.

In the United States, wealth (again, what people own, minus their debts) tends to be much, much more concentrated than income (what people make). That's not particularly surprising, since the rich have extra cash to stow away in bonds, stocks, and other investments, while the rest of us spend much of our money fulfilling basic needs such as housing and transportation. The rich are frequently well off to start with because they also own pieces their own businesses, which adds to their net worth tally. During the recession, wealth inequality increased.  Families saw the value of their possessions, such as the value of their house,collapse dramatically, the wealthy came out comparatively unscathed.

Pretend your only asset in the world is a house. For the sake of argument it's worth $100. Now, let's say you own it outright, so your net worth also $100. If home prices tumble 5 percent, so does your net worth. You have $95 to your name. Now, let's say your house is actually $200, and you have a $100 dollar mortgage. So you still start off worth $100. When home prices fall 5 percent, your house's price is going to drop $10. Suddenly, your net worth is just $90

Meanwhile more than 110 companies have announced special dividends totaling more than $22 billion this quarter -- more than three times last year's fourth-quarter total. The payouts are aimed at beating a potential increase in tax rates for dividends. Dividend payments are currently taxed at 15 percent, but the rate could go to 43.4 percent for some top earners if the Bush-era tax cuts expire. The total taxes paid on that $22 billion of dividends will be around $3.3 billion - $9.5 billion less than next year's potential taxes.

 Sheldon Adelson, CEO of LasVegasSands will receive about $1.2 billion from the company's dividend. His tax savings on the distribution could be as much as $340 million.

Larry Ellison of Oracle share of an early payout is $198.9 million saving him $25 million - small change for a man worth $37 billion.

CEO Micky Arison is getting $89 million Carnival's special dividend. His tax savings is a potential $25 million.

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