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investments
The Younger Wealthy’s Alternative Approach to Investments Doesn’t Extend to Taxation
But both the younger and older rich want to pay as little as possible in taxes on the income their investments—in whatever category—end up creating.
Aug 17, 2024
Enormously rich people tend to get bored easily, especially those on the younger side. Stocks and bonds, such a yawn. Wealthy Baby Boomers certainly do still get a kick out of watching their financial portfolios fatten. But their Millennial and Generation Z counterparts have an added expectation. The fortunes they’re investing, they’re expecting, will be filling their lives up with fun.
And what could be more fun than collecting classic cars! The ageless-auto “alternative asset class,” the Knight Frank Luxury Investment Index documents, has nearly tripled in value over the past decade. And investors in classic cars can even get to drive their investments!
Private equity fund managers, not surprisingly, are plugging themselves into this classic car frenzy. They’re doing their best to make investing in classic cars an effortless pleasure. Wealthy car collectors, thanks to their efforts, no longer need to bother checking under the hood of classic Bugattis and Ferraris. Private equity firms will arrange all that tiresome checking for them.
Billionaire and billionaire-wannabe fund execs are shelling out much more than ever before on candidates they’re counting on to keep our tax code rich people-friendly.
These private equity firms, notes auto analyst Benjamin Hunting, are buying up veritable fleets of fine autos they see as likely to appreciate strikingly over time, then offering deep pockets an opportunity to invest in these collections of classics. In return for providing this opportunity, private equity execs typically collect a 2% annual service fee and then claim 20% of the profits the sale of the cars eventually produces.
The classic car-loving investors, meanwhile, get to share the rest of the profits, on top of the joy rides some of the classic car funds invite them to take in their “alternative asset class” investment.
How secure as an investment do classic cars rate? An “elite automobile storage boutique” industry has emerged to make sure stashed-away collectible cars don’t get either scratched or stolen. One such outfit, the Vault in San Diego, uses biometric scans and personalized access cards “to guarantee that only owners, or their designated representatives, can get anywhere near luxury vehicles.”
Not all the Millennial and Gen Z super rich, of course, have taken the dive into classic car investing. Plenty of the wealthy in these age cohorts are flocking to other alternative investments, everything from fine wines and watches to sneakers and crypto. The overall “alternative asset” category, notes a new Bank of America study, has an amazing 94% of wealthy 43-and-unders interested in it.
This Bank of America Study of Wealthy Americanssurveyed 1,000 deep-pocketed adults of all ages and found that 73% of those not yet 44 years old consider themselves “skeptical” of any investment strategy that has them investing only in traditional stocks and bonds.
The wealthy who took part in the new Bank of America survey are all sitting on at least $3 million in investable assets. The younger ones among them turn out to have less than half their investable millions invested in traditional stocks and bonds. Their older counterparts have three-quarters of their investable assets in these classic categories.
The younger rich, the Bank of America study goes on to show, have almost a third of their fortunes in crypto currencies and other alternative investments like classic cars. The older rich have just 6% of their wealth sitting in these alternate asset classes.
But both the younger and older rich do share one intense investment fixation: Both age cohorts want to pay as little as possible in taxes on the income their investments—in whatever category—end up creating.
Under current federal tax law, profits from the buying and selling of assets, traditional and alternative alike, face a significantly lower tax rate than paycheck income. The top combined federal tax rate on ordinary paycheck income now runs 40.8%. But income from capital gains—the income from buying and selling assets—only faces a top 23.8% overall tax rate.
Private equity fund managers have an even lusher loophole—the so-called “carried interest tax deduction”—they will go to any lobbying lengths to forever preserve. This loophole, note analysts at Americans for Financial Reform, “allows private equity and hedge fund executives—some of the richest people in the world—to substantially lower the amount they pay in taxes.”
The loophole lets these fund execs “claim large parts” of their compensation for services rendered “as investment gains.” Ending this carried interest loophole could raise billions in new revenue.
To make sure that this ending doesn’t happen, private equity and hedge fund execs spent $547 million on political campaign contributions in the 2020 presidential election year cycle.
In the current cycle, just 11 private equity billionaires all by themselves have so far pumped over $223 million in contributions to congressional and presidential candidates, an amount that more than doubles, notes the Center for Media and Democracy, what moguls from 147 private equity firms plowed into political campaigns back in the 2016 election cycle.
In other words, billionaire and billionaire-wannabe fund execs are shelling out much more than ever before on candidates they’re counting on to keep our tax code rich people-friendly. For America’s richest, no big deal. They can easily afford these gargantuan political campaign outlays. And they also consider these outlays money exceedingly well spent.
Takes money, as the rich like to say, to make money. The American way! We need to change it. One place to start: passing the pending Carried Interest Fairness Act, legislation that U.S. Sen. Sherrod Brown (D-Ohio) has introduced to eliminate the tax loophole that only “wealthy money managers on Wall Street” could love.
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The Fossil Fuel Industry Wants to End Responsible Investing
“Anti-ESG” efforts all have one things in common—connections to conservative big money donors in the oil and gas industry.
Jul 05, 2023
In a recent Gallup poll, the vast majority of Americans surveyed said they were not even “somewhat familiar” with the term “ESG.” But on Capitol Hill, Republicans have developed a fixation on the issue, holding not one but two intensely partisan hearings on the topic.
“Republicans Are Losing Their Minds Over ESG” read one headline.
“Anti-ESG talk leads to partisan fireworks” read another.
Now you may be wondering, what the heck is ESG? What’s anti-ESG? What the heck is “woke” capitalism? And why should I care?
What Is ESG?
ESG stands for “Environmental, Social, and Governance,” which are categories of metrics that businesses use to assess performance and risk on a range of issues. To reduce risk and create value over the long term, businesses may seek to reduce carbon emissions (Environmental), improve working conditions for workers through racial equity and other measures (Social), or take steps to bring executive compensation closer in line with the company’s median salary (Governance).
Companies’ practices on ESG metrics can have an impact on future performance, so there is tremendous value in understanding long-term risks associated with environmental, social, and governance factors.
The simple concept that businesses should care about their communities and their workers and govern themselves accordingly is not new. In the 1980s, some companies and banks stopped doing business in South Africa to protest racial Apartheid. In the 1990s, a number of institutional investors divested from the tobacco industry as a way to take a stand against the harmful and deceptive practices of companies like Phillip Morris and R.J. Reynolds. And in the 2000s and 2010s, support for environmental shareholder proposals grew substantially in response to the worsening climate crisis.
Who’s Against It?
This leads us to the current backlash. “Anti-ESG” efforts, promulgated by long-time conservative organizations like the Heritage Foundation and American Legislative Exchange Council (ALEC) and newly prominent groups like the Committee to Unleash Prosperity, Consumers’ Research, and the State Financial Officers Foundation all have one things in common—connections to conservative big money donors in the oil and gas industry.
“The anti-‘woke investing’ movement was not created by financial experts,” observed environmental reporter Emily Aktin, “It was created by two of the fossil fuel industry’s most notorious climate disinformers.”
The anti-ESG movement is a well-funded and well-organized campaign led by top conservative political operatives.
Big Oil wants to end ESG investing and ESG business practices because they’re at odds with the continued growth of the fossil fuel industry. Big Oil would rather let our planet burn and increase short-term profits than adjust its business practices to stave off the worst of the climate crisis and invest in long-term profits.
Big Oil also wants you to think that this “anti-ESG” movement is organic, that it emerged from the conservative grassroots, but that could not be further from the truth. The anti-ESG movement is a well-funded and well-organized campaign led by top conservative political operatives. I recently corresponded with Meaghan Winter, author of All Politics Is Local, who explained that:
“Ideological donors and their foundations and think tanks have deliberately chosen to push their agendas through obscure-seeming front groups that work incrementally on the state level because they don’t want to call attention to the profound (and very unpopular) changes they are initiating. This strategy is decades-old, it has worked against unions and abortion and more, and the anti-ESG effort is just one of the latest incarnations.”
One shining example of this is the recent House Oversight Subcommittee hearing on ESG, where the majority witnesses (those called by the GOP, because Republicans control the House of Representatives right now) were Mandy Gunasekara from the Independent Women’s Forum, Jason Isaac from the Texas Public Policy Foundation, and Stephen Moore from the Heritage Foundation. These organizations have a long history of receiving financial support and carrying water for the oil and gas industry, including Koch Industries, ExxonMobil, and Chevron.
Watch Congresswoman Summer Lee lay it out for us, plain and simple.
Why Does This Matter?
While the right wing foments a culture war crusade and attempts to make ESG the next critical race theory (“CRT”), the fear mongering campaign has real-world impacts on investors and companies who are scared of being caught in the backlash. For example, some private companies are now backpedaling on their climate commitments.
To be clear, this is what the funders of this movement want.
In December, Vanguard, the world’s second largest asset management firm, pulled out of the Net Zero Asset Managers initiative, which was a voluntary industry-led effort to reach net-zero emission targets by 2050. This was a major setback for anyone who cares about the health and shape of our environment, because Vanguard manages roughly $7 trillion in assets. In order to meet the goals of the Paris Agreement—less than 1.5°C of global warming above pre-industrial levels—global markets must shift capital away from the fossil fuel industry and toward renewable energy systems.
But this goes beyond the climate crisis. In recent years, workers and shareholders have been demanding more corporate accountability on workplace safety, workers’ freedom of association, data privacy, racial equity, and executive compensation, among other issues that fall into the Social and Governance categories of ESG. The right-wing campaign against ESG is a campaign to roll back these victories.
How Do We Fight Back?
My organization, Take on Wall Street, is organizing with unions, public interest groups, and grassroots groups to fight back against this regressive movement. But it’s not just about playing defense. We also need a forward-looking vision for worker power, climate justice, and racial equity. Watch this space.
An earlier version of this piece was published by Take on Wall Street.
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Earth Day 2023 – Investing in Our Planet
Ultimately to achieve peace with the planet we must have peace on the planet.
Apr 22, 2023
Today is Earth Day. “Invest in our Planet“ is this year’s theme. This week also includes our national Tax Day when we fund our nation's priorities. At this point in history our planet faces two existential threats: the threats of catastrophic climate change and of nuclear war. It is important to recognize their interconnectedness. Taking a closer look at our tax expenditures gives insight into our investment in our planet and all of its inhabitants.
A critical component of addressing climate change is moving to a carbon free economy. Yet, the United States spends approximately $20 billion annually on fossil fuel subsidies that are the principal cause of climate change. As the effects of climate change continue, precious natural resources become scarce. This promotes conflict as access to these resources diminishes. That conflict on an international level can result in climate wars. This is clearly recognized by military leaders who have long described climate change as a “threat multiplier,” further connecting these existential threats, which is ironic as the Pentagon remains the world’s largest single emitter of greenhouse gasses. This fear of impending conflict has resulted in the largest U.S. defense budget in history, including over $90 billion in funding of all U.S. nuclear weapons programs as noted in the release this week of the “US nuclear weapons community costs” program.
As we look towards our future and investing in our planet, we must realize the interconnectedness of our existential threats, and we must demand a redirection of our national priorities.
These expenditures rob our communities of precious resources necessary to address the most critical needs. What is needed is a rebuilding of their infrastructure and a just transition from a fossil fuel economy. Tragically, much of the impact of the fossil fuel, extractive economy, at every level exists in and around the most at-risk communities dramatically affecting their health and well-being. These communities that have been overlooked or left behind bear the brunt of our misplaced priorities.
Just how do these nuclear expenditures impact our communities? In Jackson, Mississippi, with its population of 148,761, recently in the news for water shortages and contamination, its residents earn a per capita income 62% of the national average. Their tax dollar contribution to nuclear weapons programs is ~ $25 million dollars. For Flint, Michigan, still recommending lead-removing filters for its water, with its 80,628 residents earning a per capita income of 50% of the national average, has a nuclear contribution of over $10.8 million dollars. The Navajo Nation, whose 143,435 residents have experienced the health legacy of having been victims of significant radiation exposure from nuclear weapons testing and development for decades, whose per capita income is 40% of the national average, will spend over $15.6 million on nuclear weapons programs. The nation’s poorest county of Buffalo County, South Dakota with its 1,923 largely indigenous Crow Creek Sioux Tribe residents, earning on average 32% of the national average, will spend ~$167 thousand dollars as their contribution to nuclear weapons programs.
Is this their priority? Does it add in any way to their security, health, or wellbeing? In reality, nuclear weapons are among the greatest threats to their security. In a participatory democracy is this how they would choose to spend their treasure and invest in our planet this Earth Day?
As we look towards our future and investing in our planet, we must realize the interconnectedness of our existential threats, and we must demand a redirection of our national priorities. Bold actions on each of these crises include the Green New Deal and fossil fuel transition, the abolition of nuclear weapons, supporting “Back from the Brink”, and the recently introduced H. Res 77, that supports the Treaty on the Prohibition of Nuclear Weapons, and the precautionary measures necessary during that process. Ask your Representative to Co-sponsor this resolution.
Ultimately to achieve peace with the planet we must have peace on the planet. Each of us has a role to play in achieving this reality.
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