THE BLOG
10/02/2013 06:21 pm ET | Updated Jan 23, 2014

The Myth of the Magic Billionaires

Some myths, no matter how false, persist. Many still believe that President Obama was born in Kenya, that immunizations cause autism, or that Bigfoot stalks hikers.

And others, including New York City Mayor Michael Bloomberg, still believe in trickle-down economics, which preaches that increased wealth for billionaires will magically seep down into the rest of the economy and eventually lift everyone's fortunes.

Responding to new statistics that prove the Big Apple is the poverty capital of America -- and has greater wealth disparities than even Mexico or Sri Lanka -- Bloomberg praised inequality: "If we could get every billionaire around the world to move here, it would be a godsend ...They are the ones that pay a lot of the taxes, and we take the tax revenues from those people to help people throughout the entire rest of the spectrum."

According to Forbes data, over the last two years, the collective net worth of New York's 53 billionaires rose from $210 to $277 billion -- a 31 percent jump. In contrast, the city's entire municipal budget is now about $70 billion, meaning that the 53 wealthiest New Yorkers have about four times the city's combined annual spending on police, roads, schools, parks, social services, transportation, sanitation, and firefighters.

Median household annual income in New York is now $50,895 and a person working full-time at the minimum wage would earn $15,080. That means that those 53 billionaires now have as much money as five million average families and 17 million minimum wage workers.

Those vast disparities wouldn't be so troubling if everyone did actually benefit. But middle-class income, adjusted for inflation, is lower than a decade ago. While the poverty rate nationwide was flat over the last two years, it rose by five percent in New York.

New York's levels of both poverty and inequality dwarf the levels in other world cities such as Paris, Tokyo, London, and Berlin. The cities with the most poverty -- Mumbai, Cairo, Mexico City -- also have the most inequality of wealth.

Those facts alone should provide proof positive that massive inequality causes poverty to increase, not decrease.

But what about the argument that increasing wealth at the top is a chief source of tax revenue needed to fund vital services? That's not true either. Most analyses of tax payments by the wealthy focus only on income taxes, which are marginally progressive, and ignore sales and residential property taxes, which are generally regressive.

When total tax burdens are considered, the wealthiest New Yorkers pay less into the system than everyone else. According to the Fiscal Policy Institute, in 2010, the top one percent of earners in the city (households earning more than $567,253 annually), earned 37 percent of the city's income, and paid only 28 percent of the tax revenues. Yet the lowest 20 percent of households (earning below $9,131) earned the same percentage of the city's income as the percentage of the city's taxes they paid. The next lowest 20 percent (earning below $20,440) actually paid a greater share of taxes than their share of income.

Even if the modest tax hike proposed by mayoral candidate Bill de Blasio -- an increase in the city income tax rate from 3.9 to 4.4 percent only for those with incomes over $500,000 annually -- was to become law, the wealthiest would still pay a share of taxes far lower than their share of income.

Numerous studies prove that marginally higher taxes on the wealthy don't cause them to move, but even if they did, given that the largest safety net programs in New York are paid for mostly by the state and federal governments, the implication that billionaire flight would de-fund programs for poor people is bunk.

The trickle-down crowd also argues that hiking the wealth of the ultra-rich boosts their charitable donations. In reality, the wealthiest Americans donate a smaller percentage of their income than do the poorest. While a few of the nation's billionaires target their philanthropy to the most vulnerable, the bulk of donations go to cultural, medical, and educational institutions that tend to benefit their own families and social class.

Trickle-down, crony capitalism is failing our city and our society. It's time to restore opportunity capitalism, America's post-war ethos, under which working families prospered and people in poverty were able to climb into the middle-class. To do so, we must ensure the wealthy pay their fair share and that we invest in policies that aid all of us. That makes a lot more sense than believing in Bigfoot or magic billionaires.