Much was rightly made of Newt Gingrich’s recent avowal that he’s “not rich,” despite an annual income of several million dollars and a net worth somewhere between $6.7 and $7.5 million. It’s certainly a stark example of how disconnected the wealthy are from the economic realities of mainstream America.
But the former House Speaker’s finances and his view of them illustrate other important points as well. The first is that the spectrum of riches has become so extended in our country that it’s possible for a multimillionaire to view himself as strictly middle class.
Gingrich poor-mouthed himself as part of his struggle for the GOP presidential nomination against Mitt Romney, a rival he’s trying to define as a Wall Street plutocrat. Since Romney (whose net worth is approximately $200 million) has some 30 times the wealth of Gingrich, looked at comparatively, Gingrich isn’t rich.
But for the purposes of public discourse and policy-making, wealth can‘t be breezily dismissed as all in the eye of the beholder—there should be an objective standard, and that standard should in a democracy be the average citizen. By that yardstick, Gingrich is rich: he stands in approximately the same position financially vis a vis the typical American family—30 times as wealthy—as Romney does to him.
What’s mind-boggling, though, is that there are individuals who similarly dwarf Romney—multi-billionaires beside whom the former Massachusetts governor must feel like a pauper. These are the hyper-rich, handfuls of whom own more assets than whole, thick percentile slices of the rest of the U.S. population. These are the folks who have benefited so magnificently from the scandalously low tax rates on passive income like capital gains and dividends—rates that have exacerbated our nation’s widening, destabilizing wealth gap and added billions to the national debt.
Also pointed up by Gingrich’s finances is the important, often-overlooked distinction between income and assets. If this distinction were better understood, even high earners would be more likely to support appropriate tax rates on passive income—the kind of money made by other money, rather than by work.
This income-asset distinction shows that significant wealth doesn’t spring from hard work alone. Look at Gingrich: he’s making several million dollars a year, principally from his production company (which publishes books, makes documentaries, and otherwise monetizes the ideas and celebrity of Newt). Whatever you think of his products, Gingrich is essentially a small-business owner who works for a living: writing, editing, giving paid speeches. Because that multimillion dollar income comes from work, it’s taxed at a marginal rate of 35 percent. And after many years at this kind of high-paid employment, he’s accumulated what by rich-person standards is a fairly modest fortune.
Now if he had inherited wealth—or been a high-tech entrepreneur who struck it rich in a stock deal, rather than crashed and burned like dozens of equally hard-working entrepreneurs who were less lucky—he could enjoy the same multimillion dollar income and pay no more than 15 percent on it, since it would be income (capital gains, dividends) generated by money, not work.
The moral is that high-paid athletes, actors—and political performers—should feel free to join the cause of tax equity, since it’s not principally targeted at them. Even with years of hefty salaries and ample small-business income, their chances of joining the hyper-rich and enjoying millions of dollars of passive, low-tax income are not much better than those of the 99 percent.