The New York Times reports that in 2007, the median family made less -- $60,500 -- than it did in 2000 -- $61,000. Meanwhile, that family's costs have spiked -- oil is up 342%; wheat, milk, and egg prices have doubled or tripled. And the dollar has lost 65% of its purchasing power. But no worries -- hedge funds are making out well. DealBook reports that John Paulson, who famously profited from selling subprime short last year, made $3 billion in 2007. I don't know how much he made in 2000, but I'd bet that he's better off now than he was then.

Newsweek reports that people like Paulson are part of a new Superclass that's prospered in the last seven years. The Superclass is a group of a few thousand government and business people who control most of the world. How many and how much? Newsweek notes: "The top 50 control almost $50 trillion in assets. The heads of the world's biggest corporations are also members; the top 2,000 support perhaps 500 million people, generate almost $30 trillion in sales and have well over $100 trillion in assets."

Thanks to tax cuts passed in 2001, Paulson probably paid a lower tax rate on his $3 billion than the median American paid on his or her $60,500. Specifically, Paulson could have paid 15%, the long-term capital gains rate, on his income from shorting subprime. The median family paid a 25% rate on its income. That capital gains rate was 20% in 1997 so Paulson may have paid $150 million less in taxes thanks to that 15% rate. But the most interesting part is how Paulson profited.

Continue reading Squeezing the middle class so the Superclass prospers

Squeezing the middle class so the Superclass prospers originally appeared on BloggingStocks on Wed, 09 Apr 2008 11:00:00 EST. Please see our terms for use of feeds.