More Money, More Problems for the Rich in 2013
CNBC Reporter & Editor
If 2012 was a year of uncertainty for the rich, 2012 will be a year of decisions. But not all of them will be positive.
The incomes and assets of the wealthy are likely to rise with the markets next year, once the noise around the fiscal cliff subsides. But that also means higher taxes—either through higher tax rates or a limit on deductions. With the issue of wealth becoming increasingly politicized, the wealthy will also continue to endure public criticism and outrage.
In sum, next year will bring "Mo' Money, Mo' Problems," in the famous words of the late Notorious B.I.G. The population of millionaires in the U.S. will grow and perhaps even set a new record. Globally, millionaires and billionaires will rise in numbers and fortunes—largely driven by emerging markets and the BRIC countries (Brazil, Russia, India, and China).
Yet soaring prosperity for the rich will be set against a backdrop of growing inequality and negative attention on the wealth gap.
Here are predictions for the wealthy in 2013.
The Tax Man Cometh
I've been predicting this for four years—and have been wrong every year. But 2013 will undoubtedly bring higher taxes for the rich. At a minimum, the rates for capital gains and investment income will go up with the health-care levies. But any fiscal cliff deal will almost certainly include a hike on top marginal tax rates or a limit on deductions, which would hit the wealthy hardest.
I predict that top rates will go up between 37 and 38 percent, while there may be some scattered limits on deductions, perhaps capping the mortgage deduction at $500,000. I doubt that capital gains taxes will go up to 20 percent. I also doubt that Obama will get his full 39.6 percent.
The estate tax will probably settle down to about 35 percent with an exemption of $3.5 million or so.
But I've been wrong on this before.
The number of individual millionaires in the U.S. will shoot past 3 million next year and will likely surpass the 2007 record of 3.019 million. (This measure is the number of individuals with investible assets of $1 million or more). The number of American households with $1 million or more in investible assets could shoot past 9 million, up from the current 8.6 million. If markets have a powerful bull rally, the number of millionaire households could blow past the pre-crisis record of 9.2 million.
After a tentative 2011, luxury sales and stocks are poised for stronger double-digit growth in 2013. That doesn't mean a return to pre-crisis levels of spending. The wealthy are still value-conscious and budget conscious. It's not about what they can afford, but what they need or what will truly improve their quality of life.
But the wealth effect will lead the wealthy to open their wallets a little more. Luxury and luxury spending will be defined more by experiences, travel and home improvement rather than traditional status goods like fashion, jewelry, and big toys. Purchases will be more about memories and moments than stuff and status. The luxury market will also become more bifurcated, with the super-luxury brands (Hermes, LVMH) doing better than mass luxury like Coach, Burberry and Tiffany.
Private Optimism, Public Pessimism
The wealthy will feel more confident about their own finances next year, but continue to be bearish on America. As The Harrison Group put it recently, the wealthy see a world where it's "me and everyone else."
About three quarters of One Percenters feel "successful in their personal life," while 59 percent feel the performance of the government is "successful." That's unlikely to improve.
At the same time, the fortunes of the wealthy will continue to diverge from the rest of the country, as the finances of the wealthy ride rising global markets, and the rest of America climbs back more slowly on the back of housing and employment.
The New Rich and the Old Rich
Mark Zuckerberg will be worth more than $10 billion by the end of 2013, but Mark Pincus will see his paper wealth fall below $300 million. Next year will see at least two new billionaires in tech—though I can't predict which ones. The biggest new fortunes next year will be in tech and energy.