Late last Thursday night, a tag-team of gravely intense Republican lawmakers waged a bit of blatant class warfare on the U.S. Senate floor. The senators demanded that Big Three autoworkers give up — "at a date certain" — what's left of their middle class status.

The GOP lawmakers won their legislative battle last week. But single battles seldom decide entire wars. What sort of counterattack could actually build America's middle class? We offer a suggestion in this week's Too Much.

Next week's Too Much will feature our inaugural year-end list of America's top-ten greediest. You won't want to miss it. Want to help narrow the universe of those who will miss it? Why not strike an early blow for a more egalitarian 2009 by encouraging folks you know to sign up for a free Too Much subscription!

To get your encouraging going, just click the Forward to a Friend button at the bottom of this week's issue. Thanks!

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Peter Fay, a federal judge since 1970, exploded last month in public — before over 500 jurists and lawyers gathered for South Florida’s first “bench and bar” conference. The target of his ire: a situation the 79-year-old jurist labeled “beyond embarrassment.” What could that situation be? The politically motivated firing of U.S. attorneys by the White House? The assault on due process at Guantanamo? Fay had bigger fish to fry: the “insulting” current level of judicial salaries. U.S. district court judges make just $169,300 a year. Their British counterparts make $318,168. Fumed Fay: “Our law clerks earn more than judges they clerked for within one or two years of private practice.” Fay wants federal judicial pay set at $500,000 a year. That, he says, “wouldn't be a blip on the screen” at a time when “Congress just gave AIG billions of dollars.”

Meanwhile, over at insurance giant AIG, the taxpayer rescue tab now totals $152 billion, and Rep. Elijah Cummings from Maryland is doing some fuming of his own — at the admission, by AIG CEO Edward Liddy, that 168 high-ranking AIGers will shortly start collecting cash awards from $92,500 to $4 million, on top of salaries that range from $160,000 to $1 million. These “retention” awards, Liddy avowed in a letter to Cummings, are only going to personnel with a high “degree of flight risk.” But Liddy did not explain why firms elsewhere would be chomping at the bit to hire executives who helped manage AIG into $37.6 billion in net 2008 losses. Notes Cummings: “I remain concerned, as do many American taxpayers, that these retention payments are simply bonuses by another name.” Liddy himself remains eligible for a special “extraordinary performance” bonus in 2010 . . .

Mark Hurd, the top exec at computer powerhouse Hewlett-Packard, knows every trick in the contemporary CEO playbook — and he seems determined to demonstrate each one. In just five months. First, this past August, Hurd “grew” H-P’s customer base, by putting the company deep in debt to buy tech services rival Electronic Data Systems. In September, to help make the acquisition pay, H-P announced plans to lay off 24,600 workers. In October, Hurd gave consumers a little squeeze, by upping prices on Hewlett-Packard’s cash cow, computer printer ink, by 9 percent. In November, Hurd announced to Wall Street a jump in quarterly profits, then had employees notified, via email, that they won’t be receiving any salary increase in 2009. Earlier this month, Bloomberg News reported that Hurd is slashing H-P outlays for research. The 51-year-old Hurd took home $25.3 million last year . . .

Fortunes up north, Canadian Business reports, are heading south. Canada’s 100 richest, says the magazine’s just-published annual wealth issue, have seen their net worth drop 6.7 percent over the last year. The sunny side: The top 100 still average $1.65 billion each. Since 1999, adds Canadian Business, the number of billionaires in Canada has more than doubled. These billionaires now have a new critic on the political scene. Last week, in Montreal, voters gave a surprise thumbs up to Amir Khadir, an equality-minded microbiologist running on the Québec solidaire party ticket. Khadir will become the new party’s first lawmaker in Quebec’s assembly. He pledged, in his victory speech, to fight for “an economy that works for the people, where the wealth is shared.”

Moscow’s latest “Global Luxury Forum,” held last Monday, didn’t exactly pack in the deep-pockets. Reuters found the fair’s halls “far from populated.” Behind the poor turnout: the global financial meltdown. Firms in Corporate Russia have so far lost an estimated $1 trillion in share value. But Moscow’s high-end fitness clubs seem to be weathering the current unpleasantness quite nicely. Explains the director of Moscow’s Rixos Royal Spa: “We create an atmosphere for those who need to relax,” a service “particularly relevant in times of crisis.” Rixos Royal charges an average 25,000 rubles, or just under $900, for a daily visit.

Quote of the Week

“At long last, our national love affair with the rich is coming to a close . . .
“Massive inequality, we have learned, isn't the best way to run an economy after all.”
Thomas Frank, Rent-a-Womb Is Where Market Logic Leads, Wall Street Journal, December 10, 2008

New Wisdom
on Wealth

Citizens for Tax Justice, Principles for Progressive Taxation During a Recession, December 2008. Why we “should consider new progressive taxes and reducing loopholes that allow the wealthy to escape taxation.”

Gail Collins, The Dreaded Fairness Doctrine, New York Times, December 13, 2008. Do dogs have a lesson to teach us about nature's perspective on inequality?

Joseph Stiglitz, Capitalist Fools. Vanity Fair, January 2009. A Nobel Prize-winning economist analyzes the rich people-friendly decisions that have ushered in our worldwide economic collapse.

A Better Incentive for Bailed-Out CEOs

Lawmakers opposing the auto bailout have been insisting they stand on “free enterprise” principles. Companies in the private sector, these legislators pronounce, should not be begging the public sector for help. And if private enterprises should go under without that help, so be it.

“Companies fail every day and others take their place,” as Senator Richard Shelby, a bailout opponent from Alabama, has bluntly put it.

Politicos like Shelby paint the private and public sectors as two entirely separate spheres, the one bankrolled by taxpayers over here, the other pumped up by marketplace transactions over there. In reality, of course, no clear, clean “bright line” separates our private sector from our public. The two, day after day, waltz through modern economic life as an inseparable couple.

Government, at all levels, is endlessly interfacing with the private sector. Public bodies routinely procure goods and services from private businesses. Lawmakers, just as routinely, vote businesses a steady stream of subsidies and development grants. Indeed, sooner or later, virtually every major business interacts significantly with the public sector, in some way, shape, or form.

This fall’s bailouts, from this perspective, amount to business as usual.

But the current bailouts, both those already in place and those in the offing, also amount to something else: a real opportunity, at long last, to leverage the power of our public purse on behalf of average Americans.

We Americans have been trying to do this leveraging for some time now. As a society, we recognized years ago — in the Great Depression — that tax dollars passed to the private sector, if spent unwisely, can make life appreciably worse for average households.

The bidding process for government contracts, for instance, “gives a natural advantage” to those bidders who pay their workers the least, as the Center for American Progress noted last week in a new report, Making Contracting Work for the United States. The less a business pays in wages, the lower a bid that business can offer.

Between 1931 and 1965, Congress would pass a series of laws designed to erase this “natural advantage.” These laws required the businesses that seek our tax dollars to pay their workers the local “prevailing wage.”

Lawmakers back in those mid-20th century years understood, as Solicitor of Labor Charles Donahue observed over four decades ago, that “substandard wages must inevitably lead to substandard performance” — and leave the economy reeling from reduced worker “purchasing power.”

But the “prevailing wage” laws that officials like Donahue so prized have gone poorly enforced for years now. Taxpayer dollars, the new Center for American Progress study released last week documents, are gushing into companies that pay substandard wages and expose workers to unsafe working conditions.

One key reason: No existing federal contracting regulations put any real limits on the rewards that can go to executives at the top of the corporate ladder. Without these limits, the executives of companies that seek federal dollars have a powerful incentive to exploit their workers. The more they exploit workers, the greater their potential payoff.

Earlier this fall, in the opening weeks of the financial meltdown, lawmakers in Congress vowed that no top executives would get rich off the bailout they were preparing. But those lawmakers then passed legislation that did precious little to roll back rewards at the top.

In last week’s automaker bailout debate, many lawmakers seemed genuinely interested in making amends. They passed, in the House, an auto bailout that tightened controls on executive pay — by prohibiting any bailed-out automaker from “paying or accruing any bonus or incentive compensation” to their 25 top-paid employees.

Another provision in the House bailout banned any pay plan that would encourage the manipulation of an automaker’s reported earnings “to enhance the compensation” of any top executive.

Nice provisions, but vague. Lawmakers could be doing more. They could be using the bailout to set a specific executive compensation standard that could help reorient Corporate America’s entire approach to executive pay.

The current approach, as recent Wall Street and Detroit history has demonstrated, rewards executives for making decisions that fatten the short-term corporate bottom line at the expense of an enterprise’s long-term health and viability.

Executives who rush into mergers, raid pension funds, downsize workforces, hoodwink consumers, and slash R&D can easily boost their corporate quarterly earnings enough to ensure themselves handsome windfalls.

Executives who actually try to improve their enterprises, on the other hand, may not even be around when the time-consuming work of building a better company from the bottom up — the employee training, the building of workplace trust, the product and consumer research — begins to bear fruit.

How could Congress structure bailouts to encourage executives to nurture long-term enterprise effectiveness? What could Congress do to discourage the destructive short-term executive behaviors that make for defective enterprises? Congress could start linking the rewards that go to executives at the corporate top to the well-being of workers at the corporate bottom.

Rep. Barbara Lee from California has already introduced legislation that offers a useful benchmark standard for doing just that. Her pending Income Equity Act would deny companies tax deductions on any executive pay that runs over 25 times the pay of a company’s lowest-paid worker.

Last year, the typical big-time U.S. CEO made 344 times the pay of average American workers.

Rep. Lee's ratio — a pay range that has roots deep in the research literature on enterprise effectiveness — could become our new bailout standard: No tax dollars to any enterprise where executives take home over 25 times the compensation of their workers.

With a standard this clear in place, top corporate executives would have a powerful incentive to pay their workers more — and an equally powerful incentive to exploit their workers less.

Our Tax Tilt to the Top

Leonard Burman, Eric Toder, and Christopher Geissler, How Big Are Total Individual Income Tax Expenditures, and Who Benefits from Them? Tax Policy Center, Washington, D.C., December 2008

Our federal tax code, most American taxpayers understand, comes chock full of provisions that give individuals a break on their taxes if they — or the income they collect — fall into one or another category. If you buy a house, for instance, you can deduct the interest you pay on your mortgage.

If you have kids, you may be able to take a credit off your taxes for child care expenses. And if you realize a profit from selling a pile of stocks and bonds, you'll most likely pay taxes on your “capital gain” at a special low rate.

Tax experts call all these “deviations” from the taxes people would normally pay “tax expenditures.” In effect, they theorize, lawmakers who grant tax breaks are “spending” dollars just as surely as they do when they allocate funds to Medicare or the military.

Leonard Burman, Eric Toder, and Christopher Geissler have just published a paper for the Washington, D.C.-based Tax Policy Center that crunches the numbers on all the tax expenditures currently out there. Their basic question: Who’s benefiting the most from all these tax breaks?

Amazingly, the three researchers note, “no previous study” has systematically examined this most obvious of queries. They now have. And their answer? Our current tax expenditures “disproportionately benefit those with higher incomes.”

To reach that conclusion, Burman, Toder, and Geissler have run the numbers for the 2007 tax year. “Taken as a whole,” they note, tax expenditures for individuals “reduce income tax revenues by $760 billion, about 75 percent of 2007 income tax liability.”

That’s not small change. And taxpayers in America’s most affluent 1 percent get much more of this change than anyone else. In fact, if tax expenditures were eliminated across the board, the after-tax incomes of this top 1 percent would drop a sizeable 13.5 percent.

Taxpayers in the bottom 20 percent, if they lost all their tax expenditure savings, would see their after-tax incomes drop 6.5 percent. In short, America’s rich get twice as much tax benefit from tax expenditures as America’s poor.

Burman, Toder, and Geissler don’t favor an across-the-board elimination of tax expenditures. Many, they point out, do “further important social goals.” But others don’t.

The three authors don’t “name names” here. They don’t identify the exact tax expenditures they feel have “dubious merit.” But their work does point the way to real reform. The federal tax code, via tax expenditures, is giving the most help to taxpayers who need help the least. That has to stop.

Stat of the Week

In 2007, the just-released Corporate Library annual CEO pay survey finds, four of America's 13 top-paid CEOs hailed from high finance. Countrywide's Angelo Mozilo led the way with $124 million, followed by Lloyd Blankfein of Goldman Sachs ($76 million), Richard Fairbank of Capital One ($73 million), and Richard Fuld of Lehman Brothers ($71 million).

Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org.