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||April 18, 2011|
Donald Trump, the telegenic billionaire who just happens to rank tied for first in the latest Republican voter Presidential preference polling, has a deep, dark secret. If ever revealed — and widely “trumpeted” — this secret would no doubt almost immediately dash The Donald’s shot at the 2012 GOP nomination.
Last week, a gang of tax law professors did their best to start shining some light on the hidden Trump. They didn’t hire a private investigator. They just pointed on the Web to a 12-year-old archived CNN news story. In 1999, this amazing story relates, Donald Trump called for a $5.7 trillion “wealth tax” on America’s rich!
A one-time 14.25 percent tax on all individual taxpayer wealth over $10 million, Trump would go on to proudly note, would only impact America’s richest 1 percent — and raise enough money to retire the entire U.S. national debt.
How zany has American politics become? In 1999, nobody paid any attention to Trump's pitch for a wealth tax. In 2011, his pandering to the Obama-bashing “birthers” is gaining him headlines coast to coast. In this week’s Too Much, we dive into the zaniness that inequality makes inescapable — and dangerous, too.
Too Much online
|GREED AT A GLANCE|
A Russian investor is doing his part to pump some life back into the U.S. housing market. Yuri Milner last month shelled out $100 million for a “French chateau-style” abode that features a mighty nice view of San Francisco Bay. That sum may be the most ever paid for an American private residence, but Milner, says an aide, “has no immediate plans” to move in. Over in Milner’s homeland, meanwhile, former Russian economics minister Yevgeny Yasin last week told reporters in Moscow that inequality has become his nation’s most pressing problem. Russia’s growing gap between rich and poor, Yasin noted, “largely negates the economic and social achievements of recent years.” Russia’s poorest fifth, a new study shows, are now earning just 55 percent of that fifth's income in 1991 . . .
Hank Paulson, the former Goldman Sachs chief and U.S. treasury secretary, gave a lecture earlier this month at the University of Hong Kong. One student asked Paulson what he felt about income inequality, a not surprising question given recent police action to break up a young people’s protest at Hong Kong’s Cheung Kong Centre, home to the office of Li Ka-shing, Asia’s richest man. More training and education, Paulson replied, could solve the income gap, at least in the United States. America’s most highly trained and educated workforce — the nation's professors — might beg to differ. Faculty income figures released last year showed the smallest annual rise in 50 years, just 1.2 percent. The latest salary numbers, released last week, show only a 1.4 percent overall increase for full-time faculty since last year's record low. The new data also show more colleges replacing full-time profs with part-timers who receive no benefits . . .
Education does seem to be paying off for one subset of campus professionals: college presidents. A recent news report found 20 college chiefs making over $1 million a year. Among public universities, says a new Chronicle of Higher Education survey, Ohio State’s E. Gordon Gee collected 2010’s top pay, at $1.32 million. Amid widesread campus cutbacks and tuition hikes, some in academe consider paychecks this size a bit unseemly. Not University of California vice president Daniel Dooley. He insists that his system’s $600,000 presidential paycheck still makes sense: “There are very few organizations with a $20-billion budget where the CEO makes only $600,000.” A data point for Dooley: The President of the United States makes $400,000 and manages a budget over $3.5 trillion . . .
Our current President, Barack Obama, is having a run of tough luck lately with the corporate CEOs he's appointing to top federal panels. Honeywell's Dave Cote, Obama's selection for the National Fiscal Responsibility Commission, turns out to have been running a firm that paid zero income tax in 2009 and 2010, despite pulling in profits over $2 billion. Cote’s personal take-home jumped last year to $19.3 million. But the bigger embarrassment may be G.E. chief Jeff Immelt, the White House choice to chair the Jobs and Competitiveness Council. Instead of paying taxes on $26 billion in profits, the New York Times detailed last month, G.E. grabbed $4.1 billion in IRS tax benefits. Last week, the US Uncut activist network spoofed G.E.’s tax dodging with a fake news release that had Immelt announcing a rebate to taxpayers. Several media outlets swallowed the hoax. In real life, notes US Uncut’s Carl Gibson, taxpayers will only see corporate rebates “if we change the laws that allow corporate tax avoidance in the first place.”
Top corporate execs who play games with the taxes their companies owe often go on to play games with the taxes they owe on their own returns. Last year, the IRS set up a special new office, the Global High Wealth Industry Group, to focus the agency’s “compliance expertise” on these “high wealth individuals.” But this new office, the Syracuse University Transactional Records Access Clearinghouse complained last week, “has only managed to audit” 13 returns in its first 18 months. In South Africa, meanwhile, tax officials seem to be off to a faster start with their new push to identify “noncompliant high net worth individuals.” Earlier this month, South African Revenue Service commissioner Oupa Magashula, announced that his agency has already identified 50 taxpayers reporting incomes under $150,000 who own luxury aircraft worth at least $3 million.
Quote of the Week
“At a time when many governors and lawmakers are saying 'we’re broke,' polls show that the public wants to hike taxes on millionaires and corporate tax dodgers before cutting budgets.”
Stat of the Week
A new Web interactive service, from Remapping Debate, is making it easy to compare, over time, the federal tax rates that Americans at different income levels have faced. One example: A 1945 taxpayer reporting $1 million of income, in today's dollars, would have had, at maximum, a $664,312 tax bill. A taxpayer making $1 million today will face a tax no higher than $319,873.
|inequality by the numbers|
Executive Pay Excess: A New Battlefront
Taxpayers, once again this year, are subsidizing over-the-top CEO pay by the billions. But now on the table: a promising new proposal that encourages corporations to share that excess — or else.
The chief executives of America’s top 500 companies, Forbes reported last week, saw their pay rise an average 12 percent in 2010.
The week before last, the New York Times looked at 200 top companies and computed the median CEO pay hike for those 200 at 12 percent as well. The week before that, USA Today surveyed 158 big firms and calculated that CEO pay last year rose 27 percent.
In short, after a brief Great Recession interlude, corporate executive pay is cascading again — at the same time average American families, by the millions, are still facing foreclosures, frozen paychecks, and furloughs.
In fact, estimates Forbes, executive pay is now rising at least four times faster than the wages of average workers.
One major advocate for average workers, the AFSCME public employee union, last week announced plans to challenge America's latest “indefensible” executive pay surge at the April 28 annual shareholder meetings of Pfizer and Johnson & Johnson, two of world’s most celebrated corporations.
Johnson & Johnson CEO William Weldon collected almost $29 million last year, after drug recalls cost the company $900 million. Pfizer’s now-retired Jeffrey Kindler ended his career with a paycheck close to $25 million, after a stint in the CEO suite that saw his company lose $68 billion in market value.
Activists at AFSCME and other groups have, over recent years, made corporate annual meetings a prime battleground against executive pay excess, and the Dodd-Frank financial reform legislation enacted last summer has handed activists a long-sought new weapon. Under Dodd-Frank, all major publicly traded corporations must now put their executive pay plans up for a shareholder vote.
But this now-mandated vote only rates as “advisory,” and corporate boards remain free to ignore what shareholders choose to “say on pay.” And early Dodd-Frank “say on pay” voting results, corporate governance analyst Eleanor Bloxham noted last week in Fortune, haven’t been all that encouraging.
So far, Bloxham points out, shareholder majorities have voted negatively on executive pay plans at only five companies, with only one of those five a significant national corporate player.
And after the financial crisis, Bloxham's Fortune analysis points out, shareholders at big-time banks getting federal bailout dollars all had an opportunity, under the bailout legislation, to vote down executive pay plans. Not one big-bank CEO pay plan failed to gain a thumbs up.
Developments like these have other CEO pay critics looking for executive compensation reforms with a bit more bite. And the second-generation reforms these critics are advancing seem to be revolving, more and more, around federal tax dollars, both how these dollars get raised and how they get spent.
Under current law, corporations that lavish rewards on the top regularly receive billions in tax dollars via government contracts and subsidies. Corporations also regularly deduct off their taxes billions more, by declaring that the immense paychecks they stuff into executive pockets amount to “performance incentives.” The tax code lets corporations deduct all such “incentives” off their taxes.
These deductions add up. In the last fiscal year before Wall Street’s 2008 crash, corporations deducted $86 billion off their taxes for stock option incentives alone, note Harvard’s Richard Freeman and Joseph Blasi and Douglas Kruse from Rutgers in a new paper they released last month.
Average taxpayers, in effect, are subsidizing executive pay excess. So why not, analysts Freeman, Kruse, and Blasi suggest, turn the tables — and start using the tax code to discourage, not encourage, excessive executive pay?
In two narrow areas of corporate compensation, these scholars remind us, the tax code already plays this discouraging role. Ever since 1942, companies have only been able to deduct pension plan costs off their taxes if the benefits from these plans go to all company workers, not just executives at the top.
Corporate health care plans work the same way. If a company only lets high-ranking employees access a health plan’s benefits, the company can’t claim a tax deduction for the plan’s costs.
Freeman, Kruse, and Blasi want to see this basic principle extended to corporate “performance incentive pay,” to the billions in cash bonuses and stock awards that currently flow overwhelmingly, and sometimes exclusively, to top corporate executives and managers.
More specifically, the three academics are proposing that tax deductions for incentive pay only go to corporations that award “at least as much to the bottom 80 percent of their full-time workforce as they award to their top 5 percent.”
That mandate, Freeman, Kruse, and Blasi believe, would encourage corporations to share the rewards from their success — and discourage a status quo that funnels performance incentive awards to a “highly paid few.”
What if corporations don’t take the hint and continue that status quo? In that case, corporations would lose their tax deductions for incentive pay — and America’s taxpayers “would no longer be subsidizing the benefits to a small number of highly paid workers.”
The new Freeman, Kruse, and Blasi executive pay reform proposal spells out, with careful precision, just how Congress could structure the tax changes necessary to encourage “broad-based incentive compensation.”
The three, working with the Center for American Progress, have given lawmakers all they need to take a major whack at executive pay excess. Lawmakers now have the way. The rest of us now need to give them the will.
Jonathan Chait, War on the Weak, Newsweek, April 10, 2011. How Paul Ryan and other GOP honchos “came to view the poor as parasites — and the rich as our rightful rulers.”
David Callahan, Taxes on the Wealthy: New Top Brackets Needed for the Have Mores, Our Fiscal Security, April 13, 2011. Why taxing all Americans who make over $373,650 at the same rate, as the tax code currently insists, makes no sense.
David Cay Johnston, 9 Things the Rich Don't Want You To Know About Taxes, Willamette Week, April 17, 2011. A Pulitzer Prize-winning tax analyst punctures the nation's most common tax myths.
Joseph Stiglitz, Of the 1%, by the 1%, for the 1%, Vanity Fair, May 2011. A Nobel Prize economist explains why "even the wealthy will come to regret" how starkly unequal the United States has become.
Tracking Our Most Threatening Trickle Down
Sean Reardon, The Widening Academic Achievement Gap between the Rich and the Poor: New Evidence and Possible Explanations. Social and Inequality and Economic Disadvantage. Brookings Institution, January 2011.
Stanford University education analyst Sean Reardon starts out his latest research with a vitally important question no one has yet asked: Has the achievement gap between students from low- and high-income families grown, asks Reardon, as the dollar gap between America’s high- and low-income families has widened?
His vitally important central finding: That achievement gap most certainly — and most dangerously — has widened, and substantially so.
How substantially? Achievement scores for high- and low-income children born in 2001, Reardon's figures document, show a roughly 50 percent wider gap than the divide for children born a quarter century earlier.
Another way of looking at the numbers: Fifty years ago, the achievement gap between white and black children stood one-and-a-half times wider than the gap between children from low- and high-income families. Today, test score gaps by income run one-and-a-half times larger than test score gaps by race.
Why is our achievement “income” gap ballooning? Reardon offers various explanations. The most likely, notes sociologist Claude Fischer in a commentary on Reardon’s new research, may be the enhanced ability of affluent parents to leverage “their financial assets into better academic skills for their children.”
Today's wealthy parents, Fischer explains, have more tools they can buy to “cultivate” their children’s academic skills: “educational software for infants, early childhood educational programs, pre-school enrichment classes, after-school lessons, tutors, summer camps with intellectual themes, and so on.”
Even among similarly educated parents, adds Fischer, those “with more income seem increasingly better able than those with less income to raise their children’s test scores.”
What makes all this so socially toxic? The conclusion Reardon draws in his new paper makes the danger distressingly plain.
“As the children of the rich do better in school, and those who do better in school are more likely to become rich,” writes the Stanford researcher, “we risk producing an even more unequal and economically polarized society.”
|About Too Much|
Too Much, an online weekly publication of the Institute for Policy Studies | 1112 16th Street NW, Suite 600, Washington, DC 20036 | (202) 234-9382 | Editor: Sam Pizzigati. | E-mail: email@example.com | Unsubscribe.