In his acceptance speech Barack Obama said he could lower the taxes for 95% of middle income workers while also delivering more services and resources in education, health care, and the environment. If you wondered what magic would allow him to do this, one factor you should consider is just how unbelievably filthy rolling in the dough rich the richest 5% are. Or even 1%. Compared to the rest of us.
And you should consider just how much we the 95% subsidize the lifestyles of the rich and famous. More than $20 billion a year in tax subsidies comes out of the pockets of those of us at the bottom and flows into the pockets of the ultra rich, And that figure does not include all of the subsidies by any means.
Cut out those subsidies and not taxing them fairly, and you suddenly have found money. Piles of it.
crossposted from unbossed
Just how rich are the very rich?
Our society is made up of mostly poor people, with some people are more comfortable financially, and a tiny number of extremely wealthy people.
Suppose that every person in the economy walks by, as if in a parade. Imagine that the parade takes exactly an hour to pass, and that the marchers are arranged in order of income, with the lowest incomes at the front and the highest at the back. Also imagine that the heights of the people in the parade are proportional to what they make: those earning the average income will be of average height, those earning twice the average income will be twice the average height, and so on. We spectators, let us imagine, are also of average height.
. . .
By about halfway through the parade, Pen wrote, the observers might expect to be looking people in the eye—people of average height ought to be in the middle. But no, the marchers are still quite small, these experienced tradespeople, skilled industrial workers, trained office staff, and so on—not yet five feet tall, many of them. On and on they come.
It takes about forty-five minutes—the parade is drawing to a close—before the marchers are as tall as the observers. Heights are visibly rising by this point, but even now not very fast. In the final six minutes, however, when people with earnings in the top 10 percent begin to arrive, things get weird again. Heights begin to surge upward at a madly accelerating rate. Doctors, lawyers, and senior civil servants twenty feet tall speed by. Moments later, successful corporate executives, bankers, stockbrokers—peering down from fifty feet, 100 feet, 500 feet. In the last few seconds you glimpse pop stars, movie stars, the most successful entrepreneurs. You can see only up to their knees (this is Britain: it’s cloudy). And if you blink, you’ll miss them altogether. At the very end of the parade (it’s 1971, recall) is John Paul Getty, heir to the Getty Oil fortune. The sole of his shoe is hundreds of feet thick.
link
This graphic from the Atlantic Monthly helps us understand what it means when we say that CEOs make 344 times the pay of the typical American worker.
A new report on CEO compensation provides a window into this issue, although it is not the only word on the issue.
S&P 500 CEOs last year averaged $10.5 million, 344 times the pay of typical American workers. Compensation levels for private investment fund managers soared even further out into the pay stratosphere. Last year, the top 50 hedge and private equity fund managers averaged $588 million each, more than 19,000 times as much as typical U.S. workers earned.
Lost employee bargaining power
As a result of the aggressive attack on unionization and unions, which ramped up under the Reagan administration, unionization rates have declined dramatically. Reagan was the first president to appoint members to the NLRB who were dedicated to destroying the law and the institution. Bush II has continued that practice.
Second, trade deals such as NAFTA have sent US jobs - many that were highly unionized - abroad. Those lost jobs have not been replaced, and the new jobs are in industries where union rates are low.
Bear in mind that this is percentage of workers unionized - not absolute numbers. As the number of workers has grown, union representation has not kept pace. The result has been that unions no longer have the power needed to protect workers and to oppose the excesses of corporate CEOs. According to the report:
The most important of these checks and balances: a vital trade union presence in the private sector. A half-century ago, over one-third of American private sector workers belonged to unions. Bargaining between these workers and their employers set wage patterns throughout the U.S. economy, in both organized and unorganized workplaces, and served to restrain executive rewards at the top of the corporate ladder.
Today, according to the latest Bureau of Labor Statistics survey data, only 7.4 percent of private-sector workers belong to unions. Top executives, at the vast majority of America’s workplaces, face no institutional challenge from their workers. The absence of that challenge leaves executives free to pocket rewards at levels that would have seemed recklessly greedy only a generation ago.
. . . In one survey, released last year, researchers found that CEOs at nonunion companies take home nearly 20 percent more than their fellow executives in unionized firms. Workers in union companies, meanwhile, make $200 more a week than their counterparts in nonunion firms, $863 a week for union employees, only $663 weekly for their nonunion counterparts.
How we subsidize the very very very rich
The report examines five tax loopholes that "allow top corporate and financial leaders to avoid paying their fair share of taxes."
For each one, analysts have been able to calculate an estimated annual cost to taxpayers. The first three of these subsidies put money directly into executive pockets. The final two give employers an incentive for doling out excessive executive rewards. All five have become targets for legislative reform action.
As the report says: "Our current tax code allows top private investment fund managers to pay taxes, as investor Warren Buffett has repeatedly noted, at lower rates than their office receptionists."
Here are the top 5 subsidies:
- Preferential capital gains treatment of carried interest $2,661,000,000
- Unlimited deferred compensation $80,600,000
- Offshore deferred compensation $2,086,000,000
- Unlimited tax deductibility of executive pay $5,249,475,000
- Stock option accounting double standard $10,000,000,000
Total $20,077,075,000
The report gives details as to the operation of each of these subsidies, includes a poster child for each, and provides a legislative fix.
The report also discusses other direct subsidies that are making companies rich, even when they perform poorly.
For example, how about Fannie and Freddie and the execs who are running it into the ground?
Fannie and Freddie: Risky for Taxpayers, Not CEOs
In 2007, the heads of Freddie Mac and Fannie Mae both earned far more than the average for large company CEOs – despite their utter failure to recognize the housing bubble or avert the mortgage crisis. At Freddie Mac, chief Richard Syron (far right) took in nearly $19.8 million, while presiding over a 50 percent drop in the company’s stock. Fannie Mae head Daniel Mudd (near right) made $13.4 million, 27 percent more than the average for S&P 500 CEOs, according to the Associated Press. During the debate over a taxpayer bailout for the firms, Senator Bob Casey (D-Pennsylvania) urged the mortgage
firms’ boards to sue to recover the bonuses that Syron and Mudd pocketed while failing to do their jobs.
And that's not all folks!
The tax and accounting loopholes noted above actually deliver a relatively small piece of the taxpayer largesse that every year plops into corporate coffers. The federal government also encourages and supports excessive executive pay indirectly, through a variety of supports that range from procurement contracts to handouts that go by the label of "corporate welfare." A recent report revealed that two-thirds of U.S. companies paid no federal income taxes between 1998 and 2005, in part because of tax credits.44 How much of this taxpayer money winds up in the pockets of top executives? No researchers have yet calculated a specific figure. But the sum likely dwarfs the executive pay subsidies that flow through tax loopholes.
Nearly every major corporation in the United States owes a significant chunk of its profitability to interactions with federal, state, and local governing bodies. Executives regularly claim credit — and huge rewards — for their corporate "performance." Without taxpayer dollars, executives would "perform" nowhere near as well.
That reality creates an opportunity that executive pay reformers have seldom appreciated. Government policies today encourage executive excess. But governments at all levels, if they so chose, could leverage the power of the public purse to discourage such excess and encourage instead the more equitable pay differentials that nurture effective and efficient enterprises and healthy economies.
So if average Americans are no longer subsidizing huge pay for the very very very rich, we'll have a few extra billions to increase pay for regular folks and pay for improved infrastructure.
CEO Pay charts here.
Past Excess Executive Pay Reports here.
The report is Institute for Policy Studies (IPS) and United for a Fair Economy (UFE), Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay, 15th Annual CEO Compensation Survey
[edit] And let me add a link to a diary up today on why anyone who votes Republican - including the very rich - votes against her self-interest. link