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Please begin with an informative title:

A short dissertation on proposed laws to cap excessive CEO pay, reforming the economic imbalance in wealth inequality, rebuilding the U.S. middle-class, dispelling Republican talking points, and looking at the European crisis and the global economy for brand new ideas.

Intro

You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that's approximately 50-175 words without any html or formatting markup).

In 1991 Bill Clinton had what he thought was a great idea to curb the soaring paychecks of the nation's corporate executives --- by using the tax code to curb excessive (and often obscene) corporate executive pay. Companies at the time were allowed to deduct all compensation to top executives.

But wait a minute...isn't that still happening? Stock options, like regular cash salaries, are still tax-deductible for companies. Companies can use those deductions to offset their profits, and apply those losses to previous years, too. That's how a company could even be eligible for a refund in a year when it made money. 

America: Loot It and Leave It.

Last year Facebook made $1.1 billion in profits and got a free pass on federal and state income taxes. In fact, Facebook says it is getting back a tax refund of $429 million.

"Due to the stock option loophole, Facebook may not pay any corporate income taxes on its profits for a generation,” said Senator Carl Levin, the Michigan Democrat who proposed changing the law.

One of Facebook's co-founders, Eduardo Saverin, had renounced his U.S. citizenship to avoid paying U.S. taxes (capital gains taxes) on his $3.4 billion in "unearned income". Not only do we need to reform corporate taxes, capital gains taxes and CEO pay, but we also need to change our immigration laws (Eduardo Saverin was a Brazilian native who came to the U.S. to "loot it and leave it.")

Bill Clinton had wanted to permit companies to write off amounts over $1 million, but only if executives hit specified performance goals. Bloomberg Businessweek wrote in 2006, "Now, 13 years after Clinton's plan became law, the results are clear: It didn't work. Over the law's first decade, average compensation for chief executives at companies in Standard & Poor's 500 stock index soared from $3.7 million to $9.1 million, according to a 2005 Harvard Law School study."

That was in 2006, now the AFL-CIO reports that as of 2011, the average CEO's salary on the S&P 500 is near $13 million a year.

Last year, mostly because of stock options, the top 100 CEOs earned between $18 million and $378 million --- while over the past five years 64 major U.S. corporations only paid an average of 8.1% in corporate taxes to the U.S. Treasury.

Bill Clinton's tax law effectively capped executives’ salaries at $1 million a year, but that simply drove corporate boards to offer larger bonuses and stock options. The law had contained so many obvious loopholes that a best selling author on corporate greed had quipped, "In 10 minutes, even Forrest Gump could think up five ways around it."

Attempts to Block U.S. Reforms

The Dodd-Frank financial reform law of 2010 was supposed to eventually require public companies to file with the government an executive pay ratio: Take the boss’s compensation and divide it by the median pay of everyone else’s compensation at the company. The idea was to identify overpaid CEOs by using the ratio to note any especially wide gaps.

But companies are worried that these CEO pay ratios will get ranked in ascending order and get splashed across websites and in other media (like here in the Daily Kos). The companies with the biggest ratios might face public scorn. By law, the Securities and Exchange Commission was supposed to come up with a system for calculating the ratio. Most companies are loath to do this math, and the SEC has yet to publish the required rules for the calculation.

Many critics of excessive CEO pay complain that executive labor markets are not really competitive — that chief executives appoint friends to their boards who approve unjustifiably large pay packages.

Nell Minow at GMI Ratings is a fierce critic of excessive CEO pay and says, "The difference between CEOs and everybody else is, the CEOs can pick the people who set their pay."

Proponents of unlimited CEO pay claim the high CEO pay is needed to attract "talent" -- and that the "government" (Americans working on behalf of other Americans) should not be in the position of capping or limiting the salaries of corporate executives, saying, "That is inconsistent with a free enterprise market system."

Similar statements can be found on any number of Tea Party, right-wing, and Libertarian web sites. Those same people also think that outsourcing jobs, influencing elections, lobbying Congress for favorable legislation, dodging taxes (legally), and busting labor unions is also consistent with a free enterprise --- to be "free" to do whatever it is they please, no matter who harm they harm or in what country they might live.

Wealth Inequality at Any Price

And it's not just here in the U.S. --- some of the largest U.S. multi-national corporations have even threatened expensive and protracted legal fights to blackmail other sovereign countries into kowtowing to their will...like Coke and Philip Morris (just to name two).

Also, the proponents of excessive CEO pay never refer to the extent of U.S. wealth inequality  (a must-see video). The richest 1% of the country possesses more money than the poorest 80% combined. A major driver of this inequality is pay disparity, with CEOs of the Fortune 500 companies now making 380 times as much money as the average worker. This is a massive increase from 1980, when CEOs were making 42 times as much as the average worker.

Non Profits for Profit

If you donate to the American Cancer Society, The Museum of Fine Arts or one of at least 18 other "non-profit" organizations listed by the Chronicle of Philanthropy, then your donations may be going toward a CEO’s multi-million dollar pay package.

Lawmakers in numerous states including New York, New Jersey, Florida and Massachusetts have tried to introduce legislation that would cap executive salaries at non-profit organizations that receive public funding. Florida wanted a cap of $129,972, while Massachusetts sought to cap executive pay at $500,000. So far, all of these bills have failed to gain legislative approval, though the battle is not over.

In 2009 the New York Times wrote that once Congress was considering measures to limit executive pay — and not just in the financial industry, but economy-wide; but at that time, the only formal legislative proposal was “say on pay,” which would require a non-binding shareholder vote on executive pay proposals.

Caps and Pay-Ratios on CEO Pay

One popular (and past) proposal would have been a cap on the chief executive’s pay at each company at 20 times its average worker’s salary. But back then, Congress may have only had a compelling reason to limit executive pay in companies that were receiving bailout money --- those who were paying themselves multi-million-dollar bonuses (such as Goldman Sachs and others.).

One petition wanted to cap CEO pay at 50 times the salary of the average worker, noting that CEOs can still be very well compensated --- and it would also help to drive down the massive disparity we're facing right now.

BusinessWeek wrote about the deceased management consultant, Peter Drucker, who used astute counsel to help make many CEOs rich; but he also had an intense loathing of exorbitant executive salaries. He thought the top corporate executives shouldn't get more than 25 times the average salary in the company.

It had been rooted in Drucker's belief that the best leaders are those who understand that what comes with their authority is the weight of responsibility, not "the mantle of privilege", and that it was their job to "do what is right for the enterprise—not for shareholders alone, and certainly not for themselves alone."

The outrageously rich rewards that top executives can pocket in 21st century
America — and the absence of any meaningful tax bite on these rewards — give our top executives a powerful incentive to behave outrageously, to relentlessly pump up profits by whatever means necessary.

Our modern top execs, as one analyst notes, have more of an incentive “to loot” their companies than invest in their futures. The more they “loot” — by downsizing and outsourcing, by squeezing consumers, by stiffing Uncle Sam at tax time — the fatter the quarterly bottom lines and the greater their own personal pay.

What our Old World Ancestors are Doing

Corporate executives in Europe have been watching this U.S. corporate greed grab with intense personal interest. Over recent years, they've done their best to mimic U.S. corporate "standard operating procedure", with sky-high executive pay included. But the Europeans have been pushing back against this “Americanization.”

In Germany the German Corporate Governance Commissionwould enforce the Stock Corporation Act. The newly proposed German "corporate code amendments" would require all German publicly traded firms place a cap on executive compensation, both in terms of its total amount, as well as in terms of its individual components.

The new German amendments do not set any specific dollar figure for a national corporate pay maximum. The amendments — set to be finalized this May — still leaves the specific executive pay maximum up to each corporation.

But the commission's members made it clear that current pay levels have soared far too high. Germany’s highest-paid CEO, Volkswagen’s Martin Winterkorn, collected $23.7 million in 2011.

“The system of remuneration should not be open-ended,” explains commission member Manfred Gentz, the former board chair at Germany’s largest financial securities trading center. Germany’s top corporations, adds the German Corporate Governance Commission, should set the soon-to-be-required new executive pay maximums in relation to the rewards that go to ordinary employees.

This year in Switzerland, 68 percent of the voters in a landmark March 3rd referendum opted to ban the most lucrative categories of executive pay bonuses. This overwhelming voter support for executive pay limits, a leading Zurich newspaper recently opined, reflects a deep-seated public sense that "company managers have been ransacking the coffers at the expenses of society.”

The Swiss vote, Bloomberg reports, is “raising pressure” on German chancellor Angela Merkel “to adopt her own tougher rules on executive pay,” and European Union ministers have already agreed to limit banker bonuses to no more than the equivalent of one year’s salary.

In France, meanwhile, the government that was elected last year will be limiting total CEO pay at firms where French taxpayers have a controlling interest to no more than 20 times the pay of the lowest-paid worker.

And in Spain, many sizable enterprises are already linking executive compensation directly to worker pay. The manufacturing and retail enterprises that belong to the Mondragon cooperative network, limit top pay to three to nine times worker compensation. Maximum pay differentials like this need to become the worldwide standard. Large income gaps lead to unhealthy status competition and consumption of materials and energy beyond what’s necessary to meet people’s needs.

All this activity has Corporate America starting to get a little nervous. U.S. corporate consulting firms are sending out alerts on the new Euro developments. The “reverberations from the Swiss vote could put fresh momentum into shareholder rebellions in the U.S.” notes Harvard analyst Stephen Davis

The current European revolt against CEO greed, if successful, might leave Corporate Europe looking just like Corporate America — in 1950. The middle-class would return.

* If you like Pink Floyd's song "Money", I think you might enjoy this video I made.

Extended (Optional)

Originally posted to Bud Meyers on Sat Mar 23, 2013 at 03:22 PM PDT.

Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement.

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