Wednesday, March 2, 2011

The Hoarding of America—Part II

In my last blog, we learned about how 20% of the richest Americans own 85% of this country’s wealth, leaving 15% for the remaining 80% of average workers in this country. In 2007, CEOs in the United States took home an average of $10.5 million, 344 times the take-home for typical American workers.

In this blog, we’ll discuss how all this wealth concentrated into the hands of such a small group of people. In short, it has to do with tax dodges, inheritance bypasses and general ignorance on the part of the average American. As for the latter, I do not exclude myself. I am no wizard of finances. The media are not covering this to any noticeable extent, and it is difficult for the average person to sort through, but let’s give it a try.

According to a report entitled Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay:
  • The federal government, through the tax code, is actually rewarding companies that overpay their top executives.
  • Average Americans are unaware that their tax dollars are helping the country’s top business executives become phenomenally wealthy. Congress is not directly involved; it has never taken an explicit, up-or-down floor vote on any of the major tax code loopholes that enrich our current titans of industry and finance. These loopholes, instead, owe their existence to obscure bureaucratic rulings that well-paid corporate lawyers and lobbyists have stretched and distorted far beyond their original intentions.
  • The five most popular tax loopholes, which I admittedly don’t understand since I am not math- or finance-inclined, are: 
                      1. Preferential capital gains treatment of carried interest
                      2. Unlimited deferred compensation
                      3. Offshore deferred compensation
                      4. Unlimited tax deductibility of executive pay
                      5. Stock option accounting double standard
  • Ignoring the details of what the above loopholes are, know that, combined, they cost the rest of us $20 billion a year in lost tax revenues, but the wealthy do not stop there.
  • Actually, $20 billion may understate the true extent of the current taxpayer subsidy for executive excess. These loopholes only speak directly to executive pay. We, the taxpayers, offer many additional perks—everything from economic development grants to accelerated depreciation allowances—that inflate corporate quarterly bottom lines and share prices and, in the process, generate windfall rewards for executives who have their pay pegged to the “performance” of their companies.
What all that means is that the rich have enough money and power to influence tax regulations so that they can continue to accrue even more wealth than they currently have at the expense of the average person. Let’s take a closer look at what that means:

You can see from the above information that the rich in this country are really raking it in. To put it into perspective, the $20 billion being scooped up by America’s most powerful is more than double what the federal government spent last year on educating America’s most vulnerable—children with disabilities. Personally, I find that disturbing. I mean, just how much money does anyone really need?
  • Beyond that initial $20 billion they earn from deferring or not paying taxes, there are many billions more taxpayer dollars that indirectly encourage excessive executive pay. That includes everything from government contracts for goods and services to corporate bailouts. More than 85% of the public companies on the federal government’s top 100 contractors list paid their CEOs over 100 times the pay of average U.S. workers. That’s right, our government supplies the paychecks, from our taxes, that pays these guys.
  • Legislation that would plug executive-friendly tax loopholes is already pending in Congress. But this legislation has stalled due to current Congressional voting dynamics—or should we say lack of dynamics?
  • Excessive executive pay and the tax code loopholes that enable this excess reflect the absence of checks and balances on America’s economic landscape. Historically, trade unions have operated as the most important of these checks and balances. They could play that role again if lawmakers passed the languishing Employee Free Choice Act, legislation that would help workers realize their right to organize into unions and bargain collectively with their employers.
  • 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. Unions were also largely responsible for the development of a middle class in America.
  • Today, according to the latest Bureau of Labor Statistics survey data, only 7.4 % 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. It also signals the death knell for the middle classes in America.
Why is the ratio of executive pay to average-worker pay important? Well, we all are taking our pay from the same corporate pie. Recent academic research has demonstrated the executive/worker pay difference that a union presence can make. In one survey, released last year, researchers found that CEOs at nonunion companies take home nearly 20% 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 versus $663 weekly for their nonunion counterparts.

Even death does not diminish the tight grasp of the wealthy. There may be inheritance taxes, but they easily dodge them, thanks to their friends, the banks.

First, let’s examine how many people should be concerned about inheritance taxes. According to a study published by the Federal Reserve Bank of Cleveland:
  • 1.6% of Americans receive $100,000 or more in inheritance
  • 1.1% receive $50,000 to $100,000
  • 91.9% of Americans receive nothing
Thus, the attempt by conservatives to eliminate inheritance taxes, more popularly known as “death taxes,” would cost taxpayers an estimated $1 trillion between 2012 and 2022 for the benefit of the heirs of 0.6% of Americans, according to Citizens for Tax Justice. Not surprisingly, a study in 2006 found that the financial support flowing in to anti-government activists for eliminating inheritance taxes came from 18 super-rich families. Not to worry. Inheritance tax laws may be moot, anyway.

The rich already have a new way to avoid inheritance taxes, forever, thanks to bankers. After Congress passed a reform in 1986 making it impossible for a "trust" to skip a generation before paying inheritance taxes, bankers convinced legislatures in many states to eliminate their "rules against perpetuities," which means that trust funds set up in those states can exist forever, thereby allowing the trust funds to own new businesses, houses, and much else for descendants of rich people, and even to allow the beneficiaries to avoid payments to creditors when in personal debt or sued for causing accidents and injuries. Gift tax for these transfers of wealth would be 0%, according to a December 2010 article in Forbes online. About $100 billion in trust funds has flowed into those states so far.

Why are the ultra rich getting away with not paying taxes and fair wages at the expense of everyone else? Well, basic ignorance is a factor. A 2010 study by Norton & Ariely found that Americans from all walks of life have no idea that the top 20% of households in the U.S. hold 85% of the country’s wealth. They also didn’t know that the bottom 40% of households hold a shockingly low 0.3% of the wealth.

Is it hopeless? No. The average worker can try to regain some of the wealth that is being hoarded by the greedy 1% of our population. This isn’t the first time this has happened. Education is the key. We cannot rely on the news media, because they are owned by the same entities that benefit from the inequity that is draining our economy. The only way to defend our incomes is at a grassroots level.

One option: Go to United for a Fair Economy to learn about wealth inequity and the need to support legislative movements to close tax loopholes for the rich. The IRS is not giving you or me a break; why should the super wealthy get special treatment? For a complete list of tax fairness organizations, listed by state, go to This site also offers speakers who can come out and talk to groups about wealth inequity and how we can become activists for our own incomes.

Taking back YOUR money from CEOs, Wall Street and the leisure rich will not be easy, because they have all the power and strongly influence the news media and our government. But it can be done. If our great-grandparents and grandparents could fight for workers’ rights, then so can we!

NOTE: I am in no way affiliated with any of the sources in this blog. I am just attempting to understand this mess our country is in. If you think that any of this information is incorrect or distorted, please feel free to comment. It would be good to learn more.

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