Labor Day Rant

It is too bad that so many groups of people in this country – mothers, fathers, secretaries, workers – get a day in their honor, when they deserve 24/7 respect and more concrete benefits. Today is supposed to be Labor Day. Wow! Labor has been losing economic ground since the Trickle-Down years.

It might be helpful if we assigned some objective measures to terms we throw around – lower class, middle class, upper-middle class, rich, poor. I have only met a handful of rich people in my life. I was once backstage at a big-name concert and met the performers; I once shook hands with Alex Manoogian at a Masco function. I never met a Kennedy, a Bush, or a Heinz. I may have served a few rich people when I was a cocktail server at a private club while in college, but they certainly did not pay any attention to me. I do not travel in those crowds. I would not be welcome at their parties.

If half the privately-held wealth in this country reposes in 400 households those are the mega-rich. If we expand the definition of “rich” to the group of households that own 75% of the wealth, what would that be, a couple thousand households, at most? The 2007 median household net worth in the United States was $120,000, but the mean was more than four times that, at $556,000. 2007 family value Furthermore, the median and mean for Caucasian households like mine are three times the median and mean for African-American and Latino households.

We also have to factor in the housing bubble and the decline in the stock market. If you compare home owners to renters, it is apparent that much of household wealth is home equity. Granted, there are other factors in play. Homeowners probably have a higher educational level and earn more generally, but the upward trend in both median and mean tracks the housing bubble. Family wealth in 2011 is probably close 2001 levels. If the middle class falls between the median net worth of $101,000 and the average of $464,000, they are the producers in this country. They do the work, but the TEA Party has convinced many of them to let the wealthy skate on their taxes.

United States tax policy should be based on two general proposition: A) No household needs more than $250,000 per year. B) No one earns more than $250,000 per year. These figures can be adjusted for inflation. In 1950, $250,000 would have bought ten four-bedroom houses. In 2050, $250,000 might be the price of cheap refrigerator, but for the sake of discussion, lets stick with a quarter of a million.

In 2011, $250,000 per year can support a lavish standard of living for a family of four. With good credit, a family with that much income can afford a million-dollar house, two cars, a country club membership, a boat, and private-school tuition for two children. That is your basic middle-class lifestyle. Beyond that, they are buying bragging rights. Why not levy a 50% income tax on income beyond $250,000? Instead of buying a million-dollar vacation home, the family with $500,000 of before-tax income would be forced to settle for a $500,000 vacation home. However, they would have bragging rights about their support of our country.

A few extremely talented and ambitious professionals bring home more than $250,000 per year. Some of them actually earn that much by starting new enterprises that are profitable. A doctor might see a dozen patients an hour and “earn” $500,000 or more per year, but he or she will have a large support system comprised of underpaid staff.

Most highly compensated executives do not earn their absurd pay. They receive eight-figure compensation packages because these CEOs pack their corporate boards with colleagues for whom they support similar packages as members of their boards.

General Electric Co. Chairman and CEO Jeffrey R. Immelt’s 2010 compensation more than doubled to $15.2 million as the company benefited from a recovering economy, equalling the annual pay of 1,000 minimum-wage workers (MWW). The 2010 record holder is Philippe Dauman of Viacom, who was paid $84.5 million–that’s equal to 5,600 MWW–for just nine months as C.E.O. Other CEOs who received bloated paychecks included Ray R. Irani of Occidental Petroleum,$76.1 million or 5,000 MWW; Lawrence J. Ellison of Oracle, $70.1 million or 4,600 MWW; John F. Lundgren, of Stanley Black & Decker,$32.57 million or 2,150 MWW; and David N. Farr, of Emerson Electric, $22.9 million or 1,500 MWW. There is no rational argument that these CEOs earned that much for their companies, let alone deserved it.

Since all of this compensation is deductible on the corporate tax return, the U.S. taxpayer absorbed 35% of the outrageous compensation packages for Immelt and his cohorts. It would not be necessary to increase the income tax on these corporate pirates for the government to get a piece of the pie. Just take away the corporate deduction!

Did these bandits earn that much? Historically, CEO pay is not based on performance. The median compensation for chief executives at roughly 200 large companies rose to $8.4 million in 2005, from $8.2 million in 2004, according to Equilar Inc., a compensation analysis firm in San Mateo, Calif. The median was $7.2 million in 2003. Over just these two years, executive compensation rose at more than three times the inflation rate. Compare this to stagnant wages in the lower 99% of the workforce. A study by the Corporate Library, “Pay for Failure: The Compensation Committees Responsible,” named 11 public corporations whose chief executives’ pay had exceeded $15 million during the last two years despite five-year shareholder losses. By packing their boards of directors with cronies and ensuring that their “independent” consultants will provide the advice they desire, many corporate CEOs have persuaded their boards to award them immense wealth. Corporate executives are literally sucking the money out of the pockets of the workers who build corporate wealth.

Let us celebrate this Labor Day by resolving to close the gap between the rich and the rest of us. Increase the income tax rate on Adjusted Gross Income over $250,000 and eliminate the corporate tax deduction for compensation over that amount. It is time for ordinary citizens like us to get the rich off our backs.

 

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
law-business.com
 
©2011 John B. Payne, Attorney
 
 
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