Over the last half century, those who are wealthy by most definitions have doubled their income and net worth over and over, while the rest of us – we ninety-nine percenters – have seen our income and net worth decline. As the fiscal gap between rich and poor has increased, the difference in tax brackets has shrunk. Any talk about increasing the tax rate on the wealthy has been met with porcine squeals about “class warfare.” If there is any class warfare in the United States, it has been going on for 50 years and the poor are losing it. There is a tipping point at which wealth begets greater wealth and poverty begets greater poverty. Conservative talk about “equality of opportunity” is code for the Darwinian model of government – the spoils system. Those with power get what ever they can grab and money is power.
There are many self-made wealthy people in the United States, but stacked against the millions who live and die in poverty, they are very lucky or talented exceptions. The wealthy have an almost insurmountable advantage over the rest of us. When you compare two equally talented children – one from Brentwood and one from Watts – it is easy to see why legal equality of opportunity has little meaning for most of us. Chip, from Brentwood, was raised on the healthiest food, received a superlative education from Montessori at age three through graduate school at an Ivy League university, lacked no dental or medical service that could improve his appearance or health, and left college with a contact list of Fortune 500 CEOs and board members. Jamal, from Watts, lacked no challenge to his very existence. His minimum-wage single parent had a difficult time providing sufficient calories for the family and providing shelter. His education in inner-city schools prepared him for neither an occupation nor college. Barring an exceptional opportunity Jamal has no prospects beyond minimum-wage employment.
This oppression by the wealthy and powerful plays out every day in the corporate sector. Rank-and-file employees, who build the wealth of the company by their work, are either down-sized into the ranks of the unemployed or grossly overworked, performing the tasks of those who are no in the ranks of the unemployed in addition to their own. Meanwhile, those in the upper echelons of management never miss a compensation increase or a bonus.
According to Fortune, the CEOs of the top 500 corporations average $9 million in compensation, bonuses and stock gains. “Historical Chart: Two Decades of CEO Pay.” While this is a big drop from the $16 million the CEOs made in 2007, it is much more than they earned. As was explained in “Not All Pirates Are in Somalia,” these CEOs reap such ridiculous compensation through rampant cronyism, but that is not the worst aspect of corporate executive overpayment. It is all deductible to the corporation, so 35% of the $9 million is tax savings. It comes out of the pockets of the very workers who are being so roughly treated.
Federal minimum wage in the United States is approximately $15,000 per year for a full-time worker. If deductible CEO compensation were limited to 100 times minimum wage, or $1.5 million, the Fortune 500 corporations would each pay approximately $2.6 million more in taxes just on their CEO’s compensation. That would be $1.3 billion more in taxes for schools, Veteran programs, road and bridge repair, national parks, student subsidies, and all the other important government functions that are being cut back due to the Bush-era tax cuts. That is $1.3 billion in tax revenues for cutting back the deductibility of the compensation of the CEOs, only. In every corporation there is a whole rat pack of over-compensated vice presidents and directors who contribute nothing to profitability or production. A tax increase would not be necessary; all that would be required is cutting back deductions to what is reasonable.
The compensation deduction for corporate income taxes should be limited to reasonable compensation. It is absurd to suggest that these corporations could not find a competent – even a brilliant – CEO for $1.5 million a year. Corporate boards pretend that they need to give their CEOs and other executives huge compensation packages because they are so valuable, but that is not the case. Corporate CEOs pack their boards with fellow CEOs, who pay them whatever they ask. The fact is that CEO pay is often not in proportion to talent or success.
The Corporate Library’s 2006 report, “Pay for Failure: The Compensation Committees Responsible,” described 11 public corporations that paid their CEOs more than $15 million per year despite five-year track records of shareholder losses. For example, Ivan G. Seidenberg, chief executive of Verizon Communications, received $19.4 million in salary, bonus, restricted stock and other compensation in 2005, half again as much as in 2004. As his compensation increased, the stock fell 26%, bondholders lost value as the company’s debt was downgraded by credit agencies, and 50,000 managers saw their pensions frozen.
Instead of paying additional tax due to the loss of the deductibility of CEO compensation over $1.5 million, the corporations could raise the pay of the employees who actually do the work, or hire more employees. Instead of cutting the workforce to the bone and eliminating fringe benefits, these corporations could reintroduce the type of corporate culture that made it worthwhile to get out of bed and got to work.
A culture of greed and megalomania has taken root among the wealthy and powerful in the United States. Conservative activists and politicians are catering to those who have it all. Anyone who says the “haves” should help the “have-nots” by paying a little more in taxes is accused of class warfare.
This country is being run for the benefit of the plutocrats who comprise the 1%. It is not class warfare for the rest of us to want them to take their boots off our necks. It is time for the 99% to stand up for our rights.
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