February 19, 2007
This past Friday, the House of Representatives moved the United States one step closer to a higher federal minimum wage — and Corporate America cheered.
Why the smiles in America’s executive suites? Democrats in the House, with their votes Friday, turned thumbs down on an ideal opportunity to put the kabosh on the most lucrative perk in CEO pay land. We have the story in this week’s Too Much.
Also this week: a look at the quaint notion that times of war ought to demand sacrifice from all a nation’s citizens, even the wealthy ones.
Beachfront property, Bangkok developer David Simister likes to point out, may be the world’s ultimate “finite commodity.” And, these days, that commodity is soaring in price, world-wide, as wealthy Americans and Europeans scour the globe for second homes with picture-perfect ocean vistas. Simister’s company is currently selling villas at Thailand’s Phuket beach resort for $5 million each. Boosters say luxury homes create jobs in poor but beach-rich nations. Critics say wealthy foreign buyers bid up housing prices and leave even modest homes unaffordable for local families. They point to Spain, the nation that “boasts the biggest second-homes industry in the world.” Nearly 30 percent of young Spanish adults now “live with their parents.”
The world’s wealthy don’t, of course, idle only at exotic beaches. They richly enjoy the hubbub of the world’s great cities, and that reality has the world market in luxury hotel properties booming just as big as beachfront. Last week, billionaires Bill Gates and Saudi Prince Alwaleed bin Talal joined the “frenzy by well-heeled investors” to pick up five-star hotels while the picking’s still good. A investor group that included Gates and the prince agreed to pay $3.4 billion for the Four Seasons hotel chain. Luxury hotels, notes a Los Angeles Times analysis, are now fetching prices that work out to over $1 million a room. Room rentals at luxury hotels averaged $272 per night last year, up 9 percent over 2005 . . .
Alistair Economakis, the son of a Greek shipping magnate, has been feeling rather cramped lately, what with having to share a single Brooklyn apartment with his wife and two kids. That’s why, says Economakis, he started eviction proceedings against tenants in the five-story apartment building he owns in Manhattan’s Lower East Side. Economakis sees the 15-apartment structure, once remodeled into a five-bedroom home complete “with library, gym, and nanny’s suite,” as his ultimate “dream house.” Last week, a state appeals court gave the mass evictions a green light, citing the New York City law that allows owners of rent-stabilized apartments to “reclaim” units for personal use. Tenant David Pultz, a resident since 1978, says Economakis is abusing the city’s housing code: “For him to claim all 15 apartments for his wife and children is really beyond what the law intends.”
The corporate board at Raytheon, the giant Pentagon contractor, stuck an unusual yardstick in the 2006 pay package of company CEO William Swanson. Swanson’s bonus, directors decreed, would hinge partly on how well the CEO promoted “ethical behavior.” Swanson’s performance, on that front, stumbled a bit early in the year. Last April, news reports revealed that the CEO’s widely promoted 2004 booklet, Swanson’s Unwritten Rules of Management, had plagiarized material from a 60-year-old book by a California professor. For that transgression, the Raytheon board docked Swanson $1 million. Now all appears forgiven. Swanson’s pay for 2006, made public earlier this month, includes a $2.8 million bonus — and an additional $13.2 million in stock. Swanson, Raytheon directors believe, is clearly improving ethically. He did, after all, apologize for plagiarizing . . .
Two Maryland lawmakers aren’t waiting for Congress to put the brakes on out-of-control corporate CEO pay. State senators Paul Pinsky and Richard Madaleno have introduced a bill that would deny corporations a state tax deduction on any executive pay that runs over 30 times the pay of a company’s “lowest paid full-time employee.” Lockheed Martin, the Maryland-based defense contractor, shelled out $50.2 million in CEO pay from 2002 through 2005, or 502 times more than a worker making $20,000 a year took home over the same period.
“In the past the middle classes considered themselves part of the 'haves,' and hence had no time for the politics of envy; now they feel like 'have-nots,' at least in comparison to the 'have-lots.' As preposterous as it must sound to the truly poor on four-figure incomes, professional families on six-figure salaries do not feel affluent because they are no longer guaranteed what their forbears took for granted as recently as 20 years ago: a house in a respectable area, good quality education for their children, financial comfort, and the prospect of a decent pension.”
Editorial, The Business magazine, London, February 14, 2007
New Wisdom
on Wealth
Michael Trotter, Tax plutocrats to restrain their pay, Fulton County Daily Report, February 13, 2007. A retired corporate attorney explains how high federal tax rates on high incomes helped keep executive pay at reasonable levels in the 1950s and 1960s.
James Cypher, Slicing Up at the Long Barbeque: Who Gorges, Who Serves, and Who Gets Roasted?, Dollars and Sense inequality cover story, Jan-Feb 2007
Last month, a veteran pundit proposed a novel strategy for ending the war in Iraq. Opponents of the war, columnist Nicholas von Hoffman urged, ought to try pressing for a “Victory Over Terror” tax, a special levy that would subject all “incomes over $5 million” to a 20 percent surcharge “over and above what people in that rarified income bracket are already paying” in tax.
This surcharge, von Hoffman proposed, would expire only “when the war on terror is won or declared over,” giving the surcharged affluent — “most of whom carry a lot of weight at the White House” — a “powerful incentive to tell the President it is time to get a move on.”
No one on Capitol Hill, of course, took von Hoffman’s proposal seriously. He probably didn’t even take it seriously himself. How could he? The idea that rich people, in war-time, have a responsibility to pay a lot more in taxes sits far outside today’s legislative mainstream. Only someone hallucinating politically could believe that our current war-time Congress, even with a Democratic majority, would ever up taxes appreciably on the awesomely affluent.
How times have changed. A half century ago, the hallucinators would have been those who believed they could prevent, in war-time, a significant tax on rich people's incomes.
Indeed, if Congress were to follow von Hoffman’s advice and hike taxes on today’s richest by 20 percent, these financially fortunate Americans would still be paying — as a percent of their total incomes — less than half the federal income tax that America’s richest paid at the height of the Korean War.
Let's check the numbers. In 2004, the most recent year with IRS data available, just about 25,000 taxpayers — 24,440, to be exact — took home over $5 million. These taxpayers, after exploiting every loophole they could find, paid an average 21.9 percent of their incomes in federal income tax.
Back in 1952, at the height of the Korean War, the comparable federal tax bite on America’s richest 25,000 averaged 51.9 percent.
Those Korean War wealthy probably thought they were getting off easy — and they were. About a decade earlier, in the middle of World War II, the 25,000 highest-income taxpayers in the United States paid 68.4 percent of their incomes in federal income tax.
American popular culture today considers the generation that fought and won World War II the nation’s “greatest generation.” Americans all those decades ago took on great burdens — and shared them. Maybe that’s why they were great.
Last month, in the Senate Finance Committee, something unexpected happened. Senators voted to end the tax code loophole that lets CEOs annually defer hundreds of millions off their paychecks into tax-free accounts open only to top corporate brass.
This committee move, a key element in a compromise designed to gain enough votes to win Senate approval for a hike in the federal minimum wage, went on to breeze through the full Senate.
Last week, a perturbed Corporate America struck back, with more than a little help from Democrats in the House.
On Monday, in a unanimous vote, the House Ways and Means Committee passed a minimum wage compromise tax package that rejects the $1 million cap on executive pay deferrals that had passed the Senate. On Friday, the full House followed suit.
The U.S. Chamber of Commerce could not have been more pleased. After Monday’s vote, the Chamber’s top lobbyist, Bruce Josten, even penned a “thank you” to Rep. Charles Rangel, the New York Democrat who chairs Ways and Means, and Rep. Jim McCrery of Louisiana, the committee’s ranking Republican.
“The business community,” Josten noted in his valentine, “appreciates the restraint you exercised.”
Corporate America, to completely deep-six the Senate cap on executive pay deferrals, still has work to do. A conference committee now has to iron out the differences between the House and Senate minimum wage compromise packages.
Low-income Americans will surely get a long-overdue — but modest — increase in the minimum wage from whatever legislation emerges out of the conference committee. Whether corporate CEOs get years more of special tax treatment remains to be seen.
Max Baucus, the Montana Democrat who engineered the deferral cap on the Senate side, has shown no sign that he intends to back down, and the business community has actually split on the minimum wage compromise, with the small business-oriented National Federation of Independent Business supporting the Senate and the big business-friendly Chamber of Commerce on the House side.
The Chamber, the Washington Post notes, will be working to kill “Senate provisions that it finds objectionable, including the limit on deferred compensation, one of the most popular perks in corporate America.”
Two percent of America’s households, says a newly released study by New York University's Edward Wolff and Ajit Zacharias of Bard College, now move through life “free from the economic compulsion to engage in wage labor by virtue of their exceptionally large amounts of wealth.” In 2000, this top 2 percent pocketed 52 percent of the nation’s income from stocks, bonds, and other property categories, notes the new study, Class Structure and Economic Inequality.
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