June 11, 2007
Should average Americans really worry about all those millions pouring into corporate executive pockets?
“D.” Taylor, the top official at Nevada’s biggest union, doesn’t particularly think so. He’s too busy bargaining middle class wages for 60,000 hotel workers to spend much time fretting about the massive sums now concentrating at the top of America’s economic ladder.
“We really don't care what the people in the executive branch make,” Taylor last month told a reporter asking about CEO pay, “just as long as our members and their families can share in the wealth and have decent pay and job security.”
But that decency and security will remain elusive, suggests an important new book by Cornell University economist Bob Frank, so long as our awesomely wealthy hang on to their awesome wealth. We have more, in this week’s Too Much, on Frank's welcome contribution to the inequality debate.
Some career advice from the Indianapolis Star: “If you want to make big bucks in Indiana, it pays to lead a health-care company.” Five of the state’s highest-paid corporate execs last year, notes the paper’s latest annual executive pay survey, came out of the health care industry. The five averaged $9.25 million, four times the Indiana chief executive average. The state’s second-highest-paid CEO, Eli Lilly's Sidney Taurel, pocketed $11.8 million in 2006, a year that saw the drug company’s share price drop 5 percent. Taurel is getting credit for his company’s “strict headcount control.” Translation: Taurel last year reduced the Eli Lilly workforce by 2,000 jobs . . .
Handbags as a hot-button political issue? Welcome to the duel for the number-two spot in the British Labor Party. One contender, UK family justice minister Harriet Harman, recently called on her 
party to counter the inequality that has some Brits struggling for basics while others “spend £10,000 on a handbag.” Retorted her rival for Labor’s deputy leadership slot, Hazel Blears: “I don’t think it is the job of politicians to tell people what they should spend their money on. Labor represents the poor and less well-off but it cannot only be a party for them.” Blears has avidly supported Tony Blair, the exiting British prime minister who has spent his decade in power, the Independent charges, doing his best “to dodge” wealth redistribution as an issue. Harman wants that dodge ended. Notes the long-time member of Parliament: “We cannot have peaceful communities in society divided by extremes of wealth.”
High-end handbags seem to be selling quite swell on this side of the Atlantic, too. Luxury retailer Neiman Marcus last week reported a 47 percent quarterly profit hike and gave the credit to “increased sales of handbags and jewelry.” Among the hot items for the Dallas-based luxury chain: $625 Isabella Fiore satchels and $4,200 Roberto Coin necklaces. Who’s buying those satchels? Former Wall Street Journal reporter J.C. Conklin offers some answers in The Dallas Women's Guide to Gold-Digging With Pride, her new novel about “women in their 20s stalking wealthy men in their spare time.” Conklin reported from Dallas for four years and says none of the stalkers she ran into kept their careers after marriage. The reason? Explains Conklin: “What you have to do to keep the rich husbands is just amazing. All the exercising, all the devotion to this other person. It's not your life. It's the other person's life and you’re just staffing it.”
U.S. service men and women in Iraq looking for a quick R&R break, right in their Persian Gulf neighborhood, likely won’t find much of a welcome at the newly announced “Dubai Lifestyle City.” This “mixed-use residential, hospitality, and retail” complex — to be located less than 900 miles from Baghdad — will be “invitation only for those with wealth and good credentials,” says Arif Rahman, the project’s managing director. Those invited to partake can purchase six-bedroom, Tuscany-style villas that come complete with air-conditioned garages. The price range: up to $11.2 million. The local Dubai developer for the new Lifestyle City is working with an assortment of American talents on the project, including a Beverly Hills villa designer and hospitality experts from JW Marriott . . .
Do a Google search and you’ll find, in fairly quick order, that the level of concern about growing inequality has soared over the past year. The Web is bursting with data and perspectives on our growing divide. But all that info can be, at times, more than a bit intimidating. Your best solution: Inequality.org. Two progressive think tanks, the New York-based Demos and the Institute for Policy Studies in Washington, D.C., have just put the finishing touches on a top-to-bottom makeover that’s designed to make this eight-year-old site an even more “dependable portal” to info on inequality and the struggle against it. One special treat on the new site: an amazingly clear and comprehensive inequality stats section compiled by veteran inequality researcher Chris Hartman. You’ll find plenty more on Inequality.org’s pages, with still more on the way.
Quote of the Week
“The sports industry is fast learning that you cannot price your best and most visible seats too high.”
Marc Ganis, sports marketing consultant, on the news that prime tickets in Washington's new baseball park will cost $400 each next season. Washington Post,
June 7, 2007
New Wisdom
on Wealth
What (Fred) Thompsonomics Might Look Like, U.S. News & World Report. The likely top economic adviser of soon-to-announce GOP Presidential candidate Fred Thompson advocates tax policies even more rich people-friendly than the George W. Bush status quo.
“It’s not the rich people pulling away at the top who are the problem,” a New York Times Magazine special issue on inequality noted yesterday, “it’s that so many have been stuck for so long at the bottom and in the middle.”
Economist Robert H. Frank would beg to differ. To build a United States where average Americans can get truly unstuck, Frank advises in his newly published Falling Behind: How Rising Inequality Harms the Middle Class, fewer dollars — far fewer dollars — need to be pouring in rich people’s pockets.
Frank’s perspective, in our contemporary political clime, smacks of “class war.” But Bob Frank makes for an unlikely class warrior. He teaches at a top-notch Ivy League business school. He writes regularly for the New York Times. He does textbooks. His Principles of Economics may soon become an Econ 101 standard.
How eminently respectable is Bob Frank? His co-author on Principles of Economics just happens to be Ben Bernanke, the current chairman of the Federal Reserve Board.
Bob Frank, in other words, swims in the mainstream. But he’s splashing out a message — let’s worry, big-time, about the wealth of our wealthy — that America’s mainstream national leaders have been rejecting ever since the days of John F. Kennedy.
Frank’s core point: Wealthy people spend more as they become wealthier. That increased spending, in a steeply unequal society, will eventually — and always — raise “the cost of achieving goals that most middle-class families regard as basic.”
An interesting hypothesis — and easy to test. One example: If higher spending by wealthy people getting wealthier really does drive up home prices for average people, as Frank argues, then the prices of typical homes should be the highest in those metro areas where the incomes of rich people have risen the fastest.
Lo and behold, that’s exactly what the data show. The data show a great deal more as well. We explore those data — and Bob Frank’s case for higher taxes on America’s rich — in the complete Too Much review of his new Falling Behind.
Let’s say you owned a busy corner candy store. You paid your one employee $20,000 a year. The store, after you deducted that $20,000 and all your other operating expenses, cleared $100,000 in profits. You would, naturally, expect to pay taxes on that $100,000.
But what if the IRS let you deduct, for your employee’s salary, not the $20,000 you actually shelled out, but $120,000. If you could get the IRS to go along with that $120,000 deduction, you would face no taxes at all on the $100,000 you cleared from your candy store.
Sweet deal, right? In Corporate America today, a Senate hearing revealed last week, sweet deals along that line have become cloyingly common.
In 2004, the Senate Permanent Subcommittee on Investigations reported Tuesday, America’s top corporations deducted off their taxes $43 billion more for executive compensation than they actually booked for this compensation in their financial statements.
“Those massive tax deductions,” says Senator Carl Levin from Michigan, “enabled the corporations, as a whole, to legally reduce their taxes by billions of dollars, perhaps by as much as $15 billion.”
The key word in Senator Levin’s observation: legal. Under current law, corporations that award executives stacks of stock options can deduct off their taxes far more money than the options actually cost them. That gives corporations, of course, an incredible incentive to keep heaping stock options upon their executives.
This generous tax treatment of stock options, adds Levin, “is contributing to the growing gap between the pay of executives and the pay of average workers.”
Last year, notes Forbes, just about half — 48 percent — of the $15.2 million the average large corporate CEO took home came from exercising stock options.
Senator Levin is pushing legislation that would let corporations deduct, as a business expense, only the same stock option values corporations book in their financial reports.
What sort of difference would that make for individual corporations? Since 1993, Occidental Petroleum has claimed $353 million in tax deductions for stock options that went to the company’s CEO. The deduction if Levin’s reform had been in place: just $29 million.
Stat of the Week
Eleven Manhattan co-op apartments sold for at least $20 million each in 2006, reports the authoritative Stribling's Private Brokerage Luxury Residential report, up from only six the year before. That strong surge at the tippy-top of Manhattan's real estate market kicked the total annual value of $5 million-and-up co-ops sold over $1 billion for the first time ever.
Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954.
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