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| THIS WEEK | |
Two weeks ago in Porto Cervo, a billionaire resort on the Sardinian coast, burglars snatched away almost $500,000 in cash and jewels from a holiday villa while a wealthy family slept soundly inside. The burglars actually made quite a racket. They took out windows to gain entry. But no one heard anything. The police have a theory. Burglary victims in Porto Cervo, they note, have been waking up feeling “weak and dazed.” The police suspect sleeping gas. Interesting theory. And sleeping gas, the more you think about it, could explain a great deal of what’s going on in the world today, not just the redistribution of wealth from billionaires to burglars. Sleeping gas could explain how households worth over $5 million — a mere 0.1 percent of the world’s population — have been able to grab, with hardly anybody noticing, 22 percent of the world’s wealth. Of course, other explanations for this redistribution — from down below to the top — do exist. We examine, this week in Too Much, one of the more compelling. | |
| GREED AT A GLANCE | |
Can you fall up? CEOs can. Just over a year ago, amid a nasty scandal that featured a one-time erotic actress, Hewlett-Packard CEO Mark Hurd found himself forced to resign. His exit package: $12.2 million in severance and another $30 million worth of stock. Hurd would not stay jobless long. His old tennis buddy, Oracle software CEO Larry Ellison, quickly snatched him up — and made him feel right at home. How much at home? In the Oracle fiscal year that ended May 31, new regulatory filings reveal, Hurd pocketed $78.5 million from his new employer. He actually took home more than his new boss. Larry Ellison’s total pay for the year: only $77.6 million. That may make the tennis-loving Hurd and Ellison the most lavishly paid corporate doubles pairing ever . . .  Deep pockets not as adventurous as Tom Perkins seem to be doing their diving into the display cases at Tiffany & Co. The luxury jeweler has just reported a 25 percent North American sales bounce in 2010’s second quarter, a stunning stat,marvels investment adviser Charles Lewis Sizemore, given all the retail prices Tiffany has hiked this year to cover the spiraling cost of precious metals and gems. Wealthier Americans, Sizemore observes “can still afford diamond rings in those instantly recognizable baby-blue Tiffany boxes.” Meanwhile, Wal-Mart has just registered nine consecutive quarters of shrinking U.S. sales. Middle- and low-income Americans, Sizemore is telling his investment clients, “are suffering.”  Former Utah governor Jon Huntsman has a somewhat different take on taxes. Pundits have anointed Huntsman the most “reasonable” candidate in the 2012 GOP Presidential field, and the one-time ambassador to China, a near billionairehimself, is certainly doing his best to give his fellow wealthy plenty of reasons to rally his way. Huntsman last week announced his campaign tax plan. He wants to drop the top federal income tax rate from 35 to 23 percent and erase taxes on dividends and capital gains from wheeling and dealing stocks and other assets. This dividend and capital gains tax break alone, the Tax Policy Center calculates, would save America’s richest 0.1 percent an average $486,000 a year in taxes. | |
| INEQUALITY BY THE NUMBERS | |
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| IN FOCUS | |
Can Anyone Tackle Our Tax-Dodging CEOs? A new report from the Institute for Policy Studies documents how America's top corporate execs are stiffing Uncle Sam — and lavishly lining their own pockets in the process. Sarah Anderson, a veteran analyst at the Institute for Policy Studies in Washington, D.C., has been the lead author of the Institute’s annual executive pay report ever since 1993. On CEO pay, Anderson sighs, “I sometimes think I’ve seen everything.” And then came the research for this year’s report — released last Wednesday — and the results floored even Anderson. Last year, the Institute for Policy Studies researchers discovered, CEOs at 25 of America’s largest corporations — powerhouses that range from Boeing and Verizon to Prudential and G.E. — took home more in personal compensation than the companies they run paid Uncle Sam in federal corporate income tax.
The CEOs who call the shots at these 25 companies make up a quarter of 2010's 100 highest-paid CEOs. Their average take-home last year: $16.7 million. How could the companies these 25 CEOs rule be so profitable — and so generous to their top execs — yet end up paying Uncle Sam so precious little? Giant corporations like these, explains IPS study co-author Chuck Collins, are essentially “rewarding CEOs for aggressive tax avoidance.” That reality has caught the eye of Rep. Elijah Cummings, the top Democrat on the House Oversight and Government Reform Committee. Last week, at the release of the new IPS study, Cummings called for hearings to examine “why CEO pay and corporate profits are skyrocketing while worker pay stagnates.” The new IPS report, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging, puts numbers on this soaring and stagnation. Last year, the study documents, CEOs at America’s S&P top 500 corporations saw their average pay jump 27.8 percent. Average worker pay rose just 3.3 percent. The aggressive tax dodging that’s enriching corporations and CEOs, the IPS analysts add, doesn’t actually break any laws. Corporate America has seen to that — by just as aggressively gaming the political system to stud the tax code with loophole after loophole. In fact, 20 of the 25 major corporations that paid their CEO more than Uncle Sam last year, notes Executive Excess 2011, “also spent more on lobbying lawmakers than they paid in corporate taxes.” And 18 of the 25 “gave more to the political campaigns of their favorite candidates than they paid to the IRS in taxes.” This corporate lobbying and campaign cash has, over the years, created a tax code that offers CEOs a wide array of tax-dodging options. Many involve tax havens. Of the 25 top firms that paid their CEOs more than Uncle Sam last year,Executive Excess points out, 18 sport tax haven subsidiaries. The over 550 tax haven subsidiaries of these 18 firms make shifting profits offshore — and beyond the reach of federal tax collectors — almost effortless. One example of this effortlessness: the shell game known as “transfer pricing.” To play this “transfer” game, a corporate chief typically hands a tax haven subsidiary control over the U.S.-based firm’s “intellectual property,” assets that might range from patents to logos. The shell company then charges the U.S.-based operation inflated royalties for the right to use this property. The U.S.-based concern happily tallies these inflated royalty costs, adds them in with the company's other regular expenses, and proceeds to tell the IRS that the company's U.S. operations have lost money for the year. The resulting profits from all this scheming pile up, in turn, on the books of the tax haven subsidiary, where they face rock-bottom tax rates — or no taxes at all. Last week’s IPS study drew extensive media coverage, from national dailies like the New York Times and Washington Post to top global news services. Reporters at many of these outlets asked the corporate giants the IPS study spotlights to defend themselves. Some firms, like Bank of New York Mellon, offered no defense. Others, like Ameriprise and General Electric, argued they weren’t dodging taxes. They were merely “deferring” them. The tax code does indeed let corporations “defer” taxes, a power the code does not grant to individual taxpayers. These deferrals, notes Executive Excess 2011co-author Scott Klinger, amount to interest-free loans to corporations. Even better — for corporations — the deferred taxes may go unpaid for decades. Taxes on earnings held offshore, for instance, do not come due until those earnings slide back into the United States. Adds Klinger: “If these funds are never brought home, the taxes are never paid.” Verizon and eBay led the corporate pushback last week against the new IPS study. eBay charged that IPS had “misrepresented” the company's tax situation. A Bloomberg reporter, in response, asked eBay and Verizon to disclose their exact 2010 federal tax return information. Both declined to make that disclosure. Other reporters covering the corporate pushback told IPS that the corporate media relations officers that had contacted them couldn't themselves explain what the numbers in the tax footnotes of their own corporate reports meant. Corporations, IPS noted Friday in a reaction to the pushback, seem to complain “almost every time a story is written about a particular corporation’s tax position.” Yet these same corporations resist reforms that would require all companies to disclose clearer data on “what they actually pay in taxes.” This year's Institute for Policy Studies Executive Excess report offers outraged readers a guide to all the significant reform proposals — inside and outside Congress — on the tax and pay games CEOs play. IPS has also created an action page online to help Americans push corporate tax and pay reform forward. And that reform, after this year's Executive Excess, has seldom seemed more desperately needed. “We have,” as the new 2011 Executive Excess sums up, “a corporate tax system today that works for top executives — and no one else.” | |
| IN REVIEW | |
At Your Fingertips: Decades of Tax Changes Olivier Bargain, Mathias Dolls, Herwig Immervoll, Dirk Neumann, Andreas Peichl, Nico Pestel, and Sebastian Siegloch, Tax Policy and Income Inequality in the U.S., 1978-2009: A Decomposition Approach. Institute for the Study of Labor, August 2011. “What if?” may be the most provocative question social scientists can ever ask. And sometimes ask they must, to help us comprehend — and change — our world. A team of analysts connected to Germany’s University of Bonn has just done some of this useful asking — on inequality in the United States. America's tax system, these researchers note, has undergone a series of huge changes over recent decades. What if some of these changes hadn’t happened, or happened earlier? Would incomes in the United States today be as unequal as they have become? In other words, have we become more unequal because lawmakers have opted to go easy on the rich at tax time? Or have other factors — greater employer power in the workplace, for instance — done more to widen the gaps between us? Olivier Bargain and his fellow researchers have played the “counterfactual” card to get at the answer. They’ve performed a series of statistical simulations that explore whether the level of American income inequality would have been higher or lower if the various federal tax changes enacted in 1978, 1981, 1986, 1990, 1993, 1997, 2001, 2003, and 2009 had never been enacted. The researchers have also performed another set of simulations to gauge what our level of inequality would have been if each of these federal tax overhauls had been the law of the land in an earlier year. Their conclusion? No big surprise. The tax changes that went into effect under Ronald Reagan and George W. Bush turn out to be significantly “disequalizing.” So why single out this paper when the conclusions merely confirm what most of us already suspected? Here’s why: To run their simulations, the researchers first had to compile and detail, for each year since 1978, all the federal tax provisions in effect that impact the distribution of American income. The research team has presented all this information in a clear and concise multi-page table, a wonderful compendium for tracking everything from the number of federal income tax brackets to the maximum level of earnings, year by year, that have faced Social Security payroll withholding. For educators, journalists, activists, and just-plain citizens eager to understand how our tax system has evolved over the past 30 years, this “Tax Legislation” table makes for fantastic one-stop informational shopping. This “what if?” paper, in effect, has become a valuable resource for exploring “what could be.” | |
Quote of the Week
“Guns don't kill people, the old saw goes. People do. By the same token, corporations don't dodge taxes. People do. The people who run corporations.”
Executive Excess 2011: The Massive CEO Rewards for Tax Dodging, the 18th annual CEO pay report from the Institute for Policy Studies, Washington, D.C., August 31, 2011
Stat of the Week
The media empire that includes Fox News certainly knows how to make news . . . pay. That empire — Rupert Murdoch’s News Corp. — hasjust released its executive pay figures for the fiscal year that ended June 30. CEO Murdoch, his son James, and Fox News chief Roger Ailes averaged $22.1 million, a take-home up 41 percent over 2010.
New Wisdom
on Wealth
Gar Alperovitz, America's Massive Wealth Disparity,The Nation and On The Earth Productions, August 29, 2011. An engrossing six-minute video that features one of America's most insightful political and economic analysts.
Carla Marinucci, Chant of 'tax the rich' growing louder in nation, San Francisco Chronicle, September 1, 2011. A survey of the growing sense among Americans that the wealthy are not bearing anywhere near their fair tax share.
Robert Reich, The Limping Middle Class, New York Times, September 3, 2011. America's economy won’t really bounce back, the former U.S. labor secretary argues powerfully, "until America’s surge toward inequality is reversed."
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