A tale of two presidential elections: In the United States, mega-millionaire money doesn’t just talk. Mega-millionaire money overwhelms. Mitt Romney obliterated his main rival, Rick Santorum, simply by massively outspending him. Through mid-April, Romney spent nearly nine times more than Santorum on TV ads.
French law, by contrast, bans paid TV ads for presidential candidates. TV stations have to give all candidates equal time — and equally prominent placement over a campaign’s final two weeks. The impact? French voters, pollster Brice Teinturier noted before yesterday’s presidential voting in France, “are discovering the faces and proposals of those who they may not have seen or heard before.”
Those faces are almost all proposing higher taxes on France’s wealthy. In Sunday’s first-round presidential balloting, candidates calling for stiffer taxes on the rich won all but 20 percent of the votes cast. Jean-Luc Mélenchon, the fourth-place finisher in the ten-candidate field, ran on a platform that called for a 100 percent tax on annual income over 360,000 euros, about $471,000.
Mélenchon also called for a pay cap that would limit CEO compensation to 20 times a company’s lowest wage. Here in the United States, where money still greases our entire political skid, no presidential candidate is talking about capping CEO pay. Big mistake. We explore why in this week’s Too Much.
GREED AT A GLANCE
Men who live in societies where wealth concentrates at the top will be more inclined to violence. Who says? The British psychologist who rates as one of the world’s top experts on violent behavior. John Archer, a past president of the International Society for Research on Aggression and the current director of the University of Central Lancashire’s Aggression Research Group, last week addressed the annual conference of the British Psychological Society. The research evidence, Archer noted, suggests that “societal issues such as inequality of wealth” contribute to social violence. The UK currently sports Europe’s most unequal distribution of wealth and highest violent crime rate.
Wal-Mart is stumbling. The retail giant lost market share in 2011 for the second consecutive year. At one point last summer, Wal-Mart’s “same-store” sales had dropped nine quarters in a row. But this sinking “performance” hasn’t much dented the “performance-based” pay of Wal-Mart CEO Mike Duke. Wal-Mart last year stopped using same-store sales as a “metric” to measure Duke’s “performance.” Wal-Mart also lowered the minimum “return on investment” needed to trigger Duke’s really big bonus dollars. That threshold had been sitting at 18.66 percent of sales before last year. In 2011, Wal-Mart only returned 18.63 percent. No problem. Duke’s new threshold for the year: just 18.4 percent. The switch enabled Duke to pocket $18.1 million in 2011, only a tiny dip from his $18.7 million in 2010.
Want to catch a celebrity at Nello’s, the upscale Italian restaurant on New York’s upper East Side? That will cost you. The salmon ravioli at Nello’s run $55 a plate. The pasta with truffle sauce can hit $275. But if no celeb happens to be truffling at the table next to yours, you can always stop and chat with owner Nello Balan himself, a celebrity in his own right. Balan claims to be a direct descendant of Vlad the Impaler, the real-life character who inspired the Count Dracula story. Employees at Nello’s don’t doubt that blood-sucking link. Six of them last week filed suit that Balan has them working 60-hour weeks with no overtime pay — and docks them a full hour’s pay for the 15-minute lunch break he allows them.
Quote of the Week
“I believe that good fortune obligates. Those who have fared well in our economy have a moral obligation to contribute more to the common good, not as a punishment for success, but as a responsibility to our community.”
PETULANT PLUTOCRAT OF THE WEEK
Three years ago, amid the Wall Street meltdown, Citigroup CEO Vikram Pandit gallantly announced he was forsaking his bonus and would take only $1 a year in salary. Nobly noted Pandit: “The most senior leaders should be affected the most.” Pandit could afford to be gallant. Citi had spent $800 million in 2007 to buy the hedge fund Pandit had started only the year before. That sale put $165 million in Pandit's pocket, not enough, apparently, to keep him noble. His 2011 pay deal: $15 million. Angry Citi shareholders last week nixed that deal in an advisory “say on pay” vote, the first big bank “no“ vote ever. Did Pandit see that vote coming? Earlier this month, he had his $4.3 million estate in Connecticut listed for sale. He’ll now have to rue the day he left hedge funds from his $18 million Manhattan apartment.
Stat of the Week
The weekly pay gap between the top and bottom 10 percent of U.S. wage and salary workers has jumped by nearly 50 percent over the past decade, the Labor Department reported last week. Top 10 percent earners now average $1,498 more per week than bottom 10 earners.
inequality by the numbers
So Much Tax Evasion, So Little Accountability
Over two years ago, the IRS announced an ambitious new effort to subject the super rich to unprecedentedly intensive audits. How's that effort working out? Most lawmakers would rather you not ask.
Every once in a while, our plutocrats drop all democratic pretense and arrogantly offer up a raw display of their ample political might. One such display came last week. On Monday, a proposal to fix a minimum tax on America's rich — the “Buffett rule” — went nowhere in the U.S. Senate.
The Buffett rule proposal needed 60 votes to beat back a filibuster. The actual votes the proposal received: just 51.
But last week's most impressive show of plutocratic power actually came the next day — and made no headlines. On Tuesday, the annual federal income tax filing deadline came and went with America’s super rich once again stiffing Uncle Sam for hundreds of billions of dollars in taxes due.
We're not talking loopholes here, those entirely legal tax code provisions — like lower tax rates for capital gains — that give the rich preferential treatment at tax time. We're talking outright tax evasion, the willful misreporting of income.
The IRS periodically tries to measure how much of this cheating goes on. The latest estimate, released this past January and covering 2006, puts the tax gap — the difference between taxes owed but not paid on time — at $385 billion.
Some of this gap represents “innocent” tax return mistakes, the rest outright fraud. Taxpayers at all income levels, of course, cheat. But the only fiscally consequential cheating comes from the super rich. They both cheat at a higher rate than Americans of modest means and — given the enormity of their incomes — deny Uncle Sam far more tax dollars when they do cheat.
Why can't Uncle Sam get at those lost tax dollars? Have the super rich and their handsomely paid handlers simply become too skilled at squirreling income in tax havens? Do the complexities of the global economy simply make collecting taxes from the rich an impossibly difficult task?
IRS officials certainly don't think so. In 2009, they confidently launched a new task force dedicated to scoping out the super rich. This “Global High Wealth Industry Group,” the IRS Commissioner Doug Shulman predicted early in 2010, would bring a “game-changing strategy” to the battle against ultra wealthy tax cheats and their most sophisticated tax evasion stratagems.
Now, over two years later, an analysis of IRS data by tax experts at Syracuse University suggests that the tax game hasn't yet changed. The IRS super-rich task force, reports the Syracuse Transactional Records Access Clearinghouse, has so far completed intensive audits on only a few dozen super rich.
That few dozen represents only about 0.4 percent of the more than 8,300 U.S. taxpayers currently reporting over $10 million a year in income.
On the bright side: The tiny handful of audits the special IRS task force has completed did recover $47.7 million in unpaid taxes. At that recovery rate, if the IRS had completed audits on all the taxpayers making over $10 million, the federal treasury would likely have picked up over $200 billion.
With a return on audit investment this high, why aren't IRS officials doing more to audit the super rich? Agency officials, for their part, insist they are doing more to make sure the rich pay the taxes they owe. They point to the rising number of traditional “correspondence” and “field” audits on high-income taxpayers.
In 2011, the IRS conducted these traditional audits on 29.9 percent of all taxpayers reporting over $10 million in income, a considerable hike over the 18 percent of these deep pockets audited traditionally in 2010.
But analysts at the Syracuse tax center note that the IRS is spending less time per wealthy taxpayer on these traditional audits, only 2.6 hours, on average, for each by-mail “correspondence” audit and only 31.4 hours on the average “field” audit, down from 41.7 hours in 2007.
The much more intensive audits that the new IRS high-wealth unit conducts, by contrast, can take months of staff time to complete. The agency simply does not have a large enough staff complement to put in that sort of time for more than a relative handful of no-holds-barred audits. The reason: Congress over recent years has consistently declined to adequately fund IRS tax-collection operations.
In just the last two years alone, budget cuts have cost the agency some 3,000 enforcement staff positions. The bigger picture: Just 20 years ago, in 1992, the IRS had 114,758 staff to cover a U.S. population of 249.4 million. In 2011, the agency’s 94,709 staff had to cover a total U.S. population of 312.6 million.
More taxpayers, fewer staff. The tax lawyers, accountants, lobbyists, and private bankers who make up what Northwestern University economist Jeffrey Winters has dubbed the “income defense industry” couldn’t be more pleased. They’re making millions cutting tax corners for the super rich, at precious little risk either to themselves or their clients.
In a fairer tax universe than ours, tax collectors would have all the resources they need to scour the tax returns of the super rich and squash their tax-evasion games. And in that fairer tax universe, tax collectors wouldn't just scour tax returns. They would scour, just as finely, the haunts of the rich and famous.
In Greece and Italy, two nations with a history of chronic and massive tax evasion by the rich, tax collectors are now doing that broader scouring. They're checking license plates at elite ski resorts, for instance, to pinpoint high-spenders, then checking the incomes these high-spenders have filed on their tax returns.
Aggressive tactics like these are identifying tax evaders that traditional audits have hardly ever snared.
Could our IRS ever become this aggressive? In Italy and Greece, tax collectors only stopped playing footsie with the wealthy after economic calamity hit. The Greeks and Italians never saw calamity coming. We don't have that excuse.
Annie Lowrey, For Two Economists, the Buffett Rule Is Just a Start, New York Times, April 16, 2012. A delightful profile of Emmanuel Saez and Thomas Piketty, the two researchers who have turbocharged the debate over taxing the super rich.
Sarah Anderson and Scott Klinger, Six Rigged Rules Corporations Use to Dodge Taxes, Nation, April 16, 2012. The CEOs who run AT&T, Boeing, Citigroup, Duke Energy, and Ford reported over $20 billion of corporate income last year — and no corporate income tax. Here's why.
Les Leopold, What If the Greedy Rich Paid Their Share? 8 Things to Know About Wealth and Poverty in the U.S., AlterNet, April 17, 2012. Insights on our enormous concentration-of-wealth problem.
Timothy Noah, No Deal: The best tax reform would be ... nothing, New Republic, April 19, 2012. Simply letting the Bush tax cuts expire at the end of 2012 might be the best political option, given the current alignment in Congress.
Rex Nutting, Are poor people lazy? Or just lucky? MarketWatch, April 20, 2012. A nicely done refutation of the argument that “hard work” explains the wealth of the wealthy.
James Galbraith, Inequality and Instability, Real News, April 20, 2012. A three-part interview with one of America's top economic analysts.
Simon Kuper, Why CEOs shouldn’t run the world, Financial Times, April 21, 2012. Mitt Romney cut costs at the companies he ran. If one firm cuts costs, it benefits. If all firms cut costs, the economy shrinks and nobody benefits.
Thomas Edsall, The Fight Over Inequality, New York Times, April 22, 2012. A deft overview of inequality statistical measures that debunks the latest conservative claims that inequality hasn't been growing particularly fast.
Shoving CEOs under an Online Microscope
Executive PayWatch 2012 edition: CEO Pay and the 99%, AFL-CIO, Washington, D.C. Placed live online April 19, 2012.
AFL-CIO researchers don’t, of course, have the executive pay data scene all to themselves. A variety of business groups and major media outlets also release annual corporate chief executive pay tallies.
But PayWatch has always stood out in the annual spring CEO pay report crowd. Other CEO pay compilers are essentially just keeping score. The AFL-CIO, with Executive PayWatch, is endeavoring to upend the entire CEO pay status quo.
The rules of this status quo currently stand rigged against workers — and shareholders upset about the plundering of corporate resources that excessive CEO pay represents. The annual updates PayWatch releases regularly spotlight the rule changes needed to put an end to this plundering.
Two years ago, the AFL-CIO's relentless push for these rule changes helped enact some important new checks on excessive executive pay. The Dodd-Frank Wall Street Reform and Consumer Protection Act that became law the summer before last gives shareholders the right to cast advisory votes on CEO pay plans.
And the ranks of protestors would no doubt expand considerably, the new PayWatch contends, if the Securities and Exchange Commission, the federal agency that watchdogs Wall Street, stopped dragging its feet on Dodd-Frank’s most promising check on CEO pay excess, mandatory pay ratio disclosure.
Dodd-Frank's disclosure mandate requires all publicly traded corporations to annually reveal the ratio between what they pay their top executive and what they pay their median — most typical — workers.