|March 18, 2013|
“Serious” pundits and policy makers on today's political scene love to wring their hands over Social Security. Woe unto future generations, they intone, if we don’t bring “entitlement spending” under control. Translation: Cut Social Security!
Well, whoa on the woe. Social Security is not going broke any time soon. In fact, even over the long term, a simple fix could fill almost any projected shortfall.
What sort of fix? Only the first $113,700 of paycheck income currently faces Social Security tax. So a CEO who pulls in $11.3 million pays the same tax as someone who makes $113,700. Eliminating Social Security's taxable income capwould fill in 95 percent of Social Security's shortfall over the next 75 years.
The remaining 5 percent? We could pick up a chunk of that, notes a new Institute for Policy Studies report on inequality and Social Security, if we held CEOs to the same limits on income they can defer from taxes that apply to the 401(k)s of ordinary workers. Good stuff. We have more of it in this week's Too Much.
|GREED AT A GLANCE|
At the SEC, the federal Wall Street watchdog, the revolving door spun a little faster last week. On Capitol Hill, corporate lawyer Mary Jo White, the White House nominee for SEC chair, assured senators that her years advocating for America’s biggest banks and corporations haven't “changed me as a person.” Meanwhile, General Electric last week announced that the SEC chair the last four years, Mary Schapiro, will be joining the G.E. board, where she’ll help decide executive pay. In 2012, G.E. CEO Jeff Immelt took home $25.8 million. How much more did Immelt make than typical G.E. workers? We don't know. The 2010 Dodd-Frank Act does require corporations to disclose the ratio between their CEO and median worker pay. But the SEC, under Schapiro, never did get around to writing the regulations needed to enforce this disclosure . . .
Most media coverage of the Swiss CEO pay vote earlier this month has zeroed in on a provision in the landmark referendum that mandates shareholder approval for all CEO pay. But global CEOs aren't losing sleep over shareholder voting. The precedent in the referendum that does have them worried: The Swiss vote bans golden parachutes, the huge windfalls CEOs pocket after mergers. The next U.S. chief exec in line for a golden parachute goodie: William Johnson, the CEO at Heinz, the food giant about to be swallowed up in a $23.3-billion buyout. If Johnson exits Heinz, he’ll pocket $56 million in bonus benefits, on top of $156.7 million in deferred pay. Where's Johnson headed after Heinz? Not Switzerland. Not likely the Netherlands either. Dutch officials are now drafting rules that ban golden parachutes over $100,000 . . .
Gated communities. Safe rooms. Bodyguards. America’s wealthy have been securing their private physical space for some time now. Now the rich are angling for a wealthy-only corner of cyberspace. Welcome to Summitas, a “gated community for data” initially bankrolled two years ago by a billionaire New Yorker. The firm's clients, notes Summitas CEO William Wyman, hold net worths over $5 million and pony up $7,500 a year for a customized private online space. Summitas guarantees them all “National Security Agency-level encryption.” In other words, observes Businessweek reporter Drake Bennett, the high-enders on Summitas can “post pictures of the yacht without worrying about what people outside the family will think.” Over 4,000 families of means have so far enrolled.
Quote of the Week
“It’s easy for CEOs with mega-million-dollar retirement funds to demand cuts to Social Security. They’ll be enjoying their country clubs while America’s already shamefully high poverty rate among the elderly will increase.”
Scott Klinger, co-author,Inequality in the Social Security Debate, March 14, 2013
|PETULANT PLUTOCRAT OF THE WEEK|
Back in 2011, Occupy marchers rallied near the Manhattan home of hedge fund billionaire John Paulson, who didn’t take kindly to their presence. “Instead of vilifying our most successful businesses,” a Paulson flack retorted, protesters ought to be grateful for all the taxes Paulson and his hedge fund were paying. Gratitude time has apparently passed. Native New Yorker Paulson, news reports last week revealed, may soon be moving to Puerto Rico, where a year-old law lets new residents avoid all taxes on capital gains. Hedge fund managers currently take the bulk of their income as capital gains, via a loophole that lowers the tax rate they face from 39.6 to 23.8 percent. But zero beats 23.8 percent any day, and Paulson won’t have much problem finding suitable digs in San Juan. He’s reportedly eyeing a $5-million penthouse.
|IMAGES OF INEQUALITY|
Photographer Colin McPherson has teamed with local equality groups along the British A41 highway corridor to find visual images that can help raise questions about the inequality we all live amid. An exhibition of these images, prepared with the support of the UK Equality Trust, has just begun a cross-country tour.
Bloomberg Billionaires/ The world’s most iconic lists of billionaires still hail from Forbes, but the wealth counters over at Bloomberg have put together a far more fascinating Web presence. Their site tracks global billionaire fortunes on a daily basis and lets users parse billionaires by nation, industry, gender, age, and inheritance.
|PROGRESS AND PROMISE|
America’s top education historian, Diane Ravitch, calls them the “billionaire boys club.” These awesomely affluent would-be wonks have been bankrolling a national network of think tanks and politicians devoted to applying “market-driven” solutions — like charter schools and relentless standardized testing — to education's problems. How single-minded have these billionaires become? They’ve just poured nearly $2 million into a Los Angeles school board race to defeat an incumbent, Steve Zimmer, who dared suggest a moratorium on new charters. But community groups and teachers rallied behind Zimmer and earlier this month scored a pivotal victoryover deep pockets like New York’s Michael Bloomberg and Wal-Mart heir Carrie Walton Penner. Zimmer asked voters to resist Big Money's “assault on our democracy.” They did.
|INEQUALITY BY THE NUMBERS|
Stat of the Week
Under the latest budget plan advanced by U.S. House of Representatives Budget Committee chairman Paul Ryan, taxpayers who report over $1 million in 2014 incomewill save at least$203,670. Average income for these filers: $3.15 million.
Why Aren't More of Us Protesting Inequality?
Egalitarian-minded academics have just subjected one of the most central political questions of our time to rigorous research scrutiny.
Billionaire Warren Buffett is still paying taxes at a lower rate than his secretary. Starbucks CEO Howard Schultz last year collected $117.5 million for his labor. The life expectancy gap between Americans of affluent and modest means has widened by five years over the last three decades.
Economic inequality in America hasn’t been this stark since the 1930s. But back then Americans by the millions took to the streets in protest. Why aren’t millions of Americans out protesting today?
Americans aren’t loudly protesting, conservatives argue, because they really don’t care if some people become phenomenally richer than others.
Many Americans, progressives counter, simply don’t yet understand how staggeringly unequal the United States has become. With more awareness, their argument goes, would come more resistance to our unequal social order.
In 2011 a group of four top-flight academic researchers — including Emmanuel Saez, the world’s top expert on super-high incomes — decided to test this absence-of-information thesis. They prepared a detailed survey instrument and spent over 18 months quizzing a random sample of 5,000 Americans.
These researchers have just published their findings, and on at least one key question they probed — can information change attitudes about inequality? — their survey results do offer a clear answer. Information can change attitudes.
The information the researchers shared with the thousands of Americans they surveyed compared America’s current distribution of income to the nation's more equal distribution in 1980. Their interactive survey also helped participants figure out for themselves what they would be making today if the nation's “economic growth since 1980 had been evenly shared across the income distribution.”
Another survey presentation detailed how the incomes of average Americans, over the past century, have grown the fastest during those periods when America’s richest paid taxes at higher rates than they do today.
The impact of all this information? The share of survey participants who felt that inequality poses a “very serious problem” rose a robust 40 percent.
But this significant increase in awareness, the researchers also found, did not automatically translate into appreciable new support for public policies that could narrow America’s income and wealth divide.
The increase in the share of survey participants supporting higher taxes on millionaires, for instance, didn’t come close to matching the 40 percent jump in the number of participants feeling that inequality poses a significant danger.
So what’s going on here? Why isn’t more concern about inequality generating more support for government policies that can narrow inequality?
One factor: Exposure to more information about inequality, the researchers found, “also makes respondents trust government less.” In effect, quipscommentator Tim Noah, many Americans feel that a government “incompetent enough” to let inequality fester isn’t going to be competent enough to fix it.
But another dynamic — economic insecurity — factors in as well. The researchers found that the study participants with the lowest incomes turned out to be the most resistant to more redistributive government policies, particularly to programs that help the poor.
What explains this counter-intuitive outcome? A phenomenon known in academic circles as “social-desirability survey bias” could be at play here. Low-income study participants might have feared they would come across as “selfish” if they proclaimed their support for programs that help low-income people.
Or somewhat darker motives, the researchers suggest, could be at work. Other research, they note, has posited that status concerns can distort attitudes at the bottom of the economic pyramid. No one wants to be “last.” These status concerns may leave some “low-income individuals wary of certain redistributive policies, lest they differentially help the group below them.”
Add racial and ethnic differences into the mix, and you have the kindling for social combustion, a kindling dominant elites have regularly fanned, over the years, to divert attention from their dominance.
The researchers behind this new study — and the early egalitarian-mindedcommentators on it — seem distinctly bummed by the study's results. Only in one area, the research reveals, did more information seem to lead to much more support for greater action against inequality. That one area: the estate tax.
Many Americans, the study found, have no idea that the federal estate tax only applies to multi-million dollar fortunes. These Americans quickly become eager estate tax advocates once the fog of misinformation lifts.
But even here the researchers can’t hide their disappointment. The estate tax, they lament, “may be a special case of an issue where voters are very misinformed and yet not emotionally attached to their position due to ethnic or socioeconomic stereotypes.”
Should Americans who worry about inequality be feeling as bummed about this new research as the researchers behind it?
A little historical perspective might help here. If these researchers had conducted their work back in 1928, a previous high point in American income inequality, they would have encountered a quite similar social landscape: a massive divide between the rich and everyone else coupled with little sign of mass resistance.
Yet less than a decade later we had resistance everywhere. The American public, pundit Walter Lippmann would write in 1937 after the death of John D. Rockefeller, “has turned wholly against the private accumulation of so much wealth.” In workplaces the nation over, Americans would be challenging plutocratic power, often uniting across racial and ethnic lines.
Out of this ferment would come a much more equal United States. In 1928, no researchers could have seen that future coming. Researchers today, even with all their carefully calibrated survey instruments, can't see the future either.
Hamilton Nolan, It Would Be Great if Millionaires Would Not Lecture Us on ‘Living With Less,’ Gawker, March 11, 2013. How windfalls seduce their winners into considering themselves the fonts of all wisdom.
Robert Reich, Ryan the Redistributionist, March 12, 2013. The House GOP budget guru is advancing a new budget more breathtakingly tilted to the top than any yet proposed.
Dean Baker, What Ryan’s Budget Really Says: ‘I Love Rich People,’ Common Dreams, March 13, 2013. The media do Paul Ryan a great favor when they describe his federal budget proposal as a commitment to free market principles.
Ralph Nader, The Cruel Gap Between CEO Pay and the Stagnant Minimum Wage, Huffington Post, March 13, 2013. Wal-Mart CEO Mike Duke makes $11,000 an hour.
Nicholas Shaxson, A Tale of Two Londons, Vanity Fair, April 2013. The world’s most expensive residential building offers a portrait of the new global super rich.
Dean Baker, Capitalism, Steven Pearlstein, and Morality, Beat the Press, March 17, 2013. A top economist demolishes the claim that the upward redistribution of income over the last three decades reflects “natural” market dynamics.
Want a taste of Too Mucheditor Sam Pizzigati's just-published new book? You can read online the intro chapter to The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.
|NEW AND NOTABLE|
'Saving' Social Security: The CEO Approach
Sarah Anderson and Scott Klinger, Inequality in the Social Security Debate: How benefit cuts would impact health industry CEOs versus home health aides, Institute for Policy Studies, March 14, 2013.
Anybody see a real person in the debate over Social Security cuts now raging in Washington? Not likely. Lawmakers aren't talking much about real people. They’re talking opaque labels — like “chained CPI.”
In this brief but potent new paper, Sarah Anderson and Scott Klinger inject real people back into the Social Security discussion: one average American and two staggeringly rich ones.
That average American, home health care aide Rhonda Straw, will see her retirement income drop by nearly 16 percent over 20 years if Congress adopts the two cuts to Social Security benefits — the “chained CPI” and a higher retirement age — that CEO groups like the Business Roundtable are now pushing.
Two health care CEOs on the Business Roundtable, CVS Caremark’s Larry Merlo and UnitedHealth’s Stephen Hemsley, will see their retirement earnings dip all of 0.3 and 0.7 percent respectively if these same two changes become law.
Merlo, Hemsley, and their CEO cohorts insist they want to “save” Social Security. In reality, as Anderson and Klinger so clearly explain, Merlo, Hemsley, and friends are only saving themselves — from the tax hikes on high incomes like theirs that could easily remedy any future Social Security shortfall.