“Deregulation And Worker’s Bargaining Power”: New Insight Into The Decline Of The Middle Class
The recently released 2012 Organisation for Economic Co-operation and Development Employment Outlook provides new insights into the decline of the middle class. The report documents the global shift from labor income to profits. Across the Organisation for Economic Co-operation and Development, known as OECD, the share of income going to wages, salaries, and benefits—labor’s share—declined over the last 20 years. The median labor share in OECD countries fell from 66.1 percent to 61.7 percent of national income. However, the decline in labor compensation was not equally shared by all employees; the wage share of top income earners increased while low-paid workers were hardest hit. On average, the wage share of the top 1 percent of income earners increased by 20 percent over the past two decades.
In the United States, where labor’s share began its decline in the 1980s, it fell a further 2.5 percentage points over the past 20 years. Excluding top earners’ income, the decline in the adjusted labor share was 4.5 percentage points.
The decline in labor’s share of national income did not result from a shift away from labor intensive industries to industries that employ a low share of labor. The OECD’s analysis found overwhelmingly that it is within-industry declines in labor’s share of industry value added that explains the fall in labor’s share. On average, the OECD found, real wage growth within industries did not keep pace with productivity growth.
Examining the causes of the decline in labor’s share, the OECD found that labor-saving technical change across most industries was associated with greater investment in capital and higher productivity growth as machines replaced workers in some jobs. The OECD found a strong association between technical change and the decline in labor’s share. It is important not to be hasty and jump to the conclusion that technological unemployment is to blame for the decline in labor’s share. In fact, the OECD did not find fewer jobs overall for less-educated workers.
Rather, what they found is not a decline in low-skill jobs, but a decline in jobs that pay middle-class wages. The share of the high-skilled in occupations such as manager or IT engineer increased as did jobs at the bottom of the wage distribution, typically low-paid precarious jobs. Unfortunately, this increase in demand and employment of workers in low-paying occupations did not improve the earnings of these workers. Increasingly, better-educated workers who in the past would have found middle-class jobs ended up low-paid employment. The OECD found that educational requirements increased quickly in low-pay occupations and that “workers in these jobs tend to be overqualified” (p. 124). A recent report from the Center for Economic and Policy Research found this to be true in the United States, where 43 percent of low-wage workers have some college or a college degree, 27 percent have a high school degree, and only 20 percent did not graduate from high school.
What, then, explains the failure of real wages to grow in line with productivity growth, and for increased educational attainment to translate into middle-class earnings? The evidence points to the negative effects of deregulation of some industries and increased globalization on workers’ bargaining power.
Deregulation of industries such as energy, transportation, and communication in which union density had traditionally been high opened these industries to new enterprises staffed by non-union workers. Increasing globalization—the delocalization of some parts of the supply chain as well as import competition from low-wage countries for blue-collar workers (but, notably, not for doctors, lawyers, and other high-paid workers) has led to the loss of well-paid unionized jobs. Both of these developments have led to a reduction in workers’ bargaining power vis a vis employers and have weakened unions, leaving workers to fend for themselves and employers to fix wages individually. The result according to the OECD has been to “decrease the bargaining power of workers, particularly those who are low-skilled, and thus their ability to appropriate their share [of productivity gains].”
The unequal distribution of labor income—with nearly all the gains in wages going to the top 1 percent while earnings stagnated or declined for the 99 percent—has gone hand-in-hand with the decrease in the share of national income going to labor and the shift from labor income to profits. Absent a countervailing force that enables workers to share fairly in the economy’s productivity gains, the decline in labor’s share appears likely to continue.
By: Eileen Appelbaum, Washington Whispers, U. S. News and World Report, August 25, 2012
“Dubious Legal Tactics”: How Mitt Romney’s Millions Went Tax-Free Overseas
On the same day that Mitt Romney cracked his birther “joke,” new evidence indicated that he and his partners at Bain Capital have used questionable methods to avoid federal taxes – including a scheme that transforms corporate stock into untaxed offshore “derivatives,” and a practice that converts management fees into capital gains, which are taxed at a far lower rate.
While nobody has asked to see the Republican candidate’s birth certificate, as he said at a Michigan rally on Friday, everybody has a renewed interest in examining the tax returns he continues to withhold.
The complex and tricky tax shelters used by Bain Capital continued to emerge from as lawyers and other experts examined the hundreds of pages of previously confidential company documents uncovered by the Gawker website in an exclusive series this week. The authenticity of the documents was confirmed by a Bain spokesperson, who said that the company deplores the public posting of its proprietary materials.
In a sense, the latest revelations about how Bain protected its vast income from taxation are scarcely surprising to anyone familiar with the world of private equity where Romney made his fortune, estimated at $250 million or more. Avoiding taxes is among the most important attractions of that industry for the wealthy clients it aims to attract.
But several experts who have looked over the new Bain documents have warned that dubious legal tactics may have been employed by some of the company’s investment vehicles, including several that are listed on the partial returns that Romney has already released. Those experts, such as Victor Fleischer, a law professor at the University of Colorado, and Daniel Shaviro, who teaches tax law at New York University’s law school, have raised questions about both the equity “swap” and fee conversion maneuvers.
Companies like Bain make money both from investment income, which is taxed at the lower capital gains rate, and from management fees, which are taxed as ordinary income like wages. If the firm can somehow transform its management fees into capital investments, then it can avoid the 35 percent top federal income tax rate, and pay the 15 percent capital gains rate instead. That is what Bain evidently does to keep its partners’ taxes low – around the 13 percent rate that Romney admits to paying. But critics like Fleischer say this is an abusive tactic that cannot be justified by law, even though the IRS has never attempted to stop companies that use it.
“Unlike carried interest, which is unseemly but perfectly legal, Bain’s management fee conversions are not legal,” the Colorado professor wrote on his blog. “If challenged in court, Bain would lose. The Bain partners, in my opinion, misreported their income if they reported these converted fees as capital gain instead of ordinary income.”
Equally troubling is the use of offshore accounts to avoid taxation on stock holdings. This tactic is called a “total return equity swap,” because it involves swapping real equities for derivative paper investments that provide all the same dividends as the stock itself – but aren’t subject to federal taxes. According to Shaviro, this practice was sufficiently blatant to elicit a warning from the IRS two years ago. He wrote recently that those who used it over the past decade “were coming perilously close to committing tax fraud, in cases where the economic equivalence to direct [stock] ownership was too great.”
In the complex territory of tax law, precise boundaries aren’t always clear. What makes the “total return equity swap” potentially perilous for Romney, however, is the use of foreign accounts to avoid taxes, which is what many Americans suspect him of doing. Despite the accounts that he has maintained in Switzerland, the Cayman Islands, Luxembourg, Bermuda and other tax havens, Romney’s campaign has repeatedly denied, with little credibility, that his wealth was invested abroad to evade taxes.
The proof may well lie within the tax returns that he is so determined to conceal. Wisecracks about the president’s alleged foreign birthplace may not distract concerned voters from the overseas accounts where Romney’s money has been hidden.
By: Joe Conason, The National Memo, August 25, 2012
“Passing And Punting On The Trail”: Mr. Thirteen Percent’s “Just Trust Me Campaign”
Mitt Romney, returning to New Hampshire on Monday with his new running mate, lasted only about 30 seconds before stumbling right into the issue that has dogged his candidacy like no other.
“Gosh, I feel like I’m almost a New Hampshire resident,” the winner of the state’s Republican primary told the crowd at Saint Anselm College in Manchester. “It would save me some tax dollars, I think.”
D’oh! Does Mr. Thirteen Percent really want to remind everybody how determined he is to keep his tax returns private?
Maybe so. The Republican standard-bearer seems to take a stubborn pride in his refusal to cough up details. My colleague Greg Sargent argues that Romney seems to be running a “just trust me” campaign that extends beyond 1040s and into the policy realm. It’s an intriguing observation, and so I kept an ear out for specifics as I listened to Romney and Paul Ryan hold their joint town hall meeting at Saint Anselm. Sure enough, they spoke and fielded questions for about an hour but deftly avoided detail.
“I’m going to do five things when I’m in Washington,” Romney announced. This was a promising start.
“Number one, we’re going to take advantage of our energy resources,” he offered. Excellent! Drilling? Pipelines? Nuclear? Romney did not say: Just trust him.
“Number two, I’m going to make sure that our schools are second to none,” Romney said. “We need our kids to have the skills to succeed. That’s number two,” he went on. Thus ended the education-policy segment of the program.
“Number three, I want trade that works for America,” Romney said. The closest he got to specifics here was to say he would “crack down on cheaters like China when they play on an unfair basis.”
“Go, Mitt!” somebody shouted.
Mitt did go — right to No. 4, to “show America that this team can put America on track to a balanced budget and stop the deficit spending.”
“Mitt, Mitt, Mitt, Mitt, Mitt!” the audience chanted.
He moved on to No. 5: reducing regulations. And here he had a specific, sort of: “I want to make sure that we get Obamacare out of the way and replace it with something which will help encourage job growth in this country.”
Replace it with . . . something?
Of course, Romney is hardly the first presidential candidate to avoid specific commitments and promises. His opponent, President Obama, was caught on a hot mike telling Russia’s Dmitry Medvedev to wait until after the election for a new Russia policy.
The difference with Obama, though, is he has already established a track record in office. By declining to put meat on the bones of his policy proposals, Romney wouldn’t have any mandate from the voters if he does defeat Obama. In policy speeches, he’s somewhat more specific than he is at typical campaign stops, but even then there’s nothing resembling a comprehensive plan for budget balancing, job creation or tax reform.
Romney and Ryan, in rolled-up sleeves and open collars, took the stage at Saint Anselm to the orchestral tune “Tryouts,” from the college-football film “Rudy.” This was appropriate, because the two men were about to pass and punt on issue after issue.
Ryan, the policy wonk of the pair, teased the crowd with the prospect of specific proposals (“We’re going to win this debate about Medicare!”) but then floated the idea of letting younger Americans, when they retire, “have a choice of guaranteed coverage options, including traditional Medicare.” That is a specific policy — but it hasn’t consistently been Ryan’s; he got the House last year to approve his plan phasing out traditional Medicare.
Still, that was apparently enough detail for one day. “I won’t go into all the things that we’re proposing to do to get jobs back, because I want to leave something for Mitt to talk about,” Ryan said. “The point is, we’re offering you solutions.”
Just trust them.
In fact, Romney didn’t furnish the promised proposals, and his foreign policy didn’t get much more elaborate than “American strength is critical.”
The audience members were friendly, but they wanted more details. His plan to reduce the debt?
“We want to grow this economy and cut federal spending.”
His tax plan? “I will not raise taxes on the American people.”
His Afghanistan plan? “Bring our men and women home, and do so in a way consistent with our mission.”
His plan to reduce student costs? “Make sure that when you graduate, you can get a job.”
Just trust him.
By: Dana Milbank, Opinion Writer, The Washington Post, August 20, 2012
“Limousine Jerks”: The Rise Of The “Drawbridge Republicans”
As Republicans head toward next week’s convention something extraordinary has come into view now that their ticket is complete.
Mitt Romney came from wealth and went on to build his own quarter-of-a-billion dollar fortune. Paul Ryan, who has never worked a day in the private sector (outside a few months in the family firm) reports a net worth of as much as $7 million, thanks to trusts and inheritances from his and his wife’s family.
Wealthy political candidates are nothing new, of course. But we’ve never had two wealthy candidates on a national ticket whose top priority is to reduce already low taxes on the well-to-do while raising taxes on everyone else — even as they propose to slash programs that serve the poor, or that (like college aid) create chances for the lowly born to rise.
Call them the Drawbridge Republicans. As the moniker implies, these are wealthy Republicans who have no qualms about pulling up the drawbridge behind them. Such sentiments used to be reserved for the political fringe. The most prominent example was Steve Forbes, whose twin obsessions during his vanity presidential runs in 1996 and 2000 — marginal tax rates and inflation — were precisely what you’d expect from an heir in a cocoon.
(In case you were wondering, Ronald Reagan wasn’t a Drawbridge because he entered office when marginal rates, at 70 percent, were truly damaging to the economy. But as GOP business leaders now tell me privately, the Clinton-era top rate of 39.6 percent, let alone today’s 35 percent, are hardly a barrier to work or investment).
Most rich Republicans who champion regressive tax plans find it necessary to at least pretend they’re doing something to help average folks. John McCain, who’s lived large for decades thanks to his wife’s inheritance, famously had trouble keeping track of how many homes he owned — but McCain also tried bravely to create a path to citizenship for illegal immigrants. George W. Bush campaigned as a “compassionate conservative,” and touted education initiatives that made this claim plausible.
Today’s Drawbridge Republicans can’t be bothered. Yes, when their political back is to the wall — as Romney’s increasingly is — they’ll slap together a page of bullet points and dub it “a plan for the middle class.” But this is only under duress. The rest of the time they seem blissfully unaware of how off-key they sound. As the humorist Andy Borowitz tweeted the other day, “As a general matter, it’s a bad idea to talk about austerity if you just had a horse lose in the Olympics.”
Contrast conservative Prime Minister (and heir) David Cameron’s decision to defer his plans to lower the top 50 percent marginal rate in the UK. “When you’re taking the country through difficult times and difficult decisions,” Cameron said, “you’ve got to take the country with you. That means permanently trying to make the argument that what you’re doing is fair and seen to be fair.” As his spokesman added: “We need to ask those with the broadest shoulders to contribute the most.”
Now that’s a conservative ruling class with a conscience! Can anyone imagine Romney and Ryan saying the same?
The interesting question concerns psychology. Drawbridge Republicans are flesh and blood human beings peddling indefensible priorities. How do they manage it and still feel good about themselves? One possibility is that they’re simply missing the genes for empathy and self-awareness. (Steve Forbes always did seem a bit like a bubble boy whose inheritance left him impervious).
But for today’s GOP ticket that explanation feels off. Romney, for all his awkwardness, campaigned and governed in a liberal state, and he enacted a pioneering universal health care law that’s helped many of modest means achieve health security. Ryan is equally mysterious — the boy-next-door who pays lip service to “upward mobility” yet seems to have no notion his plans would likely produce what liberal analyst Robert Greenstein calls “the largest redistribution of income from the bottom to the top in modern U.S. history.”
My hunch is that extreme forms of rationalization and other defense mechanisms help Drawbridge Republicans cope with the cognitive dissonance. The growth of partisan media makes it easy to tune out disquieting dissenting views.
Whatever lies behind it, the rise of the Drawbridge Republicans makes the stakes of this election even higher. If Romney and Ryan actually win on their Drawbridge agenda, the United States will have crossed a scary new Rubicon for a supposedly advanced democracy. For years, whenever I’ve heard people criticize “limousine liberals,” I’ve always thought, well, at least that’s better than being a “limousine jerk.” Now it turns out that’s exactly what a Drawbridge Republican is.
By: Matt Miller, Opinion Writer, The Washington Post, August 21, 2012
“The Failure Of A Theme”: “We Built It” On The Taxpayers Dime
The Republican National Convention’s organizers probably thought they were being clever. They announced this week that on the second night of the gathering — with local, state, and federal officials standing by to help in the event of a hurricane — they’d host a “We Built It” day.
The idea, of course, is to mock President Obama’s belief that public institutions and government investments help create a society in which the private sector thrives. Republicans intend to host their “We Built It” day in an arena largely financed by taxpayers.
Wait, it gets worse.
On the day that the GOP convention will tout Fox-fueled myth “We Built It” as its primary theme, Delaware Lt. Gov. candidate and small business owner Sher Valenzuela is slated to deliver a speech about small business issues. But contrary to the evening’s theme, Valenzuela’s company, First State Manufacturing, has received millions of dollars in federal loans and contracts. Valenzuela has not only attributed her success in part to this outside assistance, but urged other small business owners to follow the same strategy of seeking government funds.
Media Matters found that Valenzuela even gave a presentation earlier this year on her small business success, crediting the use of “millions of dollars in secure government contracts.” She encouraged other entrepreneurs to take advantage of public institutions and government investments to help their businesses get ahead.
Making matters slightly worse, a featured guest at a Paul Ryan event yesterday boasted about getting government funding to help build his business, and in a new op-ed on his private-sector background, Mitt Romney boasted today about the success of many Bain businesses, several of which have benefited from government largesse.
As attacks go, this out-of-context smear has always been problematic. Romney was desperate to prove that American free enterprise thrives without the support of government, but when he pointed to examples, they all thrived thanks to the support of public institutions and tax dollars. This happened over and over and over and over again, ultimately proving that the entire line of attack is self-defeating.
And the problem will apparently continue, as if self-awareness no longer matters at all.
By: Steve Benen, The Maddow Blog, August 24, 2012
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