“America’s Rich Hit The Jackpot”: The Year of the Great Redistribution
One of the worst epithets that can be leveled at a politician these days is to call him a “redistributionist.” Yet 2013 marked one of the biggest redistributions in recent American history. It was a redistribution upward, from average working people to the owners of America.
The stock market ended 2013 at an all-time high — giving stockholders their biggest annual gain in almost two decades. Most Americans didn’t share in those gains, however, because most people haven’t been able to save enough to invest in the stock market. More than two-thirds of Americans live from paycheck to paycheck.
Even if you include the value of IRA’s, most shares of stock are owned by the very wealthy. The richest 1 percent of Americans owns 35 percent of the value of American-owned shares. The richest 10 percent owns over 80 percent. So in the bull market of 2013, America’s rich hit the jackpot.
What does this have to do with redistribution? Some might argue the stock market is just a giant casino. Since it’s owned mostly by the wealthy, a rise in stock prices simply reflects a transfer of wealth from some of the rich (who cashed in their shares too early) to others of the rich (who bought shares early enough and held on to them long enough to reap the big gains).
But this neglects the fact that stock prices track corporate profits. The relationship isn’t exact, and price-earnings ratios move up and down in the short term. Yet over the slightly longer term, share prices do correlate with profits. And 2013 was a banner year for profits.
Where did those profits come from? Here’s where redistribution comes in. American corporations didn’t make most of their money from increased sales (although their foreign sales did increase). They made their big bucks mostly by reducing their costs — especially their biggest single cost: wages.
They push wages down because most workers no longer have any bargaining power when it comes to determining pay. The continuing high rate of unemployment — including a record number of long-term jobless, and a large number who have given up looking for work altogether — has allowed employers to set the terms.
For years, the bargaining power of American workers has also been eroding due to ever-more efficient means of outsourcing abroad, new computer software that can replace almost any routine job, and an ongoing shift of full-time to part-time and contract work. And unions have been decimated. In the 1950s, over a third of private-sector workers were members of labor unions. Now, fewer than 7 percent are unionized.
All this helps explain why corporate profits have been increasing throughout this recovery (they grew over 18 percent in 2013 alone) while wages have been dropping. Corporate earnings now represent the largest share of the gross domestic product — and wages the smallest share of GDP — than at any time since records have been kept.
Hence, the Great Redistribution.
Some might say this doesn’t really amount to a “redistribution” as we normally define that term, because government isn’t redistributing anything. By this view, the declining wages, higher profits, and the surging bull market simply reflect the workings of the free market.
But this overlooks the fact that government sets the rules of the game. Federal and state budgets have been cut, for example — thereby reducing overall demand and keeping unemployment higher than otherwise. Congress has repeatedly rejected tax incentives designed to encourage more hiring. States have adopted “right-to-work” laws that undercut unions. And so on.
If all this weren’t enough, the tax system is rigged in favor of the owners of wealth, and against people whose income comes from wages. Wealth is taxed at a lower rate than labor.
Capital gains, dividends, and debt all get favorable treatment in the tax code – which is why Mitt Romney, Warren Buffet, and other billionaires and multimillionaires continue to pay around 12 percent of their income in taxes each year, while most of the rest of us pay at least twice that rate.
Among the biggest winners are top executives and Wall Street traders whose year-end bonuses are tied to the stock market, and hedge-fund and private-equity managers whose special “carried interest” tax loophole allows their income to be treated as capital gains. The wild bull market of 2013 has given them all fabulous after-tax windfalls.
America has been redistributing upward for some time – after all, “trickle-down” economics turned out to be trickle up — but we outdid ourselves in 2013. At a time of record inequality and decreasing mobility, America conducted a Great Redistribution upward.
By: Robert Reich, The Robert Reich Blog, January 4, 2014
“Worsening Inequality”: 900 Rich People Won’t Pay Into Social Security For The Rest Of The Year
While almost all working Americans will pay into Social Security through their paychecks throughout the year, the 900 wealthiest people in the country won’t. That’s because the highest-earning 0.0001 percent of the U.S. — many of them corporate CEOs — made $117,000 in the first two days of the year, which is the maximum annual income that is subject to Social Security taxes under federal law.
It’s tough to say for certain who will be a part of this group in 2014, since the most recent available data on Americans’ earnings is from 2012. In that year, 894 individuals nationwide made enough to qualify for membership in this club, according to the Los Angeles Times. Economist Teresa Ghilarducci came up with the calculation, and points out that Forbes data on top earners enables analysts and the public to see some of the members of this group. There were nearly 70 corporate CEOs who made enough to qualify in 2012, including the top officers at companies like Philip Morris, NewsCorp, Starbucks, ComCast, and Pfizer.
They get to live the year free from Social Security taxes because the law says that only the first $117,000 earned in a year can be taxed to fund the retirement program that kept more than 15 million people out of poverty in 2011. Democrats have pushed to raise the cap in recent years from $106,800 in 2009 to the current level. Eliminating the cap entirely could make the program solvent for the next 75 years without cutting a dime from anyone’s benefits — and doing so wouldn’t touch the earnings of 94.2 percent of all American workers.
Despite that option, most of the debates around Social Security in recent years have focused on cutting the program rather than increasing its revenue stream. Yet Americans are facing a retirement crisis. Companies’ shifts from pensions to investment plans for retirees has undermined the financial security of working people while enriching the financial services industry and worsening inequality. For non-white workers who are far less likely to have access to even those paltry 401(k) plans, the picture is even bleaker. Overall more than half of all Americans are projected to see a steep drop in their standard of living upon retirement. There is a $6.6 trillion gap between what working Americans have saved and what they ought to have saved to retire well.
In the face of all of this, Sen. Elizabeth Warren (D-MA) and others have proposed increasing Social Security benefits rather than cutting them.
By: Alan Pyke, Think Progress, January 3, 2014
“Wage Boost Could Pay Democrats Dividends”: Republicans Blocking An Increase In The Federal Minimum Wage Do So At Their Own Peril
American liberalism and the Democratic Party — two partially overlapping but by no means identical institutions — have set themselves an unusually clear agenda for 2014: reducing economic inequality and boosting workers’ incomes. These are causes they can fight for on multiple fronts.
Raising the minimum wage should offer the course of least resistance. Although congressional Republicans may persist in blocking an increase in the federal minimum wage, they do so at their own peril. Raising the wage is one of the few issues in U.S. politics that commands across-the-board public support. A CBS News poll in November found that even 57 percent of Republicans support such an increase.
Democrats have concluded that they can turn Republican legislators’ opposition to raising the wage into an electoral issue by using state ballot measures. As states are free to set their own minimum-wage standards — though the rates take effect only when they exceed the federal minimum — Democrats are working to put wage-increase initiatives before voters in states that will have contested House and Senate races in 2014, including Arkansas, Alaska, South Dakota and New Mexico. Such ballot measures have proved an effective way to increase turnout of low-income and minority voters, which can translate into more ballots cast for Democratic candidates.
(Although economic libertarians object to the minimum wage on theoretical grounds, a look at the states that have refused to enact minimum-pay statutes suggests that the real opposition to the minimum wage is rooted in something else. Those states are Alabama, Louisiana, Mississippi, South Carolina and Tennessee — places where persistent racism and the heritage of slavery seem to me a far more likely cause of opposition to the minimum wage than any ideological infatuation with the works of Ayn Rand.)
Most efforts to raise the minimum wage this year are likely to come in blue states and cities. The recent leftward movement of U.S. cities, symbolized by the landslide election of Bill de Blasio as New York’s mayor, is an underappreciated factor in U.S. politics. Twenty years ago, six of the country’s dozen largest cities had Republican mayors. Today, none do, even when those cities — including Houston, Dallas and Phoenix — are nestled in red states. The transformation of major U.S. cities is rooted in demographics, as immigrants and young professionals — both preponderantly liberal constituencies — have clustered in urban areas.
In some states, cities have the power to raise the minimum wage above the state level. That’s how San Francisco was able to set its wage level above California’s and why Seattle is likely this year to raise its minimum wage well above that in the rest of Washington. New York City lacks that power, though it’s probable that de Blasio will try to persuade legislators in Albany that his city — one of the least affordable on the planet — should be given that freedom.
Whether they can raise their minimum wage or not, the nation’s ever-bluer cities have a range of other options to increase incomes. They could require developers that receive municipal tax breaks or other assistance to pay their employees a living wage above the minimum wage. They could enact paid sick leave or paid family leave requirements. They could reduce the local cost of living by requiring developers of luxury housing to build affordable housing as well.
At the federal level, too, Democrats can do more than battle for a higher minimum wage. They could call for an increase to the earned-income tax credit, an idea much loved by some conservatives (Ronald Reagan especially) that provides a federal supplement to the income of workers who fall below the poverty threshold. They could refuse to vote for the Trans-Pacific Partnership — a trade pact being negotiated with Pacific Rim nations, including such notably low-wage countries as Vietnam — or for the “fast-track” authority that would likely guarantee TPP passage unless the Congressional Budget Office can demonstrate that the measure won’t lower the wages of U.S. workers.
The ongoing efforts of fast-food workers and Wal-Mart employees to win higher pay will continue to remind both the public and legislators that millions of adults earn poverty-level wages in today’s United States. With the near-elimination of collective bargaining from the private sector, it will largely be up to Democrats in Congress, state legislatures and city halls to provide the wage boosts that unions once secured. That would help millions of Americans in their pocketbooks — and some Democratic candidates at the polls.
By: Harold Meyerson, Opinion Writer, The Washington Post, January 2, 2014
“The Cruelty Of Unleashed Capitalism”: Rich Catholic Republicans Threaten Pope Francis, Because He Frightens Them
If anyone wonders whether Pope Francis has irritated wealthy conservatives with his courage and idealism, the latest outburst from Kenneth Langone left little doubt. Sounding both aggressive and whiny, the billionaire investor warned that he and his overprivileged friends might withhold their millions from church and charity unless the pontiff stops preaching against the excesses and cruelty of unleashed capitalism.
According to Langone, such criticism from the Holy See could ultimately hurt the sensitive feelings of the rich so badly that they become “incapable of feeling compassion for the poor.” He also said rich donors are already losing their enthusiasm for the restoration of St. Patrick’s Cathedral in Manhattan – a very specific threat that he mentioned directly to Cardinal Timothy Dolan of New York.
Langone is not only a leading fundraiser for church projects but a generous donor to hospitals, universities, and cancer charities (often for programs and buildings named after him, in the style of today’s self-promoting philanthropists). Among the super-rich, he has many friends and associates who may share his excitable temperament.
While his ultimatum seems senseless – would a person of true faith stiff the church and the poor? – it may well be sincere. And Langone spends freely to promote his political and economic views, in the company of the Koch brothers and other Republican plutocrats.
Still, a Pope brave enough to face down the Mafia over his financial reform of the murky Vatican Bank shouldn’t be much fazed by the likes of Langone.
Yet Langone has reason to worry that the Holy Father is in fact asking hard questions about people like him. Indeed, he could serve as a living symbol of the gross and growing economic inequality that disfigures the American system and threatens democracy.
As a leader of the New York Stock Exchange, he was largely responsible for the scandalous overpayment of his friend Richard Grasso, the exchange president who received nearly $190 million in deferred compensation when he stepped down. Although New York’s highest court eventually upheld Grasso’s pay package, it was a perfect example of the unaccountable, self-serving greed of Wall Street’s elite.
Anything but repentant following the revelation and repudiation of the Grasso deal by NYSE executives, Langone told Forbes magazine in 2004: “They got the wrong f—ing guy. I’m nuts, I’m rich, and boy, do I love a fight. I’m going to make them sh-t in their pants. When I get through with these f—ing captains of industry, they’re going to wish they were in a Cuisinart—at high speed.”
He embarked on a furious vendetta against Eliot Spitzer, who had fought to recapture Grasso’s millions as New York attorney general. And when Spitzer was forced to resign as governor in the wake of a prostitution scandal, Langone’s public gloating seemed to indicate that he had played a personal role in exposing his enemy’s indiscretions. He particularly hated Spitzer for attempting to punish and curtail the worst misconduct in the financial industry.
While Langone passionately defended the outlandish grasping of the super-rich like his friend Grasso, however, he has displayed far less indulgence toward workers, especially those struggling to support their families on poverty wages. Until just last year, he was a director of Yum! Brands, the global fast-food conglomerate that includes Taco Bell and Kentucky Fried Chicken among its holdings – and that spends millions annually to hold down the minimum wage and prevent unionization of its ill-paid employees and farmworkers.
What all this adds up to is hundreds of millions of dollars in questionable compensation for financial cronies, but not a dime more for low-income workers. It is exactly the kind of skewed outcome that the Pope means when he speaks about today’s capitalists, “the powerful feeding upon the powerless,” and the need for renewed state regulation to bring their burgeoning tyranny under control. He is talking about Langone, the Kochs, and an entire gang of right-wing financiers.
“How I would love a church that is poor and for the poor,” Francis said not long after his election to the papacy. That could be what he gets – and that might not be so bad, for the poor and for all of us, Catholic or not, who love justice.
By: Joe Conason, Featured Post, The National Memo, January 3, 2014
“At The Top, There Is No Crisis”: Why A Never-Ending Disaster For 90 Percent Of America Doesn’t Worry The GOP
We’re in the middle of the worst economic disaster in modern history and we’re doing almost nothing about it, warns UC Berkeley Economist J. Bradford DeLong.
“So unless something — and it will need to be something major — returns the U.S. to its pre-2008 growth trajectory, future economic historians will not regard the Great Depression as the worst business-cycle disaster of the industrial age,” he writes. “It is we who are living in their worst case.”
The former Clinton administration official wonders why a disaster that “robs the average American family of four of $36,000 per year in useful goods and services, and that threatens to keep Americans poorer than they might have been for decades,” isn’t motivating policymakers to act.
“One would think that America’s leaders would be clambering to formulate policies aimed at returning the economy to its pre-2008 growth path: putting people back to work, cleaning up underwater mortgages, restoring financial markets’ risk-bearing capacity, and boosting investment,” he says.
Instead, Congress is debating about how much our investments should be reduced, how few weeks we should help the unemployed, how much food stamps should be cut.
The reason why we aren’t acting is clear to DeLong: “…at the top, there is no crisis.” While the incomes of the bottom 90 percent have stagnated for decades, the top has flourished. “The incomes of America’s top 10 percent are two-thirds higher than those of their counterparts 20 years ago, while the incomes of the top 1 percent have more than doubled,” he writes.
This inequality isn’t an accident of history or the result of rapid technological advancement, as conservatives like to pretend.
It’s the result of the class war the right has been waging for decades.
“Among developed countries, the U.S. does have the most unequal distribution of disposable income after taxes and transfer payments,” writes economist Laura Tyson, former chair of the President’s Council of Economic Advisers.
Our tax system is more progressive than most European countries that rely on a value-added tax but we spend far less on programs that help families and keep inequality low.
This is the victory of a conservative movement that caters to the richest Americans and seems to have no problem with a recovery that is only benefiting the richest 10 percent. Actually, it seeks to maintain the advantage for the richest by opposing policies like Medicaid expansion and assailing the labor movement.
The Republican Party doesn’t even feel the need to bother with solutions to problems that plague the lower 90 percent, like unemployment, says New York magazine’s Jonathan Chait.
“Republican thought on mass unemployment is a restaurant with tiny portions that taste terrible,” he writes.
The problem for the left is that Republicans can run and win on policies that directly increase income inequality. They can resist Democratic initiatives — even wildly popular ideas like raising the minimum wage, which would reduce poverty and increase consumer spending — and still be on track to hold the House of Representatives, while possibly even wining the Senate.
Why doesn’t the Republican Party act to reverse the greatest economic disaster in at least half a century, a disaster they could prevent?
Rep. Paul Ryan (R-WI) can reveal his secret passion for alleviating poverty over and over again while promoting policies that increase it. And still be taken seriously.
Republicans don’t care about improving the economy for the bottom 90 percent for one simple reason.
They don’t have to.
By: Jason Sattler, The National Memo, January 1, 2014
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