The new robber barons: how taxpayers subsidize CEOs’ multimillion salaries

By Pratap Chatterjee from The Guardian
republished by Paddy Ryan

Lanai, a tiny resort island in Hawaii, has 18 miles of secluded beaches, no traffic lights and a population of just over 3,000. This summer, Larry Ellison, the CEO of Oracle, a California-based software company, bought 98% of the island for a sum reported to exceed $500m.

The Institute for Policy Studies, a Washington DC thinktank, says that a chunk of the money Ellison spent buying Lanai should have paid for elementary school teachers and clean energy jobs, instead of fulfilling the billionaire CEO’s vacation fantasies. That’s one conclusion of theirnew report, “The CEO Hands in Uncle Sam’s Pocket: How Our Tax Dollars Subsidize Exorbitant Executive Pay”, which points out that Oracle took advantage of a 1993 loophole in tax law to designate $76m of Ellison’s income as “performance-related pay”, which allowed him to avoid paying any taxes on the money.

Dozens of US CEOs have cashed in on this major tax incentive at an estimated cost to US taxpayers of $9.7bn last year. Statistics provided by National Priorities Project suggest that the same amount of money could have paid for 142,625 elementary school teachers, or healthcare for 4.96 million low-income children.

“At a time of austerity, it’s beyond absurd that billions of our tax dollars are pouring into executive pockets,” says Sarah Anderson, a report co-author.

In 1980, the average US CEO was paid 42 times as much as the average worker when tax rates for the richest stood at 70%. Today, that ratio has widened to 380 times – exacerbated in part, no doubt, by the fact that CEOs are able to dramatically reduce their tax burdens by a reduction in top tax rates, as well as several new loopholes introduced in recent years.

In fact, some companies paid their CEOs more money than they paid in taxes. Take Aubrey McClendon, CEO of Oklahoma-based Chesapeake Energy, who was paid $17.9m in 2011, while his company gave Uncle Sam just $13m on sales of $11.64bn.

Chesapeake achieved this startlingly low tax liability by claiming a “drilling-costs tax benefit” that allows generous income tax deferrals in case an oil well comes up dry. Yet, this decades-old tax incentive to encourage oil companies to prospect far and wide is now largely irrelevant since sophisticated technologies allow them to accurately gauge where to drill.

“McClendon’s primary goal is not to solve America’s energy problems, but to build a pipeline directly from your wallet into his,” writes Jeff Goodell of Rolling Stone this past March, describing the CEO as “a rightwing billionaire who profits more from flipping land than drilling for gas”.

McClendon is not alone. The Institute for Policy Studies found that 26 of the 100 highest-paid US CEOs took home more in pay than their companies paid in federal income taxes. On average, each of these company bosses was paid $20.4m last year.

Another scam that CEOs pull on the taxpayer is called “deferred compensation”. The way that works is simple – most taxpayers are expected to pay 35% of their income in taxes the year they earn it. But a CEO does not have to pay the tax until they claim the cash which can be earning interest in the mean time. Depending on how the money is invested, CEOs can engineer a substantial profit.

This allowed Michael Duke, CEO of Walmart, to sock away $17,028,615 tax free in 2011, roughly 774 times more than one of his employees would have been allowed to do under normal tax rules.

Yet the money these CEOs makes shrinks into insignificance compared to the money that hedge fund managers make. Take Raymond Dalio, who was paid an astronomical $3bn in 2011. This titan of Wall Street had to pay just 15% in taxes because the money was considered “capital gains”, as opposed to the average citizen who would be required to pay 25% (in income tax). Cost to the taxpayer in 2011: $450m.

“Some tax breaks do have a redeeming social value. Most don’t,” write report authors Sarah Anderson, Chuck Collins, Scott Klinger and Sam Pizzigati.

“In fact, most create incentives for things companies would have done anyway or reward corporate behaviors that deserve no encouragement from taxpayers, especially at a time of fiscal crisis.”

The report proves the case made by thousands of protesters who took to the streets last September as part of the Occupy movement, and that of investors who stormed annual meetings this year as part of the “Shareholder Spring” to reclaim enterprises from many overpaid CEOs.

The authors of the new report have an even better solution: make these executives pay their fair share of taxes, just like the rest of us.

© Guardian News and Media 2012

Whippings for Workers and Locusts for Savers

By masaccio from firedoglake
republished by Paddy Ryan

The strike at Caterpillar‘s Joliet plant has ended in a crushing defeat for the union. Members agreed to accept a pay freeze for six years for most workers, and one 3% raise for those hired after May, 2005, a freeze on pension benefits, and a sharp increase in the worker share of health care premiums. Caterpillar is immensely profitable. It just gave its CEO a 60% increase in compensation, to $16.9 million. Based on the figures in the New York Times, I estimate the payroll at the Joliet plant at about $39 million.

At one level, this is just more evidence of the death of the liberal bargain. The old deal was that as productivity increased, some of the increased profits went to workers, and some to capital. The revised deal, effective about 1980, is that the workers only share in the gains from productivity if we are at full employment, and then much less than before. As Caterpillar explains, its employees at the Joliet plant were making more than market wages, and they needed to be whipped into line. In pursuit of its own self-interest, Caterpillar might increase wages at this plant if local labor markets tighten. In other words, no matter about productivity, work harder and Caterpillar gets all the profits. Not much incentive to work hard, is there? Perhaps CEOs are not subject to the same incentives as those stupid people who operate the machines to build hydraulic parts.            

And in the comedy portion of this post, think about the CEO, Douglas R. Oberhelman, running a milling machine. On the other hand, I’m sure he’s pretty good at setting up asset-backed securities to off-load Caterpillar’s accounts receivable. Ayn Rand would be so proud.

At another level, this is the inevitable outcome of the failure of the government, led by conservatives of both parties, to deal with massive unemployment. Caterpillar union members aren’t cowards. They went months on next to nothing, but in the end, facing an intransigent management, and recognizing that a single plant can’t halt a world-wide enterprise, that other people are desperate for jobs, and with minimal support from their parent union, they surrendered. When management says “paid above local market levels”, they mean they can find acceptable replacements who would love to work for minimum wage. As long as unemployment continues, workers have no leverage against greed.


That liberal bargain about shared productivity gains isn’t the only part of the deal that has been destroyed. The old deal was that if you work hard, live within your means and save for retirement, you can accumulate enough money to provide for a good retirement and still leave something to help your kids. Lots of Americans lived by those principles, didn’t refinance their homes, didn’t borrow heavily, saved up to educate their kids and for retirement, and hoped to retire on Social Security, perhaps a small pension and the income from a small pile of financial assets.

That deal is over. David Cay Johnston explains in a blog post (currently having some kind of technical problem, here’s a link to excerpts):

The crisis next time: collapsing investment incomes for older Americans as artificially reduced interest rates force them to use up their savings and drive more pension plans into failure.

The Fed has been keeping interest rates low for more than ten years. The stated rationale for this policy is to encourage people to borrow and invest, making capital available to create jobs. Ha. Or as Johnston says:

Holding down interest rates to prop up banks and the economy and help the already rich buy assets on the cheap, amounts to an official policy to take from the ants who saved for their old age and give to the Wall Street grasshoppers. Given the economic devastation this causes, it is more accurate to say to give to the financial locusts.

Millions of everyday people, some in unions, some not, lived in accordance with these unstated bargains. They worked hard, they saved, they lived within their means, and now their savings are food for locusts. Mitt Romney and Paul Ryan are the spokesmen for the Oligarchy, telling all those people that the big problem is that government gives money to the poor bastards who bought the official line of borrow and consume as if tomorrow didn’t matter. That’s all worked out well for the pigs on Wall Street and their sleazy clients, because when push came to shove, the entire government apparatus fell all over itself to come up with creative ways to give them money. It really sucks for everyone else.

Staffing agencies are above the law

By Paddy Ryan

Temporary employment agencies (also known as staffing agencies) are a relatively new phenomenon. They have exploded onto the scene as a great way of avoiding laws, dodging government regulation and cutting labor costs. States with major ocean ports - like New Jersey and California - have a higher amount of temporary employment agencies than other states, but overall it has become a nationwide issue.

These agencies claim that they are fair and follow all the rules and regulations including the Fair Labor Standard Act (FISA). Agencies say that they are filling a necessary void in the market, doing a good deed and finding work for people who need it most.

They argue that temporary agencies fill personnel gaps that are created with seasonal upsurges, sick or maternity leave, vacations and during times of rapid expansion.

But according to numerous studies, staffing agencies serve a much more insidious purpose:agencies are nothing more than a tool for employers to cut labor costs by dodging taxes and government regulation.

OnTarget Staffing, a temporary employment agency based in New Jersey and Florida, claims that employers using staffing agencies to provide labor to companies save on;

•    Withholding taxes
•    Social security
•    Unemployment/Workers Compensation
•    Payroll Costs
•    Recruiting Costs
•    Turnover Costs
•    Advertising Costs

An employer that hires agency labor is not legally responsible for these hired workers - the staffing agency is the one held responsible. And staffing agencies frequently violate current labor law because the laws aren't strong enough.

Current labor laws don't protect undocumented workers, and they don't contain strong whistle blower protections, so too many workers are afraid to stand up for themselves in fear of retaliation. This allows staffing agencies to retain total control, and continue getting away with stealing from workers and refusing to honor safety standards.

More conservative estimates say that on average, staffing agencies steal wages from at least 50 percent of employees, while almost 6 in 10 agency employees have stated that they work in 'unsafe' conditions.

Most of the temporary workers provided by staffing agencies wind up working somewhere along the supply line of common 'big-box' retailers like Wal-mart, Target, and Home Depot.

Until we strengthen labor laws that prevent employers from hiring temporary employees as a way to evade their legal obligations, and provide workers with wage and benefit protections, this problem will continue to threaten the entire American workforce.

Hardworking families need a living wage

By Paddy Ryan

In today’s tough economic environment, hardworking American families relying on minimum wage salaries desperately need a minimum wage increase. The current federally mandated minimum wage is $7.25 an hour, but its real value in purchasing power is even lower after taking inflation into account. The real value of the minimum wage peaked in 1968. Ever since then, it has failed to keep up with the pace of inflation. If the minimum wage had kept up with the pace of inflation, it would currently exceed $10.50 an hour – a long way from $7.25.

According to the Economic Policy Institute, the real value of today's minimum wage is the lowest it has been in over 50 years.

Over the past 50 years, “as the basic income required to support a family has grown with inflation, the minimum wage has not kept pace with the rising costs of goods.”

It has become a nationwide epidemic. In the richest country in the world, there are people, families, children who go hungry at night, who can't afford school supplies, single-mothers who have to work three jobs just to afford a sub-standard apartment. An hourly wage of $7.25 amounts to an annual salary of $15,080; people who rely on the minimum wage cannot live on $7.25 an hour in an economy where apples cost $3 per pound, or where a gallon of gas costs $3.50.

Take minimum wage worker Margaret Lewis for example:

Margaret Lewis knows firsthand what it's like to live on the edge. She works as a transporter for passengers with disabilities at O'Hare International Airport. She wakes up at 1 a.m. to go to work, and spends the early morning hours pushing wheelchairs to gates and helping travelers on and off planes.With tips, and Illinois' minimum wage -- which is $1 above the federal minimum wage of $7.25 an hour -- Margaret makes about $18,000 a year, or $10,000 below the federal poverty limit for a household of five.
Margaret lives with her four school-age children in a three-bedroom apartment on Chicago's South Side. Two recent shootings on her block make her fear for her children's safety, but she cannot afford to move. Margaret is unable to pay the $850 per month rent, so she and her family perform janitorial tasks for the landlord to make ends meet. The children's clothing is all secondhand, Margaret uses food stamps to make sure everyone is fed and when it is time to buy shoes for school, she has to save an entire paycheck.

And Margaret Lewis is far from an anomaly. According to estimates, there are about 3.8 million more people like Margaret Lewis, struggling to survive on the current minimum wage.

A federal raise in the minimum wage - like the bill proposed in Congress by Representative Jesse L. Jackson Jr. - would give some relief to these struggling 3.8 million minimum wage workers who make up a sizable part of the working class.

Jackson's bill is called The Catching Up To 1968 Act Of 2012, and it immediately raises the minimum wage to $10.00 per hour and includes automatic minimum wage indexing "in proportion to the increase in the Consumer Price Index (CPI)."

Senator Tom Harkin of Iowa has also sponsored a bill introduced in the U.S. Senate, which would increase the minimum wage to $9.80 an hour over two years. The bill is called the Fair Minimum Wage Act of 2012. It was introduced and referred to Committee on July 26 of 2012 and it now has 16 co-sponsors in the U.S. Senate.

These bills would provide some much needed support to minimum wage workers in a time of desperation.

But it's not just minimum wage workers that would benefit from a minimum wage increase.

Raising the minimum wage helps everyone.

Of course raising the minimum wage helps those Americans who are struggling to survive on the current minimum wage. But it also helps higher wage earners by fueling economic growth as well.

Consumer spending fuels economic growth and "a 2011 paper by economists at the Federal Reserve Bank of Chicago found that a $1 minimum-wage increase lifts household income by about $250 and increases spending by about $700 a quarter in the following year."

If 3.8 million minimum wage workers all had their wages increased, we would see an increase in consumer spending. This increase in consumer spending would benefit small and medium businesses - still recovering from the 'great recession' - who would see an increase in customers. This would stimulate the economy and it would, in turn, create more jobs. It's simple economics.

In an interview on his proposed minimum wage bill, Representative Jesse L. Jackson Jr. said,

the economy would be bolstered by increasing “the purchasing power of millions of low-income and low-wage workers, and one proven and effective way of doing that is to raise the federal minimum wage.”

Representative Jackson is right, and it's not just fellow Democratic politicians like Senator Harkin who agree with him either.

A group of prominent economists including Joseph Stiglitz, Jeffrey Sachs, Laura Tyson, and Robert Reich sent a letter Monday July 23 to congressional leaders. The letter urges leaders on Capitol Hill to raise the minimum wage from $7.25 per hour to $9.80 by 2014.

"At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum wage increase would provide a much-needed boost to the earnings of low-wage workers," the group wrote.

Democrats in Congress need to include a minimum wage increase into a list of their top priorities. It's in the best interest of working-class Americans and it is economically responsible because it encourages economic growth. In my opinion, it could be a populist message that may pay off for Democrats in the fall elections.

The only way that a raise in the minimum wage can happen is with pressure from a concerned citizenry. We can make that change happen. So, I ask you to share this diary in the hope that even one Congressional Democratic politician will read this and join us in moving forward with raising the minimum wage. I, again, ask you to share this diary in solidarity with labor and in support of the civil rights of all workers.

Wage theft: abusive employers fuel nationwide epidemic

By Paddy Ryan

Wage theft - the non-payment or the under-payment of an agreed upon wage - has been a growing problem across the country, seen in every industry from retail and service to manufacturing and construction. Wage theft primarily affects low-wage unskilled workers, forcing most families who rely on minimum wage below the federal poverty line. Unfortunately the issue has been widely under-publicized and, therefore, vastly unknown to a majority of the American public.

But many recent studies have been conducted over the past few years that are now shining a beacon of light on how bad the growing epidemic of wage theft has become. Universities, labor organizations, community groups, non-profits, and others have been collecting data on the subject for long enough now that a lot of valuable new information has been discovered.

The most common forms of wage theft: the refusal to pay proper overtime, the refusal to honor the minimum wage, and illegal paycheck deductions like transportation costs. Illegal transportation deductions are most frequently seen in the temporary employment industry, where low-wage 'temp agency' workers are driven to and from the job site.

"Although this practice is of dubious legality, many agency workers have little practical alternative but to accept these [transportation] charges if they hope to have a job."

Studies have been conducted across the United States regarding the wage theft epidemic. An especially disheartening independent study from 2009 - Broken Laws, Unprotected Workers - found that a whopping 76 percent of workers claimed they had been underpaid or not paid at all by their employer. The study – conducted by the National Employment Law Project – surveyed over 4,000 low-wage workers throughout the cities of New York, Chicago, and Los Angeles.

In 2010, the Seton Hall Law School Center for Social Justice released a report entitled All Work and No Pay, which documented rampant wage theft throughout the low-wage community in New Jersey. According to their survey results, "54% of the workers statewide were paid less money than they were promised by at least one employer."

One of the most recent independent studies was conducted by New Labor - a community outreach & labor organization - along with Jason Rowe of Harvard University. The study surveyed 291 workers in the New Jersey logistics industry and found that over one-third (36.1%) of those surveyed were not paid in full for the wages that they had been promised. That's almost 4 out of 10 low-wage workers that have been underpaid, or even unpaid, by their employer!

Wage theft doesn't only affect low-wage workers either; it affects everyones paycheck by driving down salaries across the economic spectrum.

"There is a cost to our local economies, with fewer dollars circulating to local businesses, stunting economic recovery. And there is a cost to growth and opportunity as generations of workers are trapped in sub-minimum wage jobs."

Fighting Back

In 2011, the National Employment Law Project released a guide to combating wage theft entitled Winning Wage Justice, An Advocate's Guide to State and City Policies to Fight Wage Theft.

NELP's guide contains seven basic principles to help stop wage theft:

1. Raise the Cost to Employers for Violating the Law.
2. Make Government Agencies Effective Enforcers of the Law.
3. Better Protect Workers From Retaliation.
4. End the Exclusions in Minimum Wage and Overtime Standards.
5. Stop Independent Contractor Misclassification and Hold Subcontractors Accountable.
6. Ensure Workers Are Paid for All Hours Worked.
7. Guarantee that Workers Can Collect from Their Employers.

NELP was able to publish its suggestions with the help of new information, released by organizations like New Labor and Seton Hall, who have provided a better understanding of the problem, and how to successfully combat it.

However, only a limited number of states are actually listening to these suggestions and trying to do something about the problem.

In both New York and California, Wage Theft Prevention Acts were passed in 2011. The New York Wage Theft Prevention Act, expands the civil and criminal remedies that are available when employers fail to comply with the provisions. The California Wage Theft Prevention Act of 2011 differs significantly from the New York law because it requires that notices be given only to non-exempt (hourly) employees. Massachusetts also has wage theft legislation in place, along with Connecticut, Illinois, and (surprisingly) North Carolina.

But all of these state laws need to be strengthened.

According to a new study from the Progressive States Network,

As it turns out, one of the most important findings of this report is that state wage theft laws, in general, are almost universally inadequate. In our scoring system, the two highest-rating states, New York (with an overall grade of C+) and Massachusetts (with a grade of C), only receive 77% and 74% of the total possible points respectively, and it is a steep fall from there: Connecticut, Illinois, North Carolina, and California follow with grades of D, and the other 44 states and Washington, DC receive F’s. Further underscoring the deep drop-off, the tenth-ranked state receives only 52% of the total points, and the bottom eleven states all receive 25% or less. Two states — Alabama and Mississippi — scored zero points.

However, there is some good news. The legislation passed in 2011 has let workers reclaim millions of dollars in stolen wages throughout New York and California.

The National Employment Law Project reports that, "In the past year alone, workers recovered tens of millions of dollars in unpaid wages from their employers in a range of industries. For example, ... New York car wash workers received $3.5 million in unpaid overtime."

Unfortunately, only six states currently have laws dealing with wage theft, and all of those laws need to be strengthened. The fight against wage theft is just beginning and there is much more to be done. Most workers are not as lucky as those workers who were able to recover millions of dollars in lost wages. Many will continue to suffer from the abuses of wage theft, and still desperately need help. It will take a team effort by the liberal media, an informed and concerned citizenry, community organizations, advocacy groups, Democratic politicians, organized labor and the like, to put an end to wage theft for good.

So in that same spirit, please, if you care about the civil rights of workers and the future of organized labor, share this diary. Thank you.