The Earth Has Tilted
The GOP is very concerned about the “job creators”. These mythical figures are just waiting out there, poised to provide every American with a job, providing members of Congress lower their taxes and reduce regulations designed to protect other Americans. The fact that so many people seem to accept this reasoning is a clear sign the earth has tilted.
Data is often inconvenient. The chart below should make Representative Paul Ryan and other GOP leaders uneasy. Plotted is the ratio of CEO pay to that of the average worker’s pay. From the 1960’s to the 1980’s, the ratio was around 30. By the 1990’s, it was off to the races. This data dovetails very well with Robert Reich’s chart showing how real wages have been flat for 40 years when compared to the increase in worker productive output. Saying it another way, if you do not believe the divide between the wealthy and the middle class is not increasing, here is another proof.
http://www.epi.org/publication/webfeatures_snapshots_20060621/
To provide another perspective, look at this spread sheet display.
It shows that a worker who was making $15.00 per hour would have in the 60s and 70s have been likely working for a CEO who was earning just under $1 million ($936,000). If you check Forbes’ annual list of CEO pay (March 2011), you are more likely to find CEOs of the top 200 companies earning 300 to 1000 times that amount. The top earner actually made more than 3000 times.
The question before the house is not whether these CEOs are worth their pay. The question is what is the consequence of top executives earning so much more than those who actually perform the value adding steps? Robert Reich says the consequence is a loss in Middle Class buying power. In tern he says we should not expect the economy to bounce back anytime soon. Sooner or later with this scenario, everyone loses.
Coddling the “job creators” is not the answer to our country’s economic sluggishness. They should be taxed fairly and be subject to both regulations designed to safe guard all Americans and government policy that encourages growth while tying it better and fairer wages.
Tags: CEO pay, gop, job creators, paul ryan, regulations, taxes
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November 1, 2011 at 1:36 pm
Data gets very inconvenient when it has nothing to do with the point you are trying to make. You’ve got such a hodgepodge of ideas going on here, I don’t know what to make of it. A number of questions vex me.
First, if “job creators” are a myth, then who are you proposing to tax fairly and regulate? I assume you mean CEOs, since you dwell on them so much, but you are forcing me to make an assumption.
I fail to see how taxing more from the top will result in more jobs and higher wages at the bottom? Assuming that we do not mean to redistribute the money through government, the only other purpose I see is to give CEOs a disincentive to take higher salaries. But assuming that the money freed up by such a change would go to workers is on par with assuming that if businesses were taxed less the freed up money would also go to workers.
It seems the argument against the latter model is that the extra money will just get tied up in stock investments, so why shouldn’t the same happen in the former model? At this point, I need an explanation as to why one is more likely than the other.
But I think you are erroneously conflating two separate things when you identify CEOs as job creators. While the CEO of a company certainly may be the ultimate job creator for his/her firm, not all those who create jobs are necessarily CEOs, at least not in the sense that EPI is regarding. When some politician speaks of “job creators” they are speaking of those who create jobs in general. While that might include CEOs, it also includes shop owners and service providers and restaurateurs. Might these get lumped together disingenuously at times? Of course. But until someone is proposing a way to separate one set from the other, is it worth squashing a legion of Davids just to cut down a few Goliaths?
Also, I must try to discourage you from using phrases like “taxed fairly.” There isn’t a single definition of “fair” that is solid enough to base a tax policy on. Besides, taxes aren’t like a footrace where everyone gets the same starting and ending point. What seems fair to one inevitably seems unfair to another. We need to stop worrying about a “fair” tax and start worrying about an “effective” tax, one that allows government to do what it needs to get done without being a drag on the private sector.
November 1, 2011 at 3:53 pm
T, I am so happy to hear from you again. It has been a little slow. As usual, however, your comments miss the point of the post.
1. “job creator myth”. The GOP laments any attempts to increase taxes on those euphemistically called “job creators”. They could have said the rich or the wealthy but with a heaping dose of spin, job creators was selected.
The top 2% and particularly the top 1% are not creating many jobs… see the unemployment numbers. Protecting this group is serving no purpose.
2. “Taxing the top earners.” Setting the tax code such that the top 1% and probably the top 2% pay more will not lead to more jobs, I agree. The purpose is not to act as a disincentive. Rather, it is about how does the country increase economic activity when the current private sector (the job creators) won’t increase hiring. They rightly say there is no demand. The answer is, as a good Keynesian knows, increase government spending (on such things as education, safety, and infrastructure). Taxing the rich can help pay for this.
3. “Fair tax.” I accept your comment that nobody see their tax as fair. Of course I am referring to progressive taxes, and in such a scheme the wealthy pay more absolutely and as a percent of their discretionary income.
Taxing the wealthy, of course, is not the total answer. The vast middle class must pay (and pay more than now). Here is the point of the post. The middle class has lost its buying power over the past 40 years as more and more of their company’s profit goes to the top executives. Consequently today the middle class can not afford to jump start the economy by just spending. They have too little to spend. Sharing company profits differently, like in the 60′s and 70′s would help a lot.
To return to that level is a big question mark on how. I suspect it is more likely to happen with tax incentives for those who pay greater wages and increase pay in line with productivity increases.
November 1, 2011 at 5:58 pm
Well, you won’t be seeing me on a certain other site where we would engage before. So far as I can tell, I am now banned. So I’ll be coming directly here from now on.
Keynesianism makes the very same assumption that other models do: namely that if more money is injected into the market, it will go toward jobs and wages. Somehow this idea is laughable when applied to an opposing model, but perfectly sensible when applied to one’s favorite model.
The trouble with Keynesianism is that there are no good Keynesians. It is not a sound foundation for long-term policies because it was not conceived with the long term in mind. Keynes expressed marked disinterest in long-term issues because, as he said, “in the long run, we are all dead.”
Thus, his theory supposes that government can remedy one glut by creating another. Keynes rejected Say’s Law, which can be summed up as “products are paid for with products.” (To be fair, what he rejected was his own apparent misunderstanding of Say’s Law, “supply creates its own demand,” a quite different statement.)
One cannot rationally suggest the solution to a general glut is to increase the supply of something. Only by not appreciating that money is, itself, a product can one rationally suggest that it too be glutted in the form of deficit spending.
Well, we’ve done plenty of deficit spending and what have we to show for it? Everyone knows, Keynesian and Classicist alike, that debts must eventually be repaid. But Keynesianism provides no mechanism for repayment. It veritably depends on being rejected in such times.
* * *
Turning to the tax code, whether the tax code is progressive or not is really neither here nor there, so long as one recognizes its inherit drawback: that the individuals it targets most have the most means to avoid being targeted. No one in the cross-hairs will stay there. One of two things happens, if you catch my drift.
Like so many things, a direct approach just isn’t working. New ways to legitimately shelter income will always crop up. Besides, every dollar handed to the government middlemen gets sliced and diced a dozen ways before the remaining pennies drop into a teacher’s salary or a retiree’s benefit check. It’s long past time to abandon devising ways to target anyone.
You’re pressing to continue a conversation that should have been over. The right conversation to have is about how to get money where it needs to go with minimal government involvement. What can government do to encourage redistribution rather than enact it. Work smarter, not harder. Abandon the stick and go for the carrot.
For my part, the first remedy is to make government a results-driven affair. I like the idea of some sort of consumption tax for several reasons, but foremost is that it puts the government into the same game that the rest of us already play every day. If the economy slumps, the government gets a pay cut just like Americans do. If it surges, bonuses all around! And if established directly, rather than as a VAT, what politician would dare suggest raising taxes in a downturn? Furthermore, a direct consumption tax is, contrary to most criticism, partially progressive, whereas a VAT tax is hidden and effectively regressive.
But before you jump all over that idea with the usual criticisms, just take it as intended: a demonstration that I have come up with ideas rather than just talking about the right way to come up with ideas. At least until certain government obligations are satisfactorily addressed, any consumption tax would have to be somewhat modified and/or supplemented. And that’s a whole other ball of wax.
November 1, 2011 at 8:53 pm
Lots of words…
Keynesian economics can be the answer to a maiden’s prayer or can also be a waste of money… It depends when it is employed and what government money is spent upon… To increase government spending during good times or too allow government spending to make the population dependent upon this source of business, is a big mistake.
Consumption taxes… I actually think there is a place for them. The issue is that when you sum all the taxes, is the tax burden progressive or regressive. A national sales tax or VAT at some low level might be ok as long as the top 1% are taxed much higher than the rest.
The game is not to create tax revenue and then decide how to spend it. The game should be what government services are needed or necessary, and then what are the taxes to cover that cost.
November 2, 2011 at 11:20 am
Sorry if I was too wordy. I was fighting a headache yesterday, so I was having trouble keeping my thoughts short.
Amen to that last sentiment. The government works backwards regarding how it spends money. I really don’t know how to fix that other than making the government balance its books, which is an idea that Keynes rejected as a basis for his theories. That’s why I say that it depends on being rejected in times like these.
For that reason, it just strikes me as inherently wrong to say we are going to balance our budget by raising taxes on anyone. The government has shown over and over what it does when more money comes in.
I guess the reason I jumped at this article in the first place is because I think discussion of income disparity is a distraction from real issues. As Herbert Stein famously noted, “If something cannot go on forever, it will stop.” Entering into discussion about what the government can do about income disparity just serves as a smokescreen giving politicians cover to go after more tax dollars that they will spend recklessly.
As far as whether a particular tax setup is progressive or regressive, one has to accept that at some point, all systems are regressive. The more money one has, the more one is able to avoid taxes. I think the question if income disparity needs to be reexamined. Is it really a problem?
November 2, 2011 at 4:53 pm
T, one of the reason you have trouble raising taxes to balance the budget is that government expenditures are made of at least two distinctly different types of expenses… if we separate Medicare/Medicaid and social security from the rest of the budget, and take out the payroll tax revenues that are designated for each… guess what the budget is still unbalanced…
With the M/M and SS I would slightly modify their benefits and would increase the payroll tax basis… like maybe all income…
With the rest, I would be much more comfortable first trying to cut before investing. Never the less, in my world the top 2% would pay the pre-Bush tax level, and the top 1% would pay even more.
November 2, 2011 at 5:35 pm
All that about tweaking SS and M/M is just playing in the margins. The bottom line is that the government needs more revenue than can be garnered by any combination of spending cuts and tax hikes. The only remedy is a kick-start to the economy which, according to Keynes, starts with a government outlay that we cannot afford. Clearly, we need to use a different model.
November 3, 2011 at 10:48 am
T, splitting the task into two piles (1) M/M and SS, and (2) all the rest is the first step. SS is a no brainer with raising slowly the onset of SS and increasing those subject to wage tax. With M/M, it is more difficult I agree. Tweaking and more wage roll tax will help but until all of health care costs are brought under control, there is no solution.
With the rest, it is simply a case of what government services including defense do we want. Add up the cost and then set income tax, corporate tax, and all the other taxes at a rate to cover… with special interest to see that the wealthy pay more than today…
A stronger economy certain will help. If not Keynes, who then?
November 3, 2011 at 11:45 am
Again, we’re totally on the same page that M/M is the big drag. Most young people don’t seem to even be expecting a SS check when they get old, the time to wean off of it is now. And even though the discretionary portion of the budget is out-of-whack, by its nature it should be easy enough to wrangle.
As far as getting costs of anything under control (M/M or otherwise), it occurs to me that we have three prime examples of where government involvement makes prices go out-of-control.* 1) Healthcare, 2) Higher Education, and 3) Housing. (funny, they all start with ‘H’)
The prices in these markets has greatly outpaced any measure of wages or inflation and the one thing they have in common–the bottom line–is that they have lots of government-backed money within them.
When the question of what government services we want comes up, that should definitely be considered.
(*I can provide a simple explanation for that, but I’ll save it for if it is needed.)
November 7, 2011 at 1:15 pm
I am curious about this fear of raising taxes to support the nations needs. If you make more you should pay more. Hey, actually today if I get a check for two weeks with over time I pay more than two weeks without. I’m not upset by that, but then again I am not a millionaire.
I believe that people are selfish. I also believe that the government is enabling the selfish behaviors. There is no one tax reform that will fix the debt crisis. Instead their needs to be a nation reform. By that I mean there are many small issues that are only exasperated by the national debt. Taking away things people need like government subsidized health care is not the answer. Those same people are not going to magically be well. Instead they are going to become a different type of burden by seeking emergency healthcare without insurance.
We need social, intellectual and financial reform. We, as a nation, need to re-evaluate our priorities. And just speaking for myself, spending a trillion dollars to defend oil in another country seems frivolous when thinking about children in the streets of our country starving.
November 7, 2011 at 5:28 pm
bcfree, the irony of just cutting services is that in reality it is really about transferring who pays… from the Feds to you and me. The problem is that it is the middle class who must fuel a resurgence of the economy either with discretionary income, savings, or credit care debt. Not going to happen…
Another point is that even with out progressive tax code, there are so many deductions that the top 2% pay much less than they might otherwise…
But at the end of the day, no one wants to pay taxes. It just like death.
November 7, 2011 at 5:45 pm
To add to z’s comment, the greater irony is that, as taxpayers, we already do pay…just indirectly. The Feds act as middlemen, and why do people always want to cut out middlemen?
bcfree, there are two arguments going on in your statement:
1) Taxes need to be raised.
2) Top earners should pay more taxes than lower earners.
Obviously, the first argument is always hotly debated. But no one ever argues against the second. Even a flat tax applies a percentage to all incomes, meaning more dollars come from the rich than the poor. Yes, there are many arguments against a flat tax claiming it is actually regressive, but no one supports a flat tax on that same basis, which is the point.
Politicians love to conflate these arguments into a third argument stating the rich need to pay more taxes than they already do. But by almost every measure, the rich already pay the bulk of Federal Taxes and somewhere between a third and half of all people pay none…many of whom receive government services and refunds.
It doesn’t take a masters in economics to see that the current tax/entitlement structure is fueled by income inequality and is steadily chugging toward collapse. Most so-called tax reforms that are offered up are just means to further entrench that system. This goes back to what z was saying, that the burden needs to be shifted back onto you and me.
But anyone in Washington who dares to express something so sensible gets labeled stupid or crazy.