Archive for the ‘state of the union’ category

Income Inequality – Really?

January 20, 2015

President Obama tonight with present his 7th State of the Union in a speech before Congress. Feeling giddy? If so, I suggest you imagine our Capital Building full of eager and respectful lawmakers sitting on the edge of their chairs awaiting word on how the US can address the income inequality besieging the middle class. Hmmm.

Reports have recently revealed that the average income ($54,000 and change) has dropped by about $3000 to $51,000 and change during President Obama’s watch. What has the President been doing? Has he not been looking out for the middle class?

Surprisingly (hmmm)), the Fortune 500 companies saw their CEOs compensation gain of over $13 million from an average of $2.2 million in 2008 to $15.5 in 2014, while the middle class was losing 6% on average. What can be done about that?

Business lobbies have been pleading for a reform of the US corporate tax (35%). Reform in their minds means a lowering corporate tax to maybe the 20% range but with no change to exceptions, credits and other loopholes which enable companies like GE to legally pay no corporate tax at all. Hmmm.

The President will propose tonight changes to an obscure provision in the Estate Tax which allows the top 1/2 of 1% to pass assets to their beneficiaries tax free. The White House proposes to eliminate this loophole and use the funds to provide tax credits to the middle class. Hmmm.

Let’s think about this. The decline in the average income raises questions of fairness (how can the top earners earn more and the average person earn less) and the unintended negative consequence a poorer middle class represents upon the economy.

So tell me again why any asset should be able to be sold without being charged a capital gain? Tax credits are also a bit squirrelly. Why should any American not pay their proportionate share of the tax burden? But at least the President is opening the conversation and leaving plenty of room for a GOP response.

I wonder if the GOP will seize the opportunity to address the injustice of a company not passing on “productivity gains” to all workers. I wonder if the GOP will think about capping the senior executives pay at some historic ratio to their average workers’ pay?

Certainly we don’t want the Government setting wages and salaries but the Government could and should impose a surtax on companies (like CBS or Oracle) whose CEO take home obscene amounts of money simply because he/she can. (Make no mistake, CEOs and other senior executives will always and should always make much more than factory or office workers. It is simply a matter of degree.)

If companies that insist upon paying the senior executives over the top compensation packages, then their shareholders need to understand the company will pay a surtax. Hmmm.

There are a compelling arguments that says the global price of labor has simply reduced the American workers’ wagees and salaries on a competitive basis. Undoubtably there is truth in this assertion. It does not follow, however, that senior executives and especially CEOs should garner all the value productivity gains produce.

Morally and maybe business sense-wise, the growing gap between the wealthy and everyone else is an unstable situation. Whose going to consume the products of business if each year they are earning less than the year before?

In the olden days, most good paying jobs were manual in nature. All that was required was a strong back and a good attitude. Today, globalization demands more skills from workers if workers want “good pay”. In the time it will take to convert the middle class to these higher skill levels (using their heads and less of their backs), there is no excuse for companies to reward senior executives with the spoils of globalization.

Too bad the President won’t address this.  I wonder whether Senator Joni Ernst will in the GOP response?

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