After the Shutdown, Maybe a Little Equality?

Too Much
THIS WEEK
Officials at Yale last week happily announced their university’s largest donation ever. Charles Johnson, an 80-year-old billionaire financier, has just given Yale $250 million to help foot the bill for two new campus residential colleges.

The enormously wealthy seem to really enjoy bankrolling buildings for their elite alma maters. A few years back at Princeton, for instance, former eBay and current Hewlett-Packard CEO Meg Whitman funded a new student dorm that came complete with “triple-glazed mahogany casement windows.”

Sense something a bit out of whack here? Rich alumni build plush dorms with mahogany windows — and get tax deductions for the mahogany — while millions of American families are drowning in student loan debt?

None of this would surprise Joanne Barkan, an ace analyst of mega philanthropy. In this week’s Too Much, we have the latest from Barkan on the messes this plutocratic generosity creates — and a great deal more.

GREED AT A GLANCE
Billionaire Michael Bloomberg’s 12-year reign as New York’s mayor is drawing down. But the mayor isn’t coasting home. He’s maxing out his bully pulpit — to make the case that New York needs more rich people. Getting more super wealthy would be a “godsend,” the mayor told one recent interviewer. Opined the mayor to another: “Wouldn’t it be great if we could get all the Russian billionaires to move here?” Actually, no, says economist Dean Baker. Yes, more rich people would expand the city’s tax base. But their oversized demand for housing, restaurants, gyms, art galleries, and the like would drive up real estate prices. Average New Yorkers would pay more for rent and more for “everything else they buy” as store owners pass on the cost of their own higher rents . . .

Tyler CowenTyler Cowen, America’s hottest conservative economist, sees the nation’s future in his latest book — and a stunningly unequal future it turns out to be. At one end, an America of spectacular, technologically driven affluence. At the other, cheap housing and broken-down public services. Think penthouses surrounded by shantytowns. Cowen, notes reviewer William Galston, “seems untroubled” by this vision of a nation where 10 percent or so of Americans “enjoy fantastically wealthy and interesting lives while the rest slog along without hope of a better life, tranquilized by free Internet and canned beans.” Cowen treats this complete hollowing out of America’s middle class as inevitable, an assumption, says Galston, that amounts to a challenge for America’s progressives: “What are you going to do about it?”

The just-ended 2013 Monaco Yacht Show, the biggest annual global boat event for billionaires, may go down in history. For the first time ever, the delights on display included private submarines. The world’s super rich, luxury sub-makers all agree, have grown bored with the standard high-seas life. “Drinking white wine and riding jet skis” don’t turn these rich on any more, says Bert Houtman, the founder of the Netherlands-based U-Boat Worx. The rich are “looking for another thrill.” How thrilling have the new private subs become? Riding one of these submersibles, says sub designer Graham Hawkes, can be “like flying underwater.” Only a few dozen private subs — at prices ranging from $1.5 to $4.2 million — are currently doing this flying. But sub-makers are confidently predicting years of double-digit annual growth for their new luxury industry.

Quote of the Week

“We do not live in a ‘winner-take-all’ nation. We increasingly live in a ‘cheater-take-all’ system.”
William Black,
The ‘Hyper-Meritocracy,’ New Economic Perspectives, October 4, 2013

PETULANT PLUTOCRAT OF THE WEEK
Elon MuskThey’re calling billionaire Elon Musk “the next Steve Jobs” after the smashing debut of his Tesla electric car company’s latest model. Makes sense. Musk, like Jobs, downplays the taxpayer support that undergirds his success. Tesla “would still be around,” he’s claiming, without his firm’s $465 million U.S. Energy Department loan. But taxpayer support, analysts note, has been essential for Tesla. They point to massive public subsidies for battery technology and electric car buyer tax credits. Yet Musk now wants to end government aid for new technologies. That reflects, says car analyst Jim Motavalli, a tendency among entrepreneurial winners “to want to pull the ladder up after them.” Adds environmental author Michael Shellenberger: We’d “all be better off if these entrepreneurs were a bit more grateful, a bit more humble.”

 

IMAGES OF INEQUALITY
Malone mansion

Cable TV magnate John Malone, Land Report noted last week, now owns more of the land mass that makes up the United States than any other American, 2.2 million acres in all. Malone has been pumping up his overseas portfolio, too. Earlier this year he picked up this 427-acre Irish estate, a steal at $9.5 million.

Web Gem

Cry Wolf Project/ Throughout U.S. history, the privileged have always claimed that egalitarian economic and social reform would wreak havoc with the American way. Researchers and scholars have joined here to show just how conservative and corporate groups have been “crying wolf” — for generations — on issues from income taxes to living wages.

PROGRESS AND PROMISE
Gayle McLaughlinFew cities have taken a harder homeowner hit over recent years than Richmond, California, where home values have sunk by over half. Most city homeowners owe more on their mortgages than their homes can sell for. Various federal mortgage-relief efforts haven’t had much impact, mainly because they let bankers call the shots. But Richmond city leaders have launched, over stiff bank opposition, their own initiative, a plan that will use eminent domain to seize mortgages whenever lenders refuse to cooperatively reset monthly mortgage payments. Richmond’s plan has so far survived court challenges, and Richmond mayor Gayle McLaughlin, the nation’s first Green Party mayor, last week noted she’s busy working with other cities to build a real national movement to pressure America’s top banks.

Take Action
on Inequality

Let the federal Securities and Exchange Commission know you support strong enforcement of the Dodd-Frank Act provision that mandates corporate disclosure of CEO-worker pay ratios. Submit your comments here.

inequality by the numbers
Income stats

Stat of the Week

The American dream? For some, that dream revolves around a home on a quarter-acre lot. America’s top 100 landowners, new research shows, now collectively hold over 33 million acres between them, about 2 percent of the nation’s land — and enough room for 132 million quarter-acre lots!

IN FOCUS

After the Shutdown, Maybe a Little Equality?

Executives at private companies with federal contracts are getting rich off our tax dollars — at the expense of their low-wage workers. But we can turn the tables. Here’s how.

The debate over America’s federal budget is getting stale — and getting us nowhere, as the latest government shutdown depressingly reminds us. Political obsession over budget deficits has now morphed into legislative extortion.

Today, more than ever, we need to refocus the federal “tax and spend” debate — from deficits to inequality. Two researchers from the New York think tank Demos are trying. They’ve released a new report that zones in on the no-man’s-land between the public and private sector that has left hundreds of thousands of Americans poor and a lucky few fabulously rich.

This no-man’s-land has expanded enormously over recent years as the federal government has contracted out and privatized one public service after another.

Those janitors who clean the Smithsonian museums? Those cooks at military bases? Those programmers writing software for Medicare? More and more of the workers who keep our government running work for private contractors.

And many of these workers, note Demos analysts Robert Hiltonsmith and Amy Traub, don’t make much at all in the way of compensation. About 560,000 Americans employed by contractors have jobs that pay $12 an hour or less.

Meanwhile, the executives who run these companies are doing quite well — thanks to our tax dollars. The federal government reimburses private firms for up to $763,039 of the executive compensation they lay out, a figure that will shortly rise to $950,000 under the formula current federal law sets out.

Let’s place this $763,039 in context. The President of the United States only makes $400,000. Our Vice President pulls in $230,700.

In other words, our tax dollars are compensating private contractor executives at a level three times higher than Joe Biden’s paycheck.

These dollars add up. In their new Demos study, Underwriting Executive Excess, researchers Hiltonsmith and Traub calculate that the federal government is now spending $20.8 to $23.9 billion annually, overall, for the compensation of top private contractor executives.

Out of this sizeable stash of tax dollars, the pair estimates, $6.97 to $7.65 billion is going to private contractor executive pay that exceeds $230,700 a year.

In short, Hiltonsmith and Traub note, “we are bankrolling the paychecks of already-wealthy executives instead of supporting more livable wages for American workers struggling to get by.”

We could solve this problem, the two quickly add, quite simply — just by lowering the top contractor pay reimbursement level from the current $763,039 to $230,700, the current vice-presidential payout.

Taking this course would save enough tax dollars, the new Demos research indicates, to give a $6 an hour raise to the 560,000 federal contractor workers who currently make $12 or less an hour. Legislation calling for this simple step, the Commonsense Contractor Compensation Act of 2013, is already pending.

But we could go even further to leverage the power of the public purse toward a more equal America. The CEOs of the biggest federal contractors, executives like Lockheed Martin CEO Robert Stevens, don’t take the bulk of their personal pay directly from the federal government. Their subsidy comes indirectly.

The companies these executives run owe their robust profitability to federal contracts. This profitability keeps corporate share prices high. Stock options and other stock awards translate these high share prices into whopping executive windfalls. Lockheed’s Stevens took home $23.8 million last year.

The alternative? The federal government could deny contracts — and corporate tax breaks as well  — to companies that pay their top executives over 25 or 50 times the pay of their most typical workers, the corporate pay range from the 1950s through the early 1980s. Our contemporary gap: 354 times.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act already requires America’s corporations to annually disclose the ratio between their CEO and median worker pay. The Securities and Exchange Commission is now taking public comment on a new rule designed to implement this mandate, and, if things go smoothly, this rule will kick into effect sometime next year.

Congress, with annual ratio disclosure in place, could then easily link federal contracts to corporate pay equity.

The federal government, we ought to keep in mind, already denies our tax dollars to companies with employment practices that discriminate on the basis of race or gender. We’ve decided, as a society, not to subsidize racial or gender inequality. Why should we subsidize economic inequality?

New Wisdom
on Wealth

Bruce Bartlett, Happy Centennial, Federal Income Tax, New York Times, October 1, 2013. The income tax originally impacted only America’s most affluent 1 percent.

John Buenker and Sam Pizzigati, IRS at 100: How income taxation built the middle class, Reuters, October 2, 2013. A half-century ago, tax rates on high incomes as high as 91 percent sent the message that Americans frowned on super-sized take-homes.

Pam Martens, The Great Regression: Robert Reich’s New Film Mainstreams the Dangers of Income Inequality, Wall Street on Parade, October 3, 2013. If you see one film this year, make it this one.

Julian Vasquez Heilig, The Broad Foundation and Broadies, Cloaking Inequity, October 4, 2013. How billionaire Eli Broad’s fortune is distorting the education reform debate.

The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class cover

Learn more about this new history of the triumph over America’s first plutocracy.

NEW AND notable

This Gift Horse We Should Look Into

PlutocratJoanne Barkan, Plutocrats at Work:
How Big Philanthropy Undermines Democracy
, Dissent, Fall 2013.

America has always had charities. But about a century ago, Joanne Barkan informs us in this fascinating profile of contemporary philanthropy, “strange new creatures” began to dot the American landscape: giant foundations with mammoth endowments, enterprises structured “to last forever.”

Thoughtful Americans back then did not approve. In 1912, former President Theodore Roosevelt opposed John D. Rockefeller’s request for a foundation charter. Critics like Roosevelt considered the emerging new giant foundations “centers of plutocratic power that threatened democratic governance.”

These critics, Barkan shows, turned out to be right.

The United States now hosts 67 private grant-making foundations with assets over $1 billion. In an America of shrinking local, state, and federal government resources, these mega enterprises have come to wield wildly disproportionate power over the nation’s public policy agenda.

In education, Barkan’s special area of expertise, our super foundations have been funding “a massive crusade” to have public schools run more like private businesses. Toward this end, they’ve even financed “bogus grassroots activity” to make their agenda seem what average parents want.

Barkan tells this education story here — and positions her tale in a much broader context as well. We’re not just letting grand private fortunes usurp the democratic process. We’re subsidizing, with our tax dollars, this usurpation.

Barkan lays out a set of reforms for overhauling big philanthropy. For starters, we might try eliminating the tax exemption for foundations with assets over a certain size — and limit that exemption instead to small foundations, outfits that don’t have the resources to dominate the national policy debate.

Smaller foundations tend to collaborate, not dictate. They have the wherewithal to fund pilot projects, and that’s really, Barkan suggests, all the wherewithal they need. If a pilot project proves promising, she adds, democratically elected officials can then decide “whether or not to scale it up.”

In a free society, Barkan acknowledges, the super rich “can spend their money in any legal way they want.” We can’t tell them how to spend their money. But we can deny them our tax dollars.

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