Monday, September 30, 2013

For High School Grads, the Labor Market is Brutal

40 years ago in 1973, as a senior in high school, I dropped out of school to work full-time in a union sheet metal shop in Massachusetts to earn $7.50 an hour --- which is more than the minimum wage is today. In today's dollars, that would be $39.51 an hour. I received on-the-job training, and with time and in-house seniority, I could move up to better paying jobs. That was before all our manufacturing was offshored overseas.

I used to work Monday through Friday, from 7 am to 3:30 pm with 30 minutes off for lunch (with two 10 minute breaks in between). Every Saturday there were 4 hours of over-time available whenever I needed a little extra money in my pocket. I was paid once a week on Fridays after work. I also had healthcare benefits and a pension plan --- not to mention paid sick days and vacation time.

Today, $39.51 an hour (plus benefits) would be considered a dream job...especially for a high school graduate, and even more so for a high school dropout. These days, and in this brutal economy, those opportunities of yesteryear no longer exist for those who are first entering the work force.

Today college graduates are having a hard time finding work as a bartender or cab driver --- and may be working at Walmart earning $9.00 an hour --- which would only be $1.71 in 1973 (when the minimum wage was $1.60).

According to the NCES, a research arm of the U.S. Education Department, the U.S. had approximately 18 million high school graduates from 2008 to 2013. We had a record 3.4 million high school graduates this year alone, and currently there are only 3.7 million job openings for 11.3 million counted unemployed. For a high school graduate, the labor market is brutal.

The Bureau of Labor Statistics reports that only 48.8 percent of the 3.2 million youth who graduated from high school last year were "in the labor force" (either working or looking for work).

The labor force participation rate for recent high school graduates (as of April 22, 2013) who were enrolled in college was 38.2 percent. Recent high school graduates who were enrolled as full-time college students were about half as likely to be in the labor force (33.9 percent) as were their peers enrolled part time (69.2 percent).

This past April the BLS reported that 66.2 percent of 2012 high school graduates were enrolled in colleges or universities in the U.S. --- and that of the most recent high school graduates (if not enrolled in college) 69.6 percent of those would be working or looking for work.

Forbes: "Dear High School graduate: Everything you've been told is false."

Not only are there not a plethora of decent-paying jobs just waiting for you upon graduation, there are structural changes afoot in the U.S. economy making your human labor “incidental.” You see it in the increased operating efficiencies of corporations across the fruited plain, almost all of whom have enjoyed record profits post-2008 without an appreciable increase in their human labor pool. No doubt you’ve been told that more (and better targeted) skill sets are the expensive answer to your job predicament. Unfortunately, only 21% of all jobs in the U.S. require a bachelor’s degree or higher. In addition, more than half of recent college graduates are working in an occupation that does not require a college education.

L.A. Times: "College-educated workers are taking jobs that don't require degrees."

College graduates are tending bar and driving taxis, pushing people without degrees out of those jobs. As more college graduates have flooded the market, employers are able to offer lower wages. The earnings of college grads have fallen about 13% in the last decade. Because college is so expensive, many [high school] graduates are facing a dilemma: If they go to college, they still might not get a job that requires a college degree and they'll be on the hook for big student loan payments. But if they don't go to college, they might be pushed out of entry-level jobs by overqualified college graduates who can't find other work.

New York Times: "More young Americans out of High School are also out of work."

For this generation of young people, the future looks bleak. Only one in six is working full time. Three out of five live with their parents or other relatives. A large majority (73 percent) think they need more education to find a successful career.

For a high school graduate, the labor market is brutal --- so imagine being a high school dropout. Labor statistics shows that dropouts are nearly twice as likely to be unemployed as a high school graduate (or a holder of a GED). High school dropouts would also be competing for the same jobs that those with college degrees are taking that don't require a college degree.

In a 14-page report last February by Rutgers - John J. Heldrich Center for Workforce Development, they note that only 27% of high school graduates were working full time (twice the level of unemployment 10 years ago -- and earning lower wages as well), while 15% worked part-time jobs (but wanted full-time work). Many were only temporary jobs. A whopping 44% of high school students were unemployed --- who either looking or not looking for work. (From the report, see the chart below)

Many times in the past, when jobs were scarce, one could always enlist in a branch of the military --- where one could also seek college benefits through the VA. But it's not so easy now, especially with the wars in the Middle East winding down. The poor job market was a big reason why so many military service personnel had re-enlisted since 2008. Getting into the military these days is getting tougher because just like in the private-sector, the military is also seeking higher-skilled recruits. For a high school graduate, the labor market is brutal.

While although college increases one's chance of landing a job, not everyone can attend college, even though Obama has set a goal to increase the nation's number of college graduates by 50 percent by 2020. But while the increased high school graduation rates show that more students are completing secondary education, fewer than half of those in the class of 2012 were "college ready" as determined by the College Board last fall. (So therefore, considering the current job market, they were also not qualified to drive a cab or tend a bar.)

Question: From the summer of 2008 to the summer of 2013, how many NET new jobs were created to re-employ the 8.7 million who lost jobs during the Great Recession --- all while 18 million young people had been graduating from high school?

Answer: Not nearly enough. And from this point going forward, I predict that there never will be --- because offshoring will continue, and the CEOs and Wall Street will only get greedier. I see very few politicians attempting to interject any checks or balances. I thank the good Lord I didn't just graduate in 2013, otherwise, I don't know how I would have survived as long as I have already.

Sunday, September 29, 2013

Only 1/3 of the Unemployed Receive Jobless Benefits


For some people, a drop in the number of Americans filing new claims for unemployment benefits means an improvement in the job market, though recent irregularities in the reported data cast doubt on the reliability of the government figures.

MFR economist Joshua Shapiro tells the Wall Street Journal that the monthly jobs reports, as well as the other data such as withholding tax receipts (federal and payroll taxes), have pointed to a weaker labor market. "Our belief is that the [government] claims data should not be taken at face value as they are inconsistent with too much other evidence."

The unemployment rate fell to 7.3%, though the decline was largely the result of a shrinking labor force, because according to the Department of Labor, millions of Americans "dropped out of the labor force" after giving up on searching for non-existent jobs.

Of the 11.3 million Americans who are still being counted by the government as unemployed, only about 36% currently receive unemployment insurance benefits --- mostly the short-term unemployed (less than 6 months). Over 4 million of them are long-term unemployed, but only a fraction of these still receive any unemployment benefits.

Because of sequestration cuts, the amount of federal extended benefits (also known as Emergency Unemployment Compensation or EUC) have already been reduced in most states. The jobless in Nevada, with the highest State unemployment rate in the nation, had theirs reduced by a whooping 59-percent.

By some estimates, another 7 million* have already exhausted all their UI benefits (many, as far back as 2010) without ever finding work again. As of 2011, almost 18 million long-term unemployed Americans (at some point in time during the Great Recession) received federal extended unemployment benefits. Now only 1.5 million do --- but the program for federal extended benefits will end in 2 months.

* Editor's note: I have been attempting to find a reputable economist (preferably one that doesn't work for the U.S. Bureau of Labor Statistics) to crunch the data from the Social Security Administration on reported withholding taxes, disability awards, and retirement claims (including those forced into early retirements) --- and comparing them to IRS filings for individual tax returns for the years 2008 to the present. Then looking at high school and college graduates that may have first entered the labor force during that time (and accounting for the population growth and the reported number of people in the work force) --- then looking at the death rate for those 18 to 62 (Suicide rates had spiked in the aftermath of the Great Recession, with older men being the most significant) to get a more accurate number of people who may no longer be counted (by any measure) in the officially reported unemployment rate.

Some say as many as 35 million Americans could be unemployed today, and why with an increased population, the labor force participation rate has remained very low.

Only about 4 million (of 11.3 million still counted as unemployed) receive some form of unemployment benefits as of this week. Meanwhile, some states have been cutting regular weekly benefits down from 26 weeks to 20, and they will longer be offered any State extensions either. (See the post at Bloomberg: The Untimely Death of Unemployment Insurance)

From the DOL:

  • 2.5 million receive Regular State Benefits (up to 26 weeks or less)
  • 1.4 million receive Extended Federal Benefits (for 2 more months until December 28, 2013)
  • 4,142 receive Additional State Benefits (up to 13 weeks max in some states)

Bottom line: With cuts to food stamps scheduled for November, and with federal extended unemployment benefits being phased out in December, it's going to be a horrific time to get laid off from your job next year --- especially with only 3.7 million job openings for 11.3 million (counted) unemployed.

And if you do lose your job, as far as getting another job, good luck (especially if your older than 50), because you'll be competing with 3 million newly graduated high school students every year (not counting college graduates).

Otherwise, there's always another alternative...you can move to Mexico. According to the New York Times, Mexico’s economic growth has easily outpaced the giant of the western hemisphere — the United States — and is increasingly becoming an immigrant destination. Americans now make up more than three-quarters of Mexico’s roughly one million documented foreigners. Mexican migration to the United States has reached an equilibrium, with about as many Mexicans moving north from 2005 to 2010 as those returning south.

Breaking Bad CEOs

Vox Research-Based Policy Analysis (This is where unethical corporate culture originates.)

Business ethics and Sarbanes-Oxley: This study identifies unethical CEOs as an important cause of unethical corporation behavior. CEOs do not always invest the resources delegated to them as the owners would like; and sometimes fail to accurately inform investors about how business is going – especially when it is not going well. This can be seen in the market losses associated with financial statement frauds uncovered at firms such as Enron, WorldCom, Tyco, and HealthSouth.

We propose a novel way to identify an unethical pattern of behavior, based on an executive’s systematic participation in "options backdating", which refers to the manipulation of stock option grant or exercise dates (and therefore grant or exercise prices) in order to maximize an individual’s eventual pay-out – without reflecting the magnitude of the compensation on firm financial statements (or to the tax authorities).

Option grant dates were often backdated to reflect grant on an earlier date when the stock price was lower. This meant the corresponding option strike price was also be reduced. Option exercise dates were at times backdated to correspond with dates with low market stock prices. This was to minimize the tax burden incurred by the executive receiving new shares of their underlying stock.

One might recall that a great deal of attention was focused on this controversial practice, common in the late 1990s, following a series of articles published by the Wall Street Journal in 2006. Options backdating for top executives likely indicates stealth (nefarious) activity undertaken for personal gain and to the detriment of shareholders and taxpayers.

In a nutshell, we assume systematic participation in options backdating serves as a reasonable indicator of unethical behavior on behalf of the chief executive officer. This allows us to test whether this behavior is associated with an unethical corporate culture.

We use a largely data-driven approach to identifying CEOs who personally benefited from options backdating. We consider CEOs to be 'suspect' if at least 30% of their options events (grants and/or exercises) were likely backdated. Using data from 1992 to 2009, we identified 249 suspect CEOs using this rule, and augmented this list with 12 additional CEOs who were specifically named in enforcement actions or backdating settlements.

Our results indicate a strong association between the identified executives and other forms of corporate misbehavior. Firms with backdating CEOs are almost 15% more likely than other similar firms to narrowly meet or beat analysts’ quarterly earnings forecasts – a tendency previous researchers have pointed to as evidence of accounting manipulations aimed at bolstering stock prices.

Consistent with this interpretation, firms with backdating CEOs also use significantly more positive discretionary accruals (i.e. accounting manipulations) in the quarters when they narrowly attain these thresholds.

We extend our analyses by investigating the investment activities of firms with backdating CEOs. We find that firms with backdating CEOs make significantly more acquisitions; and that their acquisition announcements are met with a significantly lower market response.

Prior studies provide evidence that excessive acquisitions (i.e., 'empire building') provide numerous pecuniary benefits for bidder firm executives, but often damage the welfare of shareholders. Interestingly, these firms were particularly more likely to acquire private targets. This may reflect a practice by unscrupulous managers of acquiring opaque assets, the reported values of which may be manipulated at the time of combination in order to gain flexibility for further earnings manipulations.

It is also notable that the questionable acquisitions and earnings management activities that we document are concentrated in firms that hired their suspect CEOs from outside of their firm.

This pattern suggests that the greater information asymmetry faced by boards when bringing in external candidates may at times lead to costly adverse selection of chief executives who are ethical 'lemons'.

Our tests also demonstrate that there are significant increases in earnings management and acquisition activity after backdating CEOs arrive at their new firms, relative to that observed around CEO transitions at other similar firms.

These results suggest that hiring a CEO with low character can lead firms to adopt questionable corporate practices, and illustrate the importance of rigorous due diligence by boards when selecting new executives.

Impact on market valuation: Our study concludes by assessing possible adverse consequences that might result from hiring an unethical CEO. We find that the market did not penalize firms with unethical CEOs during the run-up of the late 1990s and early 2000s. However, during the ensuing market correction, these firms were 25% more likely to experience severe stock price declines (defined as at least a negative 40% annual return).

If there was a silver lining to that storm, it is that it helped the boards of firms with unethical CEOs to see the error of their ways, as they also replaced their ill-chosen CEOs with a greater frequency.

Concluding remarks: This work suggests that integrity – in particular, executives’ integrity – matters for corporate outcomes. It provides evidence that the ethics of corporate leaders is an important determinant of the ethical cultures of the firms they manage, in support of an ethical dimension to the “upper echelons theory” of corporate behavior first proposed by Hambrick and Mason (1984). It also should serve as notice to investors and directors of the extent of damage that can accompany a poorly managed executive search.

Hiding CEO and Insiders Pay
http://bud-meyers.blogspot.com/2013/09/hiding-ceo-and-insiders-pay.html 

New Study: The Rich are Unethical, Psychopathic and Greedy
http://bud-meyers.blogspot.com/2013/07/new-study-rich-psychopathic-and-greedy.html 

Nearly 40% of the Top Paid CEOs Bombed at Their Jobs
http://www.economicpopulist.org/content/nearly-40-top-paid-ceos-bombed-their-jobs-5348 

The Attitudes of CEOs
http://bud-meyers.blogspot.com/2013/09/the-attitudes-of-ceos.html 

U.S. CEOS: Then and Now
http://bud-meyers.blogspot.com/2013/07/us-ceos-then-and-now.html 

CEO Pay Ratios
http://bud-meyers.blogspot.com/2013/09/ceo-pay-ratios.html

Saturday, September 28, 2013

Owner of Red Lobster & Olive Garden Sued for Back Wages


William (Bill) Darden founded the Red Lobster Inns of America and opened the first Red Lobster restaurant in Lakeland, Florida in 1968. By 1970 he had expanded to three locations in the state with two more under construction. While the locations were profitable, the company lacked the resources to expand further.

So just like many other successful small business all across America, that year Darden sold his company to a major corporation, who with their economy of scale, their political influence, their high-paid lobbyists and their army of lawyers and tax attorneys, could better manipulate wages, taxes, and regulations. (After monopolies, mergers and acquisitions was the next business model prior to offshoring.)

Darden had sold his business to food giant General Mills in 1970, and by 1995 Darden Restaurants was spun off from General Mills and became a fully separate corporate entity (not person) on May 31 when its shares went on sale on the NYSE.

As of 2013 Darden became the largest casual dining restaurant company in the world. It operates more than 2,000 restaurants in North America: Red Lobster, Olive Garden, LongHorn Steakhouse, Bahama Breeze, The Capital Grille, Seasons 52, Eddie V’s and Yard House --- and leads each of its market segments while employing more than 185,000 people.

Many of the restaurant workers at The Darden Restaurant Group earn wages below the minimum wage — with tipped minimum wages as low at $2.13 an hour and non-tipped wages as low as $7.25 an hour. In addition, many workers are not compensated for time that they work off-the-clock or are not paid appropriate overtime wages. A lawsuit provides Darden’s current and former servers an opportunity seek back wages owed to them for the time spent doing general maintenance or preparatory duties that they performed for less than minimum wage.

Saru Jayaraman, via MoveOn's public petition website, writes in a newsletter:

"We just got back from Darden Restaurants Inc. annual shareholder's meeting, during which Darden's CEO flatly denied that any of their employees earn the tipped minimum wage of $2.13 hour. As you know, Darden is the world’s largest full-service restaurant chain and parent company of the popular Olive Garden, The Capital Grille and Red Lobster eateries, among others and they've been actively engaged in fights to block minimum wage increases and paid sick day bills --- and show no signs of stopping. The corporate restaurant industry [and their lobbyist, the National Restaurant Association] has been speaking on behalf of restaurant workers for too long." --- Saru Jayaraman also wrote an excellent op-ed piece about Darden.

* Here is a list at the Department of Labor of all the States and what their minimum wage is for tipped employees in the Hotel and Restaurant Industry (e.g. bartenders, cocktail servers, food servers, room service waiters, bus persons, etc.) Also see Restaurants and Fast Food Establishments Under the Fair Labor Standards Act.

Clarence Otis Jr., who has been with the company for 17 years, has been the CEO of Darden Restaurants for the last 7 years. Forbes notes his 5-Year executive compensation as $23.11 million. Mr. Otis is also on the board of directors for Verizon Communications. Otis was named the 11th most powerful person in Central Florida by the Orlando Sentinel in 2010 where Daren has its corporate headquarters.

According to Darden's 2012 annual report, their effective corporate income tax rates for 2012, 2011 and 2010 were 25.3 percent, 26.1 percent and 25.1 percent, respectively. Net earnings from continuing operations for fiscal 2012 were $476.5 million.

The report says higher food and beverage costs were partially offset by lower restaurant labor and a lower effective income tax rate. As a percent of sales, restaurant labor costs decreased in fiscal 2012 primarily as a result of "sales leveraging, improved wage-rate management and lower manager incentive compensation".

"The decrease in our effective rate for fiscal 2012 is primarily attributable to an increase in federal income tax credits related to the HIRE Act, an increase in the impact of FICA tax credits for employee reported tips, partially offset by the impact of market-driven changes in the value of our trust-owned life insurance that are excluded for tax purposes. The increase in our effective rate for fiscal 2011 is primarily attributable to the impact in fiscal 2010 of the favorable resolution of prior-year tax matters expensed in prior years and due to the increase in earnings before income taxes in fiscal 2011, partially offset by the impact of market-driven changes in the value of our trust-owned life insurance that are excluded for tax purpose."

Regarding stock-based compensation (stock-options), Darden's report notes: "We recognize the cost of employee service received in exchange for awards of equity instruments based on the grant date fair value of those awards. We utilize the Black-Scholes option pricing model to estimate the fair value of stock option awards...The weighted-average fair value of non-qualified stock options and the related assumptions used in the Black-Scholes model to record stock-based compensation are as follows:" (See page 48 of the report for more)

Companies generally choose from one of two methods to value the cost of giving an employee a stock option: a Black-Scholes model or a lattice model. The millions of dollars in capital gains that corporate executives earn off their stock-options are taxed less as a percentage of their income than someone else who works for regular hourly wages and who earn between $36,250 and $87,850 a year.

So it should be noted that Darden's corporate executives only pay a 23.8% tax rate on their stock-options, when the top marginal rate for regular wage earners is 39.6%. Herman Cain, the Tea Party activist from Georgia who once ran as a Republican nominee for President, was also once the CEO of the National Restaurant Association (and Godfather's Pizza) and had proposed at capital gains tax rate of only 9% with his "999" tax plan (which would have primary benefited the wealthy).

Other Articles about Darden's:

The LIVING OFF TIPS CAMPAIGN of the Restaurant Opportunities Center (ROC) will raise the voices and lives of tipped restaurant workers to the national scale, letting policymakers, press, and the public know who they are and how they need a raise. If you’ve ever been a tipped restaurant worker, please share your story at their website.

Older and Unemployed? You are SOL

It's hard to find a job in this economy. It's especially harder if you're an older worker. It's harder still if you're older and unemployed. And it's almost impossible if you're older and have been out of work much longer than anyone else.

If you were over 50 years old and were laid off in the Fall of 2008, you were already unemployed for a full year before the unemployment rate peaked in the Fall of 2009. And most of the hiring done since then was for younger or more recently laid off workers.

So if you're 50-something years old or older (and you are still unemployed), and if someone tells you that you haven't tried hard enough to find a job, then tell them to kiss your ass.

Latest News

From the Washington Post: Long-Term Unemployment is a Catastrophe

Short-term unemployment is actually lower than it was in 2007. If you break down the unemployment rate by duration, the problem appears to be almost entirely about long-term unemployment.

Long-term unemployment leads to an erosion of skills, dissociation from the labor market and other forms of "scarring" that last for many, many years. Brad DeLong and Larry Summers argue convincingly that this and other forms of what economists call "hysteresis" (basically, the long-term damage produced by short-run recessions) could have permanently increased the unemployment rate.

From the Atlantic: The Tragic Trap of Long-Term Unemployment

The nightmarish thing about long term unemployment is that it's self-perpetuating. The more time you're out of work, the less likely employers are to even consider your resume. Because you are unemployed, you stay unemployed.

From the Wall Street Journal: Long-Term Jobless Left Out of the Recovery 

A growing body of economic research suggests that the longer they remain on the sidelines, the less likely they will be to work again; for many, it may already be too late. Recent studies found employers often won't even consider the long-term jobless for openings. Many have given up applying. Nearly seven million people say they want a job but aren't actively looking for work.

1.8 million more Americans were receiving federal disability payments than when the recession began. Experts suspect many of the new recipients would have kept working in a healthier economy.

From Think Progress: It’s Not The Fault Of The Long-Term Unemployed That They Can’t Find Jobs

New data shows that [the long-term unemployed] look a lot like other unemployed workers except that they tend to be older, a bit more racially diverse, and actually have more education, which implies that they probably just need a better job market.

Perhaps the biggest difference, however, is that those who have been looking for a job for more than six months are typically much older than those who just lost their jobs. About 15 percent of the long-term unemployed are ages 56 to 65, but just 8 percent of those who have been out of work for under five weeks are that age. The newly unemployed, by contrast, are much younger: more than 40 percent are ages 16 to 25. The struggle for older workers to reenter the job market may be a sign of age discrimination.

The longer someone stays unemployed the harder it is to reenter the workforce. Being unemployed for longer than nine months is the equivalent of losing four years of experience in the eyes of a potential employer. Those who are out of work for six months or longer will find that they get fewer calls back for an interview than those who are currently employed but don’t have the right experience. Some workers report being told outright that a potential employer isn’t interested in those who have been out of a job for a while.

Also from the Atlantic: Who Are the Long-Term Unemployed?

The long-term unemployed tend to be people who 1) are a little bit older, and 2) got laid off from their last job. It seems the stigma of getting laid off puts people near the back of the jobs line. And then, once they've been stuck at the back of that line for six months, the stigma of long-term unemployment keeps them there forever.

From Earlier

The Atlantic: The Terrifying Reality of Long-Term Unemployment

It's an awful catch-22: employers won't hire you if you've been out of work for more than six months.

New York Times: The Human Disaster of Unemployment (mentioned in a congressional hearing on the long-term unemployed)

While older workers are less likely to be laid off than younger workers, they are about half as likely to be rehired. One result is that older workers have seen the largest proportionate increase in unemployment in this downturn. The number of unemployed people between ages 50 and 65 has more than doubled.

The prospects for the re-employment of older workers deteriorate sharply the longer they are unemployed. A worker between ages 50 and 61 who has been unemployed for 17 months has only about a 9 percent chance of finding a new job in the next three months. A worker who is 62 or older and in the same situation has only about a 6 percent chance. As unemployment increases in duration, these slim chances drop steadily.

Baby Boomers

Economic Populist: Long-Term Unemployed Baby Boomers in 2013 (And those on disability)

Daily Kos: Boomers Die Hard, if Long-Term Unemployed (Suicide rates are up)

AOL: More Than 1 Million Baby Boomers Are Secretly Unemployed (Forced into early Social Security)

Hiding CEO and Insiders Pay

When Reader's Digest first ventured into bankruptcy in the summer of 2009, the multimillion-dollar payouts to top executives that showed up in court filings sparked outrage from employees facing layoffs and retirees staring down benefit cuts.

Now, less than four years later, the publisher is back in Chapter 11, but how much its insiders were paid isn't in the public record. With top executives' pay a hot-button topic, some companies are simply keeping the information out of the view of creditors and anxious employees.

Not disclosing insider pay—compensation to corporate officers, directors and their relatives—has worked for other companies in Chapter 11, too, even though it is the third question on the official federal forms that all debtors are legally required to complete as part of the price of getting a fresh start in bankruptcy.

RG Steel, whose collapse last year put thousands out of work, identified its top executives only as "Employee A" through "Employee G" when listing what it paid insiders. New York law firm Dewey & LeBoeuf LLP navigated bankruptcy without identifying the firm's top earners. Media giant Tribune Co. didn't reveal the names of insiders who collected $268 million the same year a leveraged buyout put the company on the path to bankruptcy.

"My concern is that there has been a move away from transparency," said Stephen Lubben, professor at Seton Hall University School of Law. "To get the discharge you get from Chapter 11, part of the deal was that you had to lay your cards on the table."

Reader's Digest, RG Steel, Dewey, Tribune and their bankruptcy lawyers either declined to comment or didn't respond to requests for comment.

Insider pay is one of the key elements that allow creditors to grasp the financial condition of a company as it enters bankruptcy. Not disclosing it leaves creditors in the dark about a potential asset that could boost their recoveries. In Tribune's case, for example, the names of insiders were ultimately disclosed in lawsuits filed by the official committee of unsecured creditors looking to claw back some of the money.

A Wall Street Journal review of 250 Chapter 11 cases over the past five years found that 19 companies tried to keep the details of insider pay secret, and 17 were successful. Most that didn't complete the insider-pay forms did so without seeking court permission.

"To the extent that it's being done without court authority, I think that's just plain wrong," said Judge D. Michael Lynn of the U.S. Bankruptcy Court in Fort Worth, Texas.

The U.S. Trustee Program, the arm of the Justice Department charged with monitoring the bankruptcy courts, rarely took action on the pay disclosures.

"There is no specific U.S. Trustee Program policy on the level of detail required" on the question of insider pay, Jane Limprecht, a spokeswoman for the U.S. Trustee Program, said in an email. "It is not appropriate to discuss any particular case beyond the court record."

Paul Steven Singerman, the lawyer for Ruden McClosky, a bankrupt law firm that won court permission to keep some insider-pay details confidential, explained the practice.

"There's a major distinction between the situation of an individual consumer and a corporate debtor," Mr. Singerman said. Disclosure of different pay levels in a company can be "terribly disruptive internally." In Ruden McClosky's case, revelation of insider pay would have jeopardized the sale of the firm and needlessly exposed personal confidential information of people who had no role in its financial trouble, he said.

"As a restructuring professional, I, personally, don't think that level of disclosure is essential to the purpose of rehabilitating a business," said Mr. Singerman, a partner at Berger & Singerman.

Mr. Singerman filed a motion seeking court permission to keep the pay information private. But in 12 of the 19 recent bankruptcy cases, lawyers didn't file motions to keep the information out of public view.

The companies that found a way around the insider-pay question weren't small operations. Seven had debts well over $1 billion; most had debts of $500 million or more. The group includes some of the biggest companies to seek refuge in Chapter 11 in recent years—home builder Tousa Inc. and telephone-directory firm Idearc Inc. —as well as marquee names like the Los Angeles Dodgers.

They were advised by some of the biggest bankruptcy law firms in the country—including Weil, Gotshal & Manges LLP and Kirkland & Ellis LLP. The companies and law firms declined to comment or didn't respond.

In court papers, the seven companies that sought permission to file the insider-pay information under seal cited a range of concerns, from identity theft to the poaching of employees. Several companies simply cited general concerns about individuals' privacy or confidentiality. Tousa, for example, warned of "discomfort for individual employees, which in turn could have a significantly negative impact on employee morale." In most cases, the arguments went unchallenged.

The 19 companies that tried to shield the pay information used varied approaches. Some put employee identification numbers where they were directed to put names, or stamped "redacted" where they were supposed to put numbers. Others reported lump sums but listed no names.

A version of this article appeared April 25, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Shielding Insider Pay At Busted Companies.

Obama and the Trans-Pacific Partnership (TPP)

The Trans-Pacific Partnership (TPP) has been negotiated in secret for more than three years. This is a rigged corporate trade agreement (falsely called “free trade” for marketing purposes) that will do very little to get the economy going but will add to many of the mistaken market policies that hinder the economy and make it unfair.

A study published by the Center for Economic and Policy Research made some amazing findings about the TPP: (1) the impact on economic growth will be almost nothing, only a 0.1% increase in the GDP, but (2) the impact on most Americans will be negative with 90% of workers seeing their wages decline. The TPP will add to the decline of the middle class, the race to the bottom in wages and continue the expansion of the wealth divide.

As it comes down to the wire, we expect a push by the President for Congress to grant him Fast Track (Trade Promotion Authority) so that he can sign it before Congressional review as resistance to the TPP is growing. In Maine, where the state House of Representatives unanimously passed a resolution opposing “Fast Track,” Rep. Sharon Anglin Treat sees  a broad, bi-partisan opposition developing. The OWS made the TPP a focus of its anniversary protest with Adam Weissman of Occupy Trade Justice describing it as the “anti-Occupy” agreement, “a 1% power grab.”

In Washington, DC, a coalition of unions, environmentalists and Public Citizen organized a protest against the TPP on Friday, while lead negotiators were inside discussing the agreement. Over the weekend as part of a TPP Training organized by Flush The TPP (which includes both authors), activists produced light projections on a federal building. And, then on Monday, protests escalated as activists scaled the US Trade Rep’s building and covered it with four massive banners in order to expose their secret negotiations, as captured in this video. The Washington Post said the “guerrilla theater demonstration could rank among the best ever.”

On Tuesday the activists celebrated with a “Don’t Fast Track a Train Wreck” march that began at the White House and went to the US Trade Rep, the World Bank, the US Chamber of Commerce, and through the business district, which ended at Congress. You can see a video of the Fast Track train march at the end of this article summarizing the spectacle protests.

Opposition to the TPP is going to continue to grow as more of the secret agreement becomes public knowledge. This week information about the impact of the TPP on two of the hottest environmental issues (hydro-fracking and tar sands) came out. The TPP could allow an end run by the oil and gas industry around local opposition to fracking and gas exports. And, the US Trade Rep, Mike Froman, is pushing less regulation of the already inadequately regulated tar sands industry.

As environmental justice activists realize the TPP could undo all of their good work to stop extreme energy extraction, they will join the effort to stop the TPP. Already 75,000 have threatened civil disobedience if Obama approves the KXL pipeline, and they reiterated that threat in letters to President Obama this week.

Friday, September 27, 2013

Taxpayers Subsidize $6,000 a year to Corporations

An average US Family subsidizes Big Business to the tune of $6,000 annually --- and that’s over and above our payments to the big companies for energy, food, housing, health care and all our tech devices. It’s $6,000 that no family would have to pay if we truly lived in a competitive but well-regulated free-market economy.

The $6,000 figure is an average, which means that low-income families are paying less. But it also means that families (households) making over $72,000 are paying more than $6,000 to the corporations.

The Cato Institute (a Libertarian think tank) estimates that the U.S. federal government spends $100 billion a year on corporate welfare. That’s an average of $870 for each one of America’s 115 million families. Cato notes that this includes “cash payments to farmers and research funds to high-tech companies, as well as indirect subsidies, such as funding for overseas promotion of specific U.S. products and industries.

Their study does not include tax preferences, nor does it include payments to 374 individuals on the plush Upper East Side of New York City and others who own farms, including Bruce Springsteen, Bon Jovi, and Ted Turner. Wealthy heir Mark Rockefeller received $342,000 for a non-farm, to allow his Idaho land to return to its natural state.

It also includes fossil fuel subsidies, which could be anywhere from $10 billion to $41 billion per year for research and development. Yet this may be substantially underestimated. The IMF reports U.S. fossil fuel subsidies of $502 billion, which would be almost $4,400 per U.S. family by taking into account “the effects of energy consumption on global warming and on public health through the adverse effects on local pollution.” According to Grist, even this is an underestimate.

The subsidies mentioned above are federal subsidies. A New York Times investigation found that states, counties and cities give up over $80 billion each year to companies, with beneficiaries coming from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

$80 billion a year is $696 for every U.S. family. But the Times notes that “The cost of the awards is certainly far higher.”

According to the Huffington Post, the “U.S. government essentially gives the banks 3 cents of every tax dollar.” They cite research that calculates a nearly 1 percent benefit to banks when they borrow, through bonds and customer deposits and other liabilities. This amounts to a taxpayer subsidy of $83 billion, or about $722 from every American family.

The wealthiest five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs — account for three-quarters of the total subsidy. The Huffington Post article notes that without the taxpayer subsidy, those banks would not make a profit. In other words, “the profits they report are essentially transfers from taxpayers to their shareholders.”

This was a tough one to calculate. Demos reports that over a lifetime, bank fees can “cost a median-income two-earner family nearly $155,000 and consume nearly one-third of their investment returns.” Fees are well over one percent a year.

However, the Economic Policy Institute notes that the average middle-quintile retirement account is $34,981. A conservative one percent annual management fee translates to about $350 per family. This, again, is an average --- many families don't even have a retirement account. But many families pay much more than 1% in annual fees.

According to Dean Baker, “government granted patent monopolies raise the price of prescription drugs by close to $270 billion a year compared to the free market price.” This represents an astonishing annual cost of over $2,000 to an average American family.

OECD figures on pharmaceutical expenditures reveal that Americans spend almost twice the OECD average on drugs, an additional $460 per capita. This translates to $1,268 per household.

We’ve heard a lot about tax avoidance and tax breaks for the super-rich. With regard to corporations alone, the Tax Foundation has concluded that their “special tax provisions” cost taxpayers over $100 billion per year, or $870 per family. Corporate benefits include items such as Graduated Corporate Income, Inventory Property Sales, Research and Experimentation Tax Credit, Accelerated Depreciation, and Deferred taxes.

Once again, it may be even worse. Citizens for Tax Justice cite a Government Accountability Office report that calculated a loss to the Treasury of $181 billion from corporate tax expenditures. That would be almost $1,600 per family.

U.S. PIRG recently reported that the average 2012 taxpayer paid an extra $1,026 in taxes to make up for the revenue lost from offshore tax havens by corporations and wealthy individuals. With 138 million taxpayers (1.2 per household), that comes to $1,231 per household.

Overall, American families are paying an annual $6,000 subsidy to corporations that have doubled their profits and cut their taxes in half in ten years --- while cutting 2.9 million jobs in the U.S. and adding almost as many jobs overseas.

Taxes: How Congress Lets the Rich Pay Less

(* Editors Note: Please note the date of this post, because some of the information tends to become outdated, such as the wealth rankings on the Forbes 400 list.)

President Obama once proposed the Buffett Rule, named after Warren Buffett (currently the 2nd richest man in America with an estimated net worth of $52.5 billion). The tax bill would have taxed anyone earning over $1 million a year at 30%. But that's still less than someone with a taxable income over $183,250 to $398,350 --- and as the tax code is written now, the top one percent still pays less as a percentage of their income than someone else with a taxable income between $36,250 and $87,850.

That's why capital gains should be taxed as "regular wages" (not as "unearned income") using the current progressive marginal tax rates. Why should a billionaire, earning millions of dollars every year, pay a lower tax rate than a cocktail waitress in Las Vegas?

Bloomberg: "Calculations by the Office of Management and Budget suggest that taxing capital gains and dividend income at the same rate as ordinary income could bring in roughly $1 trillion over the next 10 years. Another $700 billion could be raised if capital gains weren’t "zeroed out at death", requiring heirs to pay taxes on any gains that occurred before they inherited stocks, real estate or other assets."

Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley built a model and estimated that the optimal tax rate on capital (including bequests, corporate profits and investment income) would be as much as 60 percent."

The skewed tax code (as it's written now) is not only the major driver of income inequality, but it also contributes to a lack of much needed revenue that's necessary to match our government spending:

In the late 70's the capital gains tax rate was much higher than it is today (close to 40% back then). From there it gradually went down. Bill Clinton lowered them to 28%, then later to 20%. In 2003 George W. Bush lowered them again to 15%.

But this past January the capital gains tax rate went up from 15% to 23.8% with the expiration of the Bush tax cuts --- including a 3.8% surtax for Medicaid that was added with the Affordable Care Act.

But even still, the top 1% earns most of their income from capital gains with stocks, and the tax rate for these high-income earners is lower than someone who earns an hourly middle-class wage (25% on taxable income over $36,250 to $87,850).

The very slight increase in the capital gains tax (3.8%) was one of the primary reasons why the Republicans are so adamant about repealing and defunding Obamacare (to protect the rich).

Also since the late 70's, the "effective" corporate tax rates are much lower as a percent of GDP than they were 35 years ago. The reduced taxes that are paid on corporate profits --- profits being the engine that drives capital gains through the investments in stocks (realized by corporate executives with stock-options). This also brings in much less needed revenue that's necessary to fund our government.

On their personal income, the wealthiest people in America pays the 3rd lowest tax rate out of 8 tax brackets (see below for 2013 rates). The capital gains tax rate for investment income (unearned income) is inserted among the marginal tax rates for those who earn regular hourly wages or salaries (earned income).

Bill Maher:

Conservatives who love to brag about American exceptionalism must come here to California. Everything conservatives claim will unravel the fabric of our society --- universal healthcare, higher taxes on the rich, gay marriage, medical marijuana --- has only made California stronger. Without a Republican governor and without a legislature being cock-blocked by Republicans, a $27 billion deficit was turned into a surplus, continuing the proud American tradition of the Republicans blowing a huge hole in the budget and then the Democrats coming in and cleaning it up. How was Governor Moonbeam able to do this? It's amazing, really. We did something economists call "cutting spending AND raising taxes."

Rate Income Bracket Notes
10% On taxable income from $0 to $8,925 Includes those drawing an unemployment check.
15% On taxable income over $8,925 to $36,250 Includes Social Security and disability benefits if income is over $25,000 --- 50% of all wage earners take home $27,000 or LESS, and pays Social Security taxes on 100% of their earnings.
23.8% On realized long-term capital gains earned with stocks, real estate, art, gold, etc. (see SWAG investments) No Social Security taxes are paid on capital gains...whether they earn one dollar or $100 million in any given year. The Waltons (the Walmart heirs) earn $1 million every single DAY in stock dividends. Tax attorneys can better tell you how they legally avoid paying taxes (eg. using offshore banking, etc) and many times they don't even pay this very low tax rate. (Also see estate taxes and gift taxes)
25% On taxable income over $36,250 to $87,850 Pays Social Security tax on 100% of their income. This might be considered a "middle-class" income
28% On taxable income over $87,850 to $183,250 Social Security taxes are capped at $113,700. Congressional salaries are $174,000 a year, so they also enjoy the cap.
33% On taxable income over $183,250 to $398,350 About what a small business owner or a neurosurgeon might average.
35% On taxable income over $398,350 to $400,000 Trial lawyers, Washington lobbyists and corporate tax attorneys?
39.6% On taxable income over $400,000 Regular wages in this income category might be base salaries for the CEOs of large corporations, and represents a lesser part of their total annual salaries if they receive stock-options, which are driven by higher stock prices, helped by low "effective" corporate tax rates (if they pay any corporate taxes at all.)

Political Bribery, Right at Your Fingertips (McCutcheon)

The Supreme Court case McCutcheon v. FEC could pump even more money into US elections. If McCutcheon and company get their way, special interest will be able to spend millions in direct political contributions and corrupt our government even further.

With McCutcheon, you can reach out and bribe any government official you wish to get the policies you want. Take control of the government: McCutcheon lets you spend as much money as you want bribing members of Congress so you can take full control of, not only your life, but everyone else’s.

Speech used to be free, now McCutcheon lets you buy as much as you can afford...no strings attached.

Introducing AnyTimeBribes™ --- send text laws from your cell phone 24/7 directly to your favorite members of Congress. Your power won't be capped or restricted in any way. Who knows how far your political influence will go --- with McCutcheon, even President Obama might take your calls.

Choose how much bribery is right for you. Plans start at $123,200* --- AnyTimeBribes™ and Free NSA Spying are included with every plan --- Payments are transferred instantly.)

* Three years after endorsing legalized bribery through the Citizens United ruling, the U.S. Supreme Court will hear arguments in another case that could, incredibly enough, pump even more money into future elections. The plaintiffs in McCutcheon v. Federal Election Commission (FEC) are seeking the outright elimination of the $123,200 “aggregate limit” on how much one donor may give to candidates, political parties and PACs each election cycle. Sign the petition: http://UnlimitedCorruption.com

McCutcheon v. Federal Election Commission, set to be argued on Oct. 8, 2013

Thursday, September 26, 2013

The Attitudes of CEOs

I put together a few excepts from some recent articles I just read, and they pretty much sum up the whole story (of course, it's suggested that you read through all the links to get the bigger picture.)

Paul Krugman refers to our "Masters of the Universe" as "sociopaths" while defending their privileged lives --- the CEO of Blackstone was outraged at the notion that he might be required to pay taxes just like the little people --- and the CEO of AIG was entitled to public bailouts; and that its executives shouldn’t be expected to make any sacrifices in return. 

New York Times: Plutocrats Feeling Persecuted

Sometimes the wealthy talk as if they were characters in “Atlas Shrugged,” demanding nothing more from society than that the moochers leave them alone. But these men were speaking for, not against, redistribution — redistribution from the 99 percent to people like them. This isn’t libertarianism; it’s a demand for special treatment. It’s not Ayn Rand; it’s "ancien rĂ©gime" (an monarchic, aristocratic, social and political system).

Members of the 0.01 percent are explicit about their sense of entitlement...The billionaire vice chairman of Berkshire Hathaway, declared that we should “thank God” for the bailout of Wall Street, but that ordinary Americans in financial distress should just “suck it in and cope.” ...And he declared that the retirement age should go up to 70 or even 80.

The thing is, by and large, the wealthy have gotten their wish. Wall Street was bailed out, while workers and homeowners weren’t. Our so-called recovery has done nothing much for ordinary workers, but incomes at the top have soared. So why the anger? Why the whining? Well, I have a theory.

When you have that much money, what is it you’re trying to buy by making even more? You already have the multiple big houses, the servants, the private jet. What you really want now is adulation; you want the world to bow before your success. And so the thought that people in the media, in Congress and even in the White House are saying critical things about people like you drives you wild.

It is, of course, incredibly petty. But money brings power, and thanks to surging inequality, these petty people have a lot of money. So their whining, their anger that they don’t receive universal deference, can have real political consequences.

New York Times: Exposing the Pay Gap

Of all the provisions in the vast and complex Dodd-Frank financial reform law, one of the most far-reaching is also the most direct and easily understood. It requires public companies to compute and disclose the ratio of a chief executive’s pay to that of a typical employee. 

The information is vital. It would allow investors to more accurately judge the effect of pay structures on company performance. It would inform investors’ votes on executive pay, because it would be a benchmark for determining whether executive pay is excessive.

It would also help regulators and policy makers detect bubbles and impending crashes, because those often correlate to widening pay gaps. And it would help alert consumers and taxpayers to companies where work forces are underpaid, even as executive pay soars, a circumstance that often requires taxpayer dollars be spent on assistance to low-wage workers (such as food stamps).

In recent decades, changing corporate norms have allowed C.E.O. compensation over all to balloon to nearly 300 times what typical employees make. Company-specific data on pay gaps will force chief executives and their boards to justify just how out of kilter pay scales have become.

The Wall Street Journal: Oracle and Larry Ellison's Excessive Pay

Investors have been growing more dissatisfied with Oracle Corp.'s years of high pay for Chief Executive Larry Ellison. Some shareholders complain that Mr. Ellison, who founded the software giant and beneficially owns a quarter of the company's shares, continues to receive tens of millions of dollars of stock options every year, even when Oracle's performance has been mixed.

Mr. Ellison received compensation valued at $76.9 million in the fiscal year that ended in May. Even with Mr. Ellison's large stake in the company, Oracle only narrowly won investor support for its executive-pay practices in 2011 and suffered a defeat in 2012. Opponents included Vanguard Group Inc. and BlackRock Inc., Oracle's largest and third-largest institutional shareholders. BlackRock also voted against the reelection of five Oracle directors, including those serving on the pay panel.

In a letter sent Wednesday to Bruce R. Chizen, chairman of the Oracle board's compensation committee, CtW Investment Group said it would vote against the company's compensation practices and possibly seek to unseat directors on the compensation committee if Oracle doesn't put limits on its options awards and bring in a new, independent director to help oversee pay. CtW is a frequent critic of what it sees as excessive CEO pay. Among other things, CtW wants Oracle to index its options awards to an industry-specific benchmark and tie them to a metric like return on equity.

The investor disquiet is evident in the results of Oracle's annual say-on-pay votes, a nonbinding referendum mandated by the Dodd-Frank financial overhaul. Shareholders rejected the company's pay practices at the last annual meeting.

Paul Krugman: Rage of the Privileged

Mark Thoma has an excellent column at the Fiscal Times linking the fight over the debt ceiling to the larger issue of extreme inequality.

Rising inequality and differential exposure to economic risk has caused one group to see themselves as the “makers” in society who provide for the rest and pay most of the bills, and the other group as “takers” who get all the benefits. The upper strata wonders, “Why should we pay for social insurance when we get little or none of the benefits?” and this leads to an attack on these programs.

One could add that the very inequality that distances the rich from ordinary concerns gives them increased power, and so makes their anti-welfare-state views far more influential...Many of the rich are selective in their opposition to government helping the unlucky. They’re against stuff like food stamps and unemployment benefits; but bailing out Wall Street? Yay!

BusinessWeek: Ayn Rand is Ruining the Economy

Forbes contributor Harry Binswanger (who is a disciple of the writer Ayn Rand) argued this week that people who make $1+ million a year are so valuable to society that they shouldn't pay any taxes. Far from these million-dollar earners paying more taxes, Binswanger argued, the rest of America should "give back" to the 1% by thanking them for their service to the country and rewarding them by exempting them from taxation.

Conversable Economist: Further Notes on the Declining U.S. Labor Share

The labor share of total income has declined in recent years, both in the U.S. economy and around the world. New Study: The Decline of the U.S. Labor Share  - The decline in labor share is not the same as the rise in inequality of incomes...the decline in the labor share conceals, rather than exposes, most of the large increases in inequality that have emerged in recent decades. "Our analysis identifies offshoring of the labor-intensive part of the U.S supply chain as a leading potential explanation for the decline in the labor share."

Wednesday, September 25, 2013

More on Wages, Taxes and Jobs

Simply put: Record-high corporate profits + low "effective" corporate rates + low capital gains tax rates + stagnant worker wages + tax avoidance loopholes + thirty years of offshoring domestic jobs = record-high CEO pay, record-high government debt, record-high trade deficit, record-high unemployment and record-high inequality.

From Naked Capitalism: (Excerpts) "Companies no longer share the benefits of productivity gains with workers. One big factor is indeed the decline of unions. Too many people chasing too few jobs gives companies the upper hand. Our trade deficits are tantamount to exporting US demand to support jobs overseas. The pet fad of the policy classes, that we have a STEM (science, technology, engineering, and math) crisis is simply not supported. Entire industries have been not just outsourced, but entirely offshored. Alan Blinder in 2007 estimated that a full 29% of US jobs were [still] offshorable."

So why are the unemployed being blamed for not finding jobs? And why are low-wage workers chastised and insulted for relying on food stamps? And why are the bottom 50% being called "freeloaders" for not paying enough taxes (when they only earn $27,000 a year or less)? Why are multi-billionaires paying a lower income tax rate (23.8 percent) than those in the middle tax brackets who earn regular wages and are paying 25 percent? Who gets the better deal: A neurosurgeon earning $200,000 a year; or a CEO with an annual base salary of $1 million (plus another $8 million in stock-options) while using the company jet?

2013 Tax Rates: The capital gains tax rate for investment income (unearned income) is inserted among the marginal tax rates for regular wages (earned income) below:

  • 10% on taxable income from $0 to $8,925, plus (includes those drawing an unemployment check.)
  • 15% on taxable income over $8,925 to $36,250, plus (includes Social Security and disability benefits if income is over $25,000)
  • 23.8% realized long-term capital gains paid on stock investments (pays no Social Security tax at all.)
  • 25% on taxable income over $36,250 to $87,850, plus (pays Social Security tax on 100% of their income. This might be considered a "middle-class" income).
  • 28% on taxable income over $87,850 to $183,250, plus (Social Security taxes are capped at $113,700. Congressional salaries are $174,000 a year, so they also enjoy the cap)
  • 33% on taxable income over $183,250 to $398,350, plus (what a small business owner or a neurosurgeon might average)
  • 35% on taxable income over $398,350 to $400,000, plus (Trial lawyers, Washington lobbyists and corporate tax attorneys?)
  • 39.6% on taxable income over $400,000 (Regular wages in this income category are usually base salaries for the CEOs of large corporations, and represents a lesser part of their total annual salaries. Their stock options are driven by higher stock prices, helped by low "effective" corporate tax rates (if they pay any corporate taxes at all.)

Forbes tells us how the top 1% has eleven ways to beat the capital gains tax:

"By running appreciated assets through your estate, your heirs get your assets with a step-up in basis, and no capital gains tax is due. Call it the big deferral. Wouldn’t you rather pay 0% than 23.8% capital gains tax? Luckily, there are ways to exploit the 0% rate while you’re still alive."

See a few more examples at Forbes here: Billionaire Poster Boys For Tax Reform:

"In 1937, while FDR was campaigning to close loopholes for the rich, Treasury Secretary Henry Morgenthau wrote an 11-page memo fingering wealthy folks who, based on a review of their tax returns, had used such tax reduction techniques as incorporating personal holding companies to hold yachts and country homes."

About 35 years ago, the capital gains tax rate was about twice what it is today, and corporate taxes were also higher as a percent of GDP. More here at the Economic Populist: Using the Tax Code as a Weapon

Mom Doesn't Understand Why You Can't Find a Job

If you are from the Silent Generation (like you mom), you might not understand how hard it is for your Baby Boomer children to find work these days. If you had been working, you most likely had retired before the Fall of 2008 and the Winter of 2009 (at the height of the Great Recession) during the economic collapse, when the stock market crashed (losing 777 points in one single day), when the housing bubble burst and was near rock bottom, when the mass layoffs were in full swing (over 800,000 a month) for a total of 8.7 million lost jobs.

Since then, older workers who were NOT laid off, tended to stay in the labor force longer to help make up for any equity they lost in their homes or 401k plans. But older workers who lost their jobs had a much more difficult time being re-hired again. And if they were laid off early in the recession, they most likely would have also remained unemployed the longest, and would therefore have the least chance of anybody else to ever be re-hired today --- especially if they only had a high school education (Why won't your mom understand this? It's not like the "old days" when only lazy people couldn't find a job).

Since the recession, the labor force participation rate --- the percent of the population employed or looking for work --- has remained stubbornly low. Many analysts have attributed much of this to America’s aging population. And that may be true. But what the numbers can’t show is that some Boomers are dropping out because they can't get re-hired if they've been left jobless.

Analysts also like to point out that demographics actually began to drag down the labor force participation rate prior to the recession --- so did age discrimination. As layoffs soared in the midst of the recession, so did workplace discrimination suits. But the spike in age discrimination cases was one of the most acute. SOURCE: Equal Opportunity Employment Commission (Why won't your mom look at the facts?)

Researchers at the Urban Institute have confirmed that the lack of entry (or re-entry) into the workforce is having a greater impact on the labor force participation rate than the rate of people leaving it. The rate of 55-66 year-olds entering or reentering the work force between 2010 and 2011 dropped 17 points compared with the rate following the 2001 recession.

Meanwhile, the rate of 55-66 year-olds leaving the workforce post-Lehman was actually found to be slower than post-2001.

This puts huge pressure on personal finances, as Urban explains:

"The reluctance of older workers to reenter the labor market in recent years is troubling, as they may be increasingly likely to remain permanently out of the workforce, potentially compromising their retirement security."

Even Baby Boomers facing negligible financial pressure have been forced into early retirement, drawing down a vastly reduced Social Security pension. But it seems clear that, whether by choice or necessity, employers have left the Baby Boomers behind.

Now if we can just get mom (and the rest of the family) to try and understand this. Your Baby Boomer children aren't lazy (or didn't try hard enough to find a job). No one will hire them! Instead of chastising them, offer them some milk and cookies.

Baby Boomers: Yeah, We’re Leaving The Labor Force Alright — Because We Can't Get Back In It

The Rich Uses the Tax Code as Weapon Against the Poor

* The top 1% earns most of their wealth with investments in stocks. The top 10% holds about 80 percent of all stock market wealth (The stock markets have over doubled since March 2009). Those who derive income from stocks pays a capital gains tax on realized gains, just as CEOs who earned stock options as "incentive pay". After one year they pay a 23.8 percent tax rate for federal taxes, less than the top marginal rate of 39.6 percent for regular wages --- and this income is not subjected to any Social Security taxes. In 1977 the capital gains tax rate was 40 percent. Changes in the tax law that reduced the federal tax rate on capital gains income is by far the largest contributor to rising income inequality in the United States.

The ultra-wealthy uses the tax code as a weapon in their class-war against the poor by paying less than their fair share of taxes, when in a progressive tax system, the most wealthy are supposed to pay a greater percentage of their incomes --- because they are more able to contribute more, which benefits the most.

Yet for almost a century, starting with capital gains* in the Revenue Act of 1921 (near the end of the Gilded Age), the top 1% has always received most of the tax breaks; and that's because they have the means and the connections to lobby members of Congress for special tax provisions.

But occasionally, because of a U.S. Court or public outcry, Congress is induced to change a tax law --- that is, until another loophole is found and exploited, or a new tax bill favoring the rich is passed, or Congress is forced to amend the tax code --- that's why we have such a complicated tax code today.

It's odd that when 50% of all U.S. wage earners are taking home $27,000 a year or less (forcing many to use food stamps), we also hear members of Congress saying that these same people should "put more skin in the game" (when they barely earn enough to live on as it is). While at the same time, these government-paid politicians are advocating for more tax breaks for the top 1%, saying it will create jobs. Especially nowadays, with the poverty rate at 15% as we've seen the very top enjoying record-high capital gains through record-high corporate profits. Meanwhile, the very bottom has been suffering with declining wages, or worse, with long-term unemployment (maybe because their jobs were offshored to China).

It's just as disingenuous when we see members of Congress (on both sides of the aisle) introduce legislation to close many of these tax loopholes --- because it's only a publicity stunt --- and they know full well that the majority of their congressional colleagues would never pass such a change in the tax code. It's all grandstanding and pontificating, and the American people are finally starting to realize this --- thanks mostly to the internet (and not cable news).

And because half the members of Congress are millionaires themselves, and are also invested in real estate and the stock market (and pay capital gains taxes), they also benefit from the very same preferential tax laws that they themselves write and pass --- which is sort of like the fox guarding the henhouse.

From a judge in a comment from the U.S. Court of Federal Claims, on a giant tax avoidance scheme called STARS (“Structured Trust Advantaged Repackaged Securities”) peddled by the big bank Barclays and several other several various financial entities:

"The conduct of those persons who were involved in this and other transactions was nothing short of reprehensible. Perhaps the business environment at the time was 'everyone else is doing it, why don’t we?' Perhaps some of those who participated simply were following direction from others. Nevertheless, the professionals involved should have known better than to follow the STARS path, rife with its conflicts of interest, questionable pro forma legal and accounting opinions, and a taxpayer with a seemingly insatiable appetite for tax avoidance."

One of defendant’s experts aptly stated that “enormous ingenuity was focused on reducing U.S. tax revenues.” The Court shared this view that “the human effort, the amount of creativity and overall effort that was put into this transaction is a waste of human potential.”

And this goes for the peddlers of tax avoidance schemes more generally (e.g. Apple etc.). This reminds us of a paper by the Bank for International Settlements, cited by the Tax Justice Network in a recent paper, The Finance Curse: How Oversized Financial Sectors Attack Democracy and Corrupt Economics:

"Finance literally bids rocket scientists away from the satellite industry. The result is that erstwhile scientists, people who in another age dreamed of curing cancer or flying to Mars, today dream of becoming hedge fund managers."

There are some very clever and ingenious people at these banks. Indeed, what a tragic waste of their lives. Recently JPMorgan reached a $920 million settlement with four of its regulators over the London Whale matter, a high risk trading strategy where bank deposits were used to gamble in illiquid credit derivatives in London.

As the Center for Economic and Policy Research has pointed out, the latest Congressional Budget Office (CBO) report suggests strongly that in containing projected long-run deficits, the U.S. has a tax problem, not a spending problem:

An under-appreciated part of this tax problem is the continued tax avoidance (and sometimes outright tax evasion) by many U.S. multinational corporations. The CBO assumes that corporate tax revenues will average 2.2 percent between 2014 and 2023—basically falling from 2.5 percent of GDP in 2015 to 1.9 percent by 2023. After 2023, CBO assumes that corporate tax revenues will remain at 1.9 percent of GDP, which is about what the average was between 1973 and 2012.

But the importance of corporate income tax revenues has steadily fallen since 1946. In the 1950s, corporate income tax revenue was about 4.5 percent of GDP and the average between 1946 and 1986 was 3.2 percent of GDP. If corporate tax revenues are higher by one percent of GDP after 2014, then the deficit would be reduced by about one percent of GDP every year (actually a little more because net interest payments would be slightly lower). Because of the reduced deficits, the debt-to-GDP ratio would be about 5 percent lower in 2040 than CBO’s projection.

A good start toward increasing corporate tax revenues was a bill that was introduced in the Senate by Senators Levin, Whitehouse, Begich, and Shaheen. The Stop Tax Haven Abuse Act (S. 1533) would close some corporate loopholes and provide measures to combat the corporate use of offshore tax havens to evade paying U.S. taxes. But what are the odds of a bill like it ever passing both chambers of Congress before President Obama could sign it? In the current state of political and ideological divide, it would most likely take a majority of Democrats (in the progressive caucus) in both the House and the Senate before a bill like this could ever have a chance of passing (despite the fact that most Americans would support this bill according to many previous polls.).

Thanks to Congress, much of the current tax "avoidance" has been perfectly legal (or not). See a few examples at Forbes --- Billionaire Poster Boys For Tax Reform:

In 1937, while FDR was campaigning to close loopholes for the rich, Treasury Secretary Henry Morgenthau wrote an 11-page memo fingering wealthy folks who, based on a review of their tax returns, had used such tax reduction techniques as incorporating personal holding companies to hold yachts and country homes.

And what would the National Football League have in common with the business lobbying group, the U.S. Chamber of Commerce? Their tax status. A provision in the tax code essentially says the NFL is just like the Tea Party, a nonprofit organization.

"Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual."

In 1966 Congress allowed the NFL to qualify for 501(c) tax exempt status. From the Atlantic, How the NFL Fleeces Taxpayers: “ Congress gave away the store to the NFL while getting almost nothing for the public in return.” Other professional sports leagues followed suit, taking advantage of the new rules.

But just like with Apple, how can anyone say the NFL "fleeced" us when for decades members Congress have been the one who took campaign contributions in exchange for these tax laws to favor the richest over the poorest. It was Congress that has been doing all the "fleecing" since 1921, when they first enacted the capital gains tax for the wealthy --- and they have served them ever since.

Recently a Republican U.S. Senator (Tom Coburn) has introduced a bill called the PRO Sports Act, which would amend the tax code and would revoke the 1966 exemption. That's why the tax code is almost 75,000 page long --- because loopholes are constantly being added to favor the wealthy, and occasionally (only after a public outcry) will Congress pass an amendment to the tax code, making the tax code that much longer and even more complicated. That's why taxpayers pay an enormous some of money to hire tax attorneys (big businesses use an army of attorneys to skirt the law and small businesses go broke trying to legally comply with the law), whereas as most of us might only need to file a single page 1040EZ form.

There is a class-war (that the top 1% waged on the bottom 99%) and as Warren Buffett said, their side is winning. The top 1% uses members of Congress as their expendable pawns in their strategy for continuing to win this war. And their weapon of choice has been the tax code.