Saturday, June 22, 2013

George W. Bush was Right, Income Inequality is Real

Long before the Great Recession (when 8.7 million Americans lost their jobs), there was plenty of discussion about wealth inequality, wage disparity, the shrinking middle-class, CEO pay, and low wages for everybody else. On March 20, 2006 the Wall Street Journal reported, "Since the 1970s, CEO compensation has gone from 40 times to more than 300 times the average worker's salary, according to a study by Carola Frydman of Harvard University and Raven Saks of the Federal Reserve."

Carola Frydman, as an Assistant Professor of Finance at the MIT Sloan School of Management, posted her research papers, as well as other related links, on her MIT profile page. She is currently listed as an Assistant Professor at the Department of Economics Boston University.

That same year in 2006, then Treasury Secretary John Snow had argued that the widening gap between high-paid and low-paid Americans "reflects a labor market efficiently rewarding more-productive people". This was before he was succeeded by Henry Paulson on July 3, 2006. (See my post about Paul Paulson: George Clooney: New Spin Doctor for Goldman Sachs)

The Bush tax cuts included capital gains taxes, which were lowered three years earlier in 2003 to 15% --- a tax rate that Warren Buffett paid and said was lower than his secretary's (and still is). Secretary Snow had said that "the tax cuts have made the tax code more progressive, because the rich now pay a larger share of total individual taxes." (Of course, most us now know that this was never true. The capital gains tax has been a preferential tax for the wealthy since 1921, and was first initiated by the banker and Republican Secretary of the Treasury Andrew Mellon.)

The Tax Policy Center, a joint venture of the Brookings Institution and Urban Institute think tanks, countered Treasury Secretary John Snow's claim, saying that the tax cuts still widened the gap between the after-tax incomes of rich and poor Americans.

At the time, Robert Gordon, an economist at Northwestern University, said that the past few years represented the continuation of a 35-year trend in which a growing share of all labor income goes to a small group of superstars: professional athletes, CEOs and other top corporate officers. On top of this trend, income on capital -- such as interest, dividends, rent and capital gains -- has taken a growing share of national income from labor that goes mainly to a small slice of the population at the very top. (Of course, for most of us, this is now old news.)

Fast forward to January 31, 2007 - "The fact is that income inequality is real -- it's been rising for more than 25 years." - George W. Bush in an address to Wall Street

Democrats had already been complaining of corporate greed and growing middle-class insecurity. House Democrats had pressed legislation to raise the minimum wage, cut interest rates for college loans and reduce prescription drug prices for Medicare recipients. But today we're still dealing with these same problems.

The Senate had taken aim at executive compensation, adding a provision to a minimum-wage bill that was suppose to limit the ability of executives to amass millions of dollars in tax-deferred accounts.

George W. Bush at the New York Stock Exchange, talking to his "base" on January 31, 2007

From the New York Magazine: The president was in New York yesterday, and he brought some odd tidings for our city's financial industry. In a speech strategically delivered across the street from the New York Stock Exchange, George W. Bush — who on a trip to New York years ago delivered his famous "Some call you the elite, I call you my base" line — spoke out against excessive executive pay and lush severance packages. Meantime, an editorial in the same day's Wall Street Journal posited that any legislation curbing executive pay would immediately translate into higher taxes. As the person hectoring the gaggle of Wall Streeters about fiscal modesty was the same person who had drastically cut taxes for everyone in attendance, the listeners could be forgiven for mild confusion. The Sun calls the crowd's response "muted." But of course it was: The real target audience for the speech was the general public. "The fact is that income inequality is real. It has been rising for more than 25 years." And you're first noticing that now, George? Pardon the pun, but that's rich!

Four months later on May 25, 2007 the Fair Minimum Wage Act of 2007 was signed into law that gradually raised the federal minimum wage from $5.15 per hour to the current $7.25 per hour. That very same day the New York Times published an article: More Than Ever, It Pays to Be the Top Executive.

Seven months after that, in December of 2007, was the official start of the Great Recession and the housing crash -- and less than a year after that, was the stock market crash (September 2008 to March 2009), the massive layoffs and the escalating foreclosure crisis, which included the infamous and illegal bank foreclosures due to robo-signing.)

According to the National Bureau of Economic Research, the recession had officially ended in June of 2009 --- 4 months before the unemployment rate peaked at 10.2% in October 2009 --- when 15.9 million were officially reported as unemployed by the Bureau of Labor Statistics in the U-3 rate.

The Dodd-Frank bill was later passed in 2010, but ever since then, the banks have been busy lobbying both the Republicans and Democrats to essentially allow the banks re-write their own regulations. In 2013 Attorney General Eric Holder basically told us that the bankers were too big to jail.

But there is one sliver of hope for a little justice in the future. Recently the SEC said that banks would no longer be allowed to settle some cases while “neither admitting nor denying” wrongdoing --- or, if the defendants refused, the SEC would litigate the case. In late 2011, Judge Jed S. Rakoff said that settling with banks who neither admit nor deny the allegations is a policy “hallowed by history but not by reason.” He described a settlement, which was for $285 million, as “pocket change” for a giant bank like Citigroup.

The Great Recession was the longest U.S. economic downturn since the Great Depression, and its aftermath can still be felt by the middle-class and poor today. Since the "official" end of the recession 4 years ago this month, the stock market has come roaring back, making all-time record gains, with the top income earners benefiting the most. CEO pay has also been breaking records too (A list of the 100 highest paid CEOs, who pay capital gains taxes on their stock options).

Meanwhile, their employees have just had their biggest drop in hourly pay on record. The U.S. economy continues to churn out low-paying jobs in the weakest labor-market recovery since World War II, while suburban poverty is now off the charts.

Companies like Walmart's wages and benefits are so low, it forces workers to go on Medicaid and receive housing assistance, childcare subsidies, food stamps, and more. As reported by MSN Money, according to a Congressional study, $6,000 is the average amount taxpayers are being dinged per each Walmart employee.

Inequality is still greater now than ever before. An analysis by Berkeley Professor Emmanuel Saez revealed that the top 1 percent of American earners captured all the income gains during the first two years of the current economic recovery while the other 99 percent lost ground -- and that capital gains was the major driver of inequality.

In other words, nothing has changed, but instead, is only getting worse for those nearest the bottom of the income ladder...and a whole lot better for those nearest the top. Like the proverb says, "The more things change, the more they stay the same." But in other ways, they're not the same at all. With the mergers and acquisitions over past several decades, corporations are approaching the monopolies we had over a century ago --- and the banks are bigger than ever before.

Today the only difference is, now George W. Bush is saying, "If you raise taxes on the so-called rich, you're really raising taxes on the job creators." The problem is, his job creators haven't been creating any jobs for the so-called least not here in America. There are only 3.8 million jobs (mostly temporary, part-time and low-paying jobs) for 11.7 million unemployed Americans --- not counting those that the Bureau of Labor Statistics and the media doesn't include in the U-3 rate.

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