• Daily Digest - April 21: In Minimum Wage Fight, Localities May Have Maximum Impact

    Apr 21, 2014Rachel Goldfarb

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    Minimum Wage Debate Goes Local (San Francisco Chronicle)

    Roosevelt Institute Fellow Annette Bernhardt and Ken Jacobs consider why the minimum wage debate has such momentum at a local level. They see this as a return to states and cities being laboratories of policy innovation.

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    Minimum Wage Debate Goes Local (San Francisco Chronicle)

    Roosevelt Institute Fellow Annette Bernhardt and Ken Jacobs consider why the minimum wage debate has such momentum at a local level. They see this as a return to states and cities being laboratories of policy innovation.

    The Link Between One Website and Hate Crimes (Melissa Harris Perry)

    In a discussion on domestic terror and hate, Roosevelt Institute Fellow Dorian Warren suggests that the way we live, segregated by race and class, makes it even harder for Americans to embrace difference.

    The Biggest Predictor of How Long You’ll Be Unemployed Is When You Lose Your Job (Five Thirty Eight)

    Ben Casselman finds that the unemployment rate at the time when a worker loses her job is the strongest indicator of whether she will end up among the long-term unemployed.

    • Roosevelt Take: Roosevelt Institute Fellow Mike Konczal builds on this data to explain why the long-term unemployed aren't necessarily weak employees.

    Student Debt Holds Back Many Would-Be Home Buyers (LA Times)

    The share of first-time home buyers has dropped. Tim Logan ties that to the vast increase in student loans over the past decade, which hinders would-be buyers from getting mortgages.

    How Payday Lenders Prey Upon the Poor — and the Courts Don’t Help (NYT)

    Since AT&T Mobility v. Concepcion, which limited class action lawsuits, people trapped in cycles of predatory payday lending have even fewer routes out, writes Emily Bazelon.

    Beyond the Laffer Curve — The Case for Confiscatory Taxation (Vox)

    Matt Yglesias notes that many of our taxes aim at changing behavior, not increasing revenue. Perhaps higher taxes on inheritances or very big salaries could discourage the economic activity that promotes inequality.

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  • Daily Digest - April 18: Inequality Was Not an Accident

    Apr 18, 2014Rachel Goldfarb

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    We Built This Country on Inequality (The Nation)

    Mychal Denzel Smith writes that the U.S. economy was built on a foundation of inequality for women and racial minorities, and that we must fight racism and sexism if we hope to close the wealth gap.

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    We Built This Country on Inequality (The Nation)

    Mychal Denzel Smith writes that the U.S. economy was built on a foundation of inequality for women and racial minorities, and that we must fight racism and sexism if we hope to close the wealth gap.

    Oklahoma Governor Signs Law Barring Cities From Raising Minimum Wage (AJAM)

    The Oklahoma law also bars cities from requiring paid sick leave or vacation time, reports Amel Ahmed. This seems intended to preempt a push for a state-level minimum wage increase, as in California and Maryland.

    Treat Wage Theft as a Criminal Offense (WaPo)

    Catherine Rampell asks why the consequences for stealing thousands from workers' paychecks are so much less severe than the consequences of stealing from someone's home.

    Obamacare Succeeded for One Simple Reason: It's Horrible to be Uninsured (Vox)

    Sarah Kliff says the eight million sign-ups are proof that insured pundits didn't understand how desperate the uninsured and underinsured were to get health insurance.

    Antitrust in the New Gilded Age (Robert Reich)

    Robert Reich suggests that today's concentrated wealth resembles the Gilded Age, right down to the need to break up too-large corporations. He cites the pending Comcast-Time Warner merger as a troubling example.

    New on Next New Deal

    Not Just the Long-Term Unemployed: Those Unemployed Zero Weeks Are Struggling to Find Jobs

    Roosevelt Institute Fellow Mike Konczal looks at the data on those who move from one employer directly to another, without any unemployment. When even those workers struggle on the job market, wage growth slows.

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  • Daily Digest - April 17: How Democracy Became a Luxury Good

    Apr 17, 2014Rachel Goldfarb

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    Government by the Few (All In with Chris Hayes)

    Roosevelt Institute Fellow Dorian Warren notes that we now have social science data that proves Occupy was right: our democracy is dominated by the wealthiest Americans.

    Click here to receive the Daily Digest via email.

    Government by the Few (All In with Chris Hayes)

    Roosevelt Institute Fellow Dorian Warren notes that we now have social science data that proves Occupy was right: our democracy is dominated by the wealthiest Americans.

    Happy Tax Day (The New Yorker)

    Benjamin Soskis examines America's esteem for charitable donors over taxpayers, drawing on Roosevelt Institute Fellow Mike Konczal's piece on the "voluntarism fantasy."

    Millennial Perspective: Title X is Vital, Efficient, and Largely Unknown (National Priorities Project)

    Tarsi Dunlop argues that Millennials should advocate for Title X, the nation's only federally funded family planning program, because of its massive impact on the lives of low-income women.

    • Roosevelt Take: Tarsi uses data from Roosevelt Institute Fellow Andrea Flynn's white paper, "The Title X Factor: Why the Health of America's Women Depends on More Funding for Family Planning."

    Bill de Blasio’s Great Experiment (The Nation)

    Jarrett Murphy looks at the New York City mayor's first 100 days, and finds that de Blasio is sticking to the progressive policies he proposed on the campaign. Unfortunately, the forces against him are strong.

    Obama's Job-Training Unicorn: It's Time for Some New Ideas Already (The Guardian)

    Pushing the same kind of job training programs isn't making any dent in the unemployment crisis, says Heidi Moore. She wants Congress to try something new, whether that's infrastructure fixes or direct hiring.

    • Roosevelt Take: A Roosevelt Institute report released last week, "A Bold Approach to the Jobs Emergency: 15 Ways We Can Create Good Jobs in America Today," provides more suggestions for government solutions.

    New York Lawmakers Push to Raise Wages at Biggest Chains (NYT)

    Kate Taylor reports that a group of New York City-based Democrats has proposed a bill to mandate a $15-an-hour minimum wage for employees of businesses with $50 million or more in annual sales.

    The Toughest Cop on Wall Street You've Never Heard Of (TNR)

    Benjamin Lawsky at the New York Department of Financial Services is pushing stricter penalties on banks, and David Dayen says that could push federal regulators to toughen up.

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  • The Pay's the Thing: How America's CEOs Are Getting Rich Off Taxpayers

    Apr 16, 2014Susan Holmberg

    Income inequality will continue to rise unless we close the performance pay loophole and curb the growth of executive compensation. For more, see "Fixing a Hole: How the Tax Code for Executive Pay Distorts Economic Incentives and Burdens Taxpayers," by Susan Holmberg and Lydia Austin.

    Income inequality will continue to rise unless we close the performance pay loophole and curb the growth of executive compensation. For more, see "Fixing a Hole: How the Tax Code for Executive Pay Distorts Economic Incentives and Burdens Taxpayers," by Susan Holmberg and Lydia Austin.

    It’s proxy season again, and we will soon be deluged with news profiles of CEOs living in high style as our ongoing debate on CEO pay ramps up. Last week, the floodgates opened when the New York Times released its annual survey of the 100 top-earning CEOs. Lawrence Ellison from Oracle Corporation led the list again with over $78 million in mostly stock options and valued perks, an 18 percent drop in pay from last year. Poor Larry.

    Rising CEO pay has been a hugely contested issue in the U.S. since the early 20th century, particularly in the midst of economic downturns and rising inequality (these two often go together). Because the numbers are just so staggering, most of the current debate focuses on the rapid rise in CEO pay over the past four decades. While executive pay remained below $1 million (in 2000 dollars) between 1940 and 1970, since 1978 it has risen 725 percent, more than 127 times faster than worker compensation over the same period.

    With any luck, ascendant French economist Thomas Piketty and the English-language release of his book Capital in the Twenty-First Century will build much-needed momentum in D.C. to institute reforms that address our CEO pay problem. This is a major driver of America’s rising income inequality, which is the central focus of Piketty’s magnum opus. One reform in particular that is critical to slowing down the growth of CEO pay and its costly impact on our economy is closing the performance pay tax loophole.

    Inspired by compensation guru Graef Crystal’s bestseller on corporate excesses and skyrocketing executive pay, then-presidential candidate Bill Clinton elevated CEO pay as a core issue of his 1992 campaign with a pledge to eliminate corporate tax deductions for executive pay that topped $1 million. Clinton was successful only in part; his policy did become part of the U.S. tax code  as Section 162(m), but it came with a few unfortunate qualifiers, namely the exception for pay that rewarded targeted performance goals, or “performance pay.”

    The logic of performance pay comes from Chicago-school economists Michael C. Jensen and Kevin J. Murphy, who published a hugely influential piece in the Harvard Business Review in the early 1990s that argued executive pay should align CEO interests with what shareholders care about, which is higher stock prices. Otherwise known as agency theory, this idea has profoundly shaped the executive pay debate and is arguably the primary reason the performance pay loophole made it into the tax code.

    Once Section 162(m) became law, what do you suppose happened next? Predictably, companies started dispensing more compensation that qualified as performance pay, particularly stock options. Median executive compensation levels for S&P 500 Industrial companies almost tripled in the 1990s, mainly driven by a dramatic growth in stock options, which doubled in frequency.

    Most of us think of skyrocketing CEO pay as simply a moral problem. However, economists like Piketty and my Roosevelt Institute colleague Joseph Stiglitz have been expounding about the havoc that rising income inequality wreaks on our economy (and democracy). When middle-class wages stagnate, consumer demand diminishes, which has tremendous spillover effects in terms of investment, job creation, tax revenue, and so forth. That particular set of problems relates to how much CEOs are paid. But there are also costly problems with the structure of CEO pay, i.e. what they’re paid with.

    Performance pay can (and has) made executives very wealthy, very quickly, which creates incentives for shortsighted, excessively high-risk, and occasionally fraudulent decisions in order to boost stock prices. What kind of effect does this behavior have on the economy at large? Think mortgage crisis and subsequent global financial meltdown. Performance pay also diminishes long-term business investments. According to William Lazonick, in order to issue stock options to top executives while avoiding the dilution of their stock, corporations often use free cash flow for stock buybacks rather than spending on research and development, capital investment, and increased wages and new hiring. 

    All this and Americans get the bill. Beyond the innumerable costs we’ve borne from the recent economic crisis, the Economic Policy Institute calculated that taxpayers have subsidized $30 billion to corporations for the performance pay loophole between 2007 and 2010. According to a recent Public Citizen report, the top 20 highest-paid CEOs received salaries totaling $28 million, but had deductible performance-based compensation totaling over $738 million. Assuming a 35 percent tax rate, that’s a $235 million unpaid tax bill. The Institute for Policy Studies calculated that during the past two years, the CEOs of the top six publicly held fast food chains “pocketed more than $183 million in performance pay, lowering their companies’ IRS bills by an estimated $64 million.”

    Congress is long overdue to close the performance pay loophole. The Supreme Court just made that harder. Thanks to Citizens United and now the McCutcheon decision, the same CEOs who are benefitting from the loophole are much freer to draw upon the corporate coffers to donate big money to politicians to maintain these loopholes.

    Nevertheless, there is potential for getting it done. Senators Blumenthal (CT) and Reed (RI) have introduced the Stop Subsidizing Multi-Million Dollar Corporate Bonuses Act (S. 1476), which would finally end taxpayers’ subsidies to CEOs by closing the performance pay loophole and capping the tax deductibility of executive pay at $1 million. In the House, Rep. Lloyd Doggett (D-Texas) has introduced a companion bill, HR 3970.

    There are many policy ideas for how to curb skyrocketing CEO pay. Piketty and his colleague Emmanuel Saez argue for a much higher income tax rate for top incomes. (The growth rate of CEO pay was at its lowest when the U.S. had confiscatory tax rates for the very rich.) In the current political climate, a more viable step toward slowing the growth of CEO pay and the damage it does to our economy is to, at long last, close the performance pay loophole. It should never have been there in the first place.

    Susan Holmberg is a Fellow and Director of Research at the Roosevelt Institute.

    Image via Thinkstock

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