Daily Digest - June 10: Tax Reform Can Bring Corporate Profits Home

Jun 10, 2014Rachel Goldfarb

Today, the Roosevelt Institute, The Century Foundation, and the Academic Pediatric Association are hosting "Inequality Begins at Birth: Child Poverty in America," a conference discussing solutions to help the nation's most vulnerable. Senator Cory Booker will be the keynote speaker. Watch the livestream here.

Today, the Roosevelt Institute, The Century Foundation, and the Academic Pediatric Association are hosting "Inequality Begins at Birth: Child Poverty in America," a conference discussing solutions to help the nation's most vulnerable. Senator Cory Booker will be the keynote speaker. Watch the livestream here.

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Another Voice for Formulary Apportionment (Bloomberg BNA)

Alex Parker looks at the pros and cons of Roosevelt Institute Chief Economist Joseph Stiglitz's proposal for taxing corporate profits based on a holistic view of companies.

Arm Girls Against Trafficking in Sex (Providence Journal)

Sarah Estrela, President of the Wheaton College chapter of the Roosevelt Institute | Campus Network, argues for incorporating information about sex trafficking in sex education curricula.

  • Roosevelt Take: Sarah's idea was published in the Campus Network's 10 Ideas series in the 2014 Education journal.

Obama and Sen. Warren Talk Student Loans (The Last Word with Lawrence O'Donnell)

Roosevelt Institute Fellow Dorian Warren breaks down the numbers to explain why existing student debt is cause for serious concern, but also an opportunity for organizing.

Minimum Wage: Who Makes It? (NYT)

Jared Bernstein lays out statistics about the workers who would be affected if the minimum wage were raised to $10.10 an hour; for instance, women and minorities are overrepresented.

Most Missing Workers Are Nowhere Near Retirement Age (Working Economics)

Heidi Shierholz says that 4.4 million missing workers, who are neither employed nor seeking work, are too young to be early retirees. This shows the continued weakness in the labor market.

The Economic Recovery Would Be Stronger If Companies Like Apple Paid Their Fair Share in Taxes (TNR)

Danny Vinik says the U.S. corporate tax code shares the blame for multinationals holding profits offshore, and that corporate tax reform would give the economy a major boost.

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Daily Digest - June 9: The Middle Class Needs a Better Tax Code

Jun 8, 2014Rachel Goldfarb

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How Tax Reform Can Save the Middle Class (Moyers & Company)

Click here to subscribe to Roosevelt First, our Monday through Friday morning email featuring the Daily Digest.

How Tax Reform Can Save the Middle Class (Moyers & Company)

Roosevelt Institute Chief Economist Joseph Stiglitz and Bill Moyers continue their discussion of Stiglitz's new white paper on how tax reform can reduce inequality and promote prosperity.

For Poverty Solutions, Looking Beyond Congress (The Hill)

As Rep. Paul Ryan prepares for another hearing on the War on Poverty, Roosevelt Institute Fellow Andrea Flynn and Nell Abernathy look at ways to strengthen the safety net to fight child poverty.

Lawsuit Claims Thin Red Line in Discriminatory Lending Practices (MSNBC)

Roosevelt Institute Fellow Dorian Warren speaks to the mayor of Providence, RI, who says that Satander Bank is discriminating against people of color seeking mortgages in his city.

Everything You Need to Know About Walmart, in Nine Charts (Vox)

Danielle Kurtzleben references William Lazonick's Roosevelt Institute white paper on CEO pay to explain how Walmart could give its workers raises without cutting into profits.

Taxi Driver Solidarity (NYT)

Taxi drivers across the country are seeking to form a national union, reports Steven Greenhouse. Beyond shared grievances about pay and costs, many are concerned about ride-share apps.

The Fault in our Starry-Eyed 'Recovery': 2014 Looks Like We're Going Bust Again (The Guardian)

Heidi Moore says the recovery of the last five years was only for corporations and Wall Street, and hasn't helped average Americans, who still face rising costs and high unemployment.

Wall Street Fights for Our Right to Pay 5% Fund Fees (Bloomberg News)

Wall Street is pushing back against a strong fiduciary rule that would require financial advisors to put clients' interests first, writes Ben Steverman, because it would cut into profits.

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Daily Digest - June 6: What It's Like to Make a Living

Jun 6, 2014Rachel Goldfarb

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What Happens When Low Wage Workers Suddenly Get a Living Wage? (Gothamist)

Christopher Robbins speaks to workers at a successful casino in Queens, New York, whose wages nearly doubled last October when they unionized.

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What Happens When Low Wage Workers Suddenly Get a Living Wage? (Gothamist)

Christopher Robbins speaks to workers at a successful casino in Queens, New York, whose wages nearly doubled last October when they unionized.

Stay-At-Home Dads On The Rise, And Many Of Them Are Poor (NPR)

A new study of stay-at-home dads reveals some bad news, writes Jennifer Ludden: more than half live in poverty, with many staying home due to illness, disability, or inability to find work.

What to Watch on Jobs Day: An All-Time High of an Indicator That is Almost Always Rising (Working Economics)

Heidi Shierholz warns that while today's jobs report will likely show total employment at an all-time high, that's actually a meaningless benchmark due to constant population growth.

How Seattle Passed the Highest Minimum Wage In America (Vice)

The fight for $15 an hour in Seattle combined a number of unusual factors, says Arun Gupta, so it's unclear if the same kind of effort will work elsewhere.

GOP’s Little-Noticed Unemployment Sham: The Quiet Death of Extended Benefits (Salon)

Simon Maloy argues that the House GOP's quiet obstruction of extended unemployment insurance has thwarted supporters and left the long-term unemployed worse off than ever.

Artisanal Union-Busting (In These Times)

Chris Lehmann looks at union organizing efforts at Whole Foods stores in Chicago, and the company's pushback against collective bargaining.

To Protect Service Members, Defense Department Plans Broad Ban on High-Cost Loans (ProPublica)

Because too many soldiers are targeted by high-cost lenders, the Department of Defense may ban all loans above 36 percent APR. Paul Kiel says it's not so simple to protect civilians.

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CEO Performance Pay is Bad for Everyone Except CEOs

Jun 5, 2014Richard Kirsch

Executive compensation is soaring while workers and taxpayers feel the squeeze. A new Roosevelt Institute white paper explains why.

Executive compensation is soaring while workers and taxpayers feel the squeeze. A new Roosevelt Institute white paper explains why.

Americans hate the fact that CEOs of big corporations keep raking in millions while the incomes of most American households are sinking. Now a new Roosevelt Institute white paper by University of Massachusetts economist William Lazonick adds to the growing case that soaring CEO pay is not just unfair, but harmful. It’s bad for businesses, workers, and taxpayers, and it’s one of the reasons that the economy remains sluggish.

Lazonick details the myriad ways that CEOs pump up their wages, painting a picture of crony capitalism in the board room and at the SEC. CEOs pad their boards of directors with other CEOs, who are all eager to hike each other’s pay. They hire from the same pool of compensation consultants, who then recommend to all of their boards why each of them deserves to be paid more.

Almost all executive pay, which was back to its pre-recession average high of $30 million a year by 2012, is delivered in the form of stock. This exploits a policy loophole that taxes compensation of more than $1 million unless it falls into the category known as “performance pay.” Meanwhile, the CEOs and their teams of lobbyists and lawyers have gotten a compliant SEC to issue a host of rulings that invite stock price manipulation. The resulting higher prices are considered proof of better performance, and also instantly deliver millions to the CEOs through their stock options. Very neat. 

Lazonick explains that corporations’ favorite method of boosting stock prices is buying back their own stock. While a firm is required to notify the public of its intention to buy back its stock, it doesn’t have to say when it will do so, which fuels price-boosting speculation and allows the firm to time its repurchases to maximize the CEO’s gains.

The justification given by economists for stock-based performance pay is that corporations should be run to maximize shareholder value, and paying CEOs in stock aligns their performance with the purpose of their firm. But as my business school finance professor told a shocked classroom of my fellow students, the economic purpose of the firm does not have to be maximizing value for shareholders. The firm could just as easily be dedicated to maximizing the value for workers or communities or society at large.

Lazonick’s version of this fundamental critique of corporate capitalism is that it is not only shareholders who have an investment in a corporation. Taxpayers invest in corporations through the public infrastructure and educated workforce corporations depend on. Workers invest through their contributions to corporate innovation. Taxpayers and workers lose if the corporation’s core economic performance – as opposed to the price of its stock – declines. The result is fewer people working, less tax revenue, and diminished community life. But CEO pay just keeps going up regardless.

Lazonick argues that the CEO focus on stock buybacks has distracted them from investing in innovation to sustain their companies over the long run. It may also be true that in the absence of consumer demand, the CEOs see no better use for excess cash than to reward themselves and shareholders. But in fact, the stock market focus of U.S. industrial corporations, which has eroded middle-class wages and employment, is a big reason for lower domestic consumer demand. In contrast, Lazonick points out that Apple, which did minimal buybacks from 1994 through 2011, found no lack of consumer demand for its innovative products.

The alternate economic paradigm laid out by Lazonick is to reward workers and taxpayers for their investments in a firm. That would not only be more just, it would also move the economy forward. If workers got paid more, it would increase consumer demand. The government could use the taxes collected to create jobs that would enhance infrastructure, improve education, and strengthen community services, all of which would add directly to economic progress. And innovative companies would benefit from tax-supported government spending and motivated, experienced workers.

Lazonick lays out steps the SEC could take to reduce the use of buybacks to manipulate stock prices. He would also give workers significant representation on corporate boards. That makes great sense in theory, but would only work if we first dramatically strengthen labor law.

Taxpayers would benefit from legislation proposed in both the House (HR 3970) and Senate (S 1476), which would close the performance pay loophole and cap the deductibility of CEO compensation at $1 million. That would increase federal tax revenue by several billion dollars a year. But even if all that money were invested in job creation, it would not be enough to generate the kind growth we need to spur significant demand. I think it would be unlikely to decrease compensation much either. It is more likely that corporate boards would consider the taxes part of the cost of doing business rather than reduce pay for their fellow conspirators.

All of which is to say that, as with so many issues related to the core problem facing our economy – the concentration of wealth among a select few – it will take a seismic political shift to enact the kind of policies we need not only to limit CEO pay, but to build an economy driven by broadly shared prosperity. 

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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Daily Digest - June 5: While Executive Pay Soars, Workers Feel the Squeeze

Jun 5, 2014Rachel Goldfarb

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CEO Performance Pay is Bad for Everyone Except CEOs (Next New Deal)

Roosevelt Institute Senior Fellow Richard Kirsch agrees with William Lazonick: rewarding workers and taxpayers for a firm's success would be better for the economy than soaring CEO pay.

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CEO Performance Pay is Bad for Everyone Except CEOs (Next New Deal)

Roosevelt Institute Senior Fellow Richard Kirsch agrees with William Lazonick: rewarding workers and taxpayers for a firm's success would be better for the economy than soaring CEO pay.

Walmart Slashed Tax Bill By Giving Top Execs Big Bonuses (Forbes)

A new report points out that Walmart cut its tax bill by $104 million through deductible CEO "performance pay," writes Kelly Phillips Erb. Closing that loophole would save taxpayers billions.

  • Roosevelt Take: Roosevelt Institute Fellow and Director of Research Sue Holmberg and Campus Network alumna Lydia Austin explain the need to close the performance pay loophole in their white paper.

Workers' Wages Sink as 'Domestic Outsourcing' Grows (NBC News)

Roosevelt Institute Fellow Annette Bernhardt tells Martha C. White that it's hard to quantify how many people have been forced out of direct employment to become contract workers, usually with lower wages.

Growth Has Been Good for Decades. So Why Hasn’t Poverty Declined? (NYT)

The number of hours low-income workers put in has increased in the last few decades, but their pay hasn't, writes Neil Irwin. Economic growth doesn't reduce poverty unless it lift wages too.

Finally a Chance for Facts to Decide (NYT)

Seattle's newly passed $15-per-hour minimum wage gives economists a chance to see what happens, says Arindrajit Dube, and use its real successes or failures to help rethink national policy.

Could Minimum Wage Help Save Senate for Dems? (WaPo)

Minimum wage ballot measures in battleground states could boost Democrats' turnout in 2014, says Greg Sargent, and Arkansas Democrats are fighting to put one such initiative before voters.

If You're Born Poor, You'll Probably Stay That Way (MoJo)

Stephanie Mencimer reports on the results of a 30-year study of poverty in Baltimore from Johns Hopkins, which found that family was the strongest determining factor of a low-income child's future.

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Taking Stock: Why Executive Pay Results in an Unstable and Inequitable Economy

Jun 4, 2014

Download the paper by William Lazonick.

Download the paper by William Lazonick.

Over the past three decades, U.S. executive pay has exploded. In 2012, the 500 highest paid executives in Standard and Poor’s ExecuComp database (drawn from company proxy statements) averaged $30.3 million in total compensation, with 42 percent from stock options and 41 percent from stock awards. This amount of compensation is almost three times the level of inflation-adjusted compensation in the early 1990s, when executive pay was already excessive. Market forces did not bestow these riches on top executives; their boards of directors did. Dominated by CEOs of other companies who have a common interest in increasing executive pay, boards have stuffed senior executive pay packages with stock options and stock awards. These same boards have approved multibillion stock buyback programs that enable executives to benefit from the manipulation of their companies’ stock prices.

Key Arguments

  • The American public has long been aware of the excessive compensation of top executives, but insufficient attention has been focused on how the stock-based components of this pay have encouraged CEOs to distribute cash to shareholders at the expense of investment in innovation and provision of secure, well-paid jobs.
  • The estimated $3.6 trillion that Standard and Poor’s 500 companies have spent on buybacks since 2001, in addition to $2.4 trillion in dividends, is a major reason for the ongoing erosion of middle-class employment opportunities in the U.S.
  • Since the early 1980s, the Securities and Exchange Commission (SEC), which is supposed to protect against the manipulation of financial markets, has legalized the use of stock buybacks to manipulate the stock market.
  • The SEC must regulate rather than encourage stock-market manipulation, and boards of directors, which have permitted excessive executive pay and massive distributions to shareholders, instead must represent all economic interests – including taxpayers and workers – whose investments are at risk in the business corporation.

Read: "Taking Stock: Why Executive Pay Results in an Unstable and Inequitable Economy," by William Lazonick.

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Daily Digest - June 4: Will Fifteen Be the New Floor in Wage Fights?

Jun 4, 2014Rachel Goldfarb

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$15 Is the New $10.10 (U.S. News & World Report)

Paul K. Sonn argues a nationwide $15-per-hour minimum wage is both feasible and necessary in order to generate enough spending power to sustain the economy.

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$15 Is the New $10.10 (U.S. News & World Report)

Paul K. Sonn argues a nationwide $15-per-hour minimum wage is both feasible and necessary in order to generate enough spending power to sustain the economy.

Just How Big Are CEOs’ Packages? (In These Times)

Leo Gerard says the purpose of calculating the pay ratio between CEOs and median workers isn't to shame CEOs, but to emphasize the need to pay workers better.

Fed Officials Growing Wary of Market Complacency (WSJ)

Jon Hilsenrath says the Fed is growing concerned that calm markets will increase investors' tolerance for risk too much, and lead to further problems down the road.

What Drives Credit Card Debt? (TAP)

Credit card debt has almost nothing to do with household spending habits, writes Amy Traub. Lack of health insurance, education, and assets are far stronger indicators of high consumer debt.

How Privatizing Government Hollowed Out the Middle Class (MSNBC)

A new report on government contracting shows that the massive shift to privatization in the 1990s cut costs by turning middle-class jobs into low-wage jobs, writes Timothy Noah.

Toward a Progressive Tax Policy (Bloomberg View)

Peter Orszag considers two options for taxing wealth in the U.S. that he thinks are more viable than Piketty's global wealth tax: a progressive consumption tax and an inheritance tax.

  • Roosevelt Take: Roosevelt Institute Chief Economist Joseph Stiglitz will appear on Moyers & Company again this weekend to continue discussing his new white paper on reforming our tax code.

Republicans Are Claiming the New Climate Rules Will Wreck the Economy. They're Wrong. (MoJo)

Chris Mooney says the economic costs of new environmental rules are consistently overstated, when in fact studies show the benefits from these regulations far exceed the costs.

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Daily Digest - June 3: The City of Goodwill and Good Wages

Jun 3, 2014Rachel Goldfarb

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Seattle Enacts $15 Minimum Wage, a Phased In Big Dream (Seattle Post-Intelligencer)

Joel Connelly reports on the city council's passage of the highest minimum wage in the country, and the conflicts that arose along the way.

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Seattle Enacts $15 Minimum Wage, a Phased In Big Dream (Seattle Post-Intelligencer)

Joel Connelly reports on the city council's passage of the highest minimum wage in the country, and the conflicts that arose along the way.

Colleges Are Buying Stuff They Can’t Afford and Making Students Pay For It (The Nation)

A new study from the University of California, Berkeley's Debt and Society Project ties universities' increased debt from capital projects to rising student debt, writes Michelle Chen.

Low Retail Wages Disproportionately Hurt Women (MSNBC)

A new Demos report highlights this industry-wide problem, which Ned Resnikoff connects to other industries with more women and very low wages, like food service and domestic workers.

50 Shades of Fed (WaPo)

Jim Tankersley reports on a gathering of economists who discussed whether the Federal Reserve is overstepping its bounds. He notes that they didn't talk much about unemployment.

Coca Cola Demonstrates CEO Pay Has Nothing to Do with Performance (AJAM)

The bonus packages at Coca Cola are so disproportionately large compared to the company's profits that they can't truly be "performance pay," says Dean Baker.

Los Angeles Sues Big Banks for Predatory Mortgages But Unlikely to Win (The Guardian)

The city is suing banks for discriminatory practices that targeted minority communities for subprime mortgages, reports David Dayen, but it won't compensate homeowners with any winnings.

New on Next New Deal

Working Families Party Endorsement of Cuomo Shows Progressive Political Power

Roosevelt Institute Senior Fellow Richard Kirsch argues that New York Governor Andrew Cuomo's agreement with the Working Families Party creates an opportunity for real progressive change.

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Daily Digest - June 2: Building a Better Tax Code

Jun 2, 2014Rachel Goldfarb

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Joseph E. Stiglitz Calls for Fair Taxes for All (Moyers & Company)

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Joseph E. Stiglitz Calls for Fair Taxes for All (Moyers & Company)

Roosevelt Institute Chief Economist Joseph Stiglitz discusses his paper on overhauling the tax system to combat inequality and strengthen the U.S. economy.

Seven Key Takeaways From Joseph E. Stiglitz’s Tax Plan for Growth and Equality (Moyers & Company)

The Moyers team provides an overview of Stiglitz's plan for corporate tax reform, which would encourage domestic job creation, rein in the financial sector, and more.

How Local Governments Are Using Their Purchasing Power to End Sweatshop Labor (The Nation)

Michelle Chen looks at how cities can use "sweatfree" contract guidelines for purchases like police uniforms to push for fair labor standards around the world.

Stay-at-Home Parenting Is on the Rise Because Mothers Can’t Find Work (Pacific Standard)

When mothers can't find work that covers the cost of child care, they may be forced to stay at home rather than choosing for themselves, says Erin Hoekstra.

Opportunity's Knocks (WaPo)

Eli Salsow profiles Tereza Sedgwick as she studies to become a nursing aide, and looks at why the fastest-growing job in the country doesn't offer a clear route out of poverty.

New on Next New Deal

Summer Academy Fellows Come Together for the Fight Against Inequality

Roosevelt Institute | Campus Network Training Director Etana Jacobi explains how the Summer Academy program prepares students to engage in the biggest policy debates of the day.

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Daily Digest - May 30: Fair Wages Take Another Step Forward in Seattle

May 30, 2014Rachel Goldfarb

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Seattle City Council Panel OKs $15 Minimum Wage (AP)

This clears the way for the full city council to vote on the minimum wage increase next week, reports Manuel Valdes, but delays implementation by another three months.

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Seattle City Council Panel OKs $15 Minimum Wage (AP)

This clears the way for the full city council to vote on the minimum wage increase next week, reports Manuel Valdes, but delays implementation by another three months.

  • Roosevelt Take: Roosevelt Institute President and CEO urged this step on the minimum wage when she gave the closing remarks at Seattle's Income Inequality Symposium.

Elizabeth Warren to Obama: Fed Nominees Should Crack Down On Big Banks (MoJo)

Senator Warren wants the Federal Reserve to spend more time on financial regulation, says Erika Eichelberger, and sees two open seats as an opportunity to add reformers.

The US GDP puzzle: Is This a Temporary Drop or Something More Serious? (The Guardian)

Heidi Moore examines the possible reasons for the sharp drop in GDP in the first quarter of 2014. She argues that if it's a blip, it's unclear how the economy will bounce back.

Walmart Moms’ Walkout Starts Friday (In These Times)

The "Walmart Mom" was originally conceived as a political category, but Sarah Jaffe reports that real moms who struggle to support families on Walmart wages are striking.

Companies Commit Human-Rights Abuses in America, Too (The Atlantic)

Christine Bader argues that horrors in American workplaces should be viewed through a human rights framework, which would prioritize people over profits.

Thomas Piketty Responds to Criticism of His Data (NYT)

Neil Irwin summarizes Piketty's response to the Financial Times, which argues that the FT's criticism used flawed methodology in its examination of his data.

  • Roosevelt Take: Roosevelt Institute Fellow Mike Konczal pointed out flaws in the Financial Times' criticism in two recent blog posts.

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