10 Steps to Break Up the Wealth of the Super Rich
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These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.
The richest 400 taxpayers have seen their effective rate decline from over 40 percent in 1961 to 18.1 percent in 2010.
Between 2001 and 2010, the United States borrowed almost $1 trillion to give tax breaks to the 1 percent. The 2001 and 2003 tax cuts passed under President George W. Bush were highly targeted to the top 1 and 2 percent of taxpayers. They included reducing the top income tax rate, cutting capital gains and dividend taxes, and eliminating the estate tax, our nation’s only levy on inherited wealth.
Are we focusing too much on taxing millionaires, given the magnitude of our fiscal and inequality problems? Won’t we have to raise taxes more broadly? It is true that taxing the 1 percent won’t entirely solve our nation’s short-term deficit problems or dramatically reduce inequality in the short run. But it will have a meaningful impact on both problems over time. Thirty years of tax cuts for the 1 percent have shifted taxes onto middle- income taxpayers; they have also added to the national debt, which simply postpones additional tax increases on the middle class. Progressive taxes, as were seen in the United States after World War I and during the Great Depression, do chip away at inequalities. These extreme inequalities weren’t built in a day, and the process of reversing them will not be instant, either. But when there is less concentrated income and wealth, there will be less money available for the 1 percent to use to undermine the political rule-making process.
Rein in CEO Pay. The CEOs of the corporate 1 percent are among the main drivers of the Wall Street inequality machine. They both push for rule changes to enrich the 1 percent and extract huge amounts of money for themselves in the process. But they are responding to a framework of rules that provide incentives to such short-term thinking. An early generation of CEOs operated within different rules and values—and they had a longer-term orientation.
There is a wide range of policies and rule changes that could address the skewed incentive system that results in reckless corporate behavior and excessive executive pay. What follows are several principles and examples of reforms that will reduce concentrated wealth among the 1 percent and also reform corporate practices:
• Encourage narrower CEO-worker pay gaps. Extreme pay gaps—situations where top executives regularly take home hundreds of times more in compensation than average employees—run counter to basic principles of fairness. These gaps also endanger enterprise effectiveness. Management guru Peter Drucker, echoing the view of Gilded Age financier J. P. Morgan, believed that the ratio of pay between worker and executive could run no higher than twenty to one without damaging company morale and productivity. Researchers have documented that Information Age enterprises operate more effectively when they tap into and reward the creative contributions of employees at all levels.
An effective policy would mandate reporting on CEO-worker pay gaps. The 2010 Dodd-Frank financial reform legislation included a provision that would require companies to report the ratio between CEO pay and the median pay for the rest of their employees. This simple reporting provision is under attack, but should be defended, and the pay ratio should become a key benchmark for evaluating corporate performance.
• Eliminate taxpayer subsidies for excessive executive pay. Ordinary taxpayers should not have to foot the bill for excessive executive compensation. And yet they do—through a variety of tax and accounting loopholes that encourage executive pay excess. These perverse incentives add up to more than $20 billion per year in forgone revenue. One example: no meaningful regulations currently limit how much companies can deduct from their taxes for the expense of executive compensation. Therefore, the more firms pay their CEO, the more they can deduct off their federal taxes.