Time was when corporations invested their retained earnings in expansion, research, even higher wages. Now, even the most profitable companies are left with little to no retained earnings once they pay off their shareholders and top executives, whose incomes derive more from stock than salary. As University of Massachusetts economics professor William Lazonick has documented, the 500 highest-paid U.S. corporate executives received 76 percent of their income in stock-based compensation between 2006 and 2014.This is how badly the game is rigged, but corporate media doesn't want much of this type of information to come out, because if more people connected the dots from their stagnant wages to this type of manipulation and similar choices by management (as Meyerson has done here), there'd be riots and massive upheaval at the ballot box.
Taking one’s pay in stock has been the smart move in recent decades, because the primary purpose of corporations has shifted from growing the company to rewarding shareholders. While there are obvious exceptions to this rule (none more so than Amazon, whose chief executive, Jeffrey P. Bezos, also owns The Post), it has clearly become the norm. The 458 corporations listed on the S&P 500 index in each year from 2005 to 2014 devoted 36 percent of their profits to dividends during that time, and another 53 percent to share buybacks, a means of enriching shareholders that had been negligible before 1982. In that year, Ronald Reagan’s appointees on the Securities and Exchange Commission adopted a rule (10b-18) that effectively holds corporations harmless from allegations of stock-price manipulation through share buybacks.
One elected official who’s been following this particular trail of money with justifiable concern is Sen. Tammy Baldwin (D-Wis.), who has sent several letters to Securities and Exchange Commission Chair Mary Jo White asking the agency to investigate the consequences of its rule and the buyback deluge on corporate investment and the broader economy. Clearly, one consequence of the rule has been to facilitate the rise of shakedown artists (excuse me: activist investors) who buy a chunk of company stock and then threaten the executives with a shareholder revolt that could cost them their jobs unless they buy back shares.
Another consequence of 10b-18, to which White obliquely alluded in her response to Baldwin’s first letter, is that the kind of investigation the senator requested is rendered almost impossible by the rule, which forbids the data collection one would need to do to ascertain if stock prices are being manipulated.
Also interesting is that our media hasn't reported much on another reality in the last couple of years- the rich are actually paying a higher tax rate, according to IRS data released this week. As as Josh Barro pointed out in the New York Times, a lot of that had to do with simple tweaks to the tax code and Obamacare provisions.
One was the American Taxpayer Relief Act of 2012, which extended the so-called Bush tax cuts for most taxpayers, but allowed certain breaks for people making over $500,000 to expire. The other was the Affordable Care Act, which imposed new taxes on high earners, applying to both regular income and income from capital gains, like the profit from appreciated stock.I am playing the world's smallest violin for those folks. And you'll notice that this increase in tax rates still isn't doing much to stop the slew of stock buybacks and mega-mergers that we've seen in this country in recent years.
Put together, these two laws raised the maximum tax rate on regular income by more than five points, and on capital income (like capital gains and dividends) by almost nine points. The Relief Act also led to the restoration of rules, repealed under President George W. Bush, that limit the value of tax deductions (like those for mortgage interest and state income taxes paid) for people with high incomes.
The nature of this approach is important. When lawmakers seek to disallow specific kinds of tax shelters, they must chase the lawyers and accountants who are creatively thinking up new ones. The 2013 approach simply raised the effective tax rate on income inside many shelters, without anyone needing to argue about their validity.
For example, even if a taxpayer used a strategy to turn ordinary income into capital income, such as the Bermuda insurance approaches discussed in Wednesday’s article, the 2013 changes raised the tax rate on such income to 23.8 percent, from 15 percent. So it’s no surprise the tax bills of the top 400 taxpayers rose so much.
But it is noteworthy to see what has happened to employment now that the "ownership class" has been taxed a little more starting in 2013. We've had job growth pick up, with 2.39 million total jobs gained in 2013, 3.12 million gained in 2014, and over 2.3 million the first 11 months of 2015. At the same time, what happened to the U.S. budget deficit? It's dropped from $1.09 trillion in Fiscal Year 2012 to $439 billion for Fiscal Year 2015. Heck, things are so fiscally stable that the GOP-controlled Congress had no problem expanding spending and extending tax cuts that will grow the deficit in this latest budget bill. Also note that this reality also isn't being mentioned much in corporate media, who used to cover the "drowning in debt" GOP talking points by the word in the first few years of President Obama's tenure.
Shoot, imagine what would happen if we stopped incentivizing all of these stock buybacks by furthering evening out the tax rate for dividends and capital gains, and making those rates equal to rates gained by other forms of income? We might actually see real middle-class income gains along with the job gains. But then that makes people realize what they'd been screwed out of all these years, and God forbid our corporate and media overlords let the public know about that. Much better to distract them with whatever stupidity Donald Trump said or beat the drums of fear and war instead of talking about the real problems and insecurities that plague most people's lives.