The latest edition of the annual CEO pay report from the Institute for Policy Studies and United for a Fair Economy, released just last week, tells two stories. The first will likely remind most Americans why they get so angry about CEO pay. The second will get them even angrier.

We have the scoop on both these stories in this week's Too Much — and plenty more suitable for Labor Day, including a review of the authoritative new State of Working America from the Economic Policy Institute.

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Why do so few lawmakers in Congress pay any attention to the ever more intense concentration of wealth at the top of America’s economic ladder? Here’s one eye-opening reason: Over two-thirds of the cash for House election campaigns is coming from the handful of zip codes where America’s super-rich congregate, spots like New York’s Upper East Side and Greenwich, Connecticut. A remarkable 70.2 percent of contributions in the typical 2004 House race, three University of Maryland researchers recently documented in the American Journal of Political Science, came from outside the district. In 1996, only 54.5 percent of campaign cash came from outside district boundaries. The new research describes out-of-district contributors as “disproportionately wealthy, urban, highly educated, and employed in elite occupations.”

Football fans at last month’s Jets-Giants preseason game did something football fans don’t usually do. They staged a demonstration. The target of their ire: the “personal seat licenses” they’ll have to buy if they want tickets for games at the new Jets-Giants stadium set to open in fall 2010. The seat licenses will run up to $20,000 each for Giants games, with tickets running an additional $85 to $700 per seat. Such prices, demo organizer Steve Kern told reporters, aren’t “fair to the average fan.” Three days after the protest, the Jets announced they won’t require seat licenses for 27,000 upper-deck seats in the 82,500-seat stadium. But Giants co-owner John Mara remains unfazed by fan frustration. Boasted Mara in a recent radio interview: “We could charge anything and still fill the stadium.”

Journalists have been writing, figuratively speaking, about a global “billionaires club” ever since the world’s “ultra-high-net-worth” population started exploding back in the 1980s. Now the world actually has one. Northern Trust, the Chicago-based private bank for wealthy investors, has just celebrated the first anniversary of its “Billionaire Club,” a grouping set up after a number of Northern Trust super-rich clients expressed an interest in exchanging “information with other clients of the same level.” So far about half of Northern Trust’s 50-odd billionaire clients are attending club meetings. The next one will come next February, at the Riviera Country Club in Pacific Palisades, California, site of the 2009 Northern Trust Open golf tourney . . .   

You won’t find John Dane III whining about the tough times that have befallen post-Katrina New Orleans. Business couldn’t be better for Dane, the president of the biggest U.S. luxury boat builder, Trinity Yachts. The company, Dane enthused last month, has 900 workers at boatyards in New Orleans and nearby Gulfport, Mississippi — and can barely keep up with orders. Trinity is currently crafting a 242-footer that will carry a $90 million price-tag. Some enterprising Trinity customers, says Dane, have taken to selling the boats they’ve ordered to customers further down the waiting list, at a sizeable profit, of course. Observes Dane: “Rich people don't want to wait on a boat.”

Philip Hoffman, the chief executive at the world’s top investment funds for fine art, never buys any art for himself. In fact, Hoffman acknowledged last week in an interview with New Delhi’s Business-Standard, he’ll seldom spend more than 30 seconds looking at an artwork — even if his Fine Art Fund just spent $3 million to buy it. This disinterest hasn’t stopped hedge fund managers and wealthy individuals from pouring big bucks into the five fine art funds Hoffman started launching in 2003. What makes Hoffman’s art funds so attractive? The returns, naturally. His flagship Fine Art Fund last year generated a 44 percent profit as rich refugees from the world’s troubled stock markets dove headfirst into “art as an asset class.” Only about $20 billion worth of global fine art can be considered “investible,” says Hoffman, and only about 20 individuals account for about a fifth of that. Sums up the world’s premiere art dealer: “The trading in art only looks to the economy of the super-rich.”

Quote of the Week

“Social injustice is killing people on a grand scale.”
From the new World Health Organization report, Closing the gap in a generation, that calls on the world's nations to “tackle the inequitable distribution of power, money, and resources,” August 28, 2008.

New Wisdom
on Wealth

Andres Oppenheimer, Report on wealthy Latins is a bit troubling, Miami Herald, August 17, 2008. Explores why “the steady concentration of wealth within Latin America should set off alarm bells.”

David Leonhardt, How Obama Reconciles Dueling Views on Economy, New York Times Magazine, August 20, 2008. Frames the choices a President Obama would face in a world where “inequality looks likes a bigger problem than economic growth.”

Where’s the Prosperity? Editorial, New York Times, August 27, 2008. Argues that the benefits from the American economy “must be shared more broadly,” a goal that demands “more progressive taxation.”

Calculate Your Obama Tax Cut. This new online tool uses data from the independent Brookings-Urban Institute Tax Policy Center to enable voters to better understand the differences between the Obama and McCain tax plans.

Richard Trumka, CEO pay requires reform, Detroit News, August 29, 2008. The AFL-CIO secretary treasurer calls for action to address “corporate tricks to boost CEO pay at everyone else's expense.”

Marshall Helmberger, Conservatives don’t understand the value of income redistribution, Eli (Minn.) Timberjay, August 30, 2008.

Should Uncle Sam Help CEOs Get Richer?

Last year, notes the just-released new Executive Excess 2008 report from the Institute for Policy Studies and United for a Fair Economy, top CEOs in the United States once again pocketed outlandishly massive paychecks, $10.5 million on average. That’s 344 times the pay of an average U.S. worker — and ten times the pay gap that existed 30 years ago.

But here's a reality that's even more disturbing: Our tax dollars are actually subsidizing this incredible excess. The federal government, through the tax code, is directly rewarding companies that overpay their top executives.

Executive Excess 2008 explores five of these direct subsidies. Two involve rather arcane accounting conventions that corporations exploit to both cheat Uncle Sam at tax time and pump up their quarterly earnings. The other three don’t require a CPA to decipher.

Many Americans, for instance, already have experience with the concept of “deferred pay” — through 401(k) plans. If you have a 401(k), you can have part of your income deferred from taxes. But you can only defer a limited amount — currently just $15,500 a year — and if the investments where you put that money go sour, you’re out of luck.

Top executives, by contrast, get to have deferred pay plans with no limits whatsoever. They can defer millions every year — and they quite often get a guaranteed, above-market rate return on all the dollars they stuff in these no-limit stashes. Last January, Target CEO Robert Ulrich retired with over $140 million in his deferred pay account.

America’s highest-paid power suits — the managers of hedge and private equity fund partnerships — have even a sweeter tax code loophole. The top 50 of these fund managers last year averaged $588 million each in earnings. These incomes don’t up show in the annual CEO pay rankings because fund managers aren’t technically CEOs. They don’t get paid like CEOs either.

Fund managers take their compensation in the form of fees they assess on the money they manage. They typically cream off, as a “carried interest” fee, 20 percent of the profits they make buying and selling companies and other assets.

On these windfalls, fund managers pay taxes at just a 15 percent rate — not the 35 percent top rate on ordinary income — because the tax code lets them claim their “carried interest” as a capital gain. On every $1 million pocketed in carried interest, in other words, an investment fund manager saves about $200,000 in taxes. This subsidy costs taxpayers $2.6 billion a year.

Corporations save twice that much every year from an even more outrageous loophole, what Executive Excess 2008 dubs the “unlimited tax deductibility of executive pay.” Top companies can essentially deduct whatever they pay their executives off their corporate income taxes, so long as they define that pay as a performance-based incentive.

The more corporations pay their top execs, in effect, the less they pay in taxes.

Direct subsidies for America’s most powerful, Executive Excess 2008 estimates, add up to $20 billion a year. To place this $20 billion in context, the report also notes what the federal government is now annually spending to educate America’s most vulnerable, children with disabilities and other special needs: only $10.8 billion a year.

Billions more in CEO pay subsidies, Executive Excess adds, flow indirectly, through government bailouts and procurement. Federal officials regularly let out contracts to corporations that pay their top executives hundreds of times more than their workers.

One example: Lockheed Martin is currently getting about 80 percent of its revenue from the federal contracts. Lockheed Martin CEO Robert Stevens made $24 million last year, 787 times the pay of a typical U.S. worker.

Legislation that would end this indirect subsidy for lush CEO compensation, Executive Excess 2008 makes clear, is already before Congress. The pending Patriot Corporations Act would give a preference in federal contract bidding to companies that pay their executives no more than 100 times the pay of their lowest-paid employee.

Bills that would end all the subsidies that encourage lavish CEO pay, Executive Excess 2008 takes pains to emphasize, are already pending before Congress. But this legislation is going nowhere, and neither Senators Obama or McCain have yet staked out a position of most of these needed legislative fixes.

Still, the tide may be shifting.

“Historically, troubled economic times in the United States have helped generate long overdue public policy reforms,” sums up the new Executive Excess. “We have now entered troubled economic times, likely our worst since executive pay started ballooning in the 1980s. Ballooning executive pay has helped create our current economic woes. Deflating that excess can help end them.”

The Squeeze Defined

Larry Mishel, Jared Bernstein, and Heidi Shierholz, The State of Working America 2008/2009. Economic Policy Institute, Washington, D.C. (Advance edition available now, final edition available from Cornell University Press this coming January.)

Last week in Denver, at the Democratic National Convention, soaring rhetoric about the hard times facing America’s working families filled the air. Want the details behind that rhetoric? You need this latest State of Working America, the 11th biannual compilation of readily digestible facts, figures, and analysis from the Economic Policy Institute.

Speakers at last week’s Democratic convention repeatedly blasted the disaster that two terms of George W. Bush have visited upon average Americans. This new State of Working America certainly does document all the Bush damage. But the authors also take a longer view. They walk us through America’s entire post-World War II economic history, as working families have experienced it.

In this longer frame, the George W. years represent an exaggerated version of more of the same, a continuation of the inequality that has been steadily growing, with only minor interruptions, since the 1970s.

State of Working America 2008/2009 slices and dices economic data from every angle imaginable, from income, wages, and wealth to working hours and productivity, from pensions and benefits to social mobility and education. But the view from all these angles gives essentially the same exact picture: Average Americans are working harder and getting less.

Over the last three decades, the U.S. economy has essentially turned working Americans upside down and shaken them hard enough to empty out their pockets. The loose change has nearly all gone to America's wealthy.

“We have seen a large scale skimming of the benefits of growth from the bottom 90 percent of Americans to the top 10 percent,” as co-author Larry Mishel puts it, “and especially to the top one percent and, even more so, the top one-tenth of a percent.”

The bottom half of America’s top 10 percent saw their incomes increase by 32 percent, after inflation, from 1979 to 2006. The top 1 percent, over those same years, saw their incomes jump 203.7 percent. The rise for the top one-hundredth of 1 percent: an absolutely stunning 425 percent!

Meanwhile, over those same years, average weekly worker earnings in the private sector actually fell, after inflation, from $601 in 1979 to $590 in 2007.

“It is often said that Americans do not object to unequal outcomes, only to unequal opportunities,” this latest State of Working America at one point notes. “But what if unequal outcomes themselves lead to diminished opportunities?”

Only 29 percent of low-income students who score in the highest eighth grade test bracket, the book's Economic Policy Institute authors point out, currently go on to finish college. High-income kids who in the lowest test result bracket actually end up graduating from college at a higher rate, 30 percent.

Inequality may not yet have killed the American dream. But somebody really ought to call for life-support — and fast.

Stat of the Week

Larry Ellison, the CEO of business software giant Oracle, has pocketed $543 million so far this year cashing out stock options he pocketed in previous years. That's good news — for Oracle. The company, notes MSN Money financial analyst Michael Brush, can now save $190 million off its taxes by declaring the bulk of Ellison's personal stock market windfall as a write-off.

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