Meet the Wealth Gap By Gabriel Thompson This article appeared in the June 30, 2008 lunch hour in Manhattan, the verypoor meet Journeytwenty-nine floors up from where edition of The Nation. Research support the very rich. Today, wealth will be Williams stands guard and the growing for this article was provided by the distributed downward, slightly: Perez disparities of wealth again come into stark Investigative Fund of The Nation Institute. emerges with a $2 tip. "I usually don't get contrast. Here you will find the headquarters For a delivery worker, perched on a very good tips from the fancy buildings," he of Paulson & Company, a $32 billion hedge bicycle with plastic bags of food dangling will later tell me. fund, this one run by John Paulson, the from each handlebar, Manhattan's East Side Four blocks away from the offices of highest-paid individual in 2007. By offers many opportunities for a trip to the Caxton Associates is 590 Madison Avenue, short-selling the subprime market, he earned emergency room. I learn this one May a forty-three-storybuilding made ofsteel and $3.7 billion last year. (In January, after a afternoon as I trail 26-year-old Apolinar granite, boasting a backupgenerator that can year in which 2.2 million households filed Perez, a chubby-faced Mexican immigrant service its corporate tenants for four days for foreclosure, Paulson told the Wall Street who skillfully steershis black mountain bike without refueling. Behind a desk on the first Journal, "I've never been involved in a trade through the chaos. A taxi switches lanes floor stands security guard Timothy with such unlimited upside.") without warning, nearly clipping my front Williams. Williams, who has been an For Williams, who would likely shepherd wheel. Suit-clad men and women stride employee of TNM Protection for a year, is a Paulson to safety in the event of a building purposefully into the street, too wrapped up 24-year-old African-American who, like emergency, that upside is hard to discern: he in their phone conversations tonotice they're Perez, lives in the Bronx, the borough with would have to work more than twenty years crossing against the light. A black Suburban the lowest rents in New York City. After as a security guard to earn what Paulson with tinted windows screeches to a halt in graduating from high school in 2002 he made last year in one hour. front of us, directly in the path of the bike joined the Army, partly in the hope that it On the East Side of Manhattan two very Perez arrived in New York City five years would help pay for college. He served in Iraq distinct classes of New Yorkers cross paths ago, after crossing the Texas border in the from August 2004 to July 2005, fighting the every day: the working poor (undocumented back of a truck while hidden beneath a pile war that Kovner's AEI so aggressively immigrants and citizens alike), who cook, of children's toys. Since then, he's delivered pushed. AEI "Freedom Scholar" Michael deliver, secure and protect–for little money food for the same Italian restaurant, working Ledeen hoped the United States would turn and no benefits–and the titans of finance, eleven hours a day, six days a week. Pay the Middle East "into a caldron," and AEI hedge-fund executives and heads of pri- couldn't be simpler: before heading home fellow Richard Perle promised that Iraq's oil vate-equity firms, who stare at numbers on each night, one of the managers hands him would pay for the reconstruction. "Maybe it screens while moving other people's money a $20 bill. That's an hourly wage of won't work perfectly," admitted AEI vice in and out of stocks and commodities or $1.82--well belowthe state's$4.85 minimum president Danielle Pletka on the eve of the buying and selling companies, and whose wage for delivery workers. The rest of his invasion, "but does that mean we shouldn't wealth is expanding so quickly they have earnings come through tips, which average try?" difficulty figuring out what to do with it. $60 a shift. There's no overtime or Williams, though, is disillusioned. "I was While workers in the first group struggle healthcare, no sick days or workers' comp. I for going into Afghanistan, but I'm against to survive on wages that don't get much inquire about any benefits I might be Iraq," he tells me at the beginning of a higher than $10 an hour, the financial elite forgetting. "For Christmas they give me noon-to-midnight shift. Wearing a dark suit continue to break income records. The $50," he says. "Sometimes." with an American flag pin affixed to his just-released 2007 earnings figures find the I first encounter Perez as he is locking up lapel, he says that his time in Iraq convinced top five hedge-fund managers all clearing his bike in front of 500 Park Avenue, a large, him that the mission wasn't working, which $1.5 billion. As Alpha magazine notes, “The glassy building that serves as the is one of the reasons he cast his primary vote top 25 on the list earned an average $892 headquarters for the hedge fund Caxton for Obama. million, up from $532 million in 2006"–in a Associates, which manages more than $11 Now back home, he's earning $12.50 an year when the economy began to stall, the billion. Caxton was founded in 1983 by hour, with no union and nohealthcare. "This group needing no help ended up nearly Bruce Kovner, a broad-shouldered is just a job I'll have for a little bit," he doubling its income. The top ten earners 63-year-old withbushyeyebrows anda ruddy explains. He's able to get by with the help of alone made a combined $16.1 billion, more face who was among the top-ten highest-paid the $1,300 monthly checks he receives from than the GDP of Nicaragua. hedge-fund managers in 2006, with an the GI Bill, which also covers his tuition at Some hedge funds took a hit with the income of $715 million. Though he has Monroe College, a private school in the downturn: Kovner of Caxton Associates saw never shied away from public Bronx geared toward working students, his annual earnings drop to a measly $100 involvement--Kovner is chair of the where he'spursuing an associate's degree. He million. But even in a down year, an American EnterpriseInstitute (AEI)--hedoes plans to join the NYPD and hopes one day to executive like Kovner hasplenty of money to shy awayfrom the press(an assistant told me become a lawyer. In the meantime, he has spend--and he isn't shy about protecting his he never speaksto the media). Perez wraps a joined the National Guard–"I see the military interests. Along with being the chair of AEI, chain around his bike's frame and attaches it as a place where I can actually have a he's also a trustee of the conservative to a post, then grabs two orders of pasta and career"– and recently learned he'll be sent Manhattan Institute and a supporter of the heads through the revolving doors. Every back to Iraq next year. conservative NY Sun. Called "George Soros's

Page 1 of 8 Right-Wing Twin" by New York magazine, For the fortunate like Kovner, being on Wal-Mart as the model, all workers become Kovner has a commitment to the winning end of inequalityisn't just about associates, free from the bonds of health neoconservatism that is unsurpassed. His flipping through expensive Bibles in a coverage and overtime pay. fund is reported to manage much of AEI's personal book vault or owning a large chunk Like Malanga andVedder, Ivan Shelley is investments, and he has been a major donor of the West Coast; it's about the vast political an expert on low-wage work; that's because, to the Republican National Committee; in power conferred by wealth, which can be unlike them, he's a low-wage worker. This recent years he has sent checks to candidates deployed to support institutions pushing tends to shape one's perspective. Now 44, Rudy Giuliani, John McCain and Joe policies that, in turn, magnify the wealth Shelley has been a security officer for the Lieberman. In 2004 he donated $110,000 to divide. Long Island-based firm Pro Quest Security Softer Voices, a conservative group One simple step to mitigate income for nearly six years. When he was hired to supporting Senator Rick Santorum in what inequality would be to raise the earnings of guard 280 Park Avenue, another large would prove to be a failed 2006 re-election workers like Perez and Williams. But as a building on Manhattan's East Side, he made bid, andhe sent a quarter of a million dollars trustee of the Manhattan Institute, Kovner $9 an hour; since then, he has received an last year toAll Children Matter, a 527 group subsidizes senior fellows like Steven annual 50-cent raise. "$11.50 an hour that advocates school choice. The group was Malanga, who sees something sinister in a shouldn't get me out of bed, but it does," he recently fined a record $5.2 million by the living-wage movement that "seeks to force says ruefully, then cracks a smile. "I've got Ohio Elections Committee for illegally urban firms to pay up to double the dogs to feed." transferring moneytoRepublican candidates. minimum wage." The idea that companies "It's rough, but somebody's got to do it," Although Kovner donates to candidates would have to pay their workers up to $12 an he says. "At myage, though, it's time to slow and causes, his real desire is to transform the hour sends Malanga over the edge; he calls down." Shelley's notion of "slowing down" world through sweeping ideas–the sort of the movement a "sneaky way of bringing means that he gets off early on Fridays, ideas that set the stage for the invasion and socialist economics toAmerica's cities."One bringing his workweek down to a mere occupation of Iraq and that now urge wonders if Malanga has ever survived on fifty-seven hours. Like that of most security confrontation with Iran. Along with its such a puny paycheck; with funding from the guards, Shelley's healthcare is "whatever I nation-conquering agenda, AEI is also a superrich like Kovner, it's unlikely. have in my medicine cabinet." voice for an unfettered free market that Over at AEI, labor unions are a target of Shelley is now a leader in the fight to abhors any sacrifice from the wealthiest visiting scholar Richard Vedder. In 2002 he organize security officers in NY City, a among us. Articles in AEI's American co-wrote a report with Lowell Gallaway that campaign directed bythe Service Employees magazine have titles that seem to be taken concluded, with the help of a number of International Union's Local 32BJ. "The from the pages of the Onion, such as “The confusing charts, that between 1947 and securityofficer industry has historicallybeen Upside of Income Inequality” and “Why Do 2000 unions cost the US economy more than one of extremely low wages, where We Underpay Our Best CEOs?” One AEI $50 trillion in lost income and output. As an companies compete against each other in scholar, on the op-ed pages of the Wall Street example of how unionsdamage our economy how little they could pay," says Kevin Doyle, Journal, bemoans "the left's 'inequality' with their burdensome demands, the authors 32BJ's executive vice president. The race to obsession." link the decline of the coal industry not the bottom has left the guards who protect The "upside" of income inequality is best primarily to a shift in other energy sources some of the most valuable real estate in considered from above: for example, with a like oil and gas but to the militancy of the Manhattan with a median wage of $10.14 an view from the fifth floor of Kovner'smansion United Mine Workers. Another way to hour. SEIU is currently targeting office overlooking Central Park, which he evaluate the worth of the UMW would be to buildingssouth of Fifty-ninth Street, an area, purchased in 1999 from the International study the number of lives saved through it says, where 70 percent of the security Center of Photography for $17.5 million. union-won protections, but such calculations guards lack a union. With the infusion of another $10 million in hold little interest for Vedder. Vedder is also In April 32BJ was able to realize renovations, the structure–which had an enthusiastic cheerleader for Wal-Mart;he Malanga's worst fears in Washington. After contained two floors of gallery space, the penned a book about the virtues of the gaining leverage by pushing through a museum school andoffices–was transformed company and has argued that Wal-Mart is a living-wage bill for guards in the District, into his private fortress. In the basement is a "force for good" that is "saving America." the union inked a contract with four rare-book vault, where Kovner presumably The living wage as socialist plot, unions companies, covering 1,500 security guards. keeps copies of an edition of the King James as massive drain on the economy and The contract provides workers a minimum Bible that he financed, with a price tag in Wal-Mart as corporate savior: this is the sort wage of $12.40 an hour or, for people excess of$20,000 per volume. Other vantage of scholarship that Kovner subsidizes. already earning that, a 50-cent raise, plus points from which to assess the benefits of Without squinting too hard, the outlines of employer-paid healthcare. After a four-year growing income inequality in a clear-eyed such a capitalistic dream world–imagined by campaign, three-quarters of the District's fashion might include Kovner's 200-acre well-paid fellows and funded by a office security guards have a union. estate in Millbrook, NY, or his twelve acres billionaire–comes into focus: out from under In May the Center for Economic and of linked oceanfrontproperties in Carpinteri- the thumb of Big Labor, workers are free to Policy Research released a report that found a, California, which he purchased last year work long hours for whatever wages a boss the benefits of union membership were for $70 million in what the Wall Street feels like paying. If they fall ill, they're free greatest for low-wage workers. Among Journal called "among the largest U.S. to visit the emergency room. If they're really workers in NY State in the lowest wage residential real-estate deals." sick, they're free to declare bankruptcy. With bracket, being in a union meant earning a

Page 2 of 8 wage 16 percent higher than that of non- pay him visits while at work. One of the Stearns being the obvious recent example). union workers with similar backgrounds. owners of Pro Quest, an ex-cop, has tried to In September 1998, the sudden collapse of "Too often, people think there's not much we discourage workers at the building from hedge fundLong-Term Capital Management can do to reverse polarization in our econ- signing union cards with 32BJ. Shelley threatened the banking system and led to a omy," saysDavid Dyssegaard Kallick, senior found this ironic. "I told him, 'You of all bailout by investment banks. The collapse fellow at the Fiscal Policy Institute. "Here's people should know how important it is to came as such a shock–as a hedge fund, clear evidence that unionization helps: it have a strong union behind you.'" LTCM didn't have to report its shaky raises wages for all workers, and it raises Despite being one of the richest and most investment practices–that it led toa call from them especiallyamong lower-wageworkers." powerful Americans, Kovner maintains a politicians for larger hedge funds to report But unions do more than raise wages and low profile. Like the hedge-fund industry in their activities. The move for transparency provide healthcare. For the working class, which he made his money, he wields wide was defeated, though, and hedge funds unions are one of the few ways to exert influence but operates mostly below the remain largely unregulated; Federal Reserve economic and political power. People like radar. For tycoons like Kovner, the morethat chair Ben Bernanke has insisted that the Kovner can buy power with their individual is known about the industry–especiallyabout market will regulate itself.. largesse, which allows them to propagate the compensation of its managers–the more Private-equity firms are related to hedge their views far and wide through political people will wonder why so few earn so funds–both relyon borrowed money–but pri- contributions and the support of think tanks. much. Indeed, the earnings of hedge-fund vate-equity funds focus on taking over In the past ten years, Kovner has given and private-equity executives have quietly companies perceived to be underperforming, nearly $500,000 to conservative candidates left regular CEOs in the dust. According to which they restructure and usually manage and PACs, along with an untold amount to Executive Excess, a report published by the for several years andthen sell. In the process, AEI, the Manhattan Institute and the NY Institute for Policy Studies and United for a the companies typically see their debt load Sun. He's only one citizen, but he shapes the Fair Economy, the average income in 2006 double or triple andoften lay off a significant political landscape according to his of the top twenty highest-paid CEOs of number of workers. The debt-saddled worldview. publicly held companies was $36 corporations also serve as a tax-avoidance A security officer like Williams might see million–impressive, but only5 percent of the strategy: companies are able to deduct from his life profoundly affected by the efforts of average raked in by the hedge-fund and their taxes the interest on the debt. Last year, people like Kovner--after all, Williams private-equity executives. That's not the sort SEIU launched a private-equity project fought their war in Iraq--but his lone vote of information that executives like to boast highlighting the growth of the buyout just can't compare with the vast network about, however, as it seems a bit, well, industry and contrasting the highly Kovner subsidizes. (And a noncitizen like excessive. Hedge funds turn an axiom on its compensated private-equity firm managers Perez, the delivery worker, lacks even the head: for them, all press isbad press. Most of with the stagnant wages of workers at the power of the ballot.) Belonging to a union their websites are bare-bonesaffairs, a single companies they own. like SEIU would connect Williams to a page with a banal description, frequently not The two industries became powerful movement that could amplify his concerns; even a phone number to call. Unless you're political actors last year, after a bill was instead of registering his opposition to the rich, they don't need you; if you are rich, you introduced by Representative Sander Levin war simply by voting for Obama, Williams already know about them. that proposed closing a loophole in the tax would join 1.9 million members throwing Hedge funds are simple structures that code that allowsbillionaire fund managers to their organizational muscle behind ending engage in extremely complex investments. pay taxes at a lower rate than their the war, winning national healthcare and Essentially, they are nothing more than a secretaries. Private- equity and hedge-fund supporting sympathetic Congressional group of wealthyindividual and institutional managers' income arrives through a candidates. In the 2007-08 election cycle, for investors. Because these rich investors are "two-and-twenty" system– they typically example, SEIU was the largest donor to presumed to know how to handle their receivea managerial fee of 2% of the amount 527s, spending more than $6 million. The money intelligently–and absorb losses–the invested, along with a performance fee of union was the top donor to Progressive Securities and Exchange Commission leaves 20% of the earnings madeon the investment, Majority--a political action committee that the funds largely unregulated, and the called carried interest. works to elect progressive local and state managers are ableto guard their investments “Carried interest is no different than representatives--and has given more than carefully. They can move money in and out giving a bonus to a restaurant manager for $3.5 million to America Votes, a voter of stocks or commodities rapidly around the being successful,” explains Leo Hindery, registration and mobilization project globe in response to market trends and fresh head of a private-equity company, Inter focusing on the November election. analysis. Investing with borrowed money Media Partners, and the former economic "I see the union as a way to get good (leverage) is a trademark of hedge funds, policy adviser to John Edwards. The differ- benefits, a pension and somebody tospeak up allowing for exponential returns on ence ishow carried-interest income is taxed: for me," says Shelley. Even though heworks investment. instead of paying an income tax, which for most days from 6 am to 6 pm, the union But with light regulation, nothing keeps a the wealthy is 35%, a manager pays only the drive has added a bounce to his step. He was fund from becoming dangerously leveraged– 15% capital gains tax. In 2006, the loophole quoted recently in the NY Daily News and which has implications not just for a fund's allowed Kovner to avoid paying $28.6 mil- did an interview with a prominent radio investors (which include pension funds) but lion in taxes; last year, it allowed Paulson to station. He tells me with a smile that his also for our increasinglyintegrated economy pocket an additional $150 million. newfound activism has caused his bosses to (the ripples from the implosion of Bear The nonpartisan Joint Committee on

Page 3 of 8 Taxation estimated that Levin's bill, which These included $105,000 to the DSCC; us,” Williams recounts. “The Humvee was also eliminated the ability of fund managers $20,700 to Max Baucus, chair of the Senate completelydestroyed, but somehow everyone to shift compensation to offshore havens, Finance Committee; $19,400 to Richard survived. In Iraq, things are always explod- would bring in nearly $50 billion to the Durbin, chair of the Subcommitteeon Finan- ing. The first week I was nervous all the Treasury within ten years. Edwards, Clinton cial Services and General Government; and time, but you get used to it. My mom, thoug- and Obama all came out in support of the $8,000 to the Managed Funds Association, h, never wanted me to sign up.” legislation; even Fortune magazine con- the industry's PAC. Williams, uninsured and working for a cluded it was a sensible proposal. On No- Hinderysupports closingthe taxloopholes nonunion company, sees taking theserisks as vember 9, it passed the House. (he tells me some of his peers in the pri- his onlymeans to a stable career. That'swhy, The industry responded aggressively. A vate-equity industry have calledhim a traitor despite his opposition to the war, he signed primary target was Senator Charles Schume- for taking this stance), and he's been frus- up for a six-year term with the National r, who sits on both the Banking and Finance trated by the ability of industry lobbyists to Guard. “After that,” hesays, “I onlyneed ten committees and is close to the hedge-fund decisively influence Congress. Still, heholds more years to retire.” Meanwhile, Kovner, industry. Checks started flowing in to the out hope that in “a country that's nearly who never served in the military, is chair of Democratic SenatorialCampaign Committee broke” and suffering from “pervasive income a think tank that aggressively pushed the (DSCC), which Schumer chairs. Schumer, inequality,” the loopholes benefiting the United States to invade Iraq and is now author of a book whose subtitle is Winning richest Americans can't be ignored forever. fighting (from desks in air-conditioned Back the Middle-Class Majority, publicly At a House hearing on the bill, Bruce offices) to maintain troop levels until “late expressed his opposition to the bill, arguing Rosenblum, managing director of the Carlyle 2009,” in the words of AEI resident scholar that it unfairlytargeted the two industries. In Group and chair of the Private Equity Coun- Frederick Kagan. Domestically, Kovner December, the Senate overwhelminglysign- cil, the industry's new lobby group, argued funds groups that rail against the living wage ed a bill leaving the tax loopholes in place. that the risks taken by fund managers are and unions alike, curtailing the chances for On the day before the Senatevote, Freder- “significant.” Primarily, they “forgo other working people like Williams ever to earn a ick Iseman, then head of the private-equity opportunities that provide greater security decent living as civilians. Kovner's daughter arm of Caxton Associates, donated $28,500 and guaranteed returns in exchange for the hasn't ever faced such a choice; her path to the DSCC. The day after the bill was greater upside potential.” In other words, for eased byher father's connections, she worked passed, Paulson wrote the DSCC another the risk of forgoing the chance to earn lots of as a reporter for the paper he funds, the Sun, $25,000 check. The gifts made up what was money in investment banking in order to and now clerks for conservative Supreme a record year for hedge-fund contributions, potentially earn even more money in private Court Justice Antonin Scalia. with individual giving morethan doublingto equity, firm managers deserve to be taxed at For Williams, higher wages and generous nearly $10 million in the 2007-08 election lower rates than your average teacher or benefits can't be found guarding buildings in cycle, according tothe Center for Responsive janitor. Perhaps sensing that this argument Manhattan, and without union organizing, Politics. About three-quarters of those dona- wasn't persuasive enough, Rosenblum went the security guard industry will continue to tions went to Democrats. Private-equity on to highlight the other “assets” that man- be made up of the working poor. And when lobbying also had a watershed year, with agers stand to lose if their funds perform jobs like these–which have replaced the spending rising from $740,000 in 2006 to poorly, namely “good will, business relation- unionized, decentlycompensated blue-collar $10 million in 2007, according to Congres- ships and reputations.” jobs of old– remain union-free, with stagnat- sional Quarterly. The brave risk-takers of the hedge-fund ing wages, the military can become the best The giving patterns at Paulson & Com- and private-equity worlds are on mymind as option for advancement. Someone needs to panyillustrate the newfound politicalmuscle I listen to Timothy Williams, the security provide the “vigilant and effective defense” of the industries. During the 2005-06 elec- guard who protects John Paulson, describe that is AEI's mission, after all, and it cer- tion cycle, onlyone employee ofthe company his tour of duty in Iraq. Much of the time tainly isn't going to be the children of people made a donation, giving $1,500 to the was spent in Anbar province, conducting like Kovner. Women's Campaign Fund. The 2007-08 raids and patrols and manning traffic check- Gabriel Thompson, a Brooklyn-based cycle, which covers the period when legisla- points. His battalion lost nine soldiers, but it journalist, is the author of There’s No José tion was introduced to close the loopholes, could have been worse. Here and Calling All Radicals. His website finds employees making more than seventy “During one patrol, I saw my lieutenant's is wherethesilenceis.org. donations, totaling more than $200,000. Humvee get hit with an IED right next to

Ending Plutocracy: A 12-Step Program by Sarah Anderson & Sam Pizzigati This article appeared in the June 30, 2008 superrich pay their “fair tax share”; but we everywhere, we offer a dozen policy edition of The Nation. no longer dare imagine an America without approaches that can help slice America's America's first Gilded Age didn't merely the superrich. We have become addicted to a superwealthy down to democratic size. To end. Progressives had to fight to end it. Our politics that ignores the power of the fabu- help us rebuild our plutocracy-busting self- forebears did battle, decade after decade, for lously wealthy to define–and distort–our confidence, we begin with the somewhat proposals that dared to “soak the rich.” nation's political agenda. more winnable. How quaint that phrase now seems. Pro- How can we end this addiction? In the Step 1: Admit we are powerless unless gressives today do talk about making the twelve-step spirit of dependency-busters we learn more abouthow concentrated our

Page 4 of 8 nation's wealth has become. In 1907, Jo- buttered. Democratizing corporate and raise billions annually in new tax seph Pulitzer ended his publishing career governance could help end this enabling. revenue. with a farewell that urged readers to forever § Give shareholders a “say on pay.” The § End bankruptcy bonanzas. In 2005, beware “predatory plutocracy.” He had House of Representativesvoted last yearto Congress banned companies in started that career, years earlier, exposing give shareholders the right to vote on bankruptcy proceedings from giving wealthy tax dodgers. Disclosure has been a executive compensation. But these votes executives retention and severance prime weaponin the progressive arsenal ever would be advisory only, and such non- bonuses that run over ten times the bonus since. binding votes–in Britain, for instance– that workers receive. But the law doesn't § Require government contractors to reveal haven't done much to break executive pay limit “performance-based” bonuses, and how much their executives make. The spirals. Still, the prospect of shareholder corporations are sailing through this Securities and Exchange Commission no votes could dampen the willingness of loophole. Calpine, a California energy requires publicly traded companies to corporate boards to keep signing blank company, exited bankruptcy last winter reveal how much their top five executives checks. The Senate has so far stalled on with a workforce cut by nearly a third. are making. But privately held companies “say on pay.” The company's CEO exited with a $10.9 face no such mandate, and the CEO of § End Kremlin-style corporate board million bonus. private security giant Blackwater last fall elections. To really rein in CEO pay, § Cap tax-free “deferred pay.” Of Fortune's refused to divulge how much he has shareholders need more than an advisory top 1,000 US companies, 90% have set up pocketed from his company's contracts in say on pay. They need a say on who sits deferred-payaccounts to let topexecutives Iraq. A bill now before Congress, the on corporate boards. Corporate board shieldunlimited amounts ofcompensation Government Contractor Accountability elections currentlysport all thedemocratic from taxes. Target CEO Robert Ulrich, for Act, would force companies like trimmings of Leonid Brezhnev's Supreme example, held $133.5 million in his Blackwater to disclose their top executive Soviet, complete with fixed slates. In 2003 deferred-pay account at the end of 2006. pay. the SEC proposed giving shareholders a By contrast, the cubicle crowd faces strict § Requirecorporations toreport CEO-work- halfway meaningful right to vote for limits on how much income can be er pay gaps. CEOs now take in, as a share alternative candidates. But fierce deferred via 401(k) plans–$15,500 is the of corporate earnings, twice as much as opposition from the Business Roundtable, max for most workers. Corporate lobbyists they walked off with just a decade ago. the nation's leading CEO club, nyeted this last year squashed a Senate effort that The labor share of national income, attempt at corporate perestroika. would have placed a modest $1 million meanwhile, has shrunk to record lows. § Give all stakeholders a real corporate cap on executive pay deferrals. Which companies are shoving the most voice. Shareholders, suitably empowered, Step 4: Insist on a searching IRS cash up the corporate flowchart? If could help check executive excess. But inventory of super-wealthy wallets. Today's corporations were required to document workers and their communities have just IRS agents, OMB Watch reported earlier this annually the gap between their highest- as much stake in CEO pay decisions as year, are actually spending more time and lowest-paid employees, we would shareholders–because over-the-top pay auditing poor taxpayers than rich ones. know. plans give CEOs an incentive to pump up Progressives ought to be demanding an IRS § Require the superrich to make their tax short-term bottom lines at the expense of that zeroes in on the awesomely affluent. returns public. In 1934, early NewDealers long-haul enterprise success. Mandating § Shut down offshore income hideaways. A enacted legislation that made the incomes worker and community representation on University of Michigan study estimates of wealthypeople–and the taxes theypay– corporate boards could institutionalize a that the superrich are dodging as much as a matter of public record. But the superri- voice for all corporate stakeholders. $50 billion per year in federal taxes by ch quicklylaunched a fervidPR campaign Step 3: Don't let the tax code enable stashing income overseas. Arbitrary time that attacked the statute as an open executive excess. Corporate boards don't limits on IRS investigations help make invitation to kidnappers. In an America deserve all the blame for excessive executive recovering these lost billions next to still reeling from the infamous Lindbergh compensation. Lawmakers have been enab- impossible. baby snatching, that claim gave lers, too. They've littered the tax code with § End charitable giveaway scams. Wealthy lawmakers a convenient cover for provisions that encourage outsized rewards Americans are routinely overvaluing the repealing this tax sun-shine mandate. In at the top of the corporate ladder. artwork they donate to museums–and the 2005 America's top- earning 400 paid a Progressives ought to be launching an IRS remains too understaffed to stop paltry 18.2% of their income in federal “anti-littering” campaign. them. America's rich, overall, claim about tax. It's time to let the sunshine back in. § Eliminate stock-option accounting sleight- $1 billion a year in tax write-offs for Step 2: Trust in a power greater than of-hand. Corporations can legally claim donatedartwork. Let's stop subsidizing art CEOs and their buddies. The top one- tax deductions for executive stock options museum vanity wings. hundredth of 1% of America's taxpayers that run up to ten times higher than the § Put the kibosh on wealth warehousing at have seen their collective income quadruple, cost of these options that corporations elite alma maters. Superrich alums are after inflation, over the past two decades. record in their annual financial saving beaucoupbucks in taxesbypouring Corporate executives account for about a statements. In 2005, just-released IRS enormous wealth into elite private fifth of that income. How have CEOs figures show, the gap between what universities. Harvard's endowment last engineered their awesome take-homes?They executive options cost corporations and year hit $34.6 billion–at a time when essentially pay themselves. They sit on one what corporations deducted from their public colleges are cutting programs and another's corporate boards and rubber-stamp taxes for these options hit $61 billion. hiking tuitions. Elite endowments pay a executive pay plans that come from Senator Carl Levin has introduced mere 2% excise tax on their investment consultants who know where their bread is legislation that would shut this loophole earnings. They should pay at twice that

Page 5 of 8 rate–and even higher if they don't spend, extra charge that would expire only “when companies that meet benchmarks for good on education, at least 5% of their the war on terror is won or declared over.” corporate behavior. Among the benchmarks: endowment value a year. Step 9: Seek a more progressive not compensatinganyexecutive at more than Step 5: Clamp down on hedge-fund reckoning with the dearly departed. In “10,000 percent”–100 times–the income of kingpins. Last year fifty hedge-fund 2001, the first Bush tax cut included a the company's lowest-paid full-timer. managers took home more than$210 million phaseout of the estate tax, our nation's only Step 12: Admit to ourselves that maybe each. Perhaps even more amazing: levy on inherited wealth. But after 2010, Ike had it right. In Eisenhower's America hedge-fund office receptionists pay more of unless Congress acts, the estate tax on income over $400,000–the equivalent of less their incomes in taxesthan their bosses. How America's largest bequests will revert to than $3 million today–faced a top marginal is that possible? A good bit of pre-W levels. Estatetax foes, to prevent that, tax rate of 91%. Our current top rate: 35%. hedge-fund-manager income comes as a cut want estate tax rates slashed to mere In 2004, after exploiting loopholes,taxpayers of the profits the funds generate. Our nuisance status. Ifthey succeed, the last three who took home morethan $5 million paid an financial royals can claim this cut as a decades of excess in corporate America will average 21.9% of their incomes in federal capital gain, a neat maneuver that chops turn into a skyscraper-high foundation for a tax. In 1954 the federal tax bite on taxpayers their tax rate from 35 to 15%. Last year an new aristocracy that would have the wealth– with comparable incomes averaged 54.5%. attempt to shut this hedge- and private- and power–to frustrate progressive social How much revenue could be raised by a equity-fund loophole died in the Senate. change for generations to come. significant tax hike on America's highest Step 6: Makeamends to those who truly Representative Jim McDermott has a better incomes? If the top rate was raised to 50% earn their income. We could skip Step 5 if idea. He's promoting legislation that would on all income between $5 million and $10 we simply taxed“earned income”–themoney place a 55 percent estate tax on fortunes million and 70% on income above $10 people make from actual labor–at the same greater than $10 million. million, federal revenues would jump $105 rate as the “unearned income” that comes Step 10: Restore sanity to the taxation billion– and the nation's richest 0.1% would from sitting back and letting money do all of wealth. Typical American families have still be paying less in taxes than they did the heavylifting. America's richest regularly little net worth outside the value of their under Ike. realize vast amounts of this unearned homes. The superwealthy, even those with A centuryago, progressives never actually income, mostly through dividends and multiple mansions, hold the vast bulk of agreed on any one set of proposals to end capital gains from trading stocks, bonds and their wealth in financial investments. rule by the rich. They vigorously–and other forms of property. On these unearned Normal property taxes leave this financial constantly– debated competing proposals. billions, they pay taxes at a 15% rate, less wealth untaxed. The result: average That debate needs restarting. We hope this than half the 35% top rate on ordinary earn- Americans pay a tax on their wealth; rich list helps. ed income. Americans don't. About a dozen European We also need to recognize that blueprints Step 7: Treat outsized pay as a defect of nations sidestep this double standard by for social change don't go anywhere without corporate character. Our tax law lets levying a small annual tax on all wealth social changers, without organized pressure corporations claim reasonable business holdings. In the United States, economist from below. In America's first great triumph expenses as tax deductions. But what's Edward Wolff has calculated, a wealth tax over plutocracy, that pressure came mainly reasonable? Corporations can deduct as that exempted the first $250,000 of from a resurgent labor movement. To repeat “reasonable” whatever they shell out in household wealth, then imposed a graduated that success, labor once again needs to be excessive executive pay, so long as they label rate that topped off at 0.8 percent on fortunes surging, one bigreason initiatives that aim to that excess a reward for “performance.” over $5 million, would raise about $60 help unions organize– like the Employee Representative Barbara Lee's Income Equity billion a year. Free Choice Act campaign– have a key role Act, a bill introduced last year, would capthe Step 11: Leverage the power of the to play in any plutocracy-busting offensive. executive pay that corporations can deduct at public purse. Our tax dollars, by law, do Can such an offensive succeed? Why not? twenty-five times the pay of a company's not go to companies that increase racial or Our forebears faced a plutocracy more lowest-paid workers. State senators Paul gender inequality. We deny government entrenched than ours. They beat that Pinsky and Richard Madaleno have contracts to firms that discriminate, in their plutocracy back. Our turn. introduced similar legislation in Maryland. employment practices, by race or gender. So Sarah Anderson is the global economy Step 8: Awake to the simplicity of tax why should we let our tax dollars go to firms project director of the Institute for Policy surcharges. Debatingtheinsand outsofthe that increase economicinequality?Hundreds Studies in Washington, DC, and author, tax code can take time. In the past, of billions of taxpayer dollars are flowing with John Cavanagh, of the report, progressives used a shortcut to hike taxes on annually to companies that pay their CEOs "Lessons of European Integration for the the financially fortunate: the surcharge, a more for a day's work than their workers Americas," available at www.ips-dc.org. simple add-on to the tax owedunder existing make in a year. She is alsothe author (with others) of Field law. Last year, Representative Charlie One antidote: we could deny federal Guide to the Global Economy (New Press) Rangel proposed a 4% surtax on couples' contracts or subsidies to companies that pay and Alternatives to Economic income over $200,000 and a 4.6% surcharge their top executives more than twenty-five Globalization: A Better World Is Possible on income over $500,000, hikes that would times what theirlowest-paid workers receive. (Berrett-Koehler). raise $832 billion over ten years. One bill pending in Congress, the Patriot Sam Pizzigati isan associate fellow at the Commentator Nicholas von Hoffman has Corporations of America Act, steps in this Washington, DC-based Institute Institute urged a somewhat edgier surcharge, a special direction. The bill would extend tax breaks for Policy Studies and edits Too Much, an “Victory Over Terror” levy that would and federal contracting preferences to online weekly on excess and inequality. subject incomes over $5 million to a 20%

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