The Minimum Wage and the Divide Between Wall Street and Main Street

By GREGORY N. HEIRES
It’s always eye-opening to look at the divide between Wall Street and Main Street.

The income gap gives you a sense of the depth and cost of inequality in the country, where an estimated 42 percent of workers earn less than $15 an hour. That’s right, more than four of every ten workers!

The $25 billion in bonuses given out to 172,400 Wall Street employees in 2015 would be enough to double the earnings of the 895,000 Americans who work in full-time jobs at the federal minimum wage of $7.25 per hour, according to “Off the Deep End: The Wall Street Bonus Pool and Low-Wage Workers,” a recent report of the Institute for Policy Studies.

Highlighting the divide between Wall Street and Main Street, the Fight for 15 movement has created a political climate to allow for state and local initiatives to boost the minimum wage. Both New York and California have raised their minimum wage to $15 an hour.

Democratic presidential candidate Sen. Bernie Sanders, who put inequality at the center of this year’s Democratic primary race for the presidency, helped make the $15 minimum wage–once regarded as a pie-in-the-sky proposal even by some on the left–a realistic goal. Democratic presidential candidate Hillary Clinton is for boosting the federal minimum wage to $12 an hour while encouraging local $15 an hour initiatives. Republican candidate Donald Trump has flip-flopped on this issue.

“For Wall Street employees, annual bonuses come as an extra bonus on top of their base salaries, which averaged $404,800 in 2014,” the IPS report states. On top of their bonuses and salaries, executives often receive large stock options and restricted stock gains.

The 2015 bonus pool in 2015 would be enough to bring the wages of the workers in any of the following groups up to $15 an hour:

• restaurant servers and bartenders (2.6 million workers)

• home health and personal care aides (1.6 million), or

• fast food preparation and serving workers (2.6 million).

Fairness and Economic Policy

The startling pay gap between Wall Street employees and low-wage workers raises questions about fairness and economic policy.

A pay rate of $15 an hour is what’s needed to cover basic living costs in most areas of the country, according to the National Law Project. As a society, do we want to tolerate an out-of-balance economy in which more than two out of five workers earn less than $15 an hour?

By increasing the minimum wage, the government would not only raise the income of low-wage workers, it would also stimulate the economy.

Low-wage workers typically spend their entire paycheck to meet their day-to-day expenses, sparking additional economic activity. In contrast, the wealthy tend to save and invest more of their earnings.

“The Wall Street bonus season may coincide with an uptick in luxury goods sales, but a minimum wage hike would give America’s economy a much greater boost,” the IPS briefing says.

The government could address inequality by raising the Earned Income Tax Credit, implementing a transaction tax on financial trading and adopting more progressive income tax policies. Closing a loophole that allows certain earnings of hedge fund managers to be taxed as capital gains rather than as income (with its higher rate) would also help curb inequality.

As an economic policy, raising the minimum wage makes sense. Ethically, in our economically polarized county, it’s ethically the right step to take.

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Privatizing Public Services: A Free-Market Fiasco




By GREGORY. HEIRES Small government advocates tout privatization as a way to reduce costs and improve services in the public sector. But around the country, the privatization of state and local government services has a shoddy track record. Governments started … Continue reading






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The Instability of Labor and the Gig Economy

By GREGORY N. HEIRES

The gig economy is receiving a lot of attention these days as online businesses like Uber car service and Airbnb Inc. hoteliers prosper.

Optimists predict online businesses will continue to grow rapidly and workers will increasingly find their niche in jobs in that sector.

This Pollyannaish outlook views the gig economy as an economic sector where we can enjoy our freedom to define ourselves and fulfill our sense of entrepreneurship and creativity through the free market–and earn a lot of money.

Some analysts believe that the gig economy will be the answer to the failure of the economy to produce good jobs since the Great Recession and, in the long run, lead to a reduction of economic inequality.

Others are more skeptical.

“In reality, the so-called ‘gig’ economy is really two quite different economies,” former Labor Secretary Robert Reich wrote recently on his Facebook page. “Wealthier Americans are using ‘gig economy’ platforms to rent assets like their homes (Airbnb) or sell products they own or make,” he wrote, commenting on a JP Morgan Institute report that questions whether the gig economy will reduce inequality.

“By contrast, low-income workers sell their direct labor, such as working as Uber drivers or TaskRabbit movers. In other words, the gig economy is giving those who already have wealth a higher return on that wealth. But it’s not giving those who only have their own labor a higher return on that labor, because it’s enabling corporations (like Uber) to shift business risks onto workers–and those added risks are reducing economic security and predictability.”

Unmasking the Gig Economy

Panelists questioned the bullish view of the gig economy during a May 6 forum called “Unmasking the Gig Economy: Harmful or Helpful?” at the 41st Annual Convention of the Metro New York Labor Communications Council, which represents labor and community communications professionals in the New York City area.

While recognizing that employment in the gig economy may represent what more and more workers will face in the future, panelists warned of the abuses, low wages and exploitation accompanying this process.

Without government oversight and regulation, the gig economy could just be a continuance of four decades in which workers have experienced declining and stagnating wages, financial insecurity and an erosion of benefits accompanied by skyrocketing inequality.

“Is this the end of employment?” the moderator, investigative reporter Robert Hennelly, said.

In the gig economy, workers will need to look after themselves by bargaining for their pay and rights and learning how to analyze contracts, panelists said. Meanwhile, unions should adapt to the new economy by reaching out to these workers.

A positive sign was the decision of writers at Gawker online media to vote for a union last year. Workers at other online journalism businesses have followed.

“Our primary task is to push back,” said panelist Katie Unger, a writer with City Limits magazine.

Declining Traditional Jobs

The gig economy reflects the growth of alternative work arrangements in the United States.

As the country continues its shift to a service economy, the number of temporary help agency workers, freelancers, contract workers, on-call workers and independent contractors are increasingly defining the 21st century economy.

The percentage of workers in these alternative work arrangements increased from 10.1 percent of the workforce in February 2005 to 15.8 percent in late 2015, according to a March study by economists Lawrence F. Katz of Harvard University and Alan B. Krueger of Princeton University.

An alarming finding of the study is that alternative work arrangements apparently account for all of the net employment growth in the United States from 2005 to 2015.

Workers employed in alternate work arrangements increased by 9.4 million during that period while workers with traditional jobs dropped by 0.4 million. A new study by Intuit Inc. projects that the contingent workforce — which has grown from 17 percent 25 years ago to 36 percent today — will reach 43 percent by 2020.

Estimates of the size of the gig economy vary quite a lot.

Krueger and Katz conclude that 0.5 percent of the workers in the United States provide services through online intermediaries. The JP Morgan Chase Institute estimates 3.1 percent of adults earned income through online work between October 2014 and September 2015.

The gig economy is part of the casualization of the economy that at least so is failing to address income inequality and the lack of good jobs.

So, the gig economy may be lining the pockets of owners, but it too often means an unstable job with no benefits, no union and an uncertain income for workers.

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The Union Advantage for Contingent Faculty

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By GREGORY N. HEIRES
Over a 30-year career, union representation can mean an additional compensation of at least $1 million for a full-time professor at public regional universities, according to a recent study.

The study is good news for adjuncts and other professors around the country who are fighting for union recognition.
Increasingly, instructors at private and public higher-education institutions see unions as an answer to a lack of benefits, dismal pay and the disappearance of tenure-track positions.

Nationwide, the faculty and graduate students at nearly 70 colleges and universities have voted to unionize in the past three years, according To William A. Herbert, executive director the National Center for the Study of Collective Bargaining in Higher Education and the Professions at Hunter College in New York City.

The positive findings about union representation at regional public schools come from a paper by Stephen G. Katsinas, Johnson A. Ogun and Nathaniel J. Bray of the Education Policy Center at The University of Alabama.

The “presence of collective bargaining matters,” the paper says.

In 2011, the latest year for which data on salary and benefits at the 390 regional universities in the United States is available, full-time faculty covered by collective bargaining agreements at those institutions received $17,000 more in total monetary compensation than non-union instructors. Unionized instructors earn anywhere from 5 percent to 50 percent more than their non-union counterparts, according to the study.

The benefit of unionization is evident at Tufts University, where part-time lecturers voted to unionize in 2014.

At the private university, instructors of romance languages saw their pay increase 40 percent after unionizing. Adjuncts are now covered by one- to three-year contracts, depending on their experience. They are paid at least$ 7,300 per course. Adjuncts with eight years of experience receive $8,760 per course.

Colleges and universities began using contingent instructors as a way to reduce costs during the economic downturn in the 1970s. The number of full-time faculty plummeted by 77 percent from 1971 to 2011, according to the Dept. of Education.

Today, as many as 1 million adjuncts work at colleges and universities nationwide.

More than 50 percent of the faculty in the country is part-time instructors or adjuncts, according to The American Prospect. Adjuncts teach about a third of the classes at community colleges and about a fourth of the classes at research universities, according to a Coalition on the Academic Workforce study.

Years ago, most of the faculty represented by unions were full-time professors on tenure track.

Today, with the growth of part-time faculty, 90,000 of the American Federation of Teachers’ 215,000 members employed in higher education are contingent workers, a group that includes faculty in non-tenure track positions, part-timers, graduate students and post-doctoral students. The union represents 100,000 full-time instructors on tenure track.

The Service Employees International Union is carrying out a nationwide organizing campaign of higher education instructors called Faculty Forward. The project has an ambitious goal of signing up hundreds of thousands of adjuncts.

Clearly, the union message resonates with contingent faculty.

The Faculty Forward campaign has succeeded in 38 of the 41 representation votes held since the organizing effort began in 2013. All told, SEIU has organized around 25,000 contingent faculty in recent years.

The appeal of unions to adjuncts isn’t surprising.

The disappearances of stable unionized blue-collar jobs and the growth of precarious, low-wage service work are probably the most frequently cited examples of how the 21st century economy isn’t working for most Americans.

But the plight of adjuncts shows how professional workers are also victims of four decades of declining and stagnant wages and increasing inequality. Nearly a quarter of adjuncts receive some form of public assistance, such as food stamps or Medicaid, according to a study by the University of California at Berkeley.

Many adjuncts earn poverty-level wages. They are among the millions of workers whose compensation falls below $30,000 a year.

Adjuncts typically earn about $2,700 per course. That amounts to about $22,000 a year for four courses per semester. Once class preparation, meetings with students and grading are considered, adjuncts say their pay probably works out to less than $15 an hour.
The SEIU campaign’s long-term goal is help adjuncts receive a guaranteed a minimum compensation of $15,000 with benefits for each course they teach.

A lofty goal?

In November 2012, when fast-food workers in New York City launched their campaign to be paid $15 an hour and win union representation, many analysts—including progressives—described it as an unrealistic, pie-in-the-sky hope.

Well, this year, New York State and California have adopted $15 an hour minimum wage plans.

Why not $15,000 a course for contingent faculty?

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The Cost of Global Inequality

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By GREGORY N. HEIRES
Inequality around the world is deepening as the international elite sets the rules of the global economy, which allows them to accumulate vast wealth and income at the expense of everyone else.

The widening inequality stifles economic growth and poses a threat to political and economic stability.

“Far from trickling down, income and wealth are instead being sucked upwards at an alarming rate,” concludes “An Economy for the 1 %,” a recent report by Oxfam International. “The global inequality crisis is reaching new extremes.”

Squeezing the Middle Class and Poor

Today, the richest 1 percent holds more wealth than the rest of the people in the world combined according to the Oxfam report.

In 2015, 62 billionaires had accumulated the same wealth as 3.6 billion people, the bottom half of the world’s population. They increased their wealth by 44 percent in the five years that followed 2010, amassing $1.76 trillion.

During the same period, the bottom half of the world’s population saw its wealth decline by 41 percent, a little over $1 trillion.

Some analysts suggest the Oxfam report overstates the growth of inequality. But in a sense that’s beside the point: It’s simply undeniable that inequality has deepened in recent decades as the concentration of income and wealth has become greater. Other reports also cite disturbing data:

• A 2015 Credit Suisse report concludes that the top 1 percent own half of the world’s wealth. The report says an individual must have more than $759,900 to be in that exclusive class.

“Middle class wealth has grown at a slower pace than wealth at the top end,” said Tidjane Thiam, the chief executive officer of Credit Suisse, when the report was released.

• A 2015 report by the International Monetary Funds says, “Estimates suggest that almost half of the world’s wealth is now owned by just 1 percent of the population, amounting to $110 trillion—65 times the total wealth of the bottom half of the world’s population.”
“In most countries with available data, the share held by the 1 percent wealthiest population is rising at the expense of the bottom 90 percent population,” the report says.

A Barrier to Social Mobility

Conservatives often respond to concerns about inequality with two words: “So what.”

Reflecting a Darwinian philosophy, they contend that the rich earn their vast wealth thanks to their superior intelligence and talent. And they say the accumulation of wealth and income benefits the larger society.

Yet if inequality had not grown between 1990 and 2010, 200 million more people would have escaped from poverty, according to Oxfam. Had economic growth benefited the poor, more than the rich, that figure would be 700 million.

The Divergence of Productivity and Wages

One of the most important reasons for the deepening of inequality is that since the late 1970s capital has taken and ever growing portion of the increase of productivity.

From the end of World War II until then, the income of the typical family in the United States rose along with productivity. If that trend had continued, the median family income would be $9,220 higher today, according to the Economic Policy Institute.

The wages of the bottom 70 percent of earners, according to EPI data, have been basically stagnant since the late 1970s.
Between 2000 and 2013, real wages fell for the bottom 90 percent of wage earners. The real wages of 70 percent of four-year college graduates have been stagnant since 2000.

The divergence between productivity and income is happening around the world. It’s the case in nearly all rich countries and most poor countries.

From 1988 to 2011, the top 1 percent accumulated a higher percentage of global income growth than the bottom half of the global population, according to Oxfam.

Public Policy and Tax Havens

Inequality is no accident.

It results from public policies and other factors that include: deregulation; financial secrecy; the growing power of the financial sector; trade liberalization; a weakening of labor regulations; the growth of casual and part-time work; privatization; the loss of union power; globalization, and tax cuts for the wealthy and corporations.

The global elite has filled its pockets by shaping the global tax system and taking advantage of tax havens. National taxes are becoming less progressive and governments are unable to collect revenue because of cross-boarder tax dodging.
Oxfam found that:

• Among 200 companies, including the 100 largest firms in the world, nine out of 10 are present in a tax haven.

• Tax dodging by multinational corporations costs developing countries about $100 billion each year.

• About $7.6 trillion of individual wealth is deposited in tax havens. That’s more than the combined gross domestic product of United Kingdom and Germany.

• If taxes were paid on the income generated by offshore deposits, governments would have $190 billion more available each year for spending on public services.

Instability and the Financial Sector

The growth of the financial sector’s role in the economy has contributed to greater inequality and an increase of the concentration of political power of the economic elite.

In countries with strong financial sectors, economic growth tends to be slower.
The sector’s high salaries exacerbate inequality and the gender pay gap. In the financial sector, men with similar profiles earn 22 percent than women.

Economic and Political Upheaval?

One must wonder how much longer this economic polarization can continue until there is major economic instability, social unrest and political upheaval. Inequality along with other factors—poorly paid jobs, stagnate and falling wages and a loss of faith in democratic institutions—is behind the social, political and economic polarization evident in the presidential primaries in the United States.

High inequality is bad for the economy, according to the 2015 IMF report, “Causes and Consequences of Income Inequality: A Global Perspective.” With workers no longer receiving their fair share of productivity, their stagnating and falling wages result in lower demand, which hurts economic growth.

Deregulation has caused instability in the financial sector. Deregulation was at the root of the bursting of the housing bubble and the financial crisis of the late 2000s.

Only 38 financial crises occurred from 1945 to 1971, according to actionaid.org. The world experienced more than 130 crises between 1973 and 1997.

“Increasingly, people are saying inequality has a deep impact on economic growth and often precedes cataclysm,” says Jeffrey Madrick, author of “Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World.”

He adds, “The best example is the Great Depression.”

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The Dwindling Middle Class

By GREGORY N. HEIRES
The middle class is dwindling as the polarization between the rich and the poor in the United States deepens.

Middle-income Americans used to outnumber lower- and upper-income Americans four decades ago. But that’s no longer true.

Battered by stagnate wages and the loss of wealth, the middle class isn’t the economic majority anymore. Millions have fallen out of the middle class as the American Dream has become less attainable.

Losing Ground

“The hallowing of the American middle class has proceeded steadily for more than four decades,” says a 2015 study by the Pew Research Center, “The American Middle Class is Losing Ground.”

“Since 1971, each decade has ended with a smaller share of adults living in middle-income households than at the beginning of the decade, and no single decade stands out has having triggered or hastened the decline in the middle.”

The share of middle class constituted 61 percent of the adult households in 1971. That year, 80 million families were middle-income, compared with the total of 51.6 million families in the other tiers.

Today, the 120.8 million people in middle-income families make up 49.9 percent of the country’s adult population of 242.1 million as the rich and poor together (121.3 million people) have become the majority, the 73-page Pew report says.

As the middle class declined, the share of the adult population in the upper-income tier households increased from 14 percent in 1971 to 21 percent in 2015. The share of the lower-income tier increased from 25 percent to 29 percent during the same period.

The Pew report classifies a three-member family with an income range of $42,000 to $126,000 a year in 2014 dollars as middle-income.

Upper-income households lived on more than $188,000 a year, and the lowest-income families lived on $31,000 or less.

The Wealth Divide

Today, the wealth gap between middle-income households and upper-income households has reached a record high, according to the Pew report.

In 1983, upper-income families owned three times the wealth as middle-income families. That disparity climbed to seven by 2013.

The Great Recession of 2007-09 wiped out virtually 30 years of the wealth gains of middle-income families.

The median wealth of middle-income families climbed from $95,879 in 1983 to $151,050 in 2007, an increase of 68 percent. That sum dropped to $98,000 in 2010.

The median wealth of upper-income families rose from $323,402 to $729,980 from 1983 to 2007. They took a big hit in the Great Recession, but their median wealth nevertheless stood at $650,074 in 2013.

SIDEBAR

Income Status Varies Among Demographic Groups
The changes in income status from 1971 to 2015, according to the Pew report “The American Middle Class is Losing Ground,” has varied among demographic groups:

• People 65 years and older were the only age group with a smaller percentage in the lower-income households in 2015 (36 percent) than in 1971 (54 percent).

Seniors were the only age group whose share in the middle-income tier grew during that period. And their share in the upper-income group grew more than that of other age groups.

Social Security has insulated seniors from being victims of the growing polarization in recent decades. Social Security provides more than 55 percent of the income of the typical senior.

• Married couples have also fared fairy well. Marriage is linked to higher education, which is tied to higher income.

• Unmarried men became more likely to live in lower-income households and slightly less likely to be in the upper tier. More than half of single mothers with a child live in the lower-income tier.

• Black adults achieved the largest increase in income status from 1971 to 2015. Their share living in lower-income households declined from 48 percent to 43 percent during that period, and the percentage in the upper tier rose from 5 percent to 12 percent.
Despite the gains, blacks are still significantly less likely to make it into the middle-income and upper-income tiers. (Between 2007 and 2013, the median wealth of households headed by college-educated blacks fell by 60 percent, according to the Federal Reserve Bank of St. Louis.)

• The share of Latino adults in lower-income families has increased to 34 percent from 1971 to 43 percent in 2015. The Pew report attributes the rise to immigration, as foreign-born Latinos earn less than U.S.-born Latinos. The share of immigrants among Latino families rose from 29 percent in 1970 to 49 percent in 2015.

• The past four decades have been a disaster for young adults, ages 18 to 29, as their share among lower-income households increased to 32 percent in 2015 from 22 percent in 1971.

• College-educated adults are much more likely than others to be in the upper-income tier, yet the share of adults with at least a bachelor’s degree in the middle-income group fell from 56 percent in 1971 to 47 percent in 2015.

• High-skilled occupations (executives, managers, professional specialty jobs, such as engineers, and medical professionals) have experienced larger increases in income status. Job categories and workers experiencing losses include teachers, retail clericals, real estate agents, mechanics, laborers, as well as communications, business services and transportation.

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Plutocracy USA

blog forbes400-graphic1-2-01-400x200Plutocracy U.S.A.
By GREGORY N. HEIRES
Let’s be honest: The United States has become a plutocracy.

Reports about inequality typically focus on the country’s growing income gap, now the most skewed since the Great Depression.

But the country’s class and racial divide appears to be even more staggering when you examine the distribution of wealth.

Consider the following:

• The 20 wealthiest people in the United States own more than the combined wealth of the bottom half of the U.S. population, which is made up of 152 million people in 57 million households.

• The Forbes 400—the wealthiest group in the United States—own as much wealth as the entire African-American population and one third of the Latino population combined.

• The typical American family has a net worth of $81,000. The Forbes 400 own more wealth than the 36 million families who fit that financial portrait.

These are the findings of a recent report, “Billionaire Bonanza: The Forbes 400 . . . and the Rest of Us,” by the Institute for Policy Studies. The report is based on data from the recently released 2015 Forbes 400 magazine and the Federal Reserve’s latest triennial Survey of Consumer Finances.

The report acknowledges that many members of the Forbes 400 accumulated their wealth through successful corporations and innovation. Yet they have also benefitted from public policies—tax breaks, trade rules, regulations—that work in their favor at the expense of ordinary Americans. The accumulation of wealth is accompanied by an accumulation of political power.

The Wealth Space Needle

The concentration of wealth is at its most extreme since Forbes began its top 400 ranking in 1982.

The wealthiest 400 individuals in the country have amassed a total wealth of $2.34 trillion. That is more than the GDP of India, which has a population of 1 billion people. The small group could fit comfortably into a luxury Gulfstream G650 private jet.

The distribution of wealth is usually pictured as a pyramid. The IPS report says the country’s extreme distribution of wealth is better depicted by the Space Needle in Seattle.

The bulge atop the Space Needle represents the wealthiest 0.1 percent of the U.S. population. The Forbes 400 could fit in the luxury restaurant at the top of the Space Needle.

The elite 0.1 percent group, made up of 115,000 households, holds 20 percent of the country’s total wealth, about triple of what it held in 1972 (7 percent). With a net worth starting at $20 million, the group owns more than 20 percent of the country’s wealth. In fact, the top 0.1 percent owns more than the bottom 90 percent of the population.

The Racial Gap

The wealth accumulation of African-Americans and Latinos is significantly less than that of whites:

• The homeownership rate of white Americans in 2015 is 71.9 percent. The rate of African Americans is 42.4 percent and for Latinos it is 46.1 percent.

• About 55 percent of whites own some stock. But only 28 percent of African-Americans and 17 percent of Latinos own stocks.

The wealthiest 100 members of the Forbes 400 own as much wealth as the entire African American population of 42 million people, according to the report. The wealthiest 186 members of the Forbes 400 own as much wealth as the entire Latino population of 55 million people. The Forbes 400 has only two African-American and five Latino members.

“The United States has a persistent racial wealth divide, the result of a multi-generational legacy of discrimination in asset building that began during slavery and has continued right up to the present-day discrimination in mortgage lending,” the report says.

The Social Cost of Inequality

Why should we care about inequality?

• The wealth divide undermines the trust in our political and civic institutions. In the first phase of the 2016 presidential cycle, 158 wealthy donors accounted for half of all campaign contributions.

• The poor suffer disproportionately from health afflictions, and their mortality rate is higher than more wealthy people.

• Extreme inequality leads to less upward mobility. It creates disenchantment with the political system. And it fuels economic instability.

Over decades, the wealthy have rigged our political system and economic rules to serve their interests. Policy steps that would help reverse the rise in wealth concentration include: instituting progressive wealth and estate taxes; improving the safety net; raising the minimum wage; enacting campaign reform to allow for publicly financed elections; preventing corporations from depositing profits abroad to avoid taxes and taxing capital gains at the higher rate of ordinary income.

Restructuring student loans and creating a tuition-free public college system would allow students to start their careers with manageable loan payments or debt-free.

Creating “baby bonds” –investment accounts for newborns—would allow individuals to steadily accumulate savings from the day they are born. Affordable housing would help people with modest incomes purchase homes and accumulate wealth.

Unless we act, inequality will only continue to grow, the IPS report concludes, and we will continue to live in a plutocracy of gated communities, a shrinking middle class, a political system controlled by the rich, and an unconscionable racial divide.


Who are members of the Forbes 400?

The top 20 Forbes 400 includes:
Bill Gates ($71 billion, Microsoft)
Warren Buffett ($62 billion, Berkshire Hathaway)
Larry Ellison, $47.5 billion, Oracle)
Jeff Bezos ($47 billion, Amazon)
Charles Koch ($41 billion, Koch Industries)
David Koch ($41 billion, Koch Industries)
Mark Zuckerberg ($40.3 billion, Facebook), Michael Bloomberg ($38.6 billion, Bloomberg LP)
Jim Walton ($33.7 billion, Wal-Mart heir),
Larry Page ($33.3 billion, Google)
Sergey Brin (32.6 billion, Google)
Alice Walton ($32 billion, Wal-Mart heir)
S. Robson Walton ($31.7 billion, Wal-Mart heir)
Christy Walton ($30.2 billion, Wal-Mart heir)
Sheldon Adelson ($26 billion, Sands Casino)
George Soros ($24.5 billion, hedge funds)
Phil Knight ($24.4 billion, Nike)
Forrest Mars Jr. ($23.4 billion, Mars Candy heir)
Jacqueline Mars ($23.4 billion, Mars Candy heir)
John Mars ($23.4 billion, Mars Candy heir).

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Top 100 CEO Nest Eggs Worth Savings of 51 Million Families

By GREGORY N. HEIRES

As traditional pensions disappear and millions of Americans worry about being unable to enjoy a comfortable retirement, the typical CEO has a nest egg of nearly $49.3 million.

The largest 100 CE0 retirement packages were worth a combined $4.9 billion in 2014. That means the total nest egg of 100 individuals equals the retirement savings of 50 million families, or 41 percent of American families.

The country’s growing retirement divide is the subject of a recent report by the Institute for Policy Studies and the Center for Effective Government. The study analyzed the retirement packages of CEOs included in Security and Exchange Commission filings of publicly held Fortune 500 companies.

“The retirement divide is not the result of natural law, but rather the rules established that disproportionately reward company executives far more than ordinary workers,” according to the report, “A Tale of Two Retirements.” In other words, corporations have changed the rules at the expensive of millions of Americans while taking care of their CEOs.

In the early 1990s, 35 percent of private sector workers had defined benefit pensions, which guarantee lifetime monthly payments. Last year, only 18 percent of private sector workers had a traditional pension plan, a result the shift to 401(k) plans and other factors. Meanwhile, 52 percent of CEOs are covered by a company pension plan.

The Failure of the 401(k) Experiment

Unlike traditional pensions, risky 401(k) plans don’t guarantee monthly payments based on years of service and salary but rather impose the responsibility of saving and investment choices on employees.
Unfortunately, for millions of Americans, the 401(k) experiment has clearly failed:

• In 2013, the median balance of 401(k) plans was $18,433, enough to provide a monthly retirement payment of $104.

• Nearly 50 percent of American workers don’t even have access to a retirement plan at work.

• Among workers aged 50-64, 29 percent don’t have a defined benefit pension, 401(k) account or IRA, which means they will be wholly dependent on Social Security, which provides for an average monthly payment of $1,223.

Stagnant wages and the limited capacity of ordinary Americans to save for their nest eggs explain part of the retirement divide. But while ordinary workers with 401(k) accounts have a limit on the pre-tax pay they can put aside for their account (currently $24,000 a year for workers nearing retirement), CEOs are able to contribute however much they want to executive tax-deferred compensation plans in addition to their 401(k) accounts.

“While slashing worker pensions, CEOs take advantage of special loopholes that allow them to invest unlimited amounts of compensation into tax-deferred accounts set up by their employers,” the IPS and Center for Effective Government report says.

In 2014, 341 Fortune 500 CEOs had $3.2 billion in deferred compensation accounts. They saved $78 million in taxes that year by making deposits in their accounts.

“These massive nest eggs are not the result of CEOs working harder or investing more wisely,” the report says. “They are the result of rules intentionally tipped to reward those already on the highest rugs of the ladder.”

Corporations Target Employee Benefits After 1981 Traffic Controllers Strike

Today’s growing retirement divide dates from the 1980s as corporations began cutting employee benefits after President Ronald Reagan broke the air traffic controllers strike in 1981. Before then, in the decades after World War II, workers won traditional pensions and other benefits through strikes and collective bargaining. And by 1960, 41 percent of private sectors workers were covered by defined benefit plans, up from 15 percent in 1940.

Corporations aimed to boost earnings and stock prices by reducing their employee retirement costs. They have frozen defined benefit plans, closed the plans to new workers, adopted 401(k) plans and converted traditional plans to cash balance plans. (Cash balance plans don’t guarantee workers a monthly payment upon retirement.)

Over several decades, corporations have accomplished their goal of reducing their pension obligations, leaving millions of Americans uncertain that they will be able maintain their standard of living in their retirement years.

Today, many low-wage workers can’t afford to put enough into their 401(k) accounts even when companies offer generous matches. In 2014, one in four workers didn’t save enough to receive the $1,336 typical company match.

As CEOs enjoy multi-million dollar nest eggs, 37 percent of working age whites, 62 percent of African Americans, and 69 percent of Latinos don’t have any retirement savings.

“Our retirement crisis,” said National Jobs for All Coalition Chair Trudy Goldberg,”cannot be addressed in a political and economic vacuum. Full employment or jobs for all at living wages and a stronger labor movement are critical to the fight for retirement security. Low pay and periods of unemployment and involuntary part-time employment are all-too-common in today’s lean and mean labor market. And they obviously reduce pension and Social Security benefits. ”

“Living-wage campaigns and pressuring employers to provide better pension benefits are contributing to the struggle for pension rights,” Goldberg said. “It’s encouraging that some states are setting up pension plans. But we must continue to support policies that boost the standard of living of working families so that they can not only make ends meet but put aside money for an economically secure retirement. Because employment at living wages is the foundation of retirement security, pension advocates need to make full employment a key component of their struggle.”

Ending unlimited tax-deferred compensation for corporate executives, expanding Social Security, making it easier for unions to organize and establishing universal state-run pensions are key steps that would address the retirement divide, according to “A Tale of Two Retirements.”

But those policies will only be possible with a reordering of political power in Washington and the success of grassroots groups like the fast-food workers, whose prospects for a decent retirement will be brighter if they win their struggle for higher pay and union representation.

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Corporations Increase Offshoring to Dodge Taxes

By GREGORY N. HEIRES
Fortune 500 companies are increasingly using offshore tax havens, depriving the U.S. government of an estimated $90 billion in federal income taxes each year.

This corporate shell game puts a greater tax burden on ordinary Americans.

And in an era of stagnating wages and great inequality, the corporate tax dodging raises concerns about tax fairness and excessive corporate power, which are emerging as critical issues in the presidential race.

“Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt” says an October report by the U.S. Public Interest Research Group Education Fund and Citizens Tax Justice.

“When corporations dodge their taxes, the public ends up paying,” said U.S. PIRG Program Associate Michelle Surka. “The American multinationals that take advantage of tax havens use our roads, benefit from our education system and large consumer market, and enjoy the security we have here, but are ultimately taking a free ride at the expense of other taxpayers.”

All told, 72 percent of Fortune 500 companies used tax havens in 2014. U.S. multinational companies doubled the amount of cash they booked offshore for tax purposes from 2008 to 2014.

The Russell 1000 list of U.S. companies reported parking nearly $2.3 trillion overseas in 2014, about twice the amount in 2008, according to a study by the research firm Audit Analytics. This practice of using tax havens has allowed U.S. companies to increase their annual tax avoidance from $60 billion in 2007 to $90 billion in 2011, according to tax expert Kimberly Clausing of Reed College.

By and large, the cash booked overseas isn’t used for investing, according to the U.S. PIRG and Citizens for Tax Justice report, “Offshore Shell Games 2015.” Rather, it’s simply an accounting maneuver that allows companies to avoid their tax obligations. Corporations are able to disguise their profits by booking them to subsidiaries in tax havens.

Corporations Hold $2.1 trillion in Profits Overseas

Together, the 286 of the Fortune 500 companies that report offshore profits hold $2.1 trillion overseas. Thirty companies account for 65 percent of the profits held offshore. The top five companies are Apple, General Electric, Microsoft, Pfizer and International Business Machines.

Only 57 of the Fortune 500 companies have disclosed how much taxes they would have to pay if they did not book their profits offshore. A loophole in the tax code allows a company to avoid the disclosure requirement if it reports that it is “not practicable” to calculate the tax rate.

The U.S. corporate tax rate is 35 percent. But, on average, the 57 companies that disclose what they would owe on their offshore deposits apparently pay a tax rate of only 6 percent to foreign governments. Assuming the non-disclosing companies enjoy the same rate of tax savings, the total loss to the U.S. Treasury is $620 billion.

In 2010, U.S. multinationals reported to the IRS that they earned $505 billion in 12 of the most well known tax havens. That amounted to more than half of the profits that the companies reported earning abroad that year.

Profits Exceed Yearly Gross Domestic Product of Tax Havens

In the five tax havens–including Bermuda and the Cayman Islands–where the companies booked their profits, the total earnings were more than the value of those countries’ gross domestic product. “This illustrates how little relationship there is between where American multinationals actually do business and where they report they make their profits for tax purposes,” the U.S. PIRG and Citizens for Tax Justice study says.

In recent years, some companies have reported fewer subsidiaries in tax havens even while increasing the cash they hold abroad. They could be doing this to avoid media attention on their offshore tax dodging or the scrutiny of the IRS. On the other hand, the companies could simply be consolidating their offshore profit deposits.

Measures that the U.S.PIRG and Citizens for Tax Justice recommend for curbing the use of tax havens include:

• ending tax incentives to shift profits and jobs offshore. No longer permitting companies to indefinitely defer paying taxes on profits they attribute to foreign subsidiaries would raise nearly $900 billion over ten years.

• rejecting the creation of new loopholes

• closing the most egregious offshore loopholes. For instance, stopping companies from deducting interest expenses paid to their overseas subsidiaries would save $58.6 billion over 10 years.

• increasing transparency.

“All too often, corporations’ offshore cash isn’t offshore at all—it’s right here in the United States,” said Robert McIntyre, director of Citizens for Tax Justice.

“Corporations are using skilled tax attorneys to make it appear on paper that their U.S. profits, and their U.S.-based cash, are being earned, and kept, in foreign tax havens. The tax code makes this scam possible. Incredibly, Congress is considering pouring salt on the wound by giving companies a special low tax rate to ‘repatriate’ profits that, in many cases, are likely already here.”

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The Economic Recovery Leaves Behind Low-wage Workers

By GREGORY N. HEIRES
Wages have declined for most U.S. workers since the end of the recession in 2009, and there’s little hope for improvement without policy changes.

The largest real wage declines have hit workers in the most poorly paid occupations.

“The declines in real wages since the Great Recession continue a decades-long trend of wage stagnation for workers in the United States,” notes a September report by the National Employment Law Project. “If this pattern of real wage declines among the lowest-wage occupations persists, then we can expect the overall pattern of stagnating wages to continue.”

Certainly, there’s little ground for hope if a Republican is elected president next year. While the Republican candidates have expressed some concern about wage stagnation and inequality, they haven’t offered any solutions, except for their familiar prescription of tax cuts, which they claim will boost economic growth, thereby helping the poor and middle class. On the other hand, Democratic candidates are calling for a minimum wage increase and say they want to address inequality, now as bad as during the Great Depression.

Real median hourly wages—pay adjusted to account for inflation—fell 4.0 percent from 2009 to 2014 across all occupations, according to NELP, which is a national advocacy institution for low-wage workers.
The decline disproportionately affected workers in lower wage and mid-wage occupations. They experienced losses of 4.0 percent or higher, whereas the top 40 percent of workers saw declines ranging from 2.6 percent and 3.0 percent.

The Human Cost of Lost Income

Cooks and food preparation workers felt the greatest loss, as their pay dropped 8.9 percent and 7.7 percent, respectively. Other workers hit particularly hard included janitors and cleaners, personal care aides, home heath aides, and maids and housekeeping cleaners.

Too often, reports about wage stagnation are abstract and fail to point out the human cost of the loss of income. But the NELP study makes an effort to show how wage stagnation hurts the standard of living of working families:

• For a cook who works full time, an 8.9 percent drop in income from 2009 to 2014 means a loss of $2,185, or $437 a year. For an average household, that lost income is equivalent to two monthly grocery bills a year.

• The 7.7 percent wage decline of food preparation workers comes to $1,622 over five years. That $324 annual loss is what a family generally pays for two-and-a-half months of gasoline expenses for their car.

• Retail workers saw their pay drop by $1,125 in the five-year period. Their $225 annual loss translates into what they would typically pay each month on utilities.

Five of the ten occupations that the Bureau of Labor Statistics expects to add the greatest number of jobs to the economy from 2012 to 2022 are among the lowest-paying occupations that are especially affected by wage stagnation. These include personal care aides, retail salespersons, home health aides, food preparation and serving workers (including fast-food workers), and janitors and cleaners (except maids and housekeeping workers). The pay of these workers ranges from $8.84 an hour (food preparation and serving workers) to $10.97 an hour (janitors and cleaners).

An interesting finding of the report is that the five-year wage decline of the bottom 20 percent of the workforce was least among the lowest-pay workers. In fact, their real income actually grew between 2013 and 2014. Why? It’s likely because 22 states increased their minimum wage between 2009 and 2014.
Besides NELP’s economic briefing, the Allianz Global Wealth Report 2015 is another recent study that notes the recovery isn’t trickling down.

Financial Insecurity

The Global Wealth Report cites a Federal Reserve Bank survey to highlight the financial fragility of the typical U.S. household.

Forty-seven percent of the respondents said they would have to borrow money or sell something if they were hit with an unexpected $400 emergency. Only 53 percent said they would have no problem dealing with the emergency through their savings account or credit card.

“These results only go to show that there is still a long way to go before the recovery has trickled down to all Americans,” the report says.

“This has not been helped by what has been poor wage development in recent years on the whole or by the marked income disparity that continues to plague the US: almost 47 percent of total income goes to the population’s richest 10%, with as much as 30.5% of income concentrated among the top three percent of the income scale.”

What should be done to address stagnant wages? NELP offers a number of policy options:

• increasing the minimum wage

• bolstering the right of workers to form unions and bargain collectively
• enforcing wage protections more aggressively and

• raising the pay of low-wage workers in the public sector and at businesses receiving government contracts or subsidies.

“Addressing wage declines, especially for workers in the lowest-paid occupations, is urgent and critical; it should be a central focus of policymaking efforts at the federal, state and local leveling coming years,” the report concludes.

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