Five years after the collapse of the investment bank Lehman Brothers and the ensuing 2007-09 financial crisis, the issue over how much CEOs are compensated still ignites visceral emotions among public opinion.
This makes sense. As a nation, we’ve suffered from unprecedented bad economic conditions in recent years. Growth remains tepid. Unemployment is perpetually high. Americans are wondering whether this lackluster state of flux is here to stay.
Well, at least that’s true for “99 percent” of the nation.
Indeed, middle class families have been hit hardest by the Great Recession, with the average American family’s net worth plummeting 40 percent from 2007-10, virtually erasing two decades worth of Americans’ wealth, according to the Federal Reserve.
The remaining “1 percent,” on the other hand, has been living the good life — and the truth is they’ve been doing increasingly well for some time now.
Between 1979 and 2007, the top 1 percent of earners increased their incomes by about 275 percent, compared to a mere 40 percent increase for the middle 60 percent of the income distribution, according to a 2011 Congressional Budget Office Report.
Put simply, we’ve got an income inequality problem — the rich are getting richer while the poor and middle class are falling behind.
Now, our economic woes, particularly when it comes to economic inequality, can be solved with serious policy solutions that involve reforms to our nation’s tax and spending codes.
Unfortunately, no such action is taking place.
Instead, the Securities and Exchange Commission decided to go light on the substance, and passed a proposal that amounts to nothing more than class warfare.
Here’s the SEC’s idea of how to affect change: Last Wednesday, it passed a measure that requires publicly traded companies to disclose how the CEOs’ paycheck compares with the average worker’s pay in the company.
It’s hard not to be skeptical.
First off, publicly traded companies already have to report how much their CEOs earn. What good does expressing the average worker’s pay in terms of the CEO’s?
Well, top unions and labor advocates, such as the AFL-CIO, say it will help investors identify top-heavy compensation models.
Are you kidding me?
Since when do shareholders care if a company’s workers are getting paid little relative to their CEO? Shareholders want all work to be offshored and automated, because that ultimately equates to more money in their pocket.
The overwhelming point is that we know CEOs make a lot of money; highlighting comparisons between the boss and the rank-and-file employee won’t lead to a massive outrage among shareholders.
However, a simple fix that would help decrease inequality — and piss shareholders off — would be to raise the 15 percent capital gains tax, which is the rate of tax you pay for stocks and bonds, to around 25 percent.
Why?
As of now, the tax rate for an individual earning between $36,251 and $87,850 is 25 percent.
But top earners in society, who typically have most of their wealth tied up in stock and bond markets, pay significantly less.
For instance, Warren Buffett is famous for saying that he pays less in taxes than his secretary, because he is taxed at the capital gains rate, as opposed to individual income rates.
It’s common-sense measures like these, pushed by respectable public figures such as Buffett, that end up affecting change.
Not the hipster Occupy Wall Street Movement or CEO pay ratios.
Jay Meyers is a 20-year-old economics junior from Shreveport.