As the Democratic party gathers in Denver one issue that should be front and center is the staggering inequality of our times. And one of the most damning symbols of our New Gilded Age is exorbitant executive pay.

In 2007, the average S&P 500 CEO's pay package was $10.5 million, 344 times greater than the typical US worker.  The top fifty private equity and hedge fund managers pocketed an average of $588 million--19,000 times greater than the typical US worker. Thirty years ago, the average executive salary was just thirty to forty times greater than the average American worker's pay.

Senators Barack Obama and John McCain both propose greater shareholder say over CEO pay.  But when it comes to taking real action to close the loopholes that subsidize these obscene, reckless, and super-sized salaries neither candidate is aggressive enough.

A timely report from the Institute for Policy Studies (IPS) and United for a Fair Economy--Executive Excess 2008- shows how CEO compensation not only exacerbates our economic divide, but that the US taxpayer annually subsidizes it to the tune of more than $20 billion.  As Institute for Policy Studies fellow and Nation contributor Sarah Anderson, a lead author of the annual reports, told me: "It's hopeful to see the presidential contenders from both parties responding to the widespread public outrage over the problem of excessive executive pay, but their solutions fall short. Both support boosting shareholder power over executive compensation. This reform, known as 'say on pay,' could shame some boards away from offering truly obscene pay packages, but it has had limited effect in other countries.  Real executive pay reform demands tougher legislative action. And step one should be to plug the tax loopholes that currently encourage and subsidize runaway pay. We need to be asking our lawmakers--how much longer are you going to allow our tax dollars to wind up in the pockets of top executives?"

Executive Excess hones in on five proposed reforms to the loopholes which currently result in the $20 billion annual subsidy.  It's worth noting that Senator Obama has voiced support for one of the five proposed reforms, while Senator McCain supports none of them.

The first reform would end preferential capital gains treatment of carried interest.  Hedge-funders are largely paid by taking a cut of the profits when their companies sell assets.  This "carried interest" is taxed at a capital gains rate of 15%, so mega-billionaires end up being taxed at a lower rate than their secretaries.  The House passed legislation to close this outrageous loophole and tax this pay as ordinary income (currently 35 percent for the highest tax bracket).  It stalled in the Senate after more than twenty lobbying firms worked Congress.  The Joint Committee on Taxation estimates that the federal government would have received an additional $2.6 billion in revenues in 2008 had the measure passed.  Obama supports the reform and spoke out forcefully against his own party's leadership for its failure to rally around it.  McCain opposes it.

Unlimited deferred compensation allows most CEOs to shield their compensation through special deferred accounts set up by their employers.  Most ordinary taxpayers can annually defer just $15,500 income through 401 (k) plans, but there is no such cap on wealthy CEOs. They enjoy the privilege of depositing unlimited pay into these accounts and are untaxed until they begin making withdrawals.  In 2007, the Senate Finance Committee Chair, Democratic Senator Max Baucus, and the ranking member, Republican Senator Charles Grassley, proposed to limit the annual executive pay deferral to a not-so-modest $1 million. The Democratic Policy Committee estimated that it would have generated $806 million over ten years had it passed. It was killed in committee, but Senator Baucus has vowed to bring it up again.

Offshore Deferred Compensation accounts allow executives and companies to avoid any US tax liability.  Hedge Fund Research estimates that of the $1.86 trillion invested in hedge funds, $1.25 trillion is kept in funds registered offshore.  Most hedge funds have offshore subsidies that make these tax-avoidance schemes more readily available.  The Joint Tax Committee estimates that if offshore deferred compensation accounts were eliminated the federal government would collect $2.1 billion this year.  A bill to close this loophole passed in the House but the lobbyists got to it and it failed to pass in the Senate.

Unlimited tax deductibility of executive pay allows corporations to deduct unlimited "performance-based" pay.  As a result, corporations normally set salaries at about $1 million, and then add "performance-based" perks to arrive at the exorbitant pay packages.  The more the corporations pay, the more they can deduct from their own taxes. Representative Barbara Lee's Income Equity Act would cap the amount corporations can deduct to 25 times more than the lowest compensated full-time worker at any given company.  In addition to the issues of fairness and needed revenues, this legislation would encourage companies to raise pay at the bottom of the pay scale in order to attain higher deductibles for salaries at the top.  Based on an IPS sample of the top five executives at 1500 US firms, the current subsidy for unlimited deductions on executive pay is estimated at $5.2 billion annually.

The stock option sleight-of-hand allows companies to list the cost of stock options on their grant date, while taking a tax deduction for the value of the stocks when executives cash them in.  Companies therefore claim tax deductions on options-related costs that are far higher than the costs reported on their annual financial statements to Wall Street and investors.  (In 2005, the gap between the cost of stock options for corporations and the higher amount they deducted was $61 billion.) In 2007, Senator Carl Levin, chair of the Senate Permanent Subcommittee on Investigations, estimated that between $5 billion and $10 billion in additional revenues could be generated annually by eliminating "unwarranted stock option deductions."

In addition to closing the five tax loopholes above, the report notes that a key reform to restoring some sanity to the wage scale would be to pass the Employee Free Choice Act.  EFCA supports workers' right to organize and bargain collectively. Fifty years ago, over one-third of workers were unionized.  Today, only 7.4% of private sector workers are unionized.  Unionization is a check on excessive top-heavy compensation, raises benefits for union members, and leads to deals that also serve as models for non-union shops. Senator Obama strongly supports this legislation, Senator John McMansion McCain, of course, does not.  The Democratic Party platform also has good and strong language on empowering workers.

If we are to restore some sanity to our fundamentally unfair tax structure and wages, the first step is to elect Obama and win enough seats in the Senate to overcome the GOP's filibuster tactics.  But electing a new President and more Democrats isn't enough.  We're going to need to organize and expose the injustices of our current system.  A smart and independent populist movement, allied with bold political leaders who understand that our economy must work for all rather than the very few, is the only way we will create real and lasting change.

Comments (30)

1. Well, first..

   "Senators Barack Obama and John McCain both propose greater shareholder say over CEO pay."

   Can't wait for HAPP to show up and tell us that "McCain doesn't REALLY mean that, though!"...heheh

   Second,

   "But when it comes to taking real action to close the loopholes that subsidize these obscene, reckless, and super-sized salaries neither candidate is aggressive enough."

   No, but Obama will trim the edges a little bit more than McCain will...and that's about all the public REALLY wants.

   Again, as I've said for years now, "The Nation" will be as sorely disappointed in the next Democratic President...as the Hard Right will be.

   And that's a good thing for the majority of the country that isn't looking for no revolution.

   Posted by Maskdelta at 08/25/2008 @ 4:10pm

2. "And that's a good thing for the majority of the country that isn't looking for no revolution."

   Or grammar!

   Posted by nicholasclaxton at 08/25/2008 @ 4:13pm

3. Posted by nicholasclaxton at 08/25/2008 @ 4:13pm

   Deliberate, nicholas.

   Posted by Maskdelta at 08/25/2008 @ 4:25pm

4. Kind of surprised that Institute for Policy Studies didn't mention employee ownership of corporations as one of the possible solutions for excessive executive pay.

   Posted by Metteyya at 08/25/2008 @ 4:34pm

5. Posted by Metteyya at 08/25/2008 @ 4:34pm

   And how would that be accomplished, METT?

   Posted by Maskdelta at 08/25/2008 @ 4:35pm

6. Posted by Maskdelta at 08/25/2008 @ 4:35pm

   Through tax incentives.

   http://en.wikipedia.org/wiki/The_Employee_Ownership_Act_of_1999

   Posted by Metteyya at 08/25/2008 @ 4:48pm

7. You can't stop companies from paying their employees too much. Minimum-wage is one thing, maximum wage is another. Then you are talking about destroying the American dream, get obscenely rich. The general public does not want that. They want to get paid more but not at the expense of the American Dream.

   Posted by Cccomfo1 at 08/25/2008 @ 4:51pm

8. http://tinyurl.com/6yu7q8

   I see why Happy isn't around today.

   Posted by Cccomfo1 at 08/25/2008 @ 5:13pm

9. Posted by Metteyya at 08/25/2008 @ 4:48pm

   Sounds good, sign me up.

   Posted by Maskdelta at 08/25/2008 @ 8:04pm

10. Posted by 2HAPPY at 08/25/2008 @ 7:25pm

    So Obama is the "pro-corporate" guy and McCain is the one "looking out for the little guy"???

    Posted by Maskdelta at 08/25/2008 @ 8:05pm

11. Posted by 2HAPPY at 08/25/2008 @ 7:25pm

    He exchanges the money for employing their lobbyists in his advisers instead.

    Posted by Cccomfo1 at 08/25/2008 @ 8:21pm

12. >>>There is actually a lot more truth there than you or I care to admit!

    Posted by 2HAPPY at 08/25/2008 @ 8:18pm<<<

    Then maybe McSeven should lend the little guy one of his 7 refrigerators from one of his 7 houses so the little guy's family can have enough to eat?

    Posted by Metteyya at 08/25/2008 @ 8:23pm

13. Posted by 2HAPPY at 08/25/2008 @ 8:18pm

    So this "mistaken idea" that Republicans like Big Business, while the whole time it's liberal Democrats like Obama who do (you DO think Obama is a liberal Democrat, right?...or is HE the conservative and McCain the liberal?)...

    how did it get started???

    Posted by Maskdelta at 08/25/2008 @ 8:57pm

14. Posted by 2HAPPY at 08/26/2008 @ 12:01am

    Okay, so "both parties are in the pockets of corporations" but

    "Demos add operational complexities and add gazillion tax codes"?

    So, does Big Business not MIND those complexities and tax codes?!??!?!?

    Posted by Maskdelta at 08/26/2008 @ 08:56am

15. Posted by JOMAMMA at 08/26/2008 @ 11:30am

    We've talked about this, it won't work. And according to you the person who works 3 jobs so he can raise a family didn't earn it.

    In my opinion the person working 3 jobs earned a lot more than the person who was given their CEO job because they knew someone.

    Posted by Cccomfo1 at 08/26/2008 @ 11:50am

16. is as ridiculous as the myth of the "welfare queen" going to pick up her welfare check in her mink coat.------Posted by Darin_the_Troll at 08/26/2008 @ 11:52am

    Hmmm? WHO pushed THAT myth, Darin?

    Posted by Maskdelta at 08/26/2008 @ 11:56am

17. Good article, Katrina--dos Altermann ever read your stuff before he heads to HuffPo for a facial?? Unbelievable. He is what makes terms like "liberal elite" so effective!

    Posted by kdelphi95 at 08/26/2008 @ 12:34pm

18. All you need to do is look at the average time a CEO stays with a company to see they are pillaging. It's time for stockholders to look long term and demand the CEO's do what's right for the company long term and not just create short term profits for themselves.

    Posted by kmacleod at 08/26/2008 @ 12:44pm

19. Posted by JOMAMMA at 08/26/2008 @ 12:04pm

    When did I bitch about the current system? I had an intelligent discussion with you about your tax system. And the problems that accompany it. You say it will work but without any proof. You are basing your belief on a theory and you admitted that yourself. Behind this adamant about a theory and saying it will work as a fact is funny. You have no facts right now only theory so you might want to be a little less rarrr about it.

    Rarr for lack of a better word.

    Posted by Cccomfo1 at 08/26/2008 @ 2:55pm

20. Posted by Darin_the_Troll at 08/26/2008 @ 12:05pm

    Bush is proof that not all CEO's know what they are doing. He sunk company after company yet was given more jobs.

    Posted by Cccomfo1 at 08/26/2008 @ 2:57pm

21. You can be the greatest CEO in the world, if your company makes buggy whips in 1899, you're going down, and you need to switch to something else when technology makes your product obsolete. Posted by Darin_the_Troll at 08/26/2008 @ 4:03pm

    He was working in OIL.

    Posted by Cccomfo1 at 08/26/2008 @ 5:03pm

22. Posted by Darin_the_Troll at 08/26/2008 @ 4:03pm

    Last I checked oil wasn't obsolete yet. Come on Darin I know you are all pro-right-wing agenda and all but you can at least admit that, considering Bush sunk not just one but multiple companies, he was a lousy CEO.

    Posted by Cccomfo1 at 08/26/2008 @ 5:05pm

23. It is simply not possible for everyone in the United States to become a millionaire or a billionaire or even make hundreds of thousands of dollars. This has nothing to do with lack of opportunity, or not taking risks or not being innovative. It has to do with the fact that most of the jobs that keep the United States going, that keep the people alive, can not pay a wage that is so gluttonous. We know everyone is not free to make this extreme wealth, regardless of their intelligence and work effort. In order for society to exist, large fractions of the population are needed to bring food to market, and we know these people can't charge prices that would provide them yearly incomes of millions or billions of dollars. These people work just as hard, if not harder, and are just as intelligent, if not more intelligent, as our rich business and political leaders who claim it is there right to make millions or billions of dollars a year. We are all dependent on the people who bring food to market, including the extremely wealthy. It is not possible for all people to make such riches, so why do we allow a select few?

    We can all live healthy prosperous lives, but we all can't live the greedy gluttonous lifestyles practiced by most of our business and political leaders and so we need to quit pretending that we can and we need to quit holding this up as an ideal to strive towards.

    At the heart of our global problems are the sins of greed and gluttony that our global economic system supports and encourages. No religious doctrine supports the greed and gluttony that our business and political leaders practice. It is time to bring the economic discussion front and center and have a real debate about greed and gluttony.

    Posted by Joel Cooper at 08/26/2008 @ 5:40pm

24. Cheer up & Don't worry...the "global problems" perceived/recognized by sensitive human beings like you, will disappear when human beings go extinct....the globe will go on a few more billion years just fine!

    Posted by 2HAPPY at 08/26/2008 @ 6:54pm | ignore this person | warn this person

    Agreed! But I like to keep pointing out that the rich and powerful aren't as important as they claim to be. Maybe they should be required to grow and gather their own food.

    Posted by Joel Cooper at 08/26/2008 @ 7:14pm

25. ccc, So then we need to hire execs with experience and a Good track record?......... Like a CEO of Exxon to run the country instead of a Bush or Obama or a McCain? Posted by JOMAMMA at 08/26/2008 @ 5:20p

    Shouldn't hire execs at all. A government is not a business and should not be viewed that way. When you do it leads to corruption.

    Posted by Cccomfo1 at 08/26/2008 @ 8:07pm

26. Posted by JOMAMMA at 08/26/2008 @ 5:20pm

    And that's not sleight at CEO's either. It's just to be a CEO you have to be cutthroat. You have to be willing to jump at every opportunity and in many of the larger businesses you have to be willing to do some underhanded things in order to get to the top. That's what it takes to cut it in the business world. I don't want a President who stoops low to get high. I want a moral leader.

    Posted by Cccomfo1 at 08/26/2008 @ 8:10pm

27. KVH: "Thirty years ago, the average executive salary was just thirty to forty times greater than the average American worker's pay."

    Thirty years ago what were the average revenues of these same corporations? Are the salaries across the board not all increasing? Are you suggesting that at some point the CEO's will be paid 100% of the corporation's earnings and everyone else will work for free? Are the stock holders (the owners) of the corporations being harmed? Do you believe the stock holders would prefer diminished portfolio values in favor of lower CEO compensation? What do you suppose prevents the conscientious stock holder from dumping their share of "unfair" corporations?

    Posted by Person at 08/26/2008 @ 9:51pm

28. I could, and probably should if at least for my own edification, take KVH's post apart sectionally. But really it comes to a single kernel of diametrically opposed ideological constructs. I believe in free market capitalism with every fiber of my being. I believe it does the most good for the most people. I believe our existence has been immeasurably improved by capitalism, economically and socially, and most certainly with regard to classical liberalism. For reasons unknown to me KVH does not hold these beliefs. KVH demonstrates a peculiar affinity for looking beyond the plain and obvious truths of our very existence -- which cannot be forcefully enough described as the unchallenged pinnacle of the human experience -- and into a self constructed paradigm of hopelessness, decline and general malaise.

    I'm very literally happy I'm not KVH. For my world enjoys a much more beautiful and hospital environment.

    Posted by Person at 08/26/2008 @ 10:37pm

29. Posted by Darin_the_Troll at 08/26/2008 @ 9:50pm

    Soo. All those companies Bush touched that fell apart were all someone else's fault....

    Accountability.

    Why is it when someone is poor it always their fault there are no extenuating circumstances, however when every thing Bush touches turns to shit its all extenuating circumstances.

    Posted by Cccomfo1 at 08/27/2008 @ 01:10am

30. Posted by Maskdelta at 08/25/2008 @ 8:05pm

    Yeah, Mask...you know. Them middle class folks....the ones who only earn 3-5 million.

    Posted by leftofcenter at 08/27/2008 @ 09:25am