Relevant and even prescient commentary on news, politics and the economy.

Taking the CEO Salary Fight Local

Portland, Oregon’s government will be the first to test the legislative waters on excessive CEO pay by companies if passed the city board December 7, 2016. If the pay of a CEO exceeds 100 times of what a typical company employee makes, a surtax will be assessed the corporation. More than 500 corporations do enough business within Portland to be affected by the new tax. Since the Republican led Congress has failed to act on CEO excessive pay based upon Risk, many states and cities are looking at taking it upon themselves to assess companies who pay their executives in stock options and similar performance methods as it is taxed at a lower level than regular income. With the new tax, Portland is expected to generate up to $3.5 million, which will be used to care for the homeless.

Firms that do business in Portland would owe a 10 percent surtax on the city’s existing business tax if they pay their CEOs more than 100 times what their workers receive. For example, if a large company owes the city $100,000 and has a pay ratio of 175-to-1, its surtax would be $10,000. Other cities such as San Francisco are considering taking similar action.

Peter Drucker had strong feelings on the subject and he once termed sky-high CEO compensation ‘a serious disaster,’ which was well worth revisiting in light of the news that the men who sat atop Fannie Mae and Freddie Mac (FRE) (BusinessWeek, 9/10/08) could be eligible for as much as $24 million in severance and other benefits after being ousted from their positions. Last week the federal government was forced to step in and rescue the faltering mortgage giants in a move that could cost taxpayers billions.”

Around that time CEO’s had income packages worth $10.5 million or about 344 times what the average worker was making. Peter Drucker felt a CEO’s pay should not exceed 20 times (1984) what the average worker was making in income. As of 1993 the problem has worsened as companies dodge corporate income tax by paying their CEO is stock options which can be deducted from corporate income tax and are tax at a lower rate than ordinary income tax at ~39%.

References:

“Put A Cap on CEO Pay” , Rick Wartzman, Bloomberg, September 12, 2008.

“Take The CEO Pay Fight Local”, Sarah Anderson, US News, October 21, 2016.

Institute for Policy Studies — Talking Points —, Sarah Anderson, October, 2016.

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Wall Street CEO Bonus Loophole

Sarah Anderson at Institute for Policy Studies writes about how the 1993 reform to rein in runaway CEO pay by capping tax deductions of executive compensation at $1 million created a loophole as it did not apply to stock options and other performance pay methods. More-performance-measured-income to executives paid out, the lower the company income tax presently.

What was the impact?

CashingInOnTheCrisis-Graphic-1-1[1]
$2 billion in fully deductible performance bonuses by top 20 U.S. banks to their top five executives over the past four years at a 35 percent corporate tax rate resulted in a taxpayer subsidy of > $725 million or $1.7 million per executive per year.

CashingInOnTheCrisis-Graphic-2-1
On-the-hot-plate Wells Fargo Bank between 2012 and 2015 received $54 million in tax subsidies for CEO John Stumpf bonuses. During those years, CEO John Stumpf’s bank faced $10.4 billion in misconduct penalties.

CashingInOnTheCrisis-Graphic-3-1-400x200[1]
The same top 20 executives received ~ $800 million in stock-based “performance” pay, before stockholders were out of the red and the bank’s stocks returned to pre-2008 levels.

CashingInOnTheCrisis-Graphic-4-1[1]
Jamie Dimon CEO of JP Morgan cashed in fully deductible $23 Million in bonuses in Feb/March 2010 while the nation was still reeling from the crisis. Since 2010 JP Morgan has received $28 billion in penalties for mortgage misconduct.

The same as Main Street bailing out Wall Street for their malfeasance, Main Street was also subsidizing Wall Street Executive bonuses. Some potential solutions:

Implement Sec. 956 of Dodd-Frank: Rigorous limitation by regulators of Bank excessive risk taking and the banning of excessive bonus based upon risk – “not yet been implemented and this proposal does not go far enough to prevent the type of behavior that led to the 2008 crash.” Sec 956 allows lenient bonus deferrals, weak stock-based pay restrictions, and discretionary enforcement left to bank managers.

Close the hedge and private equity loophole which allows private equity and hedge fund managers to pay a 20 percent capital gains rate on the bulk of their income rather than the 39.6 percent ordinary income rate. The Carried Interest Fairness Act of 2015 (HR 2889/S 1689) requires that the “carried interest” compensation received by private equity and hedge fund managers be taxed at ordinary income rates. Due to a lack of activity by Congress some states such as New York are implementing their own legislation to close the loop hole generating $3 billion in new revenue.

The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act (S. 1127 and HR 2103) eliminates “performance pay” exemptions and caps the deductibility of compensation at $1 million for every employee.

Reference:

Executive Excess 2016: The Wall Street CEO Bonus Loophole, Sarah Anderson and Sam Pizzigati, Institute for Policy Studies, August 31, 2016. “The first report to calculate how much taxpayers have been subsidizing executive bonuses at the nation’s largest banks.”

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 “Immigration and Job Creation at the State Level”

Mike Kimel continues his discussion on how Immigration impacts Job Creation.

In this post, I am looking at how the percentage of a state’s population that is made up of immigrants affects job creation.  After all, we hear from some quarters that immigrants create jobs, and from others that immigrants take away jobs that would otherwise go to Americans.  Obviously, the truth is sometimes one and sometimes the other, and mostly somewhere in between.  It depends on many factors, including the nature of the immigrants themselves, who, like anyone else, vary in attitude, capability, sociability, etc.  Even so, understanding whether in aggregate, immigrants help or hinder, and under what conditions, is worth knowing.

As I was pulling data, it occurred to me that I had phrased the question poorly.  The relevant issue is not whether immigrants create jobs.  It is whether immigrants create jobs for the native population.  If you doubt that, I’ve got an experiment for you to perform.  Go to Chetumal.  From the pictures I’ve seen, it seems like a very pretty town in Mexico on the border with Belize.   Meet with the mayor, and tell him (at this time the mayor is a man) you will renovate a factory and put 100 people to work in his town.  I bet he will be ecstatic.  Now explain that your plan involves hiring 110 Belizeans and firing 10 Mexicans who are currently employed.   My hypothesis is that the mayor’s mood will noticeably sour at this point.  You don’t actually have to go with Chetumal to run this experiment.  Pretty much any jurisdiction not run by a US politician will probably do.

Having established the question, here’s how I tackled it.

1.  I found data on the immigrant share of each state from Pew Research.  Data is available in 10 year increments from 1960 to 2010, and then for 2014.  Pew references the American Community Surveys, so I am 99.97% certain that all of the data originates with the Census, but I couldn’t find it there.

2.  I found data on monthly reports containing, among other things, “employees on nonfarm payrolls by state” for every month going back to December 1993 at the BLS

3.  There are three years for which the immigrant data can be matched to employment data:  2000, 2010, and 2014.  For each of those years, I used employment figures for December and the immigrant share of the population to calculate the “native born employment.”  That is, the number of jobs held by native born people.

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Who Voted to Leave and Who Voted to Stay – Updated

Poll

It is pretty clear who voted to stay and who voted to leave the EU in England.

Hat Tip to Sam Wang Princeton Election Consortium Brexit survey of the day. “The UK voters who dominated the vote to Leave are also the ones who have to live with the outcome for the least amount of time.” Another elite versus the commoners.

With a fear for snide comments on stats in return, reader voislav comments: “The analysis (Princeton Consortium)is a bit misleading because turnout also increased by age. Sky projects that the turnout for 18-24′s it was in the 30s and for 24-35′s in the 50′s, vs 80+% for the 55+ crowd. BBC shows lower turnout in younger areas of the country.

If you look at the Guardian analysis (link below) the correlation with age is not that strong, there is a much stronger correlation with education and income. Wealthier, more educated young people tend to be more politically engaged, so they dominated the youth vote.”

Median Age

Higher Educaction

Median Annual Income

Scatter plots taken from EU referendum: full results and analysis “The Guardian.” These plots are interactive and you can locate different areas and city of the country making it worthwhile to visit The Guardian site.

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More Lies

After almost 8 years the Party of NO and me too, the Republican Party through Mr. Paul Ryan has announced its sketchy version of a national healthcare plan. There is nothing unusual (maybe I should not say this, as distortion and out-right telling lies is unusual) or earth shattering being offered in Mr. Ryan’s plan. For sure, Mr. Ryan’s plan lacks many of the things the PPACA offers today. I do not want to get tied up examining the detail right now so I will move on to something else I wish to point out

Riding on the back of Mr. Ryan’s plan is a complaint, a complaint the PPACA leaves many people without coverage due to its design. As read in Mr. Ryan’s plan;

“as a result of Obamacare’s poor design and incentives, many Americans — who do not have an offer of health insurance through their employer— have fallen into a coverage gap between their state’s Medicaid eligibility and the eligibility criteria for the Obamacare subsidies.”

This statement in Mr. Ryan’s Plan is a blatant lie perpetuated by Mr. Ryan and the Republicans. 19 states did not expand Medicaid to cover their citizens up to 138% FPL. These states were allowed to do so by a SCOTUS ruling supported by Mr. Ryan and Republican. Furthermore, Republicans in their efforts to block anything done by Barack Obama made it clear they would not allow the PPACA to be expanded to cover those citizens who fell into this gap.

Maybe people are immune to the lies coming out of Congress and subsequently do not comment on such an outrageous lie fostered by Mr. Ryan. They are quick to complain about the PPACA and slow to call out Republicans for their lies about the PPACA, which is far better than what is offered by the Party of No.

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Ken Burns Delivers Stanford Commencement Speech

I believe the fully and completely ignored danger in this election is believing Trump is just a flash in the pan and he will never win against HRC regardless of how much she is denigrated by Republicans trying to prove Bengahzi or DEMS who believe Bernie is their candidate. It is not a good time to ignore this imposter. His candidacy needs to be put away vigorously. Below is Ken Burn Commencement speech which touches upon the fascist Trump issue. You can either listen or read.

“For 216 years, our elections, though bitterly contested, have featured the philosophies and characters of candidates who were clearly qualified. That is not the case this year. One is glaringly not qualified. So before you do anything with your well-earned degree, you must do everything you can to defeat the retrograde forces that have invaded our democratic process, divided our house, to fight against, no matter your political persuasion, the dictatorial tendencies of the candidate with zero experience in the much maligned but subtle art of governance; who is against lots of things, but doesn’t seem to be for anything, offering only bombastic and contradictory promises, and terrifying Orwellian statements; a person who easily lies, creating an environment where the truth doesn’t seem to matter; who has never demonstrated any interest in anyone or anything but himself and his own enrichment; who insults veterans, threatens a free press, mocks the handicapped, denigrates women, immigrants, and all Muslims; a man who took more than a day to remember to disavow a supporter who advocates white supremacy and the Ku Klux Klan; an infantile, bullying man who, depending on his mood, is willing to discard old and established alliances, treaties, and longstanding relationships.

I feel genuine sorrow for the understandably scared and — they feel — powerless people who have flocked to his campaign in the mistaken belief that — as often happens on TV — a wand can be waved and every complicated problem can be solved with the simplest of solutions. They can’t. It is a political Ponzi scheme. And asking this man to assume the highest office in the land would be like asking a newly minted car driver to fly a 747.

As a student of history, I recognize this type. He emerges everywhere and in all eras. We see nurtured in his campaign an incipient proto-fascism, a nativist anti-immigrant Know Nothing-ism, a disrespect for the judiciary, the prospect of women losing authority over their own bodies, African-Americans again asked to go to the back of the line, voter suppression gleefully promoted, jingoistic saber-rattling, a total lack of historical awareness, a political paranoia that, predictably, points fingers, always making the other wrong.

These are all virulent strains that have at times infected us in the past. But they now loom in front of us again — all happening at once. We know from our history books that these are the diseases of ancient and now fallen empires. We know from our history books that these are the diseases of ancient and now fallen empires. The sense of commonwealth, of shared sacrifice, of trust, so much a part of American life, is eroding fast, spurred along and amplified by an amoral internet that permits a lie to circle the globe three times before the truth can get started.

We no longer have the luxury of neutrality or ‘balance,’ or even of bemused disdain. Many of our media institutions have largely failed to expose this charlatan, torn between a nagging responsibility to good journalism and the big ratings a media circus always delivers. In fact, they have given him the abundant airtime he so desperately craves, so much so that it has actually worn down our natural human revulsion to this kind of behavior. “Hey, he’s rich, he must be doing something right.’ He’s not. Edward R. Murrow would have exposed this naked emperor months ago. He is an insult to our history. And do not be deceived by his momentary “good behavior.’ It’s only a spoiled, misbehaving child hoping somehow to still have dessert.

And do not think that the tragedy in Orlando underscores his points. It does not. We must “disenthrall ourselves,” as Abraham Lincoln said, from the culture of violence and guns. And then “we shall save our country.”

This, ladies and gentlemen, is not a liberal or conservative issue, a red state–blue state divide. This is an American issue. Many honorable people, including the last two Republican presidents, members of the party of Abraham Lincoln, have declined to support him. And I implore those “Vichy Republicans” who have endorsed him to please, please reconsider. We must remain committed to the kindness and community that are the hallmarks of civilization and reject the troubling, unfiltered Tourette’s of his tribalism.”

It is folly, a huge mistake to ignore this man. Ken Burns goes on . . .

“The next few months of your ‘commencement,’ that is to say, your future, will be critical to the survival of our Republic. ‘The occasion is piled high with difficulty.’ Let us pledge here today that we will not let this happen to the exquisite, yet deeply flawed, land we all love and cherish—and hope to leave intact to our posterity. Let us ‘nobly save,’ not “meanly lose, the last best hope of earth.”

Hat Tip to Watch Ken Burns’s Powerful Take-Down of Donald Trump at Stanford Commencement Nathan Place, Daily Beast, June 13, 2016

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Interesting Phenomena

According to the New York Fed Reserve Bank the PPACA appears to be doing what it was intended to do besides grant more people healthcare. States that opted into the Medicaid expansion and the PPACA have experienced a decrease in the number of billings going to collection agencies.

Per Capita Collection Balances

“We see that between 2009 and 2015, the series is statistically and economically indistinguishable from zero in every quarter, which is consistent with the constant and parallel trends of the series in the first chart. This means that collections in counties that did not expand Medicaid grew along similar trends as in counties that did. However, starting in the first quarter of 2015, the difference in differences turns sharply negative. By the fourth quarter of 2015, the chart indicates that, on average, collections declined by more than $100 per capita in the counties most affected by the Medicaid expansion relative to less affected counties. This is a sizable decline, given that the mean of collection balances over our sample period is $280 (and the standard deviation is $186). Note that the declines do not start as soon as the ACA is implemented (in the first quarter of 2014)—this should not be surprising since bills can take many months to enter collections.”

Change in Per Capita Collection Balances

States opting out of the Medicaid expansion and the PPACA experienced a continued rise in collection agency balances.

Hat Tip to Nancy Letourneau at the Washington Monthly who points out Obamacare’s Success in Protecting our Finances

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Does One Chair Lifted Over One’s Head Make a Riot???

This certainly isn’t the 1968 Dem Convention in Chicago; but, there were a lot of angry people in Nevada.

“What I see is that the only thing holding those assh-les back, were the security people and the fence in front of them. That one man did indeed pick up a chair and raise it in the air and unless he was doing so so that his imaginary elf friend could sit down then I expect he was doing it to menace the people on the stage.” So Bagerite says in the comments section of May 22nd The Daily Banter New Video of Nevada Dem Convention Shows Someone May Have Been Hit By Chair. So where does this place Bernie Sander’s comment that “no one was touched?”

In the clips, you can see a chair over someone’s head and it is moving forward towards the stage. The levitating chair was stopped by two people before it could get past the fence. During the appearance of a little bit of upper butt-check, you can see Mr. Upper-Butt-Cheek bending over and helping someone up. Apparently a woman was knocked down during the take down of the person with the chair over his head (not to be confused with The Hora) in preparation for what? Since there was no one in the chair, one can assume it was ready to be flung somewhere.

I could not find it; but somewhere, someone is holding a piece of wood in the air also.

Anyhoo, judge for yourself.

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Remembering the Carter-Reagan Race

Barkley Rosser made an interesting comment on one of the threads which is worthy of a separate posting. He is pointing out similarities between Trump and Reagan in saying whatever they want to say, backing away from them (it was just a suggestion), and never being held accountable for making statements devoid of facts. People leap to the unrealistic or untrue commentary and when the statement is challenged, the candidate disavows them while the voters remember what was initially said.

“Trump is pulling something that I think he is going to get away with, which is that he can just say all kinds of things that appeal to certain people, but when people who dislike those things complain, well, he just disavows them or “walks them back,” maybe, for a little while, whatever. So he gains with those who like this stuff, but he manages to avoid being really held accountable seriously for any of it (“that is just a suggestion”). So none of us really know what his positions are on anything, and he in fact may not really have any. It is all about him and his ego and his claim to power, and those who are impressed will vote for him.

What I worry about on this is remembering the Carter-Reagan race. About this time in 1980 Dems were hoping Reagan would be the nominee. He had just said that “trees cause pollution” (which is technically correct if one counts pollen as pollution), which had led to him having very low poll ratings. Oh boy, the Dems were drooling at the prospect of running against this numbskull who would say all kinds of goofy stuff in contrast to more serious candidates like BWH Bush.

Now of course there were other reasons Reagan won, including a bad economy and the embarrassment of the Iran hostage crisis, but I remember all too well the first debate between them, which was universally viewed as a victory by Reagan, with Carter never recovering after that in the polls. I remember that if one was paying close attention, Carter “won on points,” doing well at pointing out the silliness of much of what Reagan was saying. But then there was that magic moment when after Carter criticized him for his warmongering foreign policy statements, Reagan just leaned back and said, “There you go again,” and that was it. He won the debate on a single well-delivered phrase that was in fact devoid of content. But, it sold.

So I fear that whether it is Hillary or Bernie (still has a small chance, much better if HRC gets indicted before the convention), they can win on points showing how nonsensical statement after statement Trump has said is, but then he wins the darned debate with some wisecrack along the lines of what Reagan pulled with Carter.

As it is, both Hillary and Bernie are seriously wonkish, with pretty well developed platforms. We have seen extended discussions and debates about their positions on various issues here, and it is known that Hillary especially has a very long and detailed set of positions, with some charging that she has overdone it going too wonkish. Unlike others I do not think she will just drop all that the minute she gets in, if she gets in, but I do think that both she and Bernie will end up modifying what they advocate when face a GOP-controlled House, which I think is highly likely, even if hopefully the Dems do manage to take the Senate.

But there is a real possibility of a replay of 1980, whichever of them is the Dem candidate.”

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