ROBERT B. REICH, Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written thirteen books, including the best sellers “Aftershock" and “The Work of Nations." His latest, "Beyond Outrage," is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause. His new film, "Inequality for All," is now available on Netflix, iTunes, DVD, and On Demand.

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COLBERT REPORT, NOVEMBER, 2013

WITH BILL MOYERS, SEPT. 2013

DAILY SHOW, SEPTEMBER 2013, PART 1

DAILY SHOW, SEPTEMBER 2013, PART 2

DEMOCRACY NOW, SEPTEMBER 2013

INTELLIGENCE SQUARED DEBATES, SEPTEMBER 2012

DAILY SHOW, APRIL 2012, PART 1

DAILY SHOW, APRIL 2012, PART 2

COLBERT REPORT, OCTOBER, 2010

WITH CONAN OBRIEN, JANUARY, 2010

DEBATING RON PAUL, JANUARY, 2010

  • Back to College, the Only Gateway to the Middle Class


    Monday, September 1, 2014

    This week, millions of young people head to college and universities, aiming for a four-year liberal arts degree. They assume that degree is the only gateway to the American middle class.

    It shouldn’t be.

    For one thing, a four-year liberal arts degree is hugely expensive. Too many young people graduate laden with debts that take years if not decades to pay off.

    And too many of them can’t find good jobs when they graduate, in any event. So they have to settle for jobs that don’t require four years of college. They end up overqualified for the work they do, and underwhelmed by it.

    Others drop out of college because they’re either unprepared or unsuited for a four-year liberal arts curriculum. When they leave, they feel like failures. 

    We need to open other gateways to the middle class. 

    Consider, for example, technician jobs. They don’t require a four-year degree. But they do require mastery over a domain of technical knowledge, which can usually be obtained in two years.

    Technician jobs are growing in importance. As digital equipment replaces the jobs of routine workers and lower-level professionals, technicians are needed to install, monitor, repair, test, and upgrade all the equipment.

    Hospital technicians are needed to monitor ever more complex equipment that now fills medical centers; office technicians, to fix the hardware and software responsible for much of the work that used to be done by secretaries and clerks.

    Automobile technicians are in demand to repair the software that now powers our cars; manufacturing technicians, to upgrade the numerically controlled machines and 3-D printers that have replaced assembly lines; laboratory technicians, to install and test complex equipment for measuring results; telecommunications technicians, to install, upgrade, and repair the digital systems linking us to one another.

    Technology is changing so fast that knowledge about specifics can quickly become obsolete. That’s why so much of what technicians learn is on the job.

    But to be an effective on-the-job learner, technicians need basic knowledge of software and engineering, along the domain where the technology is applied – hospitals, offices, automobiles, manufacturing, laboratories, telecommunications, and so forth.

    Yet America isn’t educating the technicians we need. As our aspirations increasingly focus on four-year college degrees, we’ve allowed vocational and technical education to be downgraded and denigrated.

    Still, we have a foundation to build on. Community colleges offering two-year degree programs today enroll more than half of all college and university undergraduates. Many students are in full-time jobs, taking courses at night and on weekends. Many are adults.

    Community colleges are great bargains. They avoid the fancy amenities four-year liberal arts colleges need in order to lure the children of the middle class.

    Even so, community colleges are being systematically starved of funds. On a per-student basis, state legislatures direct most higher-education funding to four-year colleges and universities because that’s what their middle-class constituents want for their kids.

    American businesses, for their part, aren’t sufficiently involved in designing community college curricula and hiring their graduates, because their executives are usually the products of four-year liberal arts institutions and don’t know the value of community colleges. 

    By contrast, Germany provides its students the alternative of a world-class technical education that’s kept the German economy at the forefront of precision manufacturing and applied technology.

    The skills taught are based on industry standards, and courses are designed by businesses that need the graduates. So when young Germans get their degrees, jobs are waiting for them.

    We shouldn’t replicate the German system in full. It usually requires students and their families to choose a technical track by age 14. “Late bloomers” can’t get back on an academic track.

    But we can do far better than we’re doing now. One option: Combine the last year of high school with the first year of community college into a curriculum to train technicians for the new economy.

    Affected industries would help design the courses and promise jobs to students who finish successfully. Late bloomers can go on to get their associate degrees and even transfer to four-year liberal arts universities.

    This way we’d provide many young people who cannot or don’t want to pursue a four-year degree with the fundamentals they need to succeed, creating another gateway to the middle class.

    Too often in modern America, we equate “equal opportunity” with an opportunity to get a four-year liberal arts degree. It should mean an opportunity to learn what’s necessary to get a good job. 

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  • Back to School, and to Widening Inequality


    Monday, August 25, 2014

    American kids are getting ready to head back to school. But the schools they’re heading back to differ dramatically by family income.

    Which helps explain the growing achievement gap between lower and higher-income children.

    Thirty years ago, the average gap on SAT-type tests between children of families in the richest 10 percent and bottom 10 percent was about 90 points on an 800-point scale. Today it’s 125 points.

    The gap in the mathematical abilities of American kids, by income, is one of widest among the 65 countries participating in the Program for International Student Achievement.

    On their reading skills, children from high-income families score 110 points higher, on average, than those from poor families. This is about the same disparity that exists between average test scores in the United States as a whole and Tunisia.

    The achievement gap between poor kids and wealthy kids isn’t mainly about race. In fact, the racial achievement gap has been narrowing.

    It’s a reflection of the nation’s widening gulf between poor and wealthy families. And also about how schools in poor and rich communities are financed, and the nation’s increasing residential segregation by income.

    According to the Pew Research Center’s analysis of 2010 census tract and household income data, residential segregation by income has increased during the past three decades across the United States and in 27 of the nation’s 30 largest major metropolitan areas.

    This matters, because a large portion of the money to support public schools comes from local property taxes. The federal government provides only about 14 percent of all funding, and the states provide 44 percent, on average. The rest, roughly 42 percent, is raised locally.

    Most states do try to give more money to poor districts, but most states cut way back on their spending during the recession and haven’t nearly made up for the cutbacks.

    Meanwhile, many of the nation’s local real estate markets remain weak, especially in lower-income communities. So local tax revenues are down.

    As we segregate by income into different communities, schools in lower-income areas have fewer resources than ever.

    The result is widening disparities in funding per pupil, to the direct disadvantage of poor kids.

    The wealthiest highest-spending districts are now providing about twice as much funding per student as are the lowest-spending districts, according to a federal advisory commission report. In some states, such as California, the ratio is more than three to one.

    What are called a “public schools” in many of America’s wealthy communities aren’t really “public” at all. In effect, they’re private schools, whose tuition is hidden away in the purchase price of upscale homes there, and in the corresponding property taxes.

    Even where courts have requiring richer school districts to subsidize poorer ones, large inequalities remain.

    Rather than pay extra taxes that would go to poorer districts, many parents in upscale communities have quietly shifted their financial support to tax-deductible “parent’s foundations” designed to enhance their own schools.

    About 12 percent of the more than 14,000 school districts across America are funded in part by such foundations. They’re paying for everything from a new school auditorium (Bowie, Maryland) to a high-tech weather station and language-arts program (Newton, MA).

    “Parents’ foundations,” observed the Wall Street Journal, “are visible evidence of parents’ efforts to reconnect their money to their kids.” And not, it should have been noted, to kids in another community, who are likely to be poorer.

    As a result of all this, the United States is one of only three, out of 34 advanced nations surveyed by the OECD, whose schools serving higher-income children have more funding per pupil and lower student-teacher ratios than do schools serving poor students (the two others are Turkey and Israel).

    Other advanced nations do it differently. Their national governments provide 54 percent of funding, on average, and local taxes account for less than half the portion they do in America. And they target a disproportionate share of national funding to poorer communities.

    As Andreas Schleicher, who runs the OECD’s international education assessments, told the New York Times, “the vast majority of OECD countries either invest equally into every student or disproportionately more into disadvantaged students. The U.S. is one of the few countries doing the opposite.”

    Money isn’t everything, obviously. But how can we pretend it doesn’t count? Money buys the most experienced teachers, less-crowded classrooms, high-quality teaching materials, and after-school programs.

    Yet we seem to be doing everything except getting more money to the schools that most need it.

    We’re requiring all schools meet high standards, requiring students to take more and more tests, and judging teachers by their students’ test scores.

    But until we recognize we’re systematically hobbling schools serving disadvantaged kids, we’re unlikely to make much headway. 

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  • The Disease of American Democracy


    Monday, August 18, 2014

    Americans are sick of politics. Only 13 percent approve of the job Congress is doing, a near record low. The President’s approval ratings are also in the basement.

    A large portion of the public doesn’t even bother voting. Only 57.5 percent of eligible voters cast their ballots in the 2012 presidential election. 

    Put simply, most Americans feel powerless, and assume the political game is fixed. So why bother? 

    A new study scheduled to be published in this fall by Princeton’s Martin Gilens and Northwestern University’s Benjamin Page confirms our worst suspicions.

    Gilens and Page analyzed 1,799 policy issues in detail, determining the relative influence on them of economic elites, business groups, mass-based interest groups, and average citizens.

    Their conclusion: “The preferences of the average American appear to have only a miniscule, near-zero, statistically non-significant impact upon public policy.”

    Instead, lawmakers respond to the policy demands of wealthy individuals and monied business interests – those with the most lobbying prowess and deepest pockets to bankroll campaigns.

    Before you’re tempted to say “duh,” wait a moment. Gilens’ and Page’s data come from the period 1981 to 2002. This was before the Supreme Court opened the floodgates to big money in “Citizens United,” prior to SuperPACs, and before the Wall Street bailout.

    So it’s likely to be even worse now.

    But did the average citizen ever have much power? The eminent journalist and commentator Walter Lippman argued in his 1922 book “Public Opinion” that the broad public didn’t know or care about public policy. Its consent was “manufactured” by an elite that manipulated it. “It is no longer possible … to believe in the original dogma of democracy,” Lippman concluded.

    Yet American democracy seemed robust compared to other nations that in the first half of the twentieth century succumbed to communism or totalitarianism.

    Political scientists after World War II hypothesized that even though the voices of individual Americans counted for little, most people belonged to a variety of interest groups and membership organizations – clubs, associations, political parties, unions – to which politicians were responsive.

    “Interest-group pluralism,” as it was called, thereby channeled the views of individual citizens, and made American democracy function.

    What’s more, the political power of big corporations and Wall Street was offset by the power of labor unions, farm cooperatives, retailers, and smaller banks.

    Economist John Kenneth Galbraith approvingly dubbed it “countervailing power.” These alternative power centers ensured that America’s vast middle and working classes received a significant share of the gains from economic growth.

    Starting in 1980, something profoundly changed. It wasn’t just that big corporations and wealthy individuals became more politically potent, as Gilens and Page document. It was also that other interest groups began to wither.

    Grass-roots membership organizations shrank because Americans had less time for them. As wages stagnated, most people had to devote more time to work in order to makes ends meet. That included the time of wives and mothers who began streaming into the paid workforce to prop up family incomes.

    At the same time, union membership plunged because corporations began sending jobs abroad and fighting attempts to unionize. (Ronald Reagan helped legitimized these moves when he fired striking air traffic controllers.)

    Other centers of countervailing power – retailers, farm cooperatives, and local and regional banks – also lost ground to national discount chains, big agribusiness, and Wall Street. Deregulation sealed their fates.

    Meanwhile, political parties stopped representing the views of most constituents. As the costs of campaigns escalated, parties morphing from state and local membership organizations into national fund-raising machines.

    We entered a vicious cycle in which political power became more concentrated in monied interests that used the power to their advantage – getting tax cuts, expanding tax loopholes, benefiting from corporate welfare and free-trade agreements, slicing safety nets, enacting anti-union legislation, and reducing public investments.

    These moves further concentrated economic gains at the top, while leaving out most of the rest of America.

    No wonder Americans feel powerless. No surprise we’re sick of politics, and many of us aren’t even voting.

    But if we give up on politics, we’re done for. Powerlessness is a self-fulfilling prophesy.

    The only way back toward a democracy and economy that work for the majority is for most of us to get politically active once again, becoming organized and mobilized.

    We have to establish a new countervailing power. 

    The monied interests are doing what they do best – making money. The rest of us need to do what we can do best – use our voices, our vigor, and our votes. 

     

     

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  • The Rebirth of Stakeholder Capitalism?


    Saturday, August 9, 2014

    In recent weeks, the managers, employees, and customers of a New England chain of supermarkets called “Market Basket” have joined together to oppose the board of director’s decision earlier in the year to oust the chain’s popular chief executive, Arthur T. Demoulas.

    Their demonstrations and boycotts have emptied most of the chain’s seventy stores.

    What was so special about Arthur T., as he’s known? Mainly, his business model. He kept prices lower than his competitors, paid his employees more, and gave them and his managers more authority.

    Late last year he offered customers an additional 4 percent discount, arguing they could use the money more than the shareholders.

    In other words, Arthur T. viewed the company as a joint enterprise from which everyone should benefit, not just shareholders. Which is why the board fired him.

    It’s far from clear who will win this battle. But, interestingly, we’re beginning to see the Arthur T. business model pop up all over the place.

    Patagonia, a large apparel manufacturer based in Ventura, California, has organized itself as a “B-corporation.” That’s a for-profit company whose articles of incorporation require it to take into account the interests of workers, the community, and the environment, as well as shareholders.

    The performance of B-corporations according to this measure is regularly reviewed and certified by a nonprofit entity called B Lab.

    To date, over 500 companies in sixty industries have been certified as B-corporations, including the household products firm “Seventh Generation.”

    In addition, 27 states have passed laws allowing companies to incorporate as “benefit corporations.” This gives directors legal protection to consider the interests of all stakeholders rather than just the shareholders who elected them.

    We may be witnessing the beginning of a return to a form of capitalism that was taken for granted in America sixty years ago.

    Then, most CEOs assumed they were responsible for all their stakeholders.

    “The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in 1951, “is to maintain an equitable and working balance among the claims of the various directly interested groups … stockholders, employees, customers, and the public at large.”

    Johnson & Johnson publicly stated that its “first responsibility” was to patients, doctors, and nurses, and not to investors.

    What changed? In the 1980s, corporate raiders began mounting unfriendly takeovers of companies that could deliver higher returns to their shareholders – if they abandoned their other stakeholders.

    The raiders figured profits would be higher if the companies fought unions, cut workers’ pay or fired them, automated as many jobs as possible or moved jobs abroad, shuttered factories, abandoned their communities, and squeezed their customers.  

    Although the law didn’t require companies to maximize shareholder value, shareholders had the legal right to replace directors. The raiders pushed them to vote out directors who wouldn’t make these changes and vote in directors who would (or else sell their shares to the raiders, who’d do the dirty work).

    Since then, shareholder capitalism has replaced stakeholder capitalism. Corporate raiders have morphed into private equity managers, and unfriendly takeovers are rare. But it’s now assumed corporations exist only to maximize shareholder returns.

    Are we better off? Some argue shareholder capitalism has proven more efficient. It has moved economic resources to where they’re most productive, and thereby enabled the economy to grow faster.

    By this view, stakeholder capitalism locked up resources in unproductive ways. CEOs were too complacent. Companies were too fat. They employed workers they didn’t need, and paid them too much. They were too tied to their communities.

    But maybe, in retrospect, shareholder capitalism wasn’t all it was cracked up to be. Look at the flat or declining wages of most Americans, their growing economic insecurity, and the abandoned communities that litter the nation.

    Then look at the record corporate profits, CEO pay that’s soared into the stratosphere, and Wall Street’s financial casino (along with its near meltdown in 2008 that imposed collateral damage on most Americans).

    You might conclude we went a bit overboard with shareholder capitalism. 

    The directors of “Market Basket” are now considering selling the company. Arthur T. has made a bid, but other bidders have offered more.

    Reportedly, some prospective bidders think they can squeeze more profits out of the company than Arthur T. did. 

    But Arthur T. may have known something about how to run a business that made it successful in a larger sense.

    Only some of us are corporate shareholders, and shareholders have won big in America over the last three decades.

    But we’re all stakeholders in the American economy, and many stakeholders have done miserably. 

    Maybe a bit more stakeholder capitalism is in order. 

     

     

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  • Work and Worth


    Saturday, August 2, 2014

    What someone is paid has little or no relationship to what their work is worth to society. 

    Does anyone seriously believe hedge-fund mogul Steven A. Cohen is worth the $2.3 billion he raked in last year, despite being slapped with a $1.8 billion fine after his firm pleaded guilty to insider trading?

    On the other hand, what’s the worth to society of social workers who put in long and difficult hours dealing with patients suffering from mental illness or substance abuse? Probably higher than their average pay of $18.14 an hour, which translates into less than $38,000 a year.

    How much does society gain from personal-care aides who assist the elderly, convalescents, and persons with disabilities? Likely more than their average pay of $9.67 an hour, or just over $20,000 a year.

    What’s the social worth of hospital orderlies who feed, bathe, dress, and move patients, and empty their ben pans? Surely higher than their median wage of $11.63 an hour, or $24,190 a year.

    Or of child care workers, who get $10.33 an hour, $21.490 a year? And preschool teachers, who earn $13.26 an hour, $27,570 a year?

    Yet what would the rest of us do without these dedicated people?

    Or consider kindergarten teachers, who make an average of $53,590 a year.

    Before you conclude that’s generous, consider that a good kindergarten teacher is worth his or her weight in gold, almost.

    One study found that children with outstanding kindergarten teachers are more likely to go to college and less likely to become single parents than a random set of children similar to them in every way other than being assigned a superb teacher.

    And what of writers, actors, painters, and poets? Only a tiny fraction ever become rich and famous. Most barely make enough to live on (many don’t, and are forced to take paying jobs to pursue their art). But society is surely all the richer for their efforts.

    At the other extreme are hedge-fund and private-equity managers, investment bankers, corporate lawyers, management consultants, high-frequency traders, and top Washington lobbyists.

    They’re getting paid vast sums for their labors. Yet it seems doubtful that society is really that much better off because of what they do.

    I don’t mean to sound unduly harsh, but I’ve never heard of a hedge-fund manager whose jobs entails attending to basic human needs (unless you consider having more money as basic human need) or enriching our culture (except through the myriad novels, exposes, and movies made about greedy hedge-fund managers and investment bankers).

    They don’t even build the economy. 

    Most financiers, corporate lawyers, lobbyists, and management consultants are competing with other financiers, lawyers, lobbyists, and management consultants in zero-sum games that take money out of one set of pockets and put it into another.

    They’re paid gigantic amounts because winning these games can generate far bigger sums, while losing them can be extremely costly.

    It’s said that by moving money to where it can make more money, these games make the economy more efficient.

    In fact, the games amount to a mammoth waste of societal resources.

    They demand ever more cunning innovations but they create no social value. High-frequency traders who win by a thousandth of a second can reap a fortune, but society as a whole is no better off.

    Meanwhile, the games consume the energies of loads of talented people who might otherwise be making real contributions to society — if not by tending to human needs or enriching our culture then by curing diseases or devising new technological breakthroughs, or helping solve some of our most intractable social problems.  

    Graduates of Ivy League universities are more likely to enter finance and consulting than any other career. 

    For example, in 2010 (the most recent date for which we have data) close to 36 percent of Princeton graduates went into finance (down from the pre-financial crisis high of 46 percent in 2006). Add in management consulting, and it was close to 60 percent.

    The hefty endowments of such elite institutions are swollen with tax-subsidized donations from wealthy alumni, many of whom are seeking to guarantee their own kids’ admissions so they too can become enormously rich financiers and management consultants.

    But I can think of a better way for taxpayers to subsidize occupations with more social merit: Forgive the student debts of graduates who choose social work, child care, elder care, nursing, and teaching.  

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  • The Increasing Irrelevance of Corporate Nationality


    Monday, July 28, 2014

    “You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayers,” President Obama said Thursday.

    He was referring to American corporations now busily acquiring foreign companies in order to become non-American, thereby reducing their U.S. tax bill.

    But the President might as well have been talking about all large American multinationals. 

    Only about a fifth of IBM’s worldwide employees are American, for example, and only 40 percent of GE’s. Most of Caterpillar’s recent hires and investments have been made outside the US.

    In fact, since 2000, almost every big American multinational corporation has created more jobs outside the United States than inside. If you add in their foreign sub-contractors, the foreign total is even higher.

    At the same time, though, many foreign-based companies have been creating jobs in the United States. They now employ around 6 million Americans, and account for almost 20 percent of U.S. exports. Even a household brand like Anheuser-Busch, the nation’s best-selling beer maker, employing thousands of Americans, is foreign (part of Belgian-based beer giant InBev).

    Meanwhile, foreign investors are buying an increasing number of shares in American corporations, and American investors are buying up foreign stocks.

    Who’s us? Who’s them?

    Increasingly, corporate nationality is whatever a corporation decides it is.  

    So instead of worrying about who’s American and who’s not, here’s a better idea: Create incentives for any global company to do what we’d like it to do in the United States.

    For example, “American” corporations get generous tax credits and subsidies for research and development, courtesy of American taxpayers.

    But in reducing these corporations’ costs of R&D in the United States, those tax credits and subsidies can end up providing extra money for them to do more R&D abroad.

    3M is building research centers overseas at a faster clip than it’s expanding them in America. Its CEO explained this was “in preparation for a world where the West is no longer the dominant manufacturing power.”

    3M is hardly alone. Since the early 2000s, most of the growth in the number of R&D workers employed by U.S.-based multinational companies have been in their foreign operations, according to the National Science Board, the policy-making arm of the National Science Foundation.

    It would make more sense to limit R&D tax credits and subsidies to additional R&D done in the U.S. over and above current levels – and give them to any global corporation increasing its R&D in America, regardless of the company’s nationality.

    Or consider Ex-Im Bank subsidies – a topic of hot debate in Washington these days. These subsidies are intended to boost exports of American corporations from the United States.

    Tea Party Republicans call them “corporate welfare,” and Chamber-of-Commerce Republicans call them sensible investments. But regardless, they’re going to “American” multinationals that are making things all over the world.

    That means any subsidy that boosts their export earnings in the United States indirectly subsidizes their investments abroad – including, very possibly, their exports from foreign nations.

    GE, a major Ex-Im Bank beneficiary, has been teaming up with China to produce a new jetliner there that will compete with Boeing for global business. (Boeing, not incidentally, is another Ex-Im beneficiary). In fact, GE is giving its Chinese partner the same leading-edge avionics technologies operating Boeing’s 787 Dreamliner. 

    Caterpillar, another Ex-Im Bank beneficiary, is providing engine funnels and hydraulics to Chinese firms that eventually will be exporting large moving equipment from China. Presumably they’ll be competing in global markets with Caterpillar itself.

    Rather than subsidize “American” exporters, it makes more sense to subsidize any global company – to the extent it’s adding to its exports from the United States.

    Which brings us back to American companies that are morphing into foreign companies in order to lower their U.S. tax bill.

    “I don’t care if it’s legal,” said the President. “It’s wrong.”

    It’s just as wrong for American corporations to hide their profits abroad – which many are doing simply by setting up foreign subsidiaries in low-tax jurisdictions, and then making it seem as if the foreign subsidiary is earning the money.

    Caterpillar, for example, saved $2.4 billion between 2000 and 2012 by funneling its global parts business through a Swiss subsidiary (a ruse so audacious that one of its tax consultants warned Caterpillar executives to “get ready to do some dancing” when called before Congress to justify it).  

    And what about American corporations that avoid U.S. taxes by never bringing home what they legitimately earn abroad – a sum now estimated to be in the order of $1.6 trillion?

    Rather than focus on the newly-fashionable tax-avoidance strategy of changing corporate nationality, it makes more sense to tax any global corporation on all income earned in the United States (with high penalties for shifting that income abroad), and no longer tax “American” corporations on revenues earned outside America. Most other nations already follow this principle. 

    In other words, let’s stop worrying about whether big global corporations are “American.” We can’t win that game. Focus instead on what we want global corporations of whatever nationality to do in America, and on how we can get them to do it.

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  • The Rise of the Non-Working Rich


    Tuesday, July 15, 2014

    In a new Pew poll, more than three quarters of self-described conservatives believe “poor people have it easy because they can get government benefits without doing anything.”

    In reality, most of America’s poor work hard, often in two or more jobs.

    The real non-workers are the wealthy who inherit their fortunes. And their ranks are growing. 

    In fact, we’re on the cusp of the largest inter-generational wealth transfer in history.

    The wealth is coming from those who over the last three decades earned huge amounts on Wall Street, in corporate boardrooms, or as high-tech entrepreneurs.

    It’s going to their children, who did nothing except be born into the right family.

    The “self-made” man or woman, the symbol of American meritocracy, is disappearing. Six of today’s ten wealthiest Americans are heirs to prominent fortunes. Just six Walmart heirs have more wealth than the bottom 42 percent of Americans combined (up from 30 percent in 2007).

    The U.S. Trust bank just released a poll of Americans with more than $3 million of investable assets.

    Nearly three-quarters of those over age 69, and 61 per cent of boomers (between the ages of 50 and 68), were the first in their generation to accumulate significant wealth.

    But the bank found inherited wealth far more common among rich millennials under age 35.

    This is the dynastic form of wealth French economist Thomas Piketty warns about. It’s been the major source of wealth in Europe for centuries. It’s about to become the major source in America – unless, that is, we do something about it.

    As income from work has become more concentrated in America, the super rich have invested in businesses, real estate, art, and other assets. The income from these assets is now concentrating even faster than income from work.

    In 1979, the richest 1 percent of households accounted for 17 percent of business income. By 2007 they were getting 43 percent. They were also taking in 75 percent of capital gains. Today, with the stock market significantly higher than where it was before the crash, the top is raking even more from their investments.

    Both political parties have encouraged this great wealth transfer, as beneficiaries provide a growing share of campaign contributions.

    But Republicans have been even more ardent than Democrats.

    For example, family trusts used to be limited to about 90 years. Legal changes implemented under Ronald Reagan extended them in perpetuity. So-called “dynasty trusts” now allow super-rich families to pass on to their heirs money and property largely free from taxes, and to do so for generations.

    George W. Bush’s biggest tax breaks helped high earners but they provided even more help to people living off accumulated wealth. While the top tax rate on income from work dropped from 39.6% to 35 percent, the top rate on dividends went from 39.6% (taxed as ordinary income) to 15 percent, and the estate tax was completely eliminated. (Conservatives called it the “death tax” even though it only applied to the richest two-tenths of one percent.)

    Barack Obama rolled back some of these cuts, but many remain.  

    Before George W. Bush, the estate tax kicked in at $2 million of assets per couple, and then applied a 55 percent rate. Now it kicks in at $10 million per couple, with a 40 percent rate.

    House Republicans want to go even further than Bush did.

    Rep. Paul Ryan’s “road map,” which continues to be the bible of Republican economic policy, eliminates all taxes on interest, dividends, capital gains, and estates.

    Yet the specter of an entire generation who do nothing for their money other than speed-dial their wealth management advisors isn’t particularly attractive.

    It’s also dangerous to our democracy, as dynastic wealth inevitably accumulates political influence.

    What to do? First, restore the estate tax in full.

    Second, eliminate the “stepped-up-basis on death” rule. This obscure tax provision allows heirs to avoid paying capital gains taxes on the increased value of assets accumulated during the life of the deceased. Such untaxed gains account for more than half of the value of estates worth more than $100 million, according to the Center on Budget and Policy Priorities.

    Third, institute a wealth tax. We already have an annual wealth tax on homes, the major asset of the middle class. It’s called the property tax. Why not a small annual tax on the value of stocks and bonds, the major assets of the wealthy?

    We don’t have to sit by and watch our meritocracy be replaced by a permanent aristocracy, and our democracy be undermined by dynastic wealth. We can and must take action — before it’s too late. 

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  • The Limits of Corporate Citizenship: Why Walgreen Shouldn’t Be Allowed to Influence U.S. Politics If It Becomes Swiss


    Sunday, July 6, 2014

    Dozens of big U.S. corporations are considering leaving the United States in order to reduce their tax bills.

    But they’ll be leaving the country only on paper. They’ll still do as much business in the U.S. as they were doing before.

    The only difference is they’ll no longer be “American,” and won’t have to pay nearly as much taxes to the U.S. government. 

    Okay. But if they’re no longer American citizens, they should no longer be able to spend a penny influencing American politics.

    Some background: We’ve been hearing for years from CEOs that American corporations are suffering under a larger tax burden than their foreign competitors. This is mostly rubbish.

    It’s true that the official corporate tax rate of 39.1 percent, including state and local taxes, is the highest among members of the Organization for Economic Cooperation and Development.

    But the effective rate – what corporations actually pay after all deductions, tax credits, and other maneuvers – is far lower.

    Last year, the Government Accountability Office, examined corporate tax returns in detail and found that in 2010, profitable corporations headquartered in the United States paid an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes. Some pay no taxes at all.

    One tax dodge often used by multi-national companies is to squirrel away their earnings abroad in foreign subsidiaries located in countries where taxes are lower. The subsidiary merely charges the U.S. parent inflated costs, and gets repaid in extra-fat profits.   

    But apparently that’s not enough of a dodge for some companies. They want to reduce their U.S. taxes to the bone by becoming a foreign company. It’s an even bigger accounting gimmick. The American company merges with a foreign competitor headquartered in another nation where taxes are lower, and reincorporates there.

    This “expatriate” tax dodge (its official name is a “tax inversion”) is now at the early stages but is likely to spread rapidly because it pushes every American competitor to make the same move or suffer a competitive disadvantage.

    For example, Walgreen, the largest drugstore chain in the United States with more than 8,700 drugstores spread across the nation, is on the verge of moving its corporate headquarters to Switzerland as part of a merger with Alliance Boots, the European drugstore chain.

    Founded in Chicago in 1901, with current headquarters in the nearby suburb of Deerfield, Walgreen is about as American as apple pie — or your Main Street druggist.

    Even if it becomes a Swiss corporation, Walgreen will remain your Main Street druggist. It just won’t pay nearly as much in U.S. taxes.

    Which means the rest of us will have to make up the difference. Walgreen’s morph into a Swiss corporation will cost you and me and every other American taxpayer about $4 billion over five years, according to an analysis by Americans for Tax Fairness.

    The tax dodge likewise means more money for Walgreen’s investors and top executives. Which is why its large investors – including Goldman Sachs — have been pushing for it.

    Some Walgreen customers have complained. A few activists have rallied outside the firm’s Chicago headquarters.

    But hey, this is the way the global capitalist game played. Anything to boost the bottom line.

    Yet it doesn’t have to be the way American democracy is played.

    Even if there’s no way to stop U.S. corporations from shedding their U.S. identities and becoming foreign corporations, there’s no reason they should retain the privileges of U.S. citizenship.  

    By treaty, the U.S. government can’t (and shouldn’t) discriminate against foreign corporations offering as good if not better deals than American companies offer. So if Walgreen as a Swiss company continues to fill Medicaid and Medicare payments as well as, say, CVS, it’s likely that Walgreen will continue to earn almost a quarter of its $72 billion annual revenues directly from the U.S. government.

    But as a foreign corporation, Walgreen should no longer have any say over the size of those payments, what drugs they cover, or how they’re administered.

    In fact, Walgreen should no longer have any say over how the U.S. government does anything.

    In 2010 it lobbied for and got a special provision in the Dodd-Frank Act, limiting the fees banks are allowed to charge merchants for credit-card transactions — resulting in a huge saving for Walgreen. If it becomes a Swiss citizen, its days of lobbying and obtaining special provisions should be over. 

    The Supreme Court’s “Citizens United” decision may have opened the floodgates to American corporate money in U.S. politics, but not to foreign corporate money in U.S. politics.

    The Court didn’t turn foreign corporations into American citizens, entitled to seek to influence U.S. law and regulations.

    Since the 2010 election cycle, Walgreen’s Political Action Committee has spent $991,030 on federal elections. If it becomes a Swiss corporation, it shouldn’t be able to spend one penny more.

    Walgreen is free to become Swiss but it should no longer be free to influence U.S. politics.

    It may still be the Main Street druggist, but if it’s no longer American it shouldn’t be considered a Main Street citizen.

     

     

     

     

     

     

     

     

     

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  • Thursday, July 3, 2014

    ASPEN IDEAS FESTIVAL LECTURE ON INEQUALITY

    Here’s the Aspen Lecture I gave recently at this year’s Aspen Ideas Festival. The irony of talking about inequality with an audience composed almost entirely of the richest one-tenth of 1 percent of Americans was not lost on me. When I suggested that we return to the 70 percent income-tax rate on top incomes that prevailed before 1981, many looked as if I had punched them in the gut.

    But I stressed it’s not a zero-sum game, and they’d do better with a smaller share of a rapidly-growing economy — growing because the vast middle class and the poor had the purchasing power to get the economy back on track — than they’re doing with a large share of an economy that’s barely growing at all.

    It’s crucial that America’s most powerful and privileged understand what’s happening, and why they must support fundamental reform.

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  • Freedom, Power, and the Conservative Mind


    Wednesday, July 2, 2014

    On Monday the Supreme Court struck down a key part of the Affordable Care Act, ruling that privately-owned corporations don’t have to offer their employees contraceptive coverage that conflicts with the corporate owners’ religious beliefs.

    The owners of Hobby Lobby, the plaintiffs in the case, were always free to practice their religion. The Court bestowed religious freedom on their corporation as well – a leap of logic as absurd as giving corporations freedom of speech. Corporations aren’t people.

    The deeper problem is the Court’s obliviousness to the growing imbalance of economic power between corporations and real people. By giving companies the right not offer employees contraceptive services otherwise mandated by law, the Court ignored the rights of employees to receive those services.

    (Justice Alito’s suggestion that those services could be provided directly by the federal government is as politically likely as is a single-payer federal health-insurance plan – which presumably would be necessary to supply such contraceptives or any other Obamacare service corporations refuse to offer on religious grounds.)

    The same imbalance of power rendered the Court’s decision in “Citizens United,” granting corporations freedom of speech, so perverse. In reality, corporate free speech drowns out the free speech of ordinary people who can’t flood the halls of Congress with campaign contributions.

    Freedom is the one value conservatives place above all others, yet time and again their ideal of freedom ignores the growing imbalance of power in our society that’s eroding the freedoms of most people.

    This isn’t new. In the early 1930s, the Court trumped New Deal legislation with “freedom of contract” – the presumed right of people to make whatever deals they want unencumbered by federal regulations. Eventually (perhaps influenced by FDR’s threat to expand the Court and pack it with his own appointees) the Court relented. 

    But the conservative mind has never incorporated economic power into its understanding of freedom. Conservatives still champion “free enterprise” and equate the so-called “free market” with liberty. To them, government “intrusions” on the market threaten freedom.

    Yet the “free market” doesn’t exist in nature. There, only the fittest and strongest survive. The “free market” is the product of laws and rules continuously emanating from legislatures, executive departments, and courts. Government doesn’t “intrude” on the free market. It defines and organizes (and often reorganizes) it.

    Here’s where the reality of power comes in. It’s one thing if these laws and rules are shaped democratically, reflecting the values and preferences of most people.

    But anyone with half a brain can see the growing concentration of income and wealth at the top of America has concentrated political power there as well — generating laws and rules that tilt the playing field ever further in the direction of corporations and the wealthy.

    Antitrust laws designed to constrain monopolies have been eviscerated. Competition among Internet service providers, for example, is rapidly disappearing – resulting in higher prices than in any other rich country. Companies are being allowed to prolong patents and trademarks, keeping drug prices higher here than in Canada or Europe.

    Tax laws favor capital over labor, giving capital gains a lower rate than ordinary income. The rich get humongous mortgage interest deductions while renters get no deduction at all.

    The value of real property (the major asset of the middle class) is taxed annually, but not the value of stocks and bonds (where the rich park most of their wealth).

    Bankruptcy laws allow companies to smoothly reorganize, but not college graduates burdened by student loans.

    The minimum wage is steadily losing value, while CEO pay is in the stratosphere. Under U.S. law, shareholders have only an “advisory” role in determining what CEOs rake in.  

    Public goods paid for with tax revenues (public schools, affordable public universities, parks, roads, bridges) are deteriorating, while private goods paid for individually (private schools and colleges, health clubs, security guards, gated community amenities) are burgeoning. 

    I could go on, but you get the point. The so-called “free market” is not expanding options and opportunities for most people. It’s extending them for the few who are wealthy enough to influence how the market is organized.

    Most of us remain “free” in limited sense of not being coerced into purchasing, say, the medications or Internet services that are unnecessarily expensive, or contraceptives they can no longer get under their employer’s insurance plan. We can just go without.

    We’re likewise free not to be burdened with years of student debt payments; no one is required to attend college. And we’re free not to rent a place in a neighborhood with lousy schools and pot-holed roads; if we can’t afford better, we’re free to work harder so we can. 

    But this is a very parched view of freedom. 

    Conservatives who claim to be on the side of freedom while ignoring the growing imbalance of economic and political power in America are not in fact on the side of freedom. They are on the side of those with the power. 

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