Chronicles of Inequality [December 17, 2012]

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An oversized ego can be a terrible thing to waste. Jack Welch, the retired General Electric CEO, is doing his best not to waste a bit of his — and pick up a few extras pennies in the process.

Welch, the super CEO of the 1990s, has become a regular on the corporate chattering circuit since he retired in 2001. He collects a sweet $150,000 per appearance.

Not that Welch needs any more money. He left GE with a retirement package worth over $400 million and now divides his time between très chic abodes in Manhattan, Nantucket, and Florida’s North Palm Beach, lapping up luxury while he plots his next moves to protect plutocracy.

Welch particularly enjoys going after Warren Buffett, the billionaire who publicly acknowledges that he and his fellow rich don’t pay nearly enough in taxes.Countered Welch earlier this year: “I don’t feel undertaxed in any way at all.”

Some had hoped that Welch’s retirement would end the actual social damage he could wreak. A reasonable hope. At General Electric, Welch had the power to do everything from nuke 100,000 GE worker jobs to foul the Hudson River with toxic waste. Without that power, what damage could he do? Plenty, turns out.

Much of that damage comes from the wealth of tax-dodging expertise Welch bequeathed his successors at General Electric. In the decade since 2001, one report released this year revealed, GE paid only 1.8 percent of its $80.2 billion overall profits in federal income taxes.

9/ Jamie Dimon: Pounding Reformers

The European Union has just taken a fairly significant step toward limiting excessive banker compensation. Under proposed new rules up for a vote early in 2013, European bankers won’t be able to pocket bonuses greater than twice their straight salary.

Better not try that in the United States, Jamie Dimon — America’s highest-paid bank CEO in 2011 — warned last week. Any limits on Wall Street pay, JPMorgan Chase CEO Dimon intoned, will end freedom as we know it.

“If you don’t want a free society,” Dimon pronounced, “then start dictating what compensation can be.”

And besides, the JPMorgan chief added, any attempt to limit pay would chase talent out of America’s financial system. The banking business, he explained, simply “cannot run” on “second-rate talent.”

For his own presumably “first-rate” talent, Dimon pulled in $23.1 million in 2011, up 11 percent over 2010. The highlight of his first-rate stewardship: JPMorgan suffered a $2 billion trading loss after a bank management blunder that Dimon admitted this past spring he could not “publicly defend.”

That admission left some observers wondering how much the bank would have lost with a second-rate talent in charge.

Dimon hasn’t let JPMorgan’s debacle with risky trades slow his charge against the Dodd-Frank Act, the legislation enacted in 2010 to rein in risky trading after the 2008 Wall Street meltdown. Wall Street’s intense opposition to Dodd-Frank, with Dimon a key ringleader, has so far kept the bulk of the legislation unenforced.

8/ Wilbur Ross: Exploiting the Bankrupt

Remember the bank bailout? Private equity kingpin Wilbur Ross surely does. He spent a chunk of the past year trolling for windfalls on the busted-bank landscape — and found a hot prospect in Ohio. In October, he cut a deal to pick up the troubled First Place Financial at just $45 million.

U.S. Treasury officials balked at the deal. The bank, they complained to the courts, had borrowed $72.9 million from the federal bailout program three years earlier and not yet repaid any of the money.

The deal with Ross would likely “chill bidding” for the bank, federal officials pointed out, and cost taxpayers millions.

Not my problem, retorted Ross. So things might not “work out well” for taxpayers? “Unfortunate,” said Ross. Two months later, the Treasury predictioncame true. No other bidders for the bank stepped up, and Ross had another notch in his “vulture investing” belt.

Ross has specialized for decades on buying up companies in or near bankruptcy, then “flipping” them for big profits. The secret to his success: Bankrupt companies can dump their liabilities — like mandates to fund pension plans. Ross has followed this flipping formula to fortune in steel, textiles, and coal. His latest estimated personal net worth: $2.3 billion.

In October, Ross celebrated his fabulous stash with a fundraising dinner at his Florida mansion for GOP Presidential candidate Mitt Romney. The fee to join him: $50,000 a plate. About 150 people, reports the Palm Beach Post, attended.

7/ Samuel Palmisano: Busting Nest Eggs

IBM, the world’s first computer giant, now has just 92,000employees stateside, down from 160,000 back in 2002, the year Sam Palmisano took up the IBM CEO reins.

Palmisano stepped down as chief exec last year and retired as the chairman of IBM’s board at the start of this month, but not before green-lighting a change in the IBM 401(k) plan that sets a damaging precedent for millions of Americans outside the IBM ranks.

Up until now, IBM has been matching employee contributions to 401(k)s on a semi-monthly basis. Starting in 2013, IBM will make only one match a year, on December 31. Workers who leave IBM’s employ next December 15 will get no IBM match to their 401(k) for the entire year, even if they were laid off or had to leave because of a disability.

No major U.S. corporation currently short-changes workers through this sort of maneuver. A good many other large corporations “will be looking very closely” at the IBM move, says Brooks Herman of Brightscope, a financial info firm. If they follow IBM’s lead, notes Reuters, working families throughout America will find it “very difficult to build significant nest eggs through the 401(k) system.”

Sam Palmisano doesn’t have to worry about his nest egg. He’s walking out the door with a package of retirement, bonus, and assorted other benefits one analysis values at $224.7 million.

Palmisano isn’t actually walking out the door. He’ll be consulting for IBM. His rate: $20,000 for any day he puts in four hours. In 2013, observes the Wall Street Journal, Palmisano “could pocket $400,000” for a mere “20 half-days of work.”

6/ Larry Page: Dodging Corporate Taxes

The co-founder — and current chief exec — of Google on a top ten greedy list? How can that be? Hasn’t Google CEO Larry Page’s personal foundation just announced plans to fund free flu shots for every kid in metro San Francisco?

True enough. But no local philanthropic gesture can offset a global greed grab. The same Larry Page who’s fighting flu in San Francisco is running a giant corporation that’s sidestepping billions of dollars in taxes all over the world.

In 2011, Bloomberg reports, Google “avoided about $2 billion” worldwide via just one Bermuda tax dodge alone. On paper, Google is supposed to be paying 39 percent of its profits in combined U.S. federal and state corporate taxes. Last year. Google actually paid federal and state taxes at just a combined 22 percent rate.

If profit-rich corporations like Google don’t pay their tax fair share, notesinternational tax expert Richard Murphy, “somebody else has to pay or services get cut.” And if services get cut, only a fortunate few — like kids in San Francisco — end up getting served.

Larry Page, by the way, can afford a bit of local beneficence. Forbes estimates his total personal fortune at $18.7 billion.

5/ Steven Cohen: Modeling Lance

At poker, you can’t win a hand unless someone else at the table loses. Same on Wall Street, as billionaire Steven Cohen knows as well as anyone.

The 56-year-old prepped for the financial world at the Wharton business school and spent his spare collegiate hours beating his buddies at the card tables.

Cohen has upped the ante somewhat since then. In the late 1990s, his “super-secretive” hedge fund returned investors an astounding 70 percent a year. For his investing magic, Cohen would eventually be demanding 50 percent of any profits he generated for his deep-pocketed investors.

That hefty profit share would bankroll an anything-goes lifestyle for Cohen. On top of $14 million for a personal manse, he shelled out $300 million on fine art.

By 2006, stock trades by Cohen’s hedge fund were accounting for $2 of every $100 all Wall Street stock traders combined were betting. Admirers began calling basketball fan Cohen the “Michael Jordan” of the financial industry.

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The better sports analogy, says ProPublica’s Jesse Eisinger, might be the drug-cheating cyclist Lance Armstrong. Federal prosecutors have so far snared six of Cohen’s hedge fund operatives for insider trading. All these years, Eisinger suggests, Cohen may have been “cutting corners and pushing employees to the point where they break the law.”

The biggest losers in the Cohen story? American taxpayers. Cohen pays federal income tax on much of his ample annual earnings — $600 million last year alone— at just a 15 percent rate, not the 35 percent rate that faces ordinary income over $388,000, thanks to a special loophole that benefits the movers and shakers who run hedge and private equity funds.

4/ Brian Driscoll: Tanking Twinkies

Should captains go down with their ship? In contemporary Corporate America, captains of industry don’t go down with their ship. They sink it, then jet ski to the nearest yacht.

Hostess Foods, the corporate baker most famous for Twinkies, was already foundering when Brian Driscoll came in as CEO in 2010. Private equity wiseguys had gobbled up Hostess in 2004, loaded the company up with debt, andsqueezed $110 million in worker wage concessions.

Driscoll came in with a plan: squeeze workers some more — and raise his own pay to reward the brilliance of his planning. Alas for Driscoll, the plan went awry when Hostess workers refused to cooperate.

Hostess then declared bankruptcy this past January — a move designed to void the company’s union contracts — and went to court to argue that Driscoll still merited a $3.5 million pay deal, with additional annual bonuses.

This CEO pay bid outraged Hostess workers and cost Driscoll whatever corporate credibility he still had left. Amid the resulting furor, Driscoll suddenly resigned. Two months later, in May, he resurfaced as the CEO of Diamond Foods, the Pop Secret popcorn maker, with a three-year pay deal worth over $10 million.

Hostess, meanwhile, is careening toward liquidation. Thousands of Hostess workers have already lost jobs. All Hostess workers have lost wage income and pension savings.

Driscoll, to be sure, hardly deserves all the blame. A half-dozen CEOs have come and gone over the last decade, notes one Hostess worker whose annual take-home has dropped $14,000 since 2005, “and all of them left the company worse than when they took over.”

3/ Jim Skinner: Milking the Minimum Wage

As CEO at fast-food colossus McDonald’s, Jim Skinner didn’t just worry about burgers. He worried about the minimum wage — getting higher. Under Skinner, McDonald’s helped bankroll industry lobbying campaigns against attempts to raise state and federal minimum hourly pay rates.

That lobbying has paid off — for Mickey D’s. In Chicago, not far from McDonald’s corporate global headquarters, a McDonald’s worker with 20 years of experience can still only be earning $8.25 an hour, as economics reporter Leslie Patton devastatingly detailed earlier this month.

McDonald’s CEO Jim Skinner took home $8.75 million last year, a generous sum that equals about 580 times the annual pay of a full-time minimum-wage worker. Just 20 years ago, in 1992, the then-McDonald CEO pulled in 230 times the minimum wage annual take-home.

Skinner retired his CEO perch this past June 30. Unlike many other senior citizens today, he won’t have to take a fast-food job to make any ends meet. He walked off into the sunset with a retirement package worth an estimated $82.3 million.

2/ Larry Ellison: Collecting Oceanfront

Oracle software CEO Larry Ellison has earned, over the years, almost a permanent spot on our top-ten greediest list. His basic corporate m.o. — buy out his rivals, grab their customers, fire their workers — has never changed.

But Ellison, the sixth-richest man in the world, has turned over a new leaf of sorts. He’s actually sharing the wealth. The catch? He’s only sharing with his sidekicks. In the fiscal year that ended this past May 31, Oracle presidents Safra Catz and Mark Hurd each took home $51.7 million.

And Ellison? His 2012 pay: $96.2 million. His total fortune? Forbes tabs that at $41 billion.

With a pile of billions that high, couldn’t Ellison “share” a bit more? Maybe. But Ellison does have some ongoing expenses for annual maintenance. This past fall, for instance, Ellison picked up — for $36.9 million — his ninth luxury property on the stretch of Malibu oceanfront that local wags like to call “Billionaires’ Beach.”

Some of those locals are speculating that Ellison is planning to turn his Malibu beachfront into a private, super-exclusive resort hideaway for the world’s uber rich. But Ellison would be far more likely, other Ellison-watchers posit, to plop that resort on Lanai, the Hawaiian island Ellison also picked up this past year.

So why does Ellison need all that Malibu beachfront? Most likely, the scuttlebuttgoes, he just wants to keep the riffraff out of his ocean-view sight-lines.

1/ Sheldon Adelson: Distorting Democracy

Few Americans hold a fortune larger than Sheldon Adelson. In fact, only eleven do. Forbes puts Adelson’s net worth at $20.5 billion. What can you do with over $20 billion? For starters, you can spend $150 million on an election.

Adelson did just that in 2012. No American invested more in politicking this year than he did. The 79-year-old became, as Time magazine notes, “the public face of what critics cast as a plutocrat class trying to buy U.S. elections.”

Get used to that face. Adelson told the Wall Street Journalearlier this month that he plans to spend over twice as much on his favorite candidates the next time around.

How does anyone get rich enough to plop that much money on pols?  The bulk of Adelson’s wealth comes from the Las Vegas Sands, the world’s largest casino company. Adelson, the Sands chief exec and top shareholder, essentially treats the company as his own personal ATM. He even outsources to himself.

In 2009, for instance, Adelson had his Sands empire rent corporate jets from two outside companies. The controlling owner of the outside companies: Sheldon Adelson. The transactions netted Adelson $7.45 million.

Just last month Adelson had Sands declare a special dividend. He’ll personally collect $1.2 billion from this distribution — and pay only a 15 percent federal income tax on it. On January 1, with the likely expiration of the Bush-era tax cuts, the dividend tax rate will jump from that 15 to 35 percent. The Sands dividend quickie will save Adelson nearly a quarter-billion in taxes.

But the real key to Adelson’s billions has to be his manic hostility to unions. His flagship casino, the Venetian, currently operates as the only nonunion major casino in Las Vegas. Of the 40,000 Sands workers worldwide, not one is working under a union contract. And Adelson is aiming to keep things that way.

Last year, 130 security guards at Adelson’s new casino in Bethlehem, Pennsylvania, had a different idea. They voted to organize a union. Adelson’s Sands management predictably refused to recognize the union.

The National Labor Relations Board subsequently found Sands guilty of an unfair labor practice and ordered the company to start bargaining. Sands chose instead to start tying up the case in the federal courts.

The security guards make $13 an hour. They think Adelson and Sands can afford to share some wealth. Adelson will share nothing. Who could possibly expect anything else — from 2012’s greediest American of them all?

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New Wisdom
on Wealth

United for a Fair Economy,Estate Tax Teleconference, December 11, 2012. Disney and Rockefeller heirs join a call for a much stiffer estate tax.

Claude Fischer, The Giving Nation? Made in America, December 11, 2012. Instead of seriously taxing the rich — to fund programs that address unmet social needs — the United States depends on the good will of the rich. The result: colossal inefficiencies.

John Judis, Rein in the Rich: How Higher Taxes Could Lift the Economy,New Republic, December 12, 2012. The question of fairness aside, the rich have been making relatively too much money for the country’s good.

Sarah Anderson, In EU Parliament, a Landslide Vote for Robin Hood Tax,
Yes! magazine, December 13, 2012. Eleven countries in Europe hope to raise billions through a tiny tax on financial speculation.

Dean Baker, Taxing Problem May Not be That Taxing, CEPR, December 13, 2012. As a simple rule, we can raise all the revenue we need from the top 2 percent, if the top 2 grab all the money.

“Make room for The Rich Don’t Always Win on your bookshelf right next to Howard Zinn’s A People’s History of the United States.”
Barbara Ehrenreich, author, Nickel and Dimed

See the video where Too Much editor Sam Pizzigati describes his new book.

Read the Introduction chapter to The Rich Don’t Always Win online.

Order The Rich Don’t Always Win at a special publisher’s discount.