CEO’s Pay Grows, Average Worker Pay Stagnates

The top end of the income distribution has recovered from any ill effects of the Great Recession, but the average worker has not.  CEO’s in particular saw their compensation increase 27% in 2010, while the workers at the corporations these CEO’s “lead” has barely moved.  Wonkroom notes:

Households across the country are still feeling the effects of the Great Recession, with unemployment falling very slowly, while foreclosuresarestillincreasing, along with poverty rates and oil prices. Family wealth is currently down $12.8 trillion from its 2007 peak.

However, one group of Americans is doing very well — corporate CEOs, whose pay is returning to pre-recession levels:

At a time most employees can barely remember their last substantial raise, median CEO pay jumped 27% in 2010 as the executives’ compensation started working its way back to prerecession levels, a USA TODAY analysis of data from GovernanceMetrics International found. Workers in private industry, meanwhile, saw their compensation grow just 2.1%in the 12 months ended December 2010, says the Bureau of Labor Statistics.

Median CEO pay last year was $9 million, the highest since 2007. The median CEO bonuswas $2.2 million. These gains come as income inequality in the U.S. is already the worst its been since 1928. “We have the recipe for controversy over CEO pay: big increases in CEO pay that show up following run-ups in stock prices coupled with high unemployment rates,” said Kevin Murphy, professor of finance at the University of Southern California…

But raising taxes on millionaires is not, in fact, the same as raising taxes on job creators. According to a recent Wall Street Journal-NBC poll, an overwhelming majority of Americans (81 percent) say that adding a surtax on millionaires is an acceptable way to reduce the budget deficit. …

Rep. Jan Schakowsky (D-IL) recently released a bill that would implement a graduated income tax on millionaires that would raise $78 billion. Allowing the Bush tax cuts to expire for those making more than $1 million could, in one instant, reduce eight percent of the medium-term budget deficit.

If the goal is truly to reduce or eliminate the deficit (a goal I do not share), then restoring taxes on these millionaires and CEO’s must be part of the agenda.  As noted previously, if we simply do nothing and let the existing laws on the books, especially letting the Bush-era preferential tax treatments for the highest bracket taxpayers expire, we can eliminate the primary deficit.

In the past, prior to the Reagan years, we had high marginal  tax rates for the highest income brackets.   For much of the 1950′s and 1960′s and early 1970′s, the highest marginal tax rates were between 70% and often as high as 91%. (source: Tax Foundation) Now this is marginal rates, the rate paid on income above the specified level, not the average paid on all income. Nobody pays the marginal rate on all their income.  At the time, the top bracket started at $200,000 or $250,000 for a married filing jointly return.  Given inflation, these are brackets that would be comparable to a $1,000,000 or so today.  The nation did not suffer for job creation in the 1950′s and 1960′s.  Yet, once we brought the top tax rates down into the 33-36% range during the Reagan years and ever since, we have suffered from low job formation relative to the 1950′s and 1960′s.  Even if we limit ourselves to just the 30 years since Reagan radically reduced the top marginal tax rates, we see that Clinton, who raised the top rate to 39% in 1993 had the best job creation record.  Clearly, low marginal tax rates on CEO’s and millionaires does not help create jobs. But, it does make the government deficit bigger.  Just a little food for thought as you file your taxes this year.