George Boardman: The rich are different
Sen. Mitch McConnell had a valid point when he recently berated some the nation’s largest corporations for their opposition to the Republican-backed changes in Georgia’s voting laws.
McConnell accused the companies of “dabbling in behavior like a woke parallel government” and said that they “will invite serious consequences if they become vehicles for far-left mobs to hijack our country from outside the constitutional order.”
The GOP leader in the Senate didn’t say so directly, but he implied some of America’s wealthiest corporations and individuals lacked gratitude for the yeoman work Republicans and the Trump administration did to lower their taxes and clear regulatory hurdles that hindered their ability to maximize profits.
Take, for example, two of the loudest opponents to the Republican-passed law in Georgia: Coca-Cola and Delta Air Lines. The CEO of Coke, James Quincey, saved a lot of money on the $18 million he was paid last year, thanks to some of the most regressive tax cuts every passed in this country in 2017. Then there’s Delta, which received $5.4 billion of Trump’s airline bailout. Talk about ungrateful.
America’s major corporations saw their tax rate reduced from 35% to 21% under the Trump tax cuts. We were told at the time the money saved would be invested in new plants and equipment, creating more good paying jobs. Most of the money went to dividend increases and stock buybacks.
When the corporate tax rate was cut to 21%, few people mentioned at the time that the effective tax rate of most corporations was 17%. You can bet it’s a lot lower now. In fact, at least 55 of America’s largest firms paid no taxes last year, according to research by the Institute on Taxation and Economic Policy.
Those that dodged the tax man included Salesforce, ADM and Consolidated Edison. FedEx and Nike managed to avoid taxes for the last three years, thanks to a range of legal deductions and exemptions along with some who were able to defer taxes to the future. If they ever actually pay those taxes, it will be with dollars worth less than they are now.
The CEOs of those companies shared in the wealth. Last year may have been a time of historic business upheaval and a wrenching labor market for many workers, but that didn’t prevent the median income of chief executives at over 300 of America’s largest corporations from increasing to $13.7 million from $12.8 million, according to an analysis by The Wall Street Journal.
Many of those executives made a show of taking pay cuts when they were laying off workers. None of them mentioned changes in performance targets or modified pay structures that cushioned the blow when the economy tanked last year. Take, for example, Frank Del Rio, CEO of Norwegian Cruise Line. In a year when the company recorded a loss of $4 billion on an 80% drop in revenue, Del Rio’s pay doubled to $36.4 million.
The pandemic that created financial chaos for so many Americans was a financial windfall for the very rich, as the latest Forbes list of American billionaires shows. Forbes reports that a record 2,755 Americans were worth at least that much last year, with 493 newcomers joining the lists. Their combined worth increased from $8 trillion to $13 trillion.
But if you think they’re paying a big chunk of their wealth to the tax man, guess again. A new report from the Bureau of Economic Research estimates that the top 1% of the highest earners — $1.7 million a year or more — are hiding 21% of their income from the IRS, a loss of $175 billion in taxes.
They are employing increasingly sophisticated tax dodges, including offshore accounts. That helps explain that while the number of millionaires is up, those reporting more $1 million in annual income fell from 50,000 in 2012 to 11,000 last year.
IRS Commissioner Charles Rettig says the agency is ”outgunned” thanks to a 20% cut in its budget and the loss of 21,000 employees since 2010. He estimates that the tax gap for corporations and the wealthy is as much as $1 trillion a year.
Many of those tax avoidance strategies are created by employees and consultants of so-called family offices, set up by the truly wealthy to manage their money. They can also be the source of financial mischief from the likes of Archegos Capital Management, the family office of billionaire Bill Hwang.
Hwang got rich — an estimated $10 billion — operating hedge fund Tiger Asia Management until the fund pleaded guilty to wire-fraud charges in 2012 and Hwang was barred by U.S. regulators from managing client money. That’s when he set up his family office.
But Hwang apparently wasn’t content to just conserve his $10 billion. Employing an exotic form of leverage known as a total return swap and investment bankers who didn’t pay a lot of attention to Hwang’s exposure, he managed to leverage his $10 billion to an estimated $30 billion in securities before one of the stocks collapsed.
That’s when the investment bankers started to bail out. In the fire sale that followed, Morgan Stanley took a $900 million loss on securities, and Credit Suisse lost $4.7 billion, a year’s earnings for the Swiss bank.
Hwang’s now reportedly worth a mere $2 billion, but he deserves no sympathy, nor do the executives at Credit Suisse who walked the plank. Their reputations and egos may be bruised, but I’m guessing they still have plenty in the bank.
Reserve your sympathy for the mom-and-pop investors who had money in stocks like ViacomCBS, which lost half of its value in two days after the banks sold off Hwang’s holdings. These are always the people who get hurt in these implosions.
Given all this, you would think the wealthy would be generous contributors to the party that is the traditional defender of free markets, but that hasn’t been the case recently. The latest fund raising reports from the National Republican Congressional Committee and its Senate counterpart show a precipitous drop in corporate PAC donations. The bulk of the money is coming from small, individual contributions.
But there’s a way the GOP can send a message to the ungrateful. Congressional Republicans have said they won’t support an increase in corporate taxes to pay for Biden’s infrastructure program. Maybe the GOP should compromise on that position to get the attention of the benefactors of their largesse.
George Boardman lives in Nevada City. His column is published biweekly on Tuesdays by The Union. Write him at email@example.com.
NEVADA COUNTY ranked 10th in the nation at 19% when it comes to the increase in the value of a home from February 2020 to February 2021, according to statistics compiled by The Wall Street Journal…GIVEN THE county’s historically low vaccination rate, don’t expect us to escape the clutches of COVID-19 or its variants anytime soon…OPPONENTS OF a vaccination passport aren’t getting vaccinated and don’t want to be punished for it…HUNTER BIDEN is the Billy Carter of the Biden administration. He’s writing a confessional now because he can make a lot of money doing it…ON THE other hand, Rep. Matt Gaetz is everything Republicans hoped Hunter Biden would be…ALABAMA WASN’T the best place to try to unionize Amazon workers. In a state where the minimum wage is $7.25, $15 an hour is a lot of money…
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User Legend: Moderator Trusted User
Postmodernism has won the day, and its pernicious effects on our nation may very well mean our demise.