It's easy to get outraged at the announcement that AIG will be paying over one hundred and fifty million dollars out as bonuses, after taxpayers have pumped over one hundred and fifty billion dollars into the failing company. But the populist outrage this has sparked off needs to get a little more focused. Because we're about to get lost in a thicket of legalese about "compensation" and "bonuses" and "deferred stock options" and all the rest of it, which only serves to detract from a very basic truth -- which should be the real point of discussion here. This truth is that whatever you call it, and whatever little box it gets entered into on the tax forms, these people make an obscene amount of money. And nobody is even saying (because nobody in the media is even asking) exactly how much money they make. This should be the real target here, because it has much broader implications. Also, because it is a lot easier to fix than just getting back some bonuses.
Glenn Greenwald is one of the few who have drawn what is, to me, an obvious parallel here. When the automakers came, cap in hand, to Congress asking for some bailout money, there was great outrage at those "greedy" union workers. Union salaries and benefits of line workers (all of which were also covered by "employment contracts" now being held as sacred by AIG) were discussed on the floors of Congress, with a few Republicans taking the lead in demanding we renegotiate their contracts before they got the money.
The auto industry as a whole was asking for less than $30 billion. We're about to pay $30 billion to AIG alone, which is just one payment we've made to this one single company. The total price tag of what we pump into Wall Street to save the banking industry will likely be measured in trillions of dollars. It may turn out to be around fifty to one hundred times as big as the bailout Detroit was asking for. We need to keep this perspective, because sadly it has been utterly lost in the debate. Detroit came looking for what will probably turn out to be less than two percent of what we're giving Wall Street. So where were the demands to renegotiate employee contracts when Wall Street's flood of money was authorized in Congress?
I have a few questions about Wall Street that (astonishingly, to me) have not even been asked (much less answered) in this entire debate. (1.) What is the average compensation (yearly total) of the employees (listed by job type) on Wall Street? (2.) How is this compensation broken down -- what is the average salary, what is the average bonus, what is the average stock options grant, etc.? (3.) How much does an entry-level person in this field make? (4.) What percentage of the operating expenses of these companies goes to employee compensation (total, all types)?
You'll notice that the news media has not told us any of this data, which is really necessary to know in order to have a rational discussion about the problem and the scope of the problem. My sneaking suspicion is that nobody wants to admit that these people are rolling in dough no matter what you call the "compensation." Politicians, up to and including President Obama, are using some sleight-of-hand here. They direct people's rage against a specific portion of the total compensation. But whether it is bonuses, or stock options, or deferred this or that, the real underlying question is: do these people just make too much money?
While there will be a grand circus of faux populism erupting in Washington this week over AIG's bonuses, consider one thing while listening to everything proposed: does it address total compensation? If not, it can be discounted as smoke and mirrors. Because so far, the only limit on compensation has been for the top 25 executives in a company receiving a "major" amount of taxpayer dollars (whatever that means), and their pay is limited to a mere $500,000 -- except for bonuses they take as "deferred" compensation. In other words, we're all supposed to pretend that they're not still making millions, because they'll have to wait a few years to cash in. So all the weeping and wailing you're about to hear from Congress over "bonuses" isn't worth squat unless they attack the whole problem, and not just one piece of it.
To be honest, this dog-and-pony show comes from both sides of the aisle. Democrats seem content to make a token effort to "cap" CEO pay, and ignore all the other high-paid employees in the financial companies. Republicans actually defend the traders by likening their pay to "a car salesman who gets a commission," while conveniently never mentioning what (a) the base pay is for such an average trader, or (b) the average bonus they get. Both sides know that if the public was armed with the facts, this would all be laughable. Because I have a sneaking suspicion that the "minimum wage" base pay for the traders who work for the company -- not for a CEO or other executive, mind you -- is around five to ten times the average American's salary. And remember, that's just the minimum of what they earn each year, without bonuses. You want to see outrage? Start talking about these numbers on television. You'll see some outrage.
I've written about this before, in articles with cheerful titles like "Populist Rage!" and yet we're still focusing on the distractions. In this article, I quoted a New York Times piece about CEO pay:
"That is pretty draconian -- $500,000 is not a lot of money, particularly if there is no bonus," said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. "And you know these companies that are in trouble are not going to pay much of an annual dividend."
Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.
"It would be really tough to get people to staff" companies that are forced to impose these limits, he said. "I don't think this will work."
My response then is my response now:
Just for the record, Draco (where we get the word "draconian" from) would have either sold these guys into slavery, or put them to death. That is "draconian." A "mere" half-million per year in salary is so far from "draconian" that I'm amazed Reda's pants didn't immediately catch fire when he uttered such nonsense.
Cry me a freakin' river, in other words.
We interrupt this rant for a reminder -- 20,000 jobs a day are still being lost in America. Twenty thousand more people now have no paycheck at all. Many of these jobs have been lost in the banking sector. You think some of them wouldn't jump at the chance to work again at a fraction of this "draconian" limit?
The timidity of lawmakers to take on the basic problem is astounding. Fortunately, there is an easy way to deal with the problem. It is called the Alternative Minimum Tax, or "AMT." It gets discussed every year in Congress, because it is "broken," but they always pass a short-term fix for it rather than actually addressing the problem. It's a solution just sitting there waiting to be used for the problem of Wall Street bonuses.
The AMT was created because some extremely wealthy people were somehow paying very little (or even no) income taxes, through creative use of loopholes in the system. So the Alternative Minimum Tax was passed -- even if you make a million dollars a year and legally could write off everything through all sorts of deductions, you had to figure your tax on a separate worksheet that didn't allow the deductions. And if the AMT amount was higher than what was on your income tax, you paid the higher AMT amount. It was a safeguard against the ultra-wealthy "gaming" the system to pay no taxes.
The only problem with the AMT (the one they haggle about every year) is that the amount where the AMT kicked in (the amount over which you were required to fill out the AMT worksheet as well as your 1040) was never tied to any index (inflation, for instance). So it has stayed the same as it was when it passed under Richard Nixon until now. Meaning, in today's world, it is too low. This kind of simplifies the history of the AMT, but that's the main story.
So all they need to do is raise the limit of when the AMT kicks in (currently around $100,000, roughly) to make it the true "millionaires' tax" it was designed to be in the first place. Barack Obama has already laid down his marker at "don't raise anyone's taxes under $250,000 a year" so that would be the place to start. Or maybe at $400,000 a year, which is Barack Obama's salary. That one is easy to comprehend -- if you make more than the president, you pay more in taxes. Or even set it at a cool million bucks a year.
Whatever the number, pick a line, draw it, and free up everyone under that line from being liable for the AMT (this covers a lot of people, and would be a big tax cut for the upper-middle class, which would be helpful politically). Then put some teeth in the AMT itself, which means raising the amount to make up for what you lose by upping the limit.
Now is the time for such bold movement on the AMT. It would be tax-neutral or a tax cut for the same 95% of the people Obama keeps talking about. By definition, it would only raise taxes on the extremely wealthy. Call it a "millionaires' tax" and it feeds into exactly the rage that is growing over AIG bonuses and the rest of the Wall Street excess. Don't be fooled by the smoke and noise over just "bonuses" or even "CEO pay." Pull the curtain aside from the entire problem, and let people know that even if these folks manage to cash their bonus checks, a large part of it will be returned to the Treasury because they're all going to have to pay their millionaires' taxes on it.
The time is now. If the numbers for these people's average salaries (much less the bonuses) were being shown on every television news show, and some politician came out with an "I have the answer" speech, the public would overwhelmingly support such a move. There is a real populist anger growing out there, meaning that such a bold move is now not only possible (when it was not before), but also imperative.
Chris Weigant blogs at: ChrisWeigant.com