Sunday, November 13, 2011

Are American corporations too greedy?

I got side-tracked today while reading an article about raising the taxes for the wealthy.  For the record, I am firmly in favor of a flat tax and closing the loopholes that allow people to cheat on their taxes – everyone should pay their fair share.

I haven’t forgotten about the government spending, but I’m hung up on the defense budget.  I’m pro-military and believe that America is what it is in part, because of our strength-in-arms.  But, I also think that there is a lot of fat that can be cut, some horrible inefficiency in implementation, and probably quite a bit of corruption.

America was founded, in part, on the belief that a person could make a living, raise a family, and that the government would help them do this.  Remember, “…life, liberty, and the pursuit of happiness”, or how about “…promote the general welfare, and provide blessings of liberty to ourselves and our posterity”?

One thing to note is that our country, its people, the society as a whole made it possible for companies, corporations, and people to become wealthy.  We live in a place where businesses are not nationalized or their profits stolen by dictators (nor by the IRS), where you are free to start, sell, or run into the ground your very own company.  But, if we allow our economy, our government, or these very businesses to waste this opportunity, then these things will no longer be possible.

[This next paragraph is for the executives, leaders, owners, and shareholders of America’s corporations, so if that’s not you, then scroll down some.]  When you have reductions-in-force or layoffs, so that you can increase profits, most of those people are going to receive unemployment benefits.  That is not money from heaven, it ultimately comes from taxes (I know that both the employer and the employee contribute, but that doesn’t and can’t cover all of it).  This is an inefficient method of saving money since it costs to administer both the unemployment and the taxes.  It is much more efficient to accept lower profits, keep people working, and them paying taxes not spending them.

So are corporations greedy?  I say yes, they are.  It’s not just the profits, or the stupidly huge salaries and bonuses for the executives; they also cheat on their taxes.  For example last year Wal-Mart made ~$22.1 billion in profits and paid out $5.3 billion in taxes – which at ~24% is less than the mandated 35% but there are deductions and credits and so on.  Exxon Mobil made about $30.4 billion and paid $156 million in US federal taxes – which is something like 0.5%.  Now, I understand that there are reasons for this and that it probably follows IRS rules (unless there were some pay-offs), but it is curious.  Here are two articles about corporate profits and taxes.  Check it out and see if it makes sense to you.

So what about the huge bonuses?  We have seen this over and over on the news, where some company that seems to be in trouble and losing money, gives the CEO and/or the top executives a ridiculous bonus.  What gives?

Can you imagine how the conversation went?
[CEO]  So, I managed to make you some indecently large profits this year, even though we lost money and laid people off, and I think I deserve a bonus.
[Board of Directors]  Ok, how about the same amount as your yearly salary?
[CEO]  That’s only like a million dollars.  You do want there to be similar profits next year, right?
[BoD]  Well, yes I do.
[CEO]  Then I think you should up my bonus significantly.
[BoD]  Well, let’s see.  The average worker here got a $650 bonus this year, so how about 20,000 times that much?  That would be…$13.5 million.  Is that doable?
[CEO]  Great, but let’s cut out that worker bonus and we’ll have even higher profits next year.
[BoD]  I like how you think.  Let’s take the corporate jet to Paris for lunch.

Does that sound unrealistic?  Here is an article talking about exactly that.

None of the executives at these corporations built those businesses by themselves; they were built on the backs of the workers.  What could a CEO possibly do that is worth 20,000 times what a worker does: be he a mailroom clerk or an engineer, or a machinist?  He likely didn’t design, manufacture, test, repair, market, sell, or procure material for the widgets.  Did he personally rally the troops and lead the workers to a revolutionary new widget?  Did ANY of them turn down a bonus in order to keep a loyal employee?  Go here for an article about corporate “internalequity”.

It isn’t just the bonuses either, the salaries for top corporate execs are just as crazy.  Here is an article on the top 20 for 2010.

This is starting to sound a bit socialist, and I don’t mean for it to, but clearly I have touched a sore place on myself.  Does any of this make sense to anyone?

A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more, otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation.

No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.
--- Adam Smith, “The Wealth of Nations”

In the opening paragraph I said that everyone should pay their fair share.  If every individual and corporation did, would the deficit be so high?  Would there be more money available for those thin slices of the federal pie, like education and basic scientific research?  Since I have been paying into social security for about 30 years, I would like for there to be something available for me when I need it.

I haven’t been banking $13 million bonuses.

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