Do the Math

Posted by By at 29 November, at 11 : 20 AM Print

By Timothy Dewald

It’s class warfare, and the 1% has been winning for the last 30 years.  If you don’t believe that, just do the math.

In 1982, the share of national income going to wages was 56 percent. In 2009, the share of national income going to wages was 51 percent. Do the math – for the past 30 years, profits grew; wages didn’t.

In 1965, CEOs in major U.S. companies earned 24 times more than the average worker. In the 1978 the ratio rose to 35 times more than the average worker. In 1989, the ratio grew to 79 times more than the average worker.  Beginning in the 1990s, the ratio grew even more steeply, hitting 300 at the end of the recovery in 2000. In 2003, the fall in stock market prices reduced CEO stock related pay, but by 2009, the average CEO was paid $10,982,000 a year; the average worker, $41,861. Do the math – in 2009 a CEO earns 262 times the salary of the average worker.

Just to give an example of CEO pays, in August 2010 Mark Hurd was fired for cause as CEO of Hewlett-Packard.  Lee Apotheker, his replacement, received a $1,200,000 annual salary, plus an “annual incentive” of 200% of base salary. Do the math – that’s a minimum pay of $3,600,000. In addition, Apotheker receives 76,000 shares in HP stock, a signing bonus of $4,000,000 plus a relocation allowance of $4,600,000, not to mention, plenty of vacation time, and use of the company jet. Oh, let’s also do the math on fired-for-cause former CEO Mark Hurd $1,200,000 severance pay, 775,000 shares of vested HP stock, plus an additional 345,000 shares of HP stock as a “bonus performance.” HP stock is about $41 a share, so that’s about $25,000,000. And the reason Hurd was fired for cause?  Hurd submitted a phony $20,000 expense account. In September, Hurd was hired as President and board member of Oracle, the world’s second largest software manufacturer, who had just completed a layoff of thousands of people gutting the company. Nice work if you can get it.

Let’s do the math on taxes. According to Reaganomics of the 1980s, 90s, the millennia, and now, 2010, we should 1) reduce government spending, 2) reduce income and capital gains marginal tax rates, and 3) reduce government regulation. By enacting across the board tax cuts and tax breaks to businesses, the average worker would benefit as the money “trickled down” through the economy. According to William A. Niskane, one of the architects of Reaganomics, the top marginal individual income tax rate fell from 70% to 28%. The effect was primarily a change in the composition of tax revenue towards payroll and new investment, and away from higher earners and capital gains on existing investments. Reread, please, that last sentence. The rich paid less in taxes (70% to 28%), while workers had a tax increase.

According to George W. Bush, the rich needed yet another tax cut and so, in 2001 and again, in 2003, the tax laws were changed so that personal income tax rates were reduced, exemptions for the Alternative Minimum Tax were increased, and dividend and capital gains taxes were cut. During the Bush years, there was also the war in Iraq.

What did we get from the new rounds of tax cuts? The new millennium saw the weakest economic decade in U.S. postwar history for non-residential capital investment. There was plenty of investment, just non-US investment. There were jobs aplenty, just oversees jobs. It’s a Wal-Mart economy – slightly lower prices at really, really low wages and really high profits. And if you think this has no effect on our local economy, just ask any worker from Hershey to Harley. Just do the math and, if you can’t, hey, just outsource it to Communist China.

Let’s do the math on extending the Bush tax cuts as a stimulus to the economy. Recently, the Congressional Budget Office examined 11 potential stimulus policies including the extension of the Bush tax cuts. According to the CBO and other authorities, extending all of the Bush tax cuts would have only a 10 to 40 cent increase in the gross national product for every dollar spent. Most Bush tax cut dollars go to higher-income households, and these top earners don’t spend as much of their income as lower earners. In fact, extending the Bush tax cuts tied as the least effective of all 11 potential stimulus policies that the CBO examined. The CBO concluded, the government could more effectively stimulate the economy by letting the high-income tax cuts expire, then using the money for aid to the states, extensions of unemployment insurance, and tax credits favoring job creation. Dollar for dollar, each of these measures would have about three times (300% to 400%) the impact on gross national product as continuing the Bush tax cuts.

Now that the Iraq war is finally coming to an end, let’s do the math on the Iraq war. In addition to all those who lost their lives, were maimed, and hurt, the war in Iraq cost the American tax payer ¾ of a trillion dollars. Rather than paying for the war through taxes, the cost of the war was simply added to our national debt. Where were “fiscal conservatives” while this was taking place? They didn’t even raise an eye brow, let alone raise the taxes.  Here’s another math problem to solve – guess who owns 40% of our national debt? I’ll give you a hint; see the name of the country two paragraphs above.

Let’s do the math on banks. In 2010 banks have been making record profits, are sitting on a mountain of money, and yet can’t get loans out to businesses.  The interest rate for a new home is 4.479% APR, an historic low. However, as of October 4, 2010 the national average is 14.34%, 10% higher. Not only higher profits, but, thanks to Wall Street, banks no longer needed to take risks with their capital. They just took their profits, bundled their loans and resold them on Wall Street as “financial investment products” such as mortgage backed securities.

Let’s do the math on Wall Street. Just to take but one example, Goldman Sachs arranged a financial arrangement called “swaps” that in effect, allowed the government of Greece to borrow 1,000,000,000 Euros without adding to its official public debt. The lie allowed Greece to look much more financially solvent than it actually was. As a result, Greece was admitted into the European Common Market.  Then Goldman Sachs double crossed their co-conspirator by purchasing derivatives betting that Greece would default on their bonds. This year, Goldman Sachs made record profits, surprising 100 partners with tens of millions of dollars in mid-year bonuses.

Let’s do the math on Senator Pat Toomey. His top campaign donor is the Club for Growth, $697,000. The CFG is a “527” organization, which is allowed to collect unlimited contributions without disclosing donors’ names. A 527 does not have to reveal its activities to the IRS or FEC. Oh, guess who is the former president of the Club for Growth? Yep, Pat Toomey.

Let’s do the math on the Marcellus shale. The September 30, 2010 issue of the Harrisburg Patriot News stated that the GOP controlled Senate was concerned about the constitutionality of the House bill calling for 39 cents on tax revenues per thousand cubic feet of gas produced in the Commonwealth. Then Senate President Joe Scarnati stated the real reason for the delay, “We are not going to entertain a tax rate here in the Senate that’s punitive to this industry.” Though Republicans are saying they are “negotiating in good faith,” their latest campaign ads calls the measure a “job killing energy taxes.” The Senate Republicans are hoping to stall the bill long enough until Tom Corbett gets elected. Corbett is on record as opposing any new taxes. In 2008, big oil profits totaled $656,000,000,000. That number is not a mistake and it’s not a gross income; it’s a profit of 2/3 of a trillion dollars.

Let’s do the math on Tom Corbett. He’s opposing any new taxes stating that he’s making “the hard decisions.” Those “hard decisions” include trying to apportion Pennsylvania’s electoral votes so that the state will not go for President Obama in 2012, helping the Republican legislature gerrymander the district so that Jeff Piccola can keep his job, splitting towns like Lebanon City into two districts, spending public money to contest the Federal Affordable Health Care Act while throwing the poor off health care, and doing such a poor job of monitoring the gas drilling that the Feds have had to step in.  Meanwhile, his no new taxes have forced thousands of teachers to be laid off as have fire fighters and police. Our roads and bridges are in need of repair, we have to upgrade our sewage systems and we have not fully funded our pensions for our teachers. Taxes need to be raised, and a well head tax on gas wells would certainly help us meet these two important commitments, but Tom Corbett’s calculations are of a very different sort.

It’s class warfare, and the 1% has been winning. Do the math.


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The Rev. Timothy Dewald was Assistant Professor of Mathematics at Lebanon Valley College joining the faculty in 1989. He retired in May 2010. In 1993 he won the College's Evelyn J. Knisley award for Inspirational Teaching. In addition to teaching mathematics, Rev. Dewald served the College in 1992 as acting chaplain, taught courses in East Asian religions, a First-Year Seminar on Darwin and evolution, Einstein’s general relativity, and the New Testament, as well as a mathematics and statistics courses. He also served as a parish minister for 23 years. Rev. Dewald graduated from Dickinson College with a degree in political science and religion. He earned a master of divinity degree from Andover Newton Theological School in Boston, Massachusetts. In 1987, he received certification in mathematics from the Pennsylvania State University. - Email Timothy Dewald

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