Guess what? Rich folks are making even more money and as a result, profitable corporations are paying even LESS in taxes because of a loophole (surprise!) in the tax law,
Thanks to a quirk in tax law, companies can claim a tax deduction in future years that is much bigger than the value of the stock options when they were granted to executives. This tax break will deprive the federal government of tens of billions of dollars in revenue over the next decade. And it is one of the many obscure provisions buried in the tax code that together enable most American companies to pay far less than the top corporate tax rate of 35 percent — in some cases, virtually nothing even in very profitable years.
In Washington, where executive pay and taxes are highly charged issues, some critics in Congress have long sought to eliminate this tax benefit, saying it is bad policy to let companies claim such large deductions for stock options without having to make any cash outlay. Moreover, they say, the policy essentially forces taxpayers to subsidize executive pay, which has soared in recent decades. Those drawbacks have been magnified, they say, now that executives — and companies — are reaping inordinate benefits by taking advantage of once depressed stock prices.
A stock option entitles its owner to buy a share of company stock at a set price over a specified period. The corporate tax savings stem from the fact that executives typically cash in stock options at a much higher price than the initial value that companies report to shareholders when they are granted.
But companies are then allowed a tax deduction for that higher price.
For example, in the dark days of June 2009, Mel Karmazin, chief executive of SiriusXM Radio, was granted options to buy the company stock at 43 cents a share. At today’s price of about $1.80 a share, the value of those options has risen to $165 million from the $35 million reported by the company as a compensation expense when they were issued.
Wait. What? The company gets to claim the expense TWICE? First when the stock option was issued and then again when it’s paid?
If he exercises and sells at that price, Mr. Karmazin would, of course, owe taxes on the $165 million as ordinary income. The company, meanwhile, would be entitled to deduct the $165 million as additional compensation on its tax return as if it had paid that amount in cash. That could reduce its federal tax bill by an estimated $57 million, at the top corporate tax rate.
I would bet that “ordinary income” will be taxed as “capital gains” at the nearly rock bottom rate of 15%.
In the meantime, all over the country cities are turning off the lights and in some cases literally ripping out the streetlights due to declining tax revenue.
Cities around the nation, grappling with what is expected to be a fifth consecutive year of declining revenues and having exhausted the predictable budget trims, are increasingly considering something that would once have been untouchable: the lights.
Highland Park’s circumstances are extreme; with financial woes so deep and long term, it has extinguished all but 500 streetlights in a city accustomed to 1,600, utility company officials say. But similar efforts have played out in dozens of towns and cities, like Myrtle Creek, Ore., Clintonville, Wis., Brainerd, Minn., Santa Rosa, Calif., and Rockford, Ill.
What distinguishes these latest austerity measures is how noticeable they are to ordinary residents. If health care cuts, pay cuts, layoffs and furloughs — and even limits on enforcing building codes or maintaining parks — are most apparent to the people inside city halls, everyone notices when his streetlights go dark (and some cities, like Colorado Springs, where the issue boiled over, have already resumed some lighting when revenues allowed).
But hey, no worries. We of the 99% are just expected to get used to it. Oh, and turn on our own damned lights. How we’re supposed to pay for the extra electrical cost at half the pay we used to receive is our problem.
The shrunken pay scale for newcomers — $12 to $19 an hour versus $21 to $32 an hour for longtime workers — threatens to undo the middle-class status of even the best-paid blue-collar jobs still left in manufacturing. A similar contract limits the wages of new hires at a nearby Ford Motor Company stamping plant, but neither G.E.’s 2,000 hourly workers nor Ford’s 2,900, nor their unions nor the mayor, Greg Fischer, have objected.
Quite the contrary, all argue that job creation must take precedence over holding the line on wages, given that the unemployment rate in this Ohio River city is above 9 percent and several thousand people apply for every unfilled, $13-an-hour factory job. “The trade-off is absolutely worth it,” Mayor Fischer said, arguing that while the city is actively subsidizing G.E.’s expansion here, mainly through tax rebates, that is not enough. “You must have a globally competitive wage to create jobs,” the mayor insisted.
The generational setback implicit in a “globally competitive wage” is evident at G.E.’s Appliance Park, the complex of factories where G.E. makes refrigerators, washing machines, dishwashers and other household appliances. Six years into the adoption of lower wages for new hires, half of the hourly workers are paid at the reduced scale.
In an earlier era, that would have been a source of friction, perhaps protest. Now it isn’t, and in an interview William Masden, 62, earning $31.78 an hour after 42 years at Appliance Park, attempted an explanation. The younger workers still get annual raises, he noted, and by the time they top out, he and his peers — the oldest baby boomers — “won’t be here any longer to remind them of what they are missing.”
Linda Thomas, 37, one of the first to be hired in 2005 under the new arrangement, amends that explanation. Her hourly wage, $18.19, has almost topped out, although it is nearly $14 an hour less than Mr. Masden’s. But she keeps silent. Too many unemployed people, she explained, would clamor for her job and her wage if she were to protest.
“You don’t want to rock the boat,” Ms. Thomas said. “You take a chance on losing everything you have if you do.”
Nope, don’t rock the boat baby. You’ll be out on your ear. And let’s talk about that ”globally competitive wage.” Do we also get “globally competitive” expenses? Will they go down commensurate with our declining incomes? Not bloody likely.
On another note, I won’t be bugging any of you to support me in the Susan G. Komen Race for the Cure this year. In case you missed it, 
