So, what should be occupied next?
No doubt, the Occupy Wall Street protesters were right to target the financial industry first. Soaring Wall Street pay has been a key force behind America’s income disparities over the past three decades, and banks have yet to be held accountable for the destruction they wrought in recent years.
But the movement needs some new destinations. It’s getting cold in Zuccotti Park, and the authorities in other Occupy cities are starting to run out of patience. Besides, if you’re really serious about addressing income inequality and economic injustice in America, there are other institutions and figures worth challenging. Their roles in creating the gaping divides in our economy — in which the top 1 percent of taxpayers take home a quarter of the nation’s income — prove that inequality is not just a result of abstract trends of globalization and technology. No, wide inequality in this country has been driven in large part by specific actions, or failures to act, by people and organizations in positions of authority.
Protesters need no introduction to Wall Street, let alone the Capitol or the White House. But here, in no particular order, are other culprits in need of occupation.
Hold on, you might say. Didn’t President Clinton preside over our last stretch of solid economic growth? And didn’t his budget deal of 1993 raise income taxes on the wealthy? Yes, and yes, but Clinton also signed off on a giant windfall for affluent Americans — the 1997 reduction in the capital gains rate, the tax paid on profits from the sale of assets such as stocks or real estate.
President Ronald Reagan’s 1986 tax overhaul raised the capital gains rate from 20 percent to 28 percent, equalizing it with the new top tax rate for earned income. This was a progressive move, given that capital gains are claimed disproportionately by the very rich; half of all capital gains have gone to the top 0.1 percent of earners over the past 20 years. His successor, President George H.W. Bush, repeatedly attempted to lower the capital gains rate but was blocked by Senate Democrats.
But early in his second term, Clinton cut a deal to reduce the rate from 28 percent to 20 percent in exchange for congressional Republicans’ approval of college tax credits. With Clinton having signed off on that reduction, it was easier for his successor, George W. Bush, to drive the rate even lower, to 15 percent.
The low capital gains rate explains why billionaire investor Warren Buffett was taxed at only 17 percent last year and why millionaires paid an effective tax rate of 22.1 percent in 2007, down from 30.8 percent in 1996. The low capital gains rate also gave rise to the “hedge fund loophole,” under which investment managers classify their pay as capital gains, thus having their income taxed at a mere 15 percent.
“By far the largest contributor to the reduced progressivity of the U.S. tax system is the change in the capital gains rate. It is reason number one, number two and number three,” said Marty Sullivan, an economist with Tax Analysts. “The Democrats were fighting for years to keep that out of the law, and then Clinton comes in and bargained it away.”
Is it fair to target someone for deeds long past? Well, Clinton hasn’t exactly been earning forgiveness. Asked in a recent interview by the conservative network Newsmax about Obama’s plan to raise taxes on the wealthy, Clinton gave it a cool review, which promptly showed up in ads attacking the proposal.
So occupy away. It’s up to protesters to decide what’s most convenient: the Clinton Foundation offices in New York City (which did not respond to a request for comment), Clinton’s big spread in suburban Chappaqua or the Clinton presidential library in Little Rock.
The Occupy Wall Street protesters say that one of their grievances is the towering student loan debt carried by underemployed college graduates, an average of $25,250 for the Class of 2010.If so, the protesters ought to take their case directly to the universities — and some are starting to do just that.
Late last month came news of the latest round of tuition increases — an average rise at public universities of more than 8 percent (to $8,244) for in-state students and nearly 6 percent (to $20,770) for out-of-state students, and an average hike of 4.5 percent at private colleges (to $28,500). The public colleges blame state budget cuts, and all of them point to the cost of attracting top-notch faculty.
But studies have shown that the biggest driver of university budgets has been administrative bloat. Meanwhile, more and more classes are being taught by underpaid adjuncts, while 30 private college presidents earn more than $1 million a year.
The higher-education industry lobbies against progressive tax proposals that might lessen charitable giving to colleges, such as Obama’s plan to reduce the tax deduction that wealthy taxpayers can claim for donations. The career-services offices at elite schools also exacerbate inequality by easing the path of so many graduates to lucrative jobs in finance, a societal squandering of a good education — but one that pays dividends for subsequent alumni giving. (Harvard, for the record, notes that 66 of its graduates joined the latest Teach for America class.)
Universities counter that a college education remains the best engine of upward social mobility in America. And it is true that some top colleges are trying harder to recruit low- and middle-income students and digging into their endowments for financial aid. Harvard, for one, has a policy of “zero contribution” from families making $65,000 or less annually, which a spokesman said now benefits 20 percent of undergraduates.
But overall, higher education is failing to provide its promised uplift, with too many lower-tier schools graduating abysmally few of their students while too many higher-tier schools become the preserve of the over-tutored upper-middle class. Richard Kahlenberg of the Century Foundation notes that at the 146 most selective colleges in America, 74 percent of students are from the richest quarter of the population, while 3 percent are from the poorest quarter.
“It’s great to have generous financial aid, but if you’re not admitting any poor kids, that’s not going to get you very far,” he said. “Most careful research suggests these are institutions that replicate social inequality rather than upend it.”
It is hard not to notice that the steady rise in inequality, starting in the late 1970s, has occurred in tandem with the decline in private-sector union membership, from 25 percent in the mid-’70s to a mere 7 percent today. It is also difficult to overlook that countries with stronger unions, such as Canada and Germany, show a far more equitable distribution of income across the working population.
Harvard labor economist Richard Freeman says that organized labor diminishes income inequality mainly by forcing employers to give back more in compensation to workers that executives otherwise would claim for themselves. In a strong union environment, this dynamic even applies to nonunion firms, which must pay better wages to compete for workers.
But there’s also a broader contribution to inequality in the decline of organized labor in America — the loss of the “countervailing force” that strong unions used to provide in debates with business groups over, say, financial deregulation.
There are plenty of companies that have battled unions, and plenty of lawyers and lobbyists who do those firms’ bidding. But Freeman says the place to occupy is obvious: Wal-Mart, which has fought relentlessly to keep its U.S. and Canadian stores union-free (though not its stores in other countries, interestingly). The mega-retailer, which did not respond to a request for comment, is “not as bad an employer as the unions like to portray it,” Freeman said. But, “if there was one company that could change the climate in this country if it weren’t so adamantly anti-union, it would be Wal-Mart.”
Haven’t heard of Towers Watson? That’s fine with them, because Towers Watson doesn’t need your business. The company is the biggest player in the elite market of compensation consultants, who are hired by other firms’ compensation committees to help set executive pay.
These board of directors committees are inclined to treat their chief executives well, and the consultants are glad to oblige. They dig through their trove of privileged pay data to find other companies that can serve as “peer benchmarks” to justify the proposed raise — regardless of whether the other companies are truly similar.
“They’re pivotal,” said University of Maryland business professor Michael Falkender. “What they’re brought in to do is to explain to shareholders why we’re paying what we’re paying.”
The consultants’ handiwork is plain to see. Pay for executives has more than quadrupled since the 1970s, adjusted for inflation; over the same period, median pay for rank-and-file workers has dropped more than 10 percent. And it’s not just the financial sector: Even after the Wall Street boom of recent years, executives at nonfinancial firms make up 41 percent of the richest tenth of a percent of earners; managers at financial firms make up 18 percent.
Other compensation consulting firms include Frederic W. Cook and Co. and Pearl Meyer. But Towers Watson, which advises a quarter of the Fortune 1000, may be easiest to occupy — it has offices in 36 American cities. It declined a request for comment.
No, not the Northern Virginia shopping malls outside Washington. Rather, the government contractors located there, which have metastasized as federal agencies have outsourced more of their work with the “reinventing government” push of the 1990s and the homeland security boom of the past decade. The federal government now spends more than $500 billion each year on contracts for all kinds of functions, from building weapons systems to designing Web sites to reviewing grant applications — more than double what it spent in 2000.
And the contractors who get this work are paid on scales beyond anything traditional federal workers could dream of. A recent study by the Project on Government Oversight found that of the 35 job classifications it examined, contractor billing rates were on average 83 percent higher than what the government pays federal employees for the same type of work. The growth in contracting also has exacerbated another form of inequality: the increasing gap between metro Washington and other regions in the country, since so many of those high-paid contracting jobs are clustered around the capital.
The Professional Services Council, which represents federal contractors, argues that their pay is in line with what’s needed to attract top talent. “The private sector simply has a different economic model that it’s working with,” said the council’s Alan Chvotkin. “Are top executives making more than top people in government? Absolutely. They’re making more than the president of the United States.”
A lot more, actually. Contracting firms are allowed to bill up to $700,000 per year for executive compensation, well above the president’s annual $400,000 salary. The chief executives of contractors General Dynamics, Booz Allen and SAIC last year took home $13.7 million, $3.5 million and $5.2 million, respectively.
All of the above targets helped make income inequality in this country as extreme as it is today. The Supreme Court merits occupation because it helps keep things from getting any better.
If you thought that people at the very top of the ladder already had too much influence, just wait. The court’s 2010 ruling in the Citizens United v. Federal Election Commission case has brought us to new heights of big-money domination by allowing corporations and unions to spend unlimited sums to help elect candidates, knocking down what few constraints remained in a loophole-ridden campaign finance system. The ruling has spawned super PACs, groups that can collect unlimited contributions in support of candidates, as long as they are not “coordinating” with them. Karl Rove’s Crossroads super PAC is vowing to spend $240 million this cycle, the conservative Koch brothers are vowing to spend another $200 million, and Democrats and unions are scrambling to keep pace with their own groups.
“We have had other periods in time where there has been a lot of money in the political process,” said Mary Boyle of Common Cause, which advocates for open government. “But right now . . . you’ve got the very rich who have accumulated a lot of political power and clout, and this is a lot of their money [going into the super PACs], and it is continuing to tilt democracy in favor of the 1 percent.”
Did the court realize this could happen? In the ruling, Justice Anthony Kennedy wrote: “We now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.”
Really? “How could they not think ahead to the next step and what that would be like?” Boyle said. “It wasn’t a big leap to make. It’s baffling.”
Getting inside the court is harder than ever these days. But those big steps are perfect for cots and sleeping bags.
Alec MacGillis is a senior editor at the New Republic.
What else to occupy? Send your suggested places, people or institutions to email@example.com, and we’ll publish the top ones next week.