Why a sudden shift in earned income to the already well-paid?
According to a Wall Street Journal analysis, the percentage of total wages and salaries paid to top executives rose from roughly 28 percent of the national total in 2002 to 33 percent in 2007, just five years later. (The figure excludes non-salary compensation, such as incentive stock options, which would tilt the ground even further.)
Now, that’s a pretty remarkable shift of earning power over a very short time, and as the Journal points out, it has serious implications for Social Security. That wage shift toward the already well-paid puts more of the nation’s paycheck out of reach of the payroll tax, which isn’t collected on salary and wages above the legal ceiling, which this year is $106,800. (In effect, the payroll tax operates as a surtax on the income of the working and middle classes, with much of the income of upper earners exempt.)
Because of that shift toward high earners, an additional $1 trillion in annual salary is now out of reach of the payroll tax, meaning the Social Security Trust Fund is projected to use up its surplus by 2037, four years earlier than expected.
I’d propose three basic ways to explain that sudden shift in earning power:
One, top executives and other well-paid employees became considerably more productive and worked even harder in that time frame, while the rest of the American work force slacked off. Thus, the shift is purely the product of personal merit and anybody who dares to even raise the issue is a socialist. (See comments below, no doubt). This is the merit-based, classic free-market explanation that pretends the market is an exacting judge of each person’s contribution to the overall good, and rewards each person appropriately.
Or two, for reasons ranging from technology to global trade, the overall economy is simply shifting in ways that reward the upper managerial class and penalize those who make their living in other ways. This global megatrend means that earning power is being transferred from one group to another regardless of the personal merit or hard work of those involved, and is totally impersonal in its operation.
Or, option three, those in the managerial and executive class control the compensation process and have tilted it in their own favor, skewing it to reward themselves and their peers at the expense of others. That doesn’t necessarily make them evil or even particularly greedy; given human nature, any group of people, granted such power without a countervailing power to offset it, would do the same thing over time and have no conscious sense of doing so. And in 21st century America, the forces that once discouraged such behavior — social and cultural norms, taxation policies, corporate bylaws, etc. — have weakened to the point of being ineffective.
Of course, no single explanation probably applies, and the real answer is a combination of the above. But we ought to talk about it as a nation, because the phenomenon is real, and the explanation we settle upon will determine what, if anything, should be done about it.
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336 comments Add your comment
USinUK
July 22nd, 2009
8:05 am
I’ll go for Option One … cuz everyone knows the market is ALWAYS right …
DB, Gwinnettian
July 22nd, 2009
8:08 am
the payroll tax, which isn’t collected on salary and wages above the legal ceiling, which this year is $106,800.
I sometimes wonder what percentage of Americans even realize this.
Doggone/GA
July 22nd, 2009
8:10 am
“I sometimes wonder what percentage of Americans even realize this”
I’ve know it for years. I’ve often wondered WHY there’s an upper limit.
DB, Gwinnettian
July 22nd, 2009
8:11 am
(See comments below, no doubt).
heh.
But we ought to talk about it as a nation
Good luck with that. Sociamalist! Crypto-FASCIST!!!!111!!!ELEVENTYS!!!!
Mrs. Godzilla
July 22nd, 2009
8:11 am
I pick door number 3!
Don Pardo show me what I have won!
I Report :-) You Whine :-(
July 22nd, 2009
8:12 am
Nothing should be “done” about it except by individuals, let me guess, bookman advocates the government penalizing the highly successful.
You too can overcome the “unfairness” of it all, graduate from high school, study hard in college, build a profitable business plan, work the hours necessary to make it happen.
Another route to highly compensated success is to become beloved by the democrat party and sell government favors in return for cushy jobs and book deals like the Obozo’s did.
Or you can whine from your high chair until the government gives you a whopping 400 bucks to stifle your crying.
Whoop dee do.
Government ain’t the answer, it is the problem.
ugaaccountant
July 22nd, 2009
8:12 am
Because social security is designed to pay for yourself, not to be a socialist redistribution of wealth. It’s just not well designed and probably needs an overhaul.
Doggone/GA
July 22nd, 2009
8:15 am
“Because social security is designed to pay for yourself, not to be a socialist redistribution of wealth”
Actually, no it isn’t. It’s the biggest, legal Ponzi scheme going.
DB, Gwinnettian
July 22nd, 2009
8:16 am
I’ve know it for years.
Well yeah, me ‘n all, most of my working life, but I’m frequently shocked at how little the average American understands about the taxes that they’re baited to gripe about incessantly by right wing elements.
And not just little guys, either. After reading Thomas Oliver’s incredibly stupid anti-healthcare legislation screed in Sunday’s paper, I’m thinking he–the AJC’s gosh-durned BUSINESS PAGE editor!–doesn’t understand it either.
(Or he’s just lying, which is a decent side bet.)
Must run. Later, all.
TnGelding
July 22nd, 2009
8:16 am
Doggone/GA
July 22nd, 2009
8:10 am
Because of the limit on benefits. That said, it should probably be eliminated at this point, along with several other simple modifications.
The Teacher
July 22nd, 2009
8:19 am
Nah, it’s just greed. Most of the executives do know what they are doing. Some deserve that money, most don’t.
pat
July 22nd, 2009
8:19 am
Why the jealousy? I suppose you want the government to get involved and control the pay of private companies? Perhaps you should would about the “plank in your eye, rather than the spec in your brothers”. You too can be a top earner if you are willing to do what it takes to get there, so quit whining about what other people are doing. Nobody is robbing from the poor to give to the rich, those who do deserve prison, but economics is not a zero sum game.
America’s biggest problem is that people are far to concerned about what others do and not concerned enough about what they themselves are doing. Don’t worry about these people, worry about yourselves. If everybody took care of themseleves, then nobody would need to be taken care of save for the sick and injured.
Doggone/GA
July 22nd, 2009
8:20 am
“Don’t worry about these people, worry about yourselves”
Translation: I got mine
TnGelding
July 22nd, 2009
8:21 am
Doggone/GA
July 22nd, 2009
8:15 am
A Ponzi scheme is known fraud. SS is a pyramid scheme. The scary thing is we’re the first generation to be able to draw full benefits. That said, it has been a successful program and can continue to be with minor tinkering. The automatic annual COLA put in during the Nixon administration, tho needed, threw it out of balance.
Kayaker 71
July 22nd, 2009
8:28 am
Raising the ceiling on Social Security FICA tax collection is a sure way to raise taxes on those who make less than 250K/yr. Or did I miss something in Bozo’s rhetoric about how that group would not have a “dime” of increased taxes? If it’s the “evil filthy rich” you want to target then you are pointing your guns at the wrong guy.
I Report :-) You Whine :-(
July 22nd, 2009
8:29 am
If your economic policies caused a sunstantial deepening in unemployment, massive losses in federal revenue, wage depletion, equity value losses on a scale not seen since the 1930’s, and, you are a democrat, then just lie like a rug to the American people, who you have no respect for and think are too stupid to understand-
White House Chief of Staff Rahm Emanuel told The New York Times Obama intends to use the news conference as a “six-month report card,” to talk about “how we rescued the economy from the worst recession”
laughable
Redneck Convert
July 22nd, 2009
8:31 am
Well, the shift Bookman is talking about is just some good old boys jumping ahead of the curve. If y’all are going to raise such a fuss about bonuses the big boys got no choice but to raise their own pay. See, except for the CEO, nobody pays any attention to what other execs make in salary. But everybody notices what they get in bonuses.
So the shift is your own fault and you need to stop griping about it. If you’d of stopped carping about the bonuses the shift wouldn’t of happened.
As for putting more pay out of reach of this Social Security scam, I got three questions. Ain’t there no Walmart greeter jobs the old codgers can get? Is begging on the street corner too good for these Unproductive old coots? Ain’t they ashamed of stealing money out of our wallets to give to theirselfs?
Anyhow, that’s my opinion and it’s very true. Have a good day everybody.
Rick
July 22nd, 2009
8:31 am
SS is an insurance, benefit are based on amount paid in. If we eliminate the salary cap, we should increase the payment cap. The more you pay in, the higher your payments. No need to change that. We need to eliminate SS in the long run. The old need to get what they have been expecting and the young need to realize that there will be no money left with or without SS.
Doggone/GA
July 22nd, 2009
8:32 am
“A Ponzi scheme is known fraud. SS is a pyramid scheme”
That’s a distinction without a difference. And I did say LEGAL. And yes, like all pyramid schemes…if you want to keep it going, you have to adjust it occasionally…otherwise it will get out of balance.
jt
July 22nd, 2009
8:33 am
Sheesh Jay, you’ll get a raise if, and only if, this gentleman deems it warrented.
What an incredible story.
JAMES C. KENNEDY
Chairman
Cox Enterprises, Inc.
James C. Kennedy is chairman of privately-held Cox Enterprises, Inc., a leading communications, media and automotive services company. He is the grandson of former Ohio Governor and presidential candidate James M. Cox, who founded the company in 1898. He also serves as chairman of the board for Cox Radio, Inc.
Kennedy has been with Cox since 1972, starting as a production assistant with Atlanta newspapers, where he held various positions including reporter, copy editor, advertising salesman, business manager and executive vice president/general manager. In 1979, he was named president of Grand Junction (Colorado) Newspapers, Inc. and, a few months later, publisher of the Grand Junction Daily Sentinel. While at the Daily Sentinel, he served as Chairman of the Colorado Division of Wildlife Commission and was awarded Conservationist of the Year.
In 1985, Kennedy transferred back to Atlanta as vice president of Cox Newspapers, a subsidiary of Cox Enterprises. He was named executive vice president of Cox Enterprises the following year, and in January 1988, Kennedy was named chairman and chief executive officer.
For what it is worth, I would love for you to get a big raise.
You deserve it.
TnGelding
July 22nd, 2009
8:34 am
I Report
You Whine 
July 22nd, 2009
8:29 am
The economic crisis of 2007-2009:
http://www.historycommons.org/project.jsp?project=credit_crisis
pat
July 22nd, 2009
8:34 am
You do know that the politicians you want to control private pay are dirty stinkin’ rich, right? What ever congress imposses on the private citizen, must necessarily apply it to themselves. They cannot exempt themselves like they did with government healthcare.
USinUK
July 22nd, 2009
8:35 am
pat –
“Nobody is robbing from the poor to give to the rich”
and that’s where you’re wrong … during the period in question (2002-2007), average wage growth remained below the headline inflation rate from June 2003-June 2006 … so, for 3 years, the majority of Americans couldn’t keep up with price increases
when companies overinflate their executives’ salaries, from whose pocket do you think that money comes???
Rick
July 22nd, 2009
8:36 am
Do you mean that the CEO of Cox got his job by birth? Doesn’t that hurt the little people trying to be successful.
Doggone/GA
July 22nd, 2009
8:38 am
“Nobody is robbing from the poor to give to the rich”
You need to learn your history. The rich has ALWAYS exploited the poor.
wbk
July 22nd, 2009
8:40 am
Social security benefits are a joke! Those who benefit from social security beneftis are those who have never paid in. However, you can not win elections if you do not pay off the dependent society the democrats have created.
Those who pay in and are entitled to receive the SS benefits are getting a lot less than they should because of the redistribution of money to those who do not pay in. If you want to help those dependent citizens, then write a check from your bank account and send it to them. It is allowed.
You want SS to survive? Then do away with the liberal democrat giveaways to those who do not earn it. Problem solved.
Sounds like Jay wants to tax the rich one more way. I guess I am lucky that I am not rich. I do not have to worry about people like Jay trying to steal my money.
TnGelding
July 22nd, 2009
8:40 am
Well, stockholders have to become more involved and put an end to the overcompensation. The skimming of profits for and by the top execs has to stop. That’s bad enough, but to continue the obscene raid during hard times when companies are losing money is unethical and immoral.
Turd Ferguson
July 22nd, 2009
8:42 am
How dare those Execs/Mgr’s receive more pay than the mailroom cart pusher. This is an OUTRAGE!!
pat
July 22nd, 2009
8:42 am
If you people have evidence of wrong doing, bring it to the courts. Ill gotten wealth is illegal already. Being jealous of others because they are rich is laughable.
It also makes you look pathetic and petty. Why don’t you look in the mirror and figure out what you can do to fix yourself? When you have perfected yourself, then go after others.
TnGelding
July 22nd, 2009
8:43 am
wbk
July 22nd, 2009
8:40 am
If you don’t pay in, you don’t get a benefit. What about all the ones that do pay in and never collect a dime? SSI does not come out of the SS trust fund:
Supplemental Security Income (SSI) is a Federal income supplement program funded by general tax revenues (not Social Security taxes):
It is designed to help aged, blind, and disabled people, who have little or no income; and
It provides cash to meet basic needs for food, clothing, and shelter.
http://www.socialsecurity.gov/ssi/index.htm
Kamchak
July 22nd, 2009
8:44 am
A five percent raise on pay that is already nontaxable while organized labor is making wage concessions. Trickle down is a warm yellow stream.
Trust me
July 22nd, 2009
8:45 am
Jay,
I did not spot any discussion regarding the trickle-down effect. I think it is reasonable to assume that the Republican party’s laissez faire philosophy and practices have also aided and abetted the money hungry even without listing specifics.
TnGelding
July 22nd, 2009
8:45 am
Turd Ferguson
July 22nd, 2009
8:42 am
How much money does one household need? At some point they accumulate so much that they can’t manage it effectively, hence the current recession. If pay was more equitable, we wouldn’t have to redistribute the wealth.
Kayaker 71
July 22nd, 2009
8:48 am
Gelding,
I don’t want the government “redistributing” any of my money. How absurd!!
TnGelding
July 22nd, 2009
8:49 am
pat
July 22nd, 2009
8:42 am
We’re not jealous, at least I’m not. I admire them. But the rich wannabe conservatives that complain about the rich being overtaxed are simply wrong. You can’t get blood out of a turnip and if they continue to earn so much of the available income then they can expect to be heavily taxed until we can get spending under control.
USinUK
July 22nd, 2009
8:49 am
“How dare those Execs/Mgr’s receive more pay than the mailroom cart pusher. This is an OUTRAGE!!”
that’s right, TF, totally miss the point and pat yourself on the back for doing so.
I don’t care that C-level folks make more than I do – I expect them to. However, when the salary they are making is an obscene multiple of the lowest person’s salary … without including their bonuses and stock options … then, yes, I think that public outrage is in order. Especially when this same public – you know, the ones that actually do the work – are not only NOT reaping rewards, but are seeing their salaries grow at a slower pace than inflation.
Paul
July 22nd, 2009
8:50 am
Jay
I’ll go for option 3 (those in the managerial and executive class control the compensation process and have tilted it in their own favor, skewing it to reward themselves and their peers at the expense of others) because it’s a restatement of that Sunday School saying so many repeat but rarely have the chance to practice: The Golden Rule. Even those who never attended Sunday School can state The Golden Rule: “The person with the gold makes the rules.”
TnGelding
July 22nd, 2009
8:51 am
Kayaker 71
July 22nd, 2009
8:48 am
They wouldn’t have to if every working person was paid a living wage!
Absurd? Well it’s the American way, and has been at least since the Great Depression.
Blue
July 22nd, 2009
8:51 am
Doggone GA; it’s not that I ‘got mine’. It’s that I ‘earned mine’. YOU, on the other hand, have NOT earned mine.
Kay
July 22nd, 2009
8:54 am
“Trickle down is a warm yellow stream” – truer words were never typed! As for me, I am so thankful that my company gave me a .30 merit raise! I scored the highest score on my review and never missed a day of work. Oh and my benefits are going up 20% and my 401k matching went from 6% – 4%. I am grateful to the CEO’s, I mean master!
getalife
July 22nd, 2009
8:54 am
They won the class war,
Paul
July 22nd, 2009
8:55 am
Blue
Fine. So why should a person making, say, 20 times the average household income pay a total tax rate that’s only a small fraction of the average household? I’m speaking of rate, not gross amount.
Trust me
July 22nd, 2009
8:55 am
Nobody is robbing from the poor to give to the rich, those who do deserve prison, but economics is not a zero sum game.
Amazing. Some people even contradict themselves within a single sentence. Fortunately, you did recognize, secondly, that your use of the word “Nobody” was incorrect and Madoff’s victims, for starters, thank you. As for your “not a zero sum game” comment, would you care to present your analysis that led you to that conclusion. I’m quite interested, really I am.
So it ain't so, Joe
July 22nd, 2009
8:55 am
The same men yelling socialism, communism, Obozo, etc., are the same white men collecting more unemployment benefits than any demographic in the nation. Go figure.
MorningStar
July 22nd, 2009
8:56 am
((((any group of people, granted such power without a countervailing power to offset it, would do the same thing over time and have no conscious sense of doing so))))
So much for lack of those pesky little “Government” regulations. Any organization or governmental agency NOT subject to regulations will become a loose cannon.
I must disagree that most are not possessed by innate greed and evil, but merely must do whatever they can ‘get away with,’ without an ounce of regard for their fellow man.
These ‘greedy ones’ will do whatever it takes to line their pockets, and don’t give a twit what happens, as long as them ‘n theirs are OK. Compassionate conservatism at it’s best!
Not every corporate clown falls into the evil and greedy catagory, just most, and certainly the ‘most’ is significant enough to require stringent regulations and laws to protect working class America.
On second thought, perhaps they think they are placed here on earth by the Almighty, and whatever they do is fine. Anyone been keeping up with the 9th Street gang?
Paul
July 22nd, 2009
8:56 am
Kay
Don’t count your chickens… if a disparate impact is alleged, you could lose it all….
lovelyliz
July 22nd, 2009
8:57 am
And it’s not like these executives really “earn” it. Remember the days of pay for play? If LeBron James does play he doesn’t ear full salary. If the Cleveland cavaliers have a losing season, he too loses out.
What we have now are executives with no vested interest in the well-being of the companies they are now running. They didn’t start the companies and they haven’t been working there for years. They also know that they will get their mega salaries and golden parachutes NO MATTER WHAT. The company performs badly and profitable rank and file employees are laid off or lose benefit. Executives drive corporations into the ground AND TEHY GET PAID everything and then some.
lovelyliz
July 22nd, 2009
8:58 am
And it’s not like these executives really “earn” it. Remember the days of pay for play? If LeBron James does play he doesn’t ear full salary. If the Cleveland cavaliers have a losing season, he too loses out.
What we have now are executives with no vested interest in the well-being of the companies they are now running. They didn’t start the companies and they haven’t been working there for years. They also know that they will get their mega salaries and golden parachutes NO MATTER WHAT. The company performs badly and profitable rank and file employees are laid off or lose benefit. Executives drive corporations into the ground AND THEY GET PAID everything and then some.
Kayaker 71
July 22nd, 2009
8:59 am
Joe,
Maybe it’s because there are more of them in the workforce. White working America would have to go a long way to collect enough to match the amount going out in welfare and public assistance to those who don’t think it is necessary to work for a living. Go figure.
USinUK
July 22nd, 2009
9:00 am
“They didn’t start the companies and they haven’t been working there for years. They also know that they will get their mega salaries and golden parachutes NO MATTER WHAT. The company performs badly and profitable rank and file employees are laid off or lose benefit. Executives drive corporations into the ground AND TEHY GET PAID everything and then some.”
lovelyliz … as always, you are my hero
well said.