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
pat
July 22nd, 2009
12:58 pm
I don’t get mine, I earn it. Some of you folks are truly sad pathetic people to take such offense at other people making money.
Perhaps, rather than sit their with your hand out, why don’t you go earn some money too. Obama is not going to save you from the evil rich people. He is one.
Mrs. Godzilla
July 22nd, 2009
1:03 pm
pat
I beg to differ.
I am not sad or pathetic.
And when my hand is out, it’s because I am offering it in friendship or aid.
WHatever made you so bitter?
New Corporation Model
July 22nd, 2009
1:11 pm
These executive salaries and perqs are out of control—the government should establish a committee or department to decide the level of compensation for all corporate officers from now on, based entirely on performance, using real measures. Corporate boards are fraudulent and just reward friends with millions in shareholder money, even for bad results. A government board would be much more fair and also should have the power to return any excess compensation paid in prior years back to the working class.
Soothsayer
July 22nd, 2009
1:13 pm
China had been propping up the dollar so that US consumers could continue buying cheap Chinese crap, primarily via WalMart and other monstrous legacies of Globalization. At the time, US debt was some $8.162 trillion dollars and has only gotten bigger. US credit abroad is strained to breaking or broke. The US credit crisis trickles down to bond markets world wide. No country is too small to remain unaffected. Investors in New Zealand, for example, have this month complained that their interest payments have been suspended, the result of fall-out from the US credit crisis. It would appear that there is no where to run, no where to hide.
whatfor
July 22nd, 2009
1:27 pm
Yea Jay – And I bet you make a good bit more than the guys that work on the docks or in the printing room at the AJC – go share your income with them (the portion that isn’t taken from you by the govt, that is). But your Liberal mind can’t seem to handle the fact that your CEO makes much more than you.
Hillbilly Deluxe
July 22nd, 2009
1:37 pm
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
Well, yeah they’ll do that unless somebody regulates them. No system can be self-regulating if humans are involved.
whatfor
July 22nd, 2009
1:38 pm
And another thing – why are people so concerned about corporate executive pay? Why not sports stars and so-called “entertainment” stars? Why not the hollywood actors who command $20M for a movie – a freak’n movie that brings very little value or worth to society. I’m sick and tired of all these multi-millionaire baseball, football, and basketball players; where is the “outrage” for that?
md
July 22nd, 2009
1:45 pm
“Why not sports stars and so-called “entertainment” stars? Why not the hollywood actors who command $20M for a movie ”
Because they are self proclaimed democrats.
Ever wonder why there is such a thing as a “rich” democrat if they believe the party dogma? Shouldn’t they be able to share their wealth and live off maybe 1-2 million?
Does Opra or Warren really need several BILLION dollars for herself/himself?
Pure hypocrisy.
Thinkforyourself
July 22nd, 2009
1:52 pm
What the Federal Govt (that socialist system) is doing with Social Security is no different than what Bernie Madoff did – it’s the greatest Ponzi scheme in the world.
It’s also pretty pathetic that I worked hard in school, kept my nose clean, paid my way through college, worked hard after graduating (80 hours a week on most occasions), played by the “rules”, lived with-in my means and lived responsible – all of this to have the government steal from me, week after week, to give to those who would not, and will not, do the things that I did. I bust my butt to get and do the things I want, when my “earnings” are now to those that do nothing but set on their butts, drop (or dropped) out of school, smoke weed, have crack babies, or knock-up others, having kids out-of-wedlock. WHAT HAVE WE BECOME – And you, Jay Bookman, have the gall to say I make too much – you liberal wimpy jerk! We (you included) should be getting mad at the people who won’t take responsibility for their lives.
Soothsayer
July 22nd, 2009
1:59 pm
Now, for the first time in modern U.S. history, there are no new economic engines at all. The last real engine was the internet which has now reached maturity with marginal players being weeded out.
Our biggest sources of new private-sector jobs today are food service, processing of financial paperwork, health care for the growing numbers of retirees, and menial low-paying jobs, like landscaping and building maintenance. These are increasingly being performed by immigrants who are also underpricing U.S. citizens in many service jobs like childcare and auto repair.
Today the rank-and-file of our population must increasingly turn to borrowing in order to survive. Only the banks and the credit card companies are the beneficiaries. The total societal debt for individuals, businesses, and government is over $45 trillion and climbing. This is happening even while the real value of wages and salaries is decreasing.
Excellent Column About The Rich Getting More While YOU Get LESS - Politics and Other Controversies - Page 2 - City-Data Forum
July 22nd, 2009
2:02 pm
[...] Posted by KevK Really, if you work for a living, you should read this: Why a sudden shift in earned income to the already well-paid? | Jay Bookman This is why the cap on income that pays the Social Security tax and Medicare tax should be [...]
nowhereman
July 22nd, 2009
2:07 pm
There is no payroll tax cap on Medicare. So the high-income earners pay a disproportionate amount of that. Not that it helps since Medicare is way past broke. Anyway, Jay, keep stoking the fires of Class Envy. It’s a good distraction from the one-termer who is currently tied-up insuring he’ll be the one-termer.
La Chupacabra
July 22nd, 2009
2:09 pm
I read something really funny yesterday.
Asking a Democrat to fix the economy is like going deer hunting with a box of explosives and a burning flare.
PERFECT !!!!!!
@@
July 22nd, 2009
2:35 pm
Byll:
I can’t believe you let jay run you off so easily.
If you check in, my curiosity demands that I ask what is your profession or, if you’re retired…was your profession? I keep thinking we’ve crossed paths years ago at Luckovich’s.
About our contact? I’ll first have to google sexual slang for “IN TOUCH”…
you talkin’ MINISTRIES?
I’ll see you on the flip-side William.
(IW&SH)
Wells
July 22nd, 2009
3:08 pm
At least Byll gave us some closure and didn’t leave us calling and writing for months with no response.
Jefferson
July 22nd, 2009
3:28 pm
No cap. The more you make, the more you keep. Simple. Don’t like paying more, make less. Its volentary, no income – no deduction. No penalty.
Some folks have never been broke (truly hungary broke) so they can’t relate. Some think they got where they are with no help from anyone, I doubt it. Some people like cupcakes, I care less for them.
Number1Ninja
July 22nd, 2009
3:54 pm
Because people are stupid and listen to Republicans. They were proven wrong a hundred years ago, but idiots keep coming back for the wedge issues and the sound bites. Gee, let’s reward the people who steal the country’s wealth and ship it to China to make themselves rich! Great idea, guys!
md
July 22nd, 2009
3:55 pm
“Some folks have never been broke”
And some folks have been broke more times than they would like to count but refused to live off others. Those folks also did whatever was necessary to get back up. All they want now is for others in the same position to do what they need to do to get ahead, even with assistance.
Its one thing to be truly poor and sit on ones butt and feel sorry for oneself, and another to be truly poor, doing without, attending community assistance programs, improving ones educational position, etc.
Yet, the ones choosing the first option are the ones complaining the loudest. The others are too busy getting ahead in life.
Number1Ninja
July 22nd, 2009
4:00 pm
Although I guess that’s the democrats, too, to a lesser extent.
@@
July 22nd, 2009
5:08 pm
Wells, I guess my curiosity will never be satisfied. DANG!
I hate it when that happens.
danjonglee
July 22nd, 2009
5:09 pm
You live in the great country in the world and you complain about what someone else earns…. I dont understand….per the IRS the top 25% wage earners pay 86 % of the federal income taxes. Small business owners matches the 7.65% that every employee pays in SS and Mcare.
Jake
July 22nd, 2009
5:43 pm
Of our thre enormous social programs, Medicaid is in the worst financial shape, Medicare next, and SS, despite the 4 year revision in going bust, is in the best shape. the real question is why, in the face of three inadequately funded current programs, does Obama want to provide a fourth, health insurance for all, that will cost trillions?
md
July 22nd, 2009
5:52 pm
“the real question is why, in the face of three inadequately funded current programs, does Obama want to provide a fourth, health insurance for all, that will cost trillions?”
Votes?
Dave
July 22nd, 2009
5:52 pm
It’s Bush’s fault
Dave
July 22nd, 2009
5:57 pm
Number1Ninja – you need therapy bad dude, I can just feel the hate in your post. If you can’t afford to actually pay for therapy, don’t wait for Obama care because it looks like that’s a long way off, you need help now. You could consider getting a job, in the mean time…
Red Foreman
July 22nd, 2009
6:07 pm
Change…HAHAHAHAHA!!!!
Bewylderrd Bull Shytter
July 22nd, 2009
6:21 pm
Enter your comments here
Excellent Column About The Rich Getting More While YOU Get LESS - Politics and Other Controversies - Page 6 - City-Data Forum
July 22nd, 2009
7:16 pm
[...] Posted by KevK Really, if you work for a living, you should read this: Why a sudden shift in earned income to the already well-paid? | Jay Bookman This is why the cap on income that pays the Social Security tax and Medicare tax should be [...]
the realist
July 22nd, 2009
7:39 pm
Someone please kick bookman’s ass…what a socialist pansy.
TnGelding
July 22nd, 2009
11:17 pm
nowhereman
July 22nd, 2009
2:07 pm
SS and Medicare “trust funds”:
A SUMMARY OF THE 2009 ANNUAL REPORTS
Social Security and Medicare Boards of Trustees
http://www.ssa.gov/OACT/TRSUM/index.html
Number1Ninja
July 23rd, 2009
5:22 pm
Anything referencing hate from me rings hollow after I was called a traitor and terrorist for six years for merely voicing an opinion (that turned out to be right after all).
SImple Concept
July 24th, 2009
3:47 pm
If you are poor or middle class, then 100% of your wages as subject to the FICA tax. If you are wealthy, your wages over $108,000 are protected from that tax.
This is a simple concept that anyone can understand, and it appears to be unfair. Some are taxed on every dime, and others are not. All this talk about the system going broke, combined with the elimination of most corporate pension plans, and the certainty of old age poverty for millions, creates a strong desire to protect the SS system, and even enhance it, by raising the salary cap to $250,000 or maybe just go all the way for everyone. Everybody wins, since the wealthy would retire in a world of sightly less desperation and misery, and the rest of us would be slightly less desperate and miserable. My 65 year old friend clears $500/month in SS “benefits”. Can you imagine trying to live on that?
ProflatTax
July 25th, 2009
11:14 am
@ Doggone/GA – Is that really the best you can do…ridicule people who won’t give you out of their money. That mentality sounds no different from a begger on the street who gets upset at every person who does not drop a dime in his can. If you are blessed with health and a sound mind (which I hope you are) then at some point I hope that you would say ‘Doggonit! I’m not going to beg other people for their money. I’m going to get my own’. And when you do get your own then you can chose to give it away freely if that is what you want to do. Or perhaps you can start now a give what you already have away – that way when you criticize other people for holding on to their money you won’t be a hipocrite. Do better. I know you can.
And for those who think that the government should tax the rich extra, I have never heard a success story that does “I used to be down and out and broke and could never afford anything but the government tax the rich some more and today I can afford all I want” — it doesn’t matter how much more the gov tax the rich your circumstances would not change unless You take the right actions in your own life to change it.
AmVet
July 26th, 2009
11:27 am
http://www.facebook.com/ext/share.php?sid=103801648203&h=fIh6g&u=7tST3&ref=nf
gilt and gravy « Thought Shop
March 6th, 2010
3:35 pm
[...] One-third of all pay, the percentage of total wages and salaries, is paid to top executives, reports the Wall Street Journal. [...]
gilt and gravy « syncwpmu
March 7th, 2010
2:06 am
[...] One-third of all pay, the percentage of total wages and salaries, is paid to top executives, reports the Wall Street Journal. [...]