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- [00:10]
A
Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives. Jobs, debts, incomes, our own and our children's. I'm your host, Richard Wolff. Before jumping into today's program, I want to note the passing of two individuals who taught me a good bit of whatever it is I can offer you in these programs. One was a poet from San Francisco, Lawrence Ferlinghetti, a man who started the famous City Lights bookstore that has been a very important part of that city's life for many, many decades. His poetry, his commitment to social justice. Exemplary. He will be missed. He was a very important person in American history. And the other is Ed Rooksby, a British social critic, died from COVID connected difficulties at the age of 46, but a person with a remarkable level of insight into the problems of modern capitalism. And I want to acknowledge not only that he passed, but the debt I and many others owe to the insights he produced over the years. Okay, let's jump in then to the updates that we have. I want to begin with a bill working its way through the Hawaii legislature. Senate Bill 747, to be specific. It proposes to tax the salaries of CEO chief executive officers if they earn, and to the degree that they earn, more than 100 times the median wage of their employees. Let me remind you, the median wage is that wage where 50% of the workers get more and 50% get less. It's not quite an average, but it's like that in giving you a sense. So this is an important effort and it's going on around the country, which is another reason why I want to stress it to you. Starting since 2018, the Dodd Frank bill, that was that reform bill passed in the crisis of, in the wake of the crisis of 2008, it is now the law that corporations must show the ratio of the pay they give to their highest officer and its relationship to the median of the wages that they pay. Nine states in the United States out of 50 are now considering taxing corporations that pay their CEOs enormous sums. Some of the states want to tax them if they pay more than 50 times what the median worker gets, and some a hundred times and some in between. Two cities in the United States have already done this. Portland, Oregon and San Francisco, had referenda where the voters in those cities passed bills to do exactly this. There were of course, the screams of outrage from high paid CEOs and their supporters threatening that if this happened, they would leave. And again, these threats, as in the past, have proven to be overwhelmingly empty. Theatrical stunts, and there's no hard difficulty in explaining why it's costly to leave. It incurs all kinds of costs. And the joke is, wherever you move to, they're just as likely to pass this in the next few months and years as where you are, in which case you will have wasted those costs and all the dislocations that go with it. Then there's also the problem that to take, for example, the one place that a few folks in Portland and San Francisco did move to, namely Austin, Texas, ended up costing them way more in the collapse of that state's electricity a week or two ago than they saved in not paying this tax, etc. And then there's also the oldest argument of all, that if these taxes are levied, it will enable the communities where the taxes are levied to use the revenue that these taxes generate to do all kinds of things that make it more attractive for businesses to come into the community, for workers to live and work there. And that has to be taken into account, even though the opponents try very hard not to do that. Indeed, in the second half of today's show, you'll see how another proposal, a stock transfer tax, has the same kind of threats and the same kind of empty rhetoric that will be explained by our guest at that time. Okay, I want to give you some background about this issue. Okay? Back in the 1980s, the Bloomberg Business Week combination did a study and reported that the average ratio in large American corporations between what was paid to a CEO and what was received by employees was 42 to 1. Okay? Now, two years ago, the AFL CIO did a study of 500s and P corporations of large corporations where the ratio was 264 to 1. In other words, over the last 40 years, there's been a dramatic increase in what the CEO gets relative to everybody else. They've been cashing in on that difference for 40 years. And now when there's a proposal to tax the difference, they're yelling and screaming. And I wanted to give you an example of the reality here so that no one can fool anyone about it. I'm going to start with what I believe is the strongest example we have for the year 2020. McDonald's Corporation, you know, the hamburger place. The CEO 8 $18 million. Median pay 9,000. Here's that ratio. The CEO gets ready 1,939 times what the median income is. 2,000. The CEO. Let me give you another example and I'll show you what's at stake. Walmart 22 million for the CEO. The median 22,000 there, the ratio is 983. So the CEO of Walmart gets 983 times what the median worker does. But The CEO of McDonald's gets twice that. Is that because the CEO of McDonald's is twice as efficient or twice as productive? Nobody in their right mind believes that. They don't even say such things. And I could give you more examples. In fact, maybe I will. The Marriott Corporation, huge corporation. The ratio, 346 to 1. Costco, another monster company. The ratio there, 209. That's 1/10 of the ratio in McDonald's. And you think the CEO of Costco is only 1/10 as hard working as the CEO of McDonald's? Don't be silly. This is about hustle. This is about deals made between the CEO who usually sits on the board of directors of the company. It's the board of directors that the CEO sits on that decides what the CEO gets paid. Does that mean that the CEO participates in making up his own pay? Yup. And that might give you a clue as to why he gets paid so well. Hello. That's how American capitalism works. It's what the market will bear. The CEOs have taken care of themselves. And if your pay is being pinched and if your pay is low, it's because they have to pay so very, very, very much more to those at the top. That's how the system works. Okay, my next update has to do with what is, on a moral level, an unspeakable situation. The richest countries in the world have an oversupply of vaccine. Here in the United States, the total amount of doses of vaccine that we have stored is over three times the population of the United States. Now that might not be a problem if vaccines were distributed around the world. But as of mid February, according to Nature magazine and the work of Dr. Gavin Yami, who's a professor at the center for Policy Impact in Global Health at duke University. In 130 countries with a total population of 2.5 billion, not a single person had been vaccinated as of middle February. Now, besides the immorality of this, let me for a moment be biblical. This kind of immorality breeds disaster. And it isn't hard to understand why viruses spread. If you don't take care of part of the community and you endanger the part you do take care of, because the disease festers, the viruses mutate, they have the new strains. We're already surrounded by news about this. This is self destructive. In the rush to keep the vaccine in the hands of those who can pay the most for it. We actually endanger everyone. It is an incredible short sightedness that reflects an economic inequality that is going to cost us dearly in death and illness from a disease that we treat in so immoral a way. My last update that we'll have time for today deals with the realm of athletics and in particular a debate between Los Angeles Lakers player LeBron James and a Swedish soccer player. Zlatan Ibrahimovic plays for Milan in Italy. LeBron James is famous for speaking out as an athletic hero about justice, racism. He wants to be, as he says, a voice of the people he comes from and the people who normally don't have a voice because they don't have the reputation, the funds and the opportunities that LeBron James, because of his basketball skill, does have. And he has been doing that quite a bit. Zlatan Ibrahimovic responded by saying, shut up. You should only do, quote, unquote, what you're good at. You're good at basketball, you're not good at politics. You should leave that to the politicians. I would like to respond, I would begin by saying, yeah, we can all see what we get when we leave politics to the politicians. That's where we are now and that's where we have gotten by doing what Zlatan would have us do. Politics was originally an understanding of what concerns us all and therefore what's at stake for us all. It couldn't and shouldn't be a specialized activity. It does in fact need participation by all who can participate. Otherwise it becomes not only the province of the specialist, but you get a politics that's cut off from the needs, the feelings, the requirements of the mass of people, just like we have here in the United States and they have in Italy or Sweden or anywhere else. The people who are hurt by a system have to use the politics of that system to raise their hurts, to explain their situation, to make their proposals to a debate that all of it, no one is to be told to shut up and leave it to the professionals. That's what they, the professionals may want us to do and they may be smiling down on Zlatan. But I wanted to be real clear that I'm with LeBron James on this one. I'm glad he's speaking out. I think we have had very, very good consequences from the beginning with Colin Kaepernick's taking of that knee and opening up the space for athletes to show what they feel about what's going on in the society that they play for. That they entertain and that they carry as much of a burden as all the rest of us do. We've come to the end of the first part of today's show. Before we get to the second half, I want to remind you our new book, the Sickness Is the When Capitalism Fails to Save Us From Pandemics or Itself, is available@democracyatwork.info books. I also want to thank our Patreon community for their ongoing invaluable support. If you haven't yet, Please go to patreon.com economicupdate to learn more about how you can get involved. Please stay with us. We'll be right back with our guest, James Hannah Henry. Welcome back, friends, to the second half of today's Economic Update program. It is with great pleasure that I bring to our microphones and to our cameras James Henry. He is a leading economist, attorney, investigative journalist and activist with a strong focus on on tackling global justice issues like tax justice and the climate crisis. He has worked on the highest levels with ge, IBM, Rockefeller Foundation, Bell Labs, Volvo and so on as both researcher and strategic consultant. His reporting work has appeared in the New York Times, Washington Post, Financial Times and more. He's been featured on TED Talks, BBC, npr, produces documentary films as well. Finally, he's been a Nader raider and is currently a senior fellow at Columbia University's University center for Sustainable Development. And he's also been an attorney at the New York Bar since 1979. So, James, or Jim, as he allowed me to call him, welcome to the program.
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Great to be with you.
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Okay, you're here today because I want our audience to learn about a tax that few understand and that we need to think about probably more now than perhaps ever in American history. It's called the stock transfer tax. So tell me, to begin with briefly, what it is. Does it exist in the United States? What's the story about this particular tax?
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Well, this is really an interesting story, and I have to say I didn't understand it six months ago when I started working working with this group that's organizing in New York right now. It is a New York state tax, basically a progressive sales tax that amounts to about 0.1% of all stock trades on the New York stock exchanges, mainly the NASDAQ and the NYSE. The tax has actually been in effect since 1905, when it was introduced by a Republican governor to balance the budget. Today, New York state has, depending on how you're counting, between a 15 and $20 billion budget projection projected deficit. So, you know, as an alternative to laying off workers and, you know, teachers. Many people have proposed that we stop rebating this tax to Wall Street. The tax was successfully collected for 77 years from 1905 until 1982, when thanks to Governor Kerry, the state started rebating the tax to Wall street investors. And since then, we've given back about $345 billion to Wall street investors. 80% of stocks, as you know, are owned by the top 10% of Americans. And the top, the 1% owns about half of the stocks. So we're talking really about a tax that would be levied very much on the upper income groups and the wealthiest people in the country. And in fact, most of it would be, probably a lot of it would be paid by people who are outside the state of New York. There have over the last two decades been a number of efforts at national levels to have such financial transactions taxes imposed at a national level. In the United States, so called Robin Hood tax movement around the financial crisis 2009. Also in the EU, there's quite a few countries that have adopted financial transactions taxes. And there is a measure movement right now with every country in the world basically facing fiscal problems to reinstate these financial transactions taxes globally. But I think New York will be deciding very shortly, in the next six weeks or so, they have to come up with a new budget. And right now, before the legislature, there are two bills in the Senate and the House that have accumulated more than 60 sponsors. So there's a real live possibility. Wall street is actually scared to death. And as usual, they're threatening to leave, talking about the terrible impact this tax would have on them. Most of those arguments have been debunked many times and they were just as false in 1905 as they are today. But there is a real battle shaping up that we should all be aware of in the New York State assembly right now.
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Let me ask you a couple of particular questions. Is it reasonable to think of this as the equivalent, more or less, of a sales tax? In other words, when you buy a piece of clothing, when you buy an appliance, you pay the price in the store plus a sales tax which funds the government. And the question would be to do the same thing. When you buy a financial instrument, you would have a sales tax. The difference is where the sales tax is 6, 7, 8%. In New York state, for example, this one is a very, very small fraction of that.
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Many residents of New York city pay an 8.8% sales tax. And this is indeed analogous to that, only it's a 0.1% tax. So last year on the NASDAQ exchange, the average transaction was about $8,400. And this tax, which is now being rebated, is at the grand level of one nickel per $100 of stock. So that translates into $8.80 for one of those average trades, or about 0.1%. The fact is that last year Wall street did record trading. So the reason this thing works and raises so much potential revenue is that Wall street did about $49 trillion of trades last year. So 0.1% of that is a lot of money.
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Right. But I want to stress then it is like a sales tax, only much, much lower in terms of its rate. But over the last 20 or 30 or 40 years that it's been rebated, the City of New York, the state of New York, has lost hundreds of billions of dollars that could and would have been available for all sorts of public services, but instead were rebated basically to the richest people in the world, both in the state and beyond. In other words, it really, it's not a surprise, if I'm understanding you, that this got called with the name Robin Hood. It is, it is Robin Hood in reverse. It's stealing from the mass in order to enrich further those who already have enough to be major players in the stock market.
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That's right. Wonderful mock ad that was broadcast around 2010. The British actor Bill Nehey made this. And if you Google Robin Hood tax or look up on YouTube, you'll find this two or three minutes of hilarious sort of explanation of the tax and how justified it is. But yes, Wall street of course, protested the initial tax. Back in 1905, the New York Times editorialized that the tax wouldn't raise any money and everybody would go to New Jersey. Three months later, in June of 1905, the Times had to retract that editorial because the tax was working so well and so easily. That was helping New York State balance the budget at that time. And you know, there have been periodic efforts, there were periodic efforts to repeal this tax in 1940 and 1965 under Mayor Lindsay. And finally they got to The New York Governor Kerry in the late 80s, late 70s, and that's when he did in fact effectively start rebating the tax to Wall Street. They didn't repeal it, however. And so it's still on the books and it's a very low cost tax to administer.
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Tell me, because one of the arguments made is, oh, that can't work. And I noticed that the Propaganda against it mentions one or two countries that tried it and did away with it. Tell us about the rest of the world. Tell us whether in other countries which face more or less the same kind of conditions this tax has been tried. Has it worked? Give us a little sense so we're not driven to think that this is some kind of far out idea that nobody else has thought of or tried. Exactly.
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Well, one of the first stock transfer taxes was enacted in the UK in 1694, when I think the only company in the UK exchange was the East India Company. That's been in place since then at a 0.2% rate and last year generated more than $6 billion of reven revenue. But there have been something like 48 countries that have had financial transactions taxes, and right now there's at least 30. The EU, as I mentioned, is thinking of reintroducing this to all 27 EU countries as of June. Portugal is the president of the EU this semester and is pushing this proposal along with France and Germany. Germany and Italy already have a financial transactions tax, as does Portugal. But that would generalize this to all of the EU Countries like South Africa, Kenya, Brazil have actually, even though they're developing countries, have had success in levying national transactions taxes on their stock exchange. Hong Kong has a modest tax on transactions through Hong Kong exchanges. So yes, there's a very wide experience with this tax and the IMF has acknowledged that the threats that have been made by Wall street institutions to move are basically without any foundation. The tax just simply works well. And at this time to have it generalized on a global basis, given the pandemic and the impact that that has had on so many countries facing fiscal problems, this is a good opportunity for everyone to kind of collaborate together. I think New York can go first and can be kind of a bellwether in this area.
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And likely also, if I understand you that if New York did go in this direction, the reasonableness of any company thinking about leaving, besides all the old arguments that they wouldn't happen, they would be crazy to undertake the expense to leave now when it is likely to be generalized in wherever it is you might take your activity, the whole argument kind of dissolves in on itself. If I'm understanding you correct.
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Yeah, that's right. I think that the argument that they would leave, whether they would simply avoid it by moving the computers to New Jersey or Chicago. We recently had a case called the wayfarer decision in 2018 which clarified the taxability of Internet sales by states. And that showed clearly that simply Moving the physical location of computers is not enough. What's at stake from the standpoint of the required legal nexus here for the purposes of levying this tax is simply a business relationship with investors. And so they'd have to really do much more. Some of the countries that have had bad experiences with this, like Sweden, made the mistake of allowing people to avoid the tax simply by moving their brokers to London. That isn't the nexus that we're talking about in the case of these exchanges. Anyone who's trading through a New York exchange or has a business relationship with trading through New York exchanges would be susceptible to this tiny tax. The tax is so. I mean, clearly if you try to make an 8% tax on Wall street trades, you probably have some movement. But at 0.1%, this is de minimis and no investor is going to complain. We get this argument from pension funds, for example. They're very concerned about how this is going to impact their members. And there are two or three big New York pension funds that collectively have more than $250 billion invested. It turns out when you look closely at them, they are paying hundreds of million dollars, hundreds of millions of dollars of fees to Wall street for external investment management. It dwarfs the $20 to $50 million of extra fees they might pay with this tax. Pension funds should in principle be long term investors anyway. They shouldn't be trading heavily. But right now you also have this phenomenon of high frequency trading on the New York exchange, which is a whole lot of the trading going on is high frequency trading specialists that are holding shares for 10 minutes and then selling them. As Keynes recognized in the 30s, it's not such a bad thing to tax casinos. And that kind of activity, as we've seen recently with GameStop and other speculative stocks, is not really something for us to be encouraging.
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Yeah, I had a professor at, when I got my PhD in Economics at Yale University named James Tobin, and he became famous also for making that same argument that this is a revenue raiser and a discouragement on the kinds of crazy speculation. Thank you so much, Jim Henry, for clarifying this. We're living in a time when this kind of tax is long overdue. And I certainly hope that your information and your passion in explaining it, which I appreciate will go a long way towards making people aware of what's at stake. Thank you very much again for your time.
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Thank you. Good to be with you.
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Take care. And all of you, I hope you've learned something as I have and I look forward to speaking with you again. Next week.