Chief Executive Officers of the S&P 500 enjoyed a median salary in 2010 of only $1.025 million. Add in benefits and bonuses and that grew to $7.5 million. The stock market appears to be just fine with unemployment near nine per cent. For one, that helps assure an accommodative Federal Reserve. But recent tax changes are the most important consideration today.
These changes encourage firms to invest in physical, not human capital. They include accelerated depreciation, higher payroll taxes (states are strapped for cash), and higher workmen’s’ compensation or health-care costs, if not both. Something like 70 percent of more than $2 trillion stashed away by U.S. firms is gathering mold overseas. That’s around $1.5 trillion, with a “t.” If real tax rates were 30 percent, that might bring about $450 billion in to the federal government, countering the loss from extension of the Bush tax cuts on high-earning individuals. Firms don’t repatriate this money; in fact, they’d rather borrow more than bring it home and pay some taxes. I wonder if they’d rather not use our roads, bridges, airports, hospitals, schools, and jails. Maybe.
Most of the recent improvement in consumer confidence has occurred in higher-income households. I wonder if one reason Walmart has not been doing as well as usual lately, is that they cater to “middle America” — those making between $40,000 and $70,000 a year. This customer base is disappearing. I believe businesses for the most part have set themselves to “make it” on the consumption of the higher brackets. That explains the cash stash, even after potential taxes. Business does not seem to be innovating; it is playing not to lose. It might help if corporate leaders observed what happens to athletic team coaches who do the same.