Janet Yellen’s Noble Effort Comes to Naught

Janet Yellen has spent a lifetime trying to inject a little humanity into the macho male ranks of our nation’s elite economists. This past year, she may have engineered her greatest contribution yet: an epic global tax deal — involving over 130 nations — designed to drive corporate tax havens out of existence and raise billions upon billions in new revenue from accomplished corporate tax avoiders like Apple and Google.

Earlier this month, this career-defining personal achievement needed only U.S. Senate approval to begin going into transformational worldwide effect. But then a single U.S. senator — West Virginia’s Joe Manchin, who else? — pulled the rug out from under Yellen. She had assured her high-ranking counterparts abroad the United States would stand by the deal. Late last week, Manchin announced that he would not, a move that essentially kills the new Yellen global tax framework for the foreseeable future. Corporations can now continue to cheat their way into mammoth tax savings.

But let’s be a bit more precise here. Corporations can’t literally cheat anyone. Corporations can’t actually make decisions to do anything. The executives who run corporations make all these decisions.

Now these executives do have — at least on paper — a responsibility to look out for the well-being of the corporations they run. These pillars of our corporate community, business school textbooks assure us, have their eyes on the long-term prize. They invest in R&D to ensure their future corporate viability. They endeavor to earn and maintain positive public reputations. They do their best to attract and retain quality workforces.

But in actual practice, as our daily headlines remind us, today’s top corporate execs flout all these responsibilities on a regular basis. Their hearts and minds fix firmly on the short term. They do what they must to keep Wall Street’s daily stock ticker ticking their way. And if our corporate power suits feel they need to shortchange workers, communities, and consumers to pump up their quarterly earnings to keep the ticking going their way, they’ll do just that.

Our corporate execs have done just all that, again and again, since Corporate America first took shape in the 1870s. And the American people have risen up, again and again, to demand laws that limit, check, and sanction exploitative corporate behaviors. Mass movements have also pressed for — and won — high tax rates on high incomes, tax rates calibrated to reduce our top corporate executive incentive to steal and squeeze.

By the middle of the 20th century these tax rates had reached levels that would be unimaginable today. In 1944, Americans of means faced a 94 percent tax rate on income over $200,000. In the two decades after World War II, that top rate continued to hover around 90 percent.

With taxes on top-bracket income that high, top corporate execs had less of an incentive to behave outrageously. Why bother when most all the extra dollars execs could make squeezing workers and consumers would end up going to Uncle Sam?

The result: In those immediate postwar decades, the USA became the first nation ever to birth a mass middle class. The most telling stat of these substantially more equal years? Maybe this one: In 1962, the Economic Policy Institute has calculated, CEOs on average only realized 21 times the pay of America’s most typical workers.

How does that 21-to-1 pay gap compare to today’s corporate pay divide? The AFL-CIO has just published its annual PayWatch figures. Chief corporate executives in the United States, these new statistics show, last year averaged 324 times the pay that went to their most typical employees.

Well-intentioned but isolated figures like Janet Yellen will never be able to get gaps this huge down to anywhere close to reasonable levels. Taxing the rich and taming the corporations they run has always taken dynamic mass movements. We have to build another.

Sam Pizzigati co-edits Inequality.org. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Twitter: @Too_Much_Online.