The Differences between Corporate Greed and Government Greed

 

By Michael Bargo Jr.  Dec 11, 2011

As the country continues to suffer from joblessness and excessive federal deficit spending, the Occupy Wall Street protesters continue to aggressively chant that the lack of job growth and national debt are due to a simple cause: corporate greed.  Corporations are wealthy and should be paying higher taxes, they maintain.  And corporations are responsible for the lack of jobs; they are allegedly sitting on trillions of dollars of cash, and their only goal in life is to take more money from hardworking Americans.

This "corporate greed" rhetoric must be put into perspective.  The American people are not told that there are two kinds of social domination: 1) class domination, due to the fact that some people are wealthier than others, and 2) political domination, due to the fact that some people gain political office and government jobs¹.  These are the political elites.  Media and the Democrats tell us only about the first "class warfare" kind of domination, and never the second kind -- i.e., exploitation by those in public office².

There are two recent examples of exploitation of working people by political elites.  Both come from states that have been dominated by Democrats for decades: California and Illinois.  It is important to keep in mind that the longer a political party remains in control, the more time its political elites have to form strategies and partnerships in corruption.  The simple fact is that while it is easy to state that "both parties are the same," the great majority of big cities in the Midwest and Northeast have been controlled by Democrats since FDR.  And since 85 percent of people live in cities, Democrats have controlled most of the country's population for the past eighty years.  These facts are not widely known, simply because then Democrats would have to be held accountable for their mismanagement of budgets (deficits) and corruption.  All of the states suffering huge deficits are run by Democrats.  These deficits create future debt for the 99 percent who work for a living.

Example number one occurred in Bell, California, where the city manager raised his salary to $787,637, and the police chief $457,000.  And the small city of Bell has 37,000 people.  The median income in Bell is $40,556, one of the lowest in southern California.  This means that the city manager made nineteen times as much as the average taxpayer, and the police chief ten times as much.  Fortunately, the Bell, CA officials' salaries were exposed by the Los Angeles Times (not by the government), and they are now being prosecuted by the CA attorney general for fraud and embezzlement.  At what point do all property tax increases become fraud and embezzlement?

Progressive critics may say that these large salaries don't compare to the salaries of large corporate CEOs, who may earn 400 times what their employees earn.  But there is a huge and significant different difference between the public official and the corporate CEO: the CEO cannot force anyone to pay his salary, while public officials do just that.  And unlike CEOs, public union members get weekly paychecks for life, not just for a few years or the length of a contract, as defense contractors do.  The greatest power a governmental body has is to seize wealth is through taxes -- namely, property and income taxes.  Anyone who owns property or rents is paying property taxes.  And if these taxes are not paid, the government has the right (which it delegated to itself) to seize your house and sell it for back taxes.  In counties controlled by Democrats, it is extremely rare to ever see property taxes lowered.

So if a corporate executive mismanages his corporation, it will go bankrupt.  He can take money out, but then the corporation must pay for it.  A corporate CEO can give himself raises, but he cannot force other people to buy products to pay for it.  He cannot send a bill to working-class people to pay his salary -- but city managers can, and do.  Look at your property tax bill -- there is no private corporation listed on there.  But there are no market constraints on what public officials earn.  In other words, your money and property belong to them.  If you want to find out, stop paying their salaries and pensions (property taxes).

The second example of how political elites enrich themselves comes from Illinois, where public schoolteachers and administrators receive lavish pensions.  They are required by law to pay 9.4% of their weekly paycheck into these plans.  But a study by the Illinois Policy Institute found that in almost two-thirds of the school districts of Illinois, the teachers do not pay 9.4%.  Some or all of it is paid by the districts; the amounts are put on the property tax bill.  No doubt, many working Americans would love to have someone make their 401K contributions for them, but unlike the government, they cannot force anyone to pay.  And unlike the Bell, CA corruption case, which is being prosecuted, the public-sector unions continue their exploitation of working-class people via lifetime pension plans measured by the millions of dollars per person.

Not surprisingly, the teacher unions are the largest campaign contributors to Democrats, both on the state and national levels³.

When the BGA (Illinois Better Government Association) sought to investigate how much money community college administrators earn in retirement, they had to file FOIA (Freedom of Information Act) requests and leap over hurdles to obtain the information.  Public servants do not want taxpayers to know that they, the taxpayers, are the real servants, and the public employees the masters.  The whole system is medieval in nature: government owns your property, and you must pay annual rent (property taxes).  You are the sharecropper, they the property owner.  And this is legal, because they pass the laws.  

"Corporate greed" rhetoric is perpetuated by university professors on the public payroll.  They should disqualify themselves from teaching political science entirely, since it is against their personal interest to reveal governmental greed and political elitism.  This is the other big difference between corporate greed and political greed: corporations don't have hundreds of universities and hundreds of thousands of grade and middle schools defending them.

To summarize: the differences between corporate greed and governmental greed are 1) corporations cannot force taxpayers to buy products or pay pensions; 2) government pensions are paid over a lifetime, while corporate greed is limited by the marketplace; and 3) the media and educational systems never give governmental greed the same criticism and importance they give to corporate greed.

¹ Etzioni-Halevy, Eva.  Political manipulation and administrative power.  London: Routledge-Kegan Paul, 1979.  Page 1.

² Ibid.  As noted, public-sector corruption is rarely investigated by academic researchers.

³ Nowlan, James D., Samuel K. Gove, and Richard J. Winkel, Jr. 2010. Illinois Politics: A Citizen's Guide. Urbana and Chicago: U. of Illinois Press.  Page 33.

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Rhode Island's Landmark Pension Reforms Will Test Contract Law (column - Girard Miller / Governing Magazine)

Newly enacted pension reforms will test contract law.

BY: Girard Miller | December 8, 2011

By an overwhelming and bipartisan majority vote, the Rhode Island Legislature adopted sweeping pension reforms last month, at the urging of the governor and the state treasurer. Disappointed labor leaders are expected to seek redress in the courts. Their complaint is that, in violation of contract law, benefits will be frozen, modified and even reduced for incumbent employees and cost-of-living adjustments (COLAs) will be frozen for current retirees.

Rhode Island's state pension plan is a mess, with very serious underfunding. This legislation addresses that problem but leaves the dozens of municipal plans to fend for themselves. That's unfortunate, because many of those local systems are clearly in a death spiral financially. Nonetheless, the new pension law deserves national attention for four features:

1. The new law invokes the "police power" of the state to take actions necessary to preserve the pension system. As drastic as its opponents may claim it to be, it leaves employees and retirees with a "reasonable benefit" (in my view), which is an essential feature to satisfy federal case precedents. There are other ways the new law was crafted to meet key tests that federal judges have used when evaluating federal contract law issues for public pensions. It takes steps to mitigate the adverse consequences on employees by re-amortizing the pension deficit over a longer period. It seeks to achieve changes that are the minimum necessary. The state can show that it has done what it can before cutting benefits. Future taxpayers will bear a burden for benefits to retirees who never served them, so the pain is clearly shared and not borne entirely by the plan participants. These components of the statute thus set the stage for changes to incumbent employees' pension benefits, which otherwise are typically protected as "contractual" in state and federal courts. (It is noteworthy that Rhode Island's constitution does not explicitly protect prospective pension benefits for incumbent employees as do several other states).

 

2. COLAs will be suspended until such time as the plan's financial condition improves sufficiently, and will thereafter be subject to financial-sustainability tests. Similar provisions have been tested and upheld in court already in Colorado and Minnesota. Unfunded COLAs are an actuarial disaster, and often contribute to the pension deficit. Freezing them can significantly improve the actuarial prospects for the plan, although this measure by itself shifts most of the burden onto recent retirees who have the longest remaining life span with frozen benefits and little opportunity to make personal adjustments. Rhode Island's new law is more comprehensive, which should put this provision in a better light legally as it reflects a genuinely balanced burden-sharing approach. Unions have already taken the state to court over similar earlier efforts to freeze COLAs, and prevailed in the first round, so this provision is undoubtedly headed to the state supreme court, where the decision will become a landmark case.

 

3. Retirement ages will be increased next summer for current employees, to align with Social Security which is age 67 for younger, recent hires. Those near retirement would be allowed to retire earlier with a reduced benefit. Similar measures have been invoked elsewhere, including Cincinnati, so there is precedent for this approach. I have previously discussed equitable ways to institute such changes where legally permissible in a prior column. Readers seeking to implement similar reforms in other states should consider carefully the transition provisions, in order to protect current employees' earned, vested benefits.

 

4. Current employees' accrued pension benefits will essentially be frozen and they will hereafter participate in a new hybrid plan that consists of a lower (1 percent) multiplier pension and a sidecar defined-contribution benefit that looks vaguely like the federal employees' retirement plan. This plan will provide immediate cost savings for current service and perhaps more importantly, share investment risks more equitably between the employer and employees.

The new law won't fix the state pension fund's entire problem, so it is important that all stakeholders realize that this reform package is just the first major step in what will be a long, long journey back toward full funding. Necessary, but not necessarily sufficient, would be the best way to describe its ultimate fiscal impact. And as mentioned before, these provisions do not apply to local governments, as several municipal leaders complained that the hybrid plan's design could actually increase their costs or abridge labor contracts. Obviously the city and town councils will watch closely how this bill is viewed by the state's courts, and many will be tempted to defer actions until the court resolves the contract law issues. That's unfortunate, because many of the local pension plans need equivalent reforms just as desperately as the state.

Gov. Lincoln Chafee and State Treasurer Gina Raimondo deserve accolades for their leadership and perseverance to bring these reforms to the state Legislature and successfully convince lawmakers of their necessity. They have risked their political support from organized labor in a strong union state. Whatever flaws this new law may contain, it looks to me to be the best achievable legislative solution to a messy fiscal problem -- and an important, unavoidable step in the right direction. If other governors and state treasurers facing similar pension problems were equally persistent and skillful, the festering sores of public pension plans would begin to heal more quickly.

Rhode Island's new law will be watched closely by policymakers, pension reform advocates, employers and unions in other states, as it moves (hopefully quickly) through the state courts. As noted before, its structure appears to be well-crafted from a federal law perspective, as it comprehensively addresses most if not all the key tests that federal judges have used when evaluating federal contract law issues for public pensions. But these issues are also state-specific and the union thus can have two bites of the apple. I can't predict the judicial outcome, but I can safely predict that it will become a landmark case. Some commentators believe the state's approach reflects a trend toward more-aggressive solutions that are sorely needed and often unavoidable. Pension reformers elsewhere will also be encouraged by the legislative success, voting margins and plan-design precedents. Rhode Island has thus become a battleground state in the national debate over public pension reforms, and a legal laboratory for the "police power" of the state to remedy a failed system. But as the unforgettable Yogi Berra once said, "It ain't over till it's over."

http://www.governing.com/columns/public-money/rhode-island-landmark-pension-reforms.html