The European Commission is investigating Luxembourg’s tax arrangements for Amazon and McDonald’s
.. Multinational corporations are especially worried about losing access to Cayman Island-style tax rates in European countries where they can also get rule of law, political stability and an educated professional class of attorneys and consultants.
.. In the 1950s, corporations contributed about $3 out of every $10 in federal revenue. Today they contribute $1 out of every $10
.. The National Science Foundation helped fund some of the initial work of Google’s founders. Apple’s consumer products still rely on technology that originated in federally funded research.
.. Preferential tax treatment, either through special rates or deferred due dates, creates a huge financial incentive for American companies to build businesses and create jobs abroad rather than in the United States.
.. This puts small businesses at a competitive disadvantage as they end up shouldering more of the burden of paying for education, infrastructure, research, the military and everything else our nation relies on to succeed.
Harvard Business Review: Profits Without Prosperity
Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.
.. Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices.
In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.
.. Even when adjusted for inflation, the compensation of top U.S. executives has doubled or tripled since the first half of the 1990s, when it was already widely viewed as excessive.
.. From the end of World War II until the late 1970s, a retain-and-reinvest approach
.. in the late 1970s, giving way to a downsize-and-distribute regime
.. Since the late 1980s, the largest component of the income of the top 0.1% has been compensation, driven by stock-based pay.
.. A turning point was the wave of hostile takeovers that swept the country in the 1980s. Corporate raiders often claimed that the complacent leaders of the targeted companies were failing to maximize returns to shareholders. That criticism prompted boards of directors to try to align the interests of management and shareholders by making stock-based pay a much bigger component of executive compensation.
.. The result: Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back shares for what is effectively stock-price manipulation.
.. There are two major types: tender offers and open-market repurchases.
.. Tender offers can be a way for executives who have substantial ownership stakes and care about a company’s long-term competitiveness to take advantage of a low stock price and concentrate ownership in their own hands. This can, among other things, free them from Wall Street’s pressure to maximize short-term profits.
.. Exxon Mobil, by far the biggest stock repurchaser from 2003 to 2012, can buy back about $300 million worth of shares a day, and Apple up to $1.5 billion a day. In essence, Rule 10b-18 legalized stock market manipulation through open-market repurchases.
.. the reality is that over the past two decades major U.S. companies have tended to do buybacks in bull markets and cut back on them, often sharply, in bear markets.
.. companies that do buybacks never resell the shares at higher prices.
.. when a company buys back shares at what turn out to be high prices, it eventually reduces the value of the stock held by continuing shareholders.
.. Warren Buffett wrote in his 1999 letter to Berkshire Hathaway shareholders. “Buying dollar bills for $1.10 is not good business for those who stick around.”
.. A related issue is the notion that the CEO’s main obligation is to shareholders. It’s based on a misconception of the shareholders’ role in the modern corporation.
.. As risk bearers, taxpayers, whose dollars support business enterprises, and workers, whose efforts generate productivity improvements, have claims on profits that are at least as strong as the shareholders’.
The only money that Apple ever raised from public shareholders was $97 million at its IPO in 1980. Yet in recent years, hedge fund activists such as David Einhorn and Carl Icahn—who played absolutely no role in the company’s success over the decades—have purchased large amounts of Apple stock and then pressured the company to announce some of the largest buyback programs in history.
.. MSV as commonly understood is a theory of value extraction, not value creation.
.. Consider the 10 largest repurchasers, which spent a combined $859 billion on buybacks, an amount equal to 68% of their combined net income, from 2003 through 2012.
.. Yet since 2003 only three of the 10 largest repurchasers—Exxon Mobil, IBM, and Procter & Gamble—have outperformed the S&P 500 Index.
.. For example, during that period the amount of stock taken out of the market has exceeded the amount issued in almost every year; from 2004 through 2013 this net withdrawal averaged $316 billion a year. In aggregate, the stock market is not functioning as a source of funds for corporate investment.
.. large companies tend to use the same set of consultants to benchmark executive compensation, and that each consultant recommends that the client pay its CEO well above average.
As a result, compensation inevitably ratchets up over time. The studies also show that even declines in stock price increase executive pay: When a company’s stock price falls, the board stuffs even more options and stock awards into top executives’ packages, claiming that it must ensure that they won’t jump ship
.. The vast majority of shareholders are simply investors in outstanding shares who can easily sell their stock when they want to lock in gains or minimize losses. As I argued earlier, the people who truly invest in the productive capabilities of corporations are taxpayers and workers.
.. Exxon Mobil, while receiving about $600 million a year in U.S. government subsidies for oil exploration (according to the Center for American Progress), spends about $21 billion a year on buybacks. It spends virtually no money on alternative energy research.
.. from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends.
.. If Americans want an economy in which corporate profits result in shared prosperity, the buyback and executive compensation binges will have to end. As with any addiction, there will be withdrawal pains.
What U. of Chicago Activists Are Complaining About
They do have a point.
On the right, there are the future consultants, the pre-professionals, the “organization kids.” They run the College Republicans, and for that matter the UC Democrats; they’re Chicago’s equivalent to the bipartisan coastal elite we hear so much about these days. They want to have fun at college and get some networking done, activities that often overlap if you play your cards right. For them, the core curriculum is a distraction (and sometimes a threat to their GPAs) and amenities are essential.
.. Meanwhile, the university spends enormous sums on glass-fronted residential complexes, state-of-the-art student-recreation centers, a large and growing private army of security guards to assuage parents’ fears about the South Side
.. the acceptance rate has dropped from 68 percent in 1995 to 7.6 percent this spring
.. 20 percent of last year’s graduates went straight into jobs in finance or consulting.
.. The left’s attacks on free speech may endanger the academic project, but the greater threat to the free exchange of ideas comes from academic corporatization.
Sheriff Joe
Joe Arpaio is tough on prisoners and undocumented immigrants. What about crime?
Arpaio wasn’t eloquent, but he spoke in short, quotable bursts, and he pummelled opponents with gusto. He promised to crack down on crime and to serve only one term. He won the Republican primary, which is traditionally all one needs in Maricopa.
.. The voters had declined to finance new jail construction, and so, in 1993, Arpaio, vowing that no troublemakers would be released on his watch because of overcrowding, procured a consignment of Army-surplus tents and had them set up, surrounded by barbed wire, in an industrial area in southwest Phoenix. “I put them up next to the dump, the dog pound, the waste-disposal plant,” he told me. Phoenix is an open-air blast furnace for much of the year. Temperatures inside the tents hit a hundred and thirty-five degrees. Still, the tents were a hit with the public, or at least with the conservative majority that voted. Arpaio put up more tents, until Tent City jail held twenty-five hundred inmates, and he stuck a neon “vacancy” sign on a tall guard tower. It was visible for miles.
.. Arpaio estimated that he saved taxpayers thirty thousand dollars a year by removing salt and pepper. Meals were cut to two a day, and Arpaio got the cost down, he says, to thirty cents per meal. “It costs more to feed the dogs than it does the inmates,” he told me.
.. He limits their television, he told me, to the Weather Channel, C-span, and, just to aggravate their hunger, the Food Network.
.. Why the Weather Channel, a British reporter once asked. “So these morons will know how hot it’s going to be while they are working on my chain gangs.”
.. New ideas for the humiliation of people in custody—whom the Sheriff calls, with persuasive disgust, “criminals,” although most are actually awaiting trial, not convicted of any crime—kept occurring to him.
.. The chain gangs’ tasks include burying the indigent at the county cemetery, but mainly they serve as spectacles in Arpaio’s theatre of cruelty. “I put them out there on the main streets,” he told me. “So everybody sees them out there cleaning up trash, and parents say to their kids, ‘Look, that’s where you’re going if you’re not good.’ “ The law-and-order public loved it, and the Sheriff’s fame spread.
.. He decreed that all of his inmates—there are now roughly ten thousand of them, double the number when he took office—must wear pink underwear.
.. But the Sheriff has never acknowledged any wrongdoing in his jails, never apologized to victims or their families. In fact, many of the officers involved have been promoted.
.. Remarkably, Arpaio has paid almost no political price for running jails that are so patently dangerous and inadvertently expensive. Indeed, until recently there were few local or state politicians willing to criticize him publicly. Those who have, including members of the county board of supervisors, which controls his budget, tend to find themselves under investigation by the sheriff’s office.
.. When the paper revealed that it had received an impossibly broad subpoena, demanding, among other things, the Internet records of all visitors to its Web site in the previous two and a half years, sheriff’s deputies staged late-night raids on the homes of Michael Lacey and James Larkin, executives of Village Voice Media, which owns the New Times. The deputies arrested both men for, they said, violating grand-jury secrecy. (The county attorney declined to prosecute, and it turned out that the subpoenas were issued unlawfully.)
.. Outspoken citizens also take their chances. Last December, remarks critical of Arpaio were offered during the public-comment period at a board of supervisors meeting, and four members of the audience were arrested and charged with disorderly conduct—for clapping.
.. Arizona is also full of retirees from the Midwest and the Northeast—Sun City is in Maricopa County—and these elderly Americans are, by and large, not completely delighted to find themselves among folk, mostly poor and brown, who don’t speak English. The state is home to an array of nativist groups
.. In the world according to Sheriff Joe, almost every problem in America these days can somehow be traced back to “illegals.”
.. The public-health specialist said gently, “Surgical masks do nothing to combat this virus.”
Arpaio erupted. “This is my press release! I’m the sheriff! I have some knowledge! I’m not just some little old sheriff!”
.. Arpaio, with his inhuman energy, had probably escorted hundreds of camera crews and reporters through his beloved tent jail. Many had been appalled, and produced unflattering stories. Plenty of others had simply served up the Toughest Sheriff shtick with relish
.. Gascón, who was an assistant police chief in Los Angeles before taking the Mesa job, three years ago, has had great success in crime reduction in Mesa, using the CompStat crime-mapping model, developed by William Bratton in New York and Los Angeles. But his first challenge in Mesa, he told me, had been to gain the trust of minority communities, particularly Latinos. “They need to believe that you’re ethical and honest, that you’re not the enemy,”
.. In Los Angeles, he had seen what happened when that trust was broken by corrupt officers.
.. The plan was to raid the Mesa city hall and the public library, to look for undocumented janitors who, according to the sheriff’s office, were suspected of identification theft. Gascón was not notified beforehand. (Arpaio claims that he did inform someone at Mesa police headquarters about the raid.) A Mesa police officer spotted a large group of heavily armed men in flak jackets gathering silently in a downtown park. Gascón, when I asked about the episode, took a deep breath. “It was a very, very dangerous scenario,” he said. “In my entire law-enforcement career, I have never heard of anything close to this.” His officers managed to identify the armed men, but then had trouble getting a straight story from them. The raid eventually went forward, monitored by the Mesa police, and resulted in the arrests of three middle-aged cleaning women.
.. But Janet Napolitano, President Obama’s Secretary of Homeland Security, has a history with Arpaio. She was the U.S. Attorney for Arizona when conditions in Arpaio’s jails were first investigated by the Justice Department, in the mid-nineteen-nineties. Her performance then was memorably weak. Despite receiving a devastating federal report on brutality inside the jails, she held a friendly press conference with Arpaio in which she announced the settlement of the case against him and, according to the Arizona Republic, passed the time “trading compliments with the sheriff.”
.. Then, when she ran for governor in 2002, Arpaio returned the favor by crossing party lines—Napolitano is a Democrat—and making a last-minute campaign commercial for her that, by all accounts, helped her eke out a victory,
America, Pearce often says, has been “invaded,” and the Fifth Column that abets this invasion is, he told me, an unusual alliance of “big business, folks with thick checkbooks on K Street, the corporate oligarchy,” and “anarchists and seditionists.”
.. There is also the awkward fact that Arpaio came late to the issue of illegal immigration. Indeed, he for many years publicly assumed the same attitude toward immigration-law enforcement that most local police chiefs do: more serious crimes deserve precedence.
.. “Arpaio was not like this before,” she told me. “He was flamboyant. But I don’t know this guy.”
..
For Wilcox, the last straw came this February, when Arpaio marched more than two hundred undocumented immigrants, shackled together, to a new tent jail, parading them before news cameras. Arpaio had staged prisoner marches before. In 2005, he forced nearly seven hundred prisoners, wearing nothing but pink underwear and flip-flops, to shuffle four blocks through the Arizona heat, pink-handcuffed together, to a new jail. When they arrived, one prisoner was made to cut a pink ribbon for the cameras. This elaborate degradation, which is remembered fondly by Sheriff Joe’s fans, was ostensibly in the name of security—the men were strip-searched both before and after the march. But Arpaio also told reporters, “I put them on the street so everybody could see them.” He marched another nine hundred this April.
.. “It’s like a big joke to him,” she said. “He has no idea the harm he’s doing—to children, families, communities.”
.. Arpaio seemed jealous. “The Republic did a poll last week, ‘Who’s your hero?,’ and I beat out Tillman,” he said. He meant Pat Tillman, the Arizona Cardinals football star who joined the Army Rangers and was killed in Afghanistan. “I beat out all these guys. I’m not bragging. I’m just saying.”
.. “Every time he goes to the tents, it’s like a rock concert. Everybody wants his autograph. They’ll have him sign toilet paper, anything.”
.. The two-day raid netted only nine suspected illegal immigrants, but reportedly produced a high volume of traffic tickets, including charges for “improper use of horn.” Jiménez noted that the raid came in the middle of an election campaign. “He used our community to get media attention,” she said.