April 2003
Dragon editorial
by Richard Bermack

An article in the business section of the San Francisco Chronicle on March 15th, states that the chief executive of SBC, the parent company of Pacific Bell, received $6.1 million in salary and bonuses last year, a 4% raise from the year before. At the same time, the company cut 25,000 jobs and the stock price dropped 44%. The story was just one of many about the disconnect between the salaries of corporate executives and the performance of their companies.

The state of California is in trouble with a $35 billion deficit. Yet the Republican leadership in California has vowed no new taxes; services should be cut to match revenues. On the federal level, George Bush wants to cut taxes for the wealthy and businesses, with the rationale that the money will be invested and that will improve the economy. This supply-side theory that cutting taxes will stimulate the economy and be good for everyone was made popular by Ronald Reagan. Adopting this philosophy, the government slashed income tax rates for the wealthy and businesses in the 1980s and 1990s. At the same time, billions of dollars in taxpayer money went to corporations in the form of subsidies.

How did businesses use the tax breaks they were given to increase productivity? They used them to finance mergers (creating giant monopolies) and to move their factories to other countries, sending entire communities into poverty. They have declared void what used to be the social contract, that if employees work hard to build up the company they will at least have job security and retirement.

Meanwhile, the discrepancy between the pay of CEOs and workers has increased dramatically. The average CEO of a major corporation now makes over 500 times the pay of its hourly workers, according to the AFL-CIO, which cited a Business Week article. In 1980, CEOs made only 42 times as much as the hourly workers.

As Kevin Phillips explains in The Politics of Rich and Poor, as a result of supply side tax policies, the term millionaire now refers to a person’s annual income rather than the person’s net worth. At the same time, the United States went from being the world’s largest lender nation to the world’s largest debtor nation, and the streets filled with homeless people. Phillips was one of the leading Republican political strategists during the Nixon era and then became alarmed at the incredible accumulation of wealth by the top 1% of the country.

California, like many other states, is now on the verge of bankruptcy. The governors met with President Bush, who refused to give the states any money to help the governors out. The irony for California is that it has one of the largest economies in the world. There is money in the state. The question is whether it should be invested for the public good or to make a few people even richer at the expense of everyone else.

Dragon readers who want to learn more about the budget and tax alternatives should check out the following resources: