Friday, July 19, 2013

The Takers

I had a conversation with a conservative I happen to know. Without prompting, he went on to tell me about the problems posed by the "takers". You know, those 47%'ers of the population who are takers? He was talking about them.

Who are they? Some say that they are the people who pay no income taxes. Ah, but they do pay income taxes - Social Security taxes. Those payroll taxes for Social Security and Medicare are taxes on income. Those taxes are paid one way or another.

More to the point, those taxes are not paid on capital gains or dividend income. They are not exacted upon corporate income, either. How do we know this? We have computers to collect the data and tabulate totals. Capital gains, dividends and corporate taxes are all much lower than taxes on ordinary income. How did that happen? Did the takers do that?

When the term "takers" is used in political discourse, they are referring to those lazy people on unemployment. You know, those people who paid taxes into an insurance program that helps to deal with the possibility that they may be unemployed someday? Yeah, those takers.

But there is a class of takers you're not going to hear about from conservatives. Maybe there is no name for them yet, so I offer a few examples.

Let's start with The SCO Group. There was once a company that has been in litigation for more than ten years over copyrights. They sued IBM and talked up the lawsuit hoping that IBM would just buy their company and everyone would be happy. Led by Darl McBride in Linden, Utah, The SCO Group insisted that IBM had taken code from UNIX and put it into Linux, infringing SCO's copyrights.

Years later, in other litigation, Novell prevailed against SCO to prove that Novell was the owner of the copyrights, not SCO. During all this litigation, McBride worked out the finances so that the only people who ever got paid were the lawyers by declaring bankruptcy before their case against IBM went to trial. Over the years, SCO managed to burn through millions in cash to ensure that neither IBM nor Novell could collect on any damages from counterclaims against SCO.

When I think of "takers" I think of The SCO Group first.

Dean Baker is a very interesting free market economist and he's also a bit liberal. He makes a valid point that directors in publicly held corporations meet with the board of directors maybe 3-4 times a year for a lot of money. Typical compensation for a member of the board of directors? $250,000 a year on average. What happens when the company does not report a profit? Do members of the board of directors take a hit in compensation? How about the CEO? Not very often.

To highlight this chasm between performance and compensation, a new website is in the works that will identify directors and CEOs that walk away with huge compensation packages even when they tank the company stock. It will be called DirectorWatch. Here's an interesting example of a taker from their Indiegogo site:
Home Depot dumped its CEO Bob Nardelli at the beginning of 2007, just over six years after he took the position.  During his tenure, the market value of Home Depot stock had fallen by 40 percent, according to one estimate.  Lowe’s, the main competitor for Home Depot, saw its stock price nearly double over the same period. Yet, Nardelli walked away with $240 million for his efforts.
When a CEO tanks the company stock and walks away with nearly a quarter billion, wouldn't you call *him* a taker? I would.

You would think that with today's technology, CEOs and members of the boards of directors would be more efficient, more effective, maybe even more productive. Apparently technology isn't really helping those CEOs do a better job.

Remember how the economy tanked in 2008? Who exactly was responsible for that? At least a few takers.
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