Subsidizing Economic Inequality

October 11, 2013 | | Truthout |

The debate over America’s federal budget is getting stale — and getting us nowhere, as the latest government shutdown depressingly reminds us. Political obsession over budget deficits has now morphed into legislative extortion.

Today, more than ever, we need to refocus the federal “tax and spend” debate from deficits to inequality. Two researchers from the New York think tank Demos are trying. They’ve released a new report that homes in on the no-man’s-land between the public and private sector that has left hundreds of thousands of Americans poor and a lucky few fabulously rich.

This no-man’s-land has expanded enormously over recent years as the federal government has contracted out and privatized one public service after another.

Those janitors who clean Smithsonian museums? Those cooks at military bases? Those programmers writing software for Medicare? More and more of the workers who keep our government running work for private contractors.

And many of these workers, note Demos analysts Robert Hiltonsmith and Amy Traub, don’t make much at all in the way of compensation. About 560,000 Americans employed by contractors have jobs that pay $12 an hour or less.

Meanwhile, the executives who run these companies are doing quite well — thanks to our tax dollars. The federal government reimburses private firms for up to $763,039 of the executive compensation they lay out, a figure that will shortly rise to $950,000 under the formula current federal law sets out.

Let’s place this $763,039 in context. The President of the United States only makes $400,000. Our Vice President pulls in $230,700.

In other words, our tax dollars are compensating private contractor executives at a level three times higher than Joe Biden’s paycheck.

These dollars add up. In their new Demos study, Underwriting Executive Excess, researchers Hiltonsmith and Traub calculate that the federal government is now spending $20.8 to $23.9 billion annually, overall, for the compensation of top private contractor executives.

Out of this sizeable stash of tax dollars, the pair estimates, $6.97 to $7.65 billion is going to private contractor executive pay that exceeds $230,700 a year.

In short, Hiltonsmith and Traub note, “we are bankrolling the paychecks of already-wealthy executives instead of supporting more livable wages for American workers struggling to get by.”

We could solve this problem, the two quickly add, quite simply — by lowering the top contractor pay reimbursement level from the current $763,039 to $230,700, the current vice-presidential payout.

Read the reports: 
Underwriting Bad Jobs: How Our Tax Dollars Are Funding Low-Wage Work and Fueling Inequality
Underwriting Executive Excess