Friday, August 31, 2007

Labor's Letdown

Any working man or woman reading the newspaper headlines will probably head into the Labor Day week-end with some trepidation. The stock market is out of whack and 401Ks are looking anemic. Those pesky interest rates are ratcheting upward on adjustable rate mortgages.

Fed Chairman Bernanke, who has liquidity aplenty for financial institutions, says no relief will be forthcoming from the Fed for homeowners unable to meet higher house payments.

Never fear, help is on the way from the White House! President Bush says that the FHA will help people refinance their homes through the new "FHA Secure" program. He is also talking about eliminating tax charges for people who refinance homes that have lost value.

I have a better idea. How about just paying people a decent wage so they can afford the house they live in? Even after the federal minimum wage was increased by Congress earlier this year to $5.85, the mandate is still 7% below real wages ten years ago.

For those who might read this and think our economy cannot afford pay increases, let me point out that the senior officers of our largest companies - knowledgeable men and women who are at the helm of Fortune 500 companies - think there is plenty of money around. After all, their pay has increased 45% over the past decade.

Institute of Policy Studies in Washington, D.C. and United for a Fair Economy based in Boston recently completed a study on executive pay in the U.S. In the 14th Annual CEO Compensation Survey, the CEOs of large U.S. companies make 364 times the pay of the average American worker. That means that a CEO can come in just one day and earn as much as the average worker makes in an entire year!

The study sponsors offer a few ideas for reform, most of them relating to tax breaks that make high pay possible. One proposal is to cap the amount of executive compensation that is allowable as a business expense deduction for taxes much like food and entertainment expenses as capped. The study found that if the expense deduction were capped at an amount equal to 25 times the salary of the company’s lowest-paid worker, it would have generated $1.4 billion in tax proceeds from the 386 companies in the survey. That would save quite a few homeowners facing mortgage defaults!

Just some food for thought on this Labor Day week-end.

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