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EITC [Earned Income Tax Credit] and Economic Security
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EITC [Earned Income Tax Credit] and Economic Security
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Jennifer Klein's Files
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TO:
Hillary Rodham Clinton
To
FROM
Jennifer Klein J.K.
DATE:
7/23/98
RE:
EITC
I spoke with Gene's staff person about the Sunday NY Times article calling EITC "a
Republican initiative." He explained that Gene was "real mad" but hadn't taken action. We
talked about getting someone from outside to do a letter to the editor saying that this has been a
Democratic initiative all along and that the President has been its champion since taking office.
As you know, EITC was originally pushed by Russell Long, signed by Ford, and expanded by
Bush. It has been consistently attacked by the Republicans and defended by the President since
1995, making the article's claim quite unfair.
I've also attached a related E.J. Dionne piece in case you missed it.
Someone needs to write response/
Consection to Times to run
Soon - Pls. WNK w/ Gene to
get done.
PHOTOCOPY
PHOTOCOPY
HRC HANDWRITING
PRESERVATION
CC Jen Klein
her
what does bine s think 9thi?
USA TODAY THURSDAY MAY 15 1997 15A
Taxpayers shouldn't be
subsidizing CEO pay
By Martin Olav Sabo
Although April is soften called the cruelest month, May is proving
equally tough for struggling/American workers This month, thousands
of Americans are shocked to find out what the executives at their com-
panies are being paid. If those same workers found out that their tax
dollars were subsidizing the most excessive of CEO salaries, that shock
would probably turn to anger.
As America's major business publications have recently released
their annual surveys of CEO compensation, there have been the usual
denunciations of the excess. Organized labor has even responded with
a web site to track the problem. But to me, more troubling than the size
of a CEO's salary is the skewed relationship between that salary and
the pay of other workers the same company.
Businessweek's most recent survey illustrates how one-sided this re-
lationship has become. While average wages rose 3% in 1996, the aver-
age CEO salary and bonus grew 39% to $2.3, million.
Americans have always assumed that when a company succeeds, all
employees will share in that success. But for the past two decades that
has become alarmingly less true. In 1974, CEOs in manufacturing firms
made 34 times what average workers did. By: 1995, that figure had ex-
ploded to times the pay of average workers
Concern over excessive executive pay should not only arise in May
when the top salaries are publicized. We need an ongoing national dis-
cussion about its impact on income inequality and how that inequality
affects both our economy and our society. Income inequality has grown
almost continuously in America since the 1970s and the income gap has
become more pronounced in the United States than in any other indus-
trialized nation.
Part of the problem is our tax code. It now allows extremely high
salaries to be tax deductible as a business expense. In short, the very
Americans who are repelled by excessive executive salaries are subsi-
dizing them with their hard earned tax dollars. Like many, I don't be-
lieve that our tax code intends to make excessive executive pay com-
pletely tax deductible.
Under current law, business may deduct "a reasonable allowance
for salaries or other compensation. However, the law defines reason-
able as $1 million, which is more than what 99.9%.of Americans earn.
Companies have therefore been able to deduct salaries that are vastly
disproportionate to those of paid employees.
We need to redefine what is "a reasonable allowance. Welcan do
that by capping the tax deduction for executive compensation at 25
times the salary of the lowest-paid full-time employee Ina firm In oth-
er words, if the lowest paid worker is a who makes $12,000, the
CEO could make $300,000 before the company loses any deduction.
I'm not out to attack CEOs. In fact, Iama strong bellever! in the
importance of organizational leadership: Skilled executives make vital
contributions to their companies; and deserve to be compensated ac-
cordingly. But a company doesn't exist solely for the benefit of those
running it. It has a relationship with shareholders, consumers, commu-
nities and workers - all of which are essential to the company's suc-
cess.
The goal is not limiting pay at the top, but rather raising pay for those
at the bottom. I would offer businesses a choice: if they wish to have
U.S. taxpayers subsidize executive salaries, they should create an equi-
table link between the top and bottom of their pay scales. If they don't
they give up part of their tax deduction.
My plan is by no means the entire solution to America's income in-
PHOTOCOPY
equality I hope however, that it will spur private sector/decision mak-
HRC HANDWRITING
ers to think about their workers when they
e compensation decl-
sions. Those who work on the factory floor should beas important
CC Jacklein Jan klein
we
what dres blue s think g thi?
Taxpayers shouldn't be
subsidizing CEO pay
Jen:
By Martin Olav Sabo
Although April is often called the cruelest month, May is proving
equally tough for struggling American workers. This month, thousands
of Americans are shocked to find out what the executives at their com-
panies are being paid. If those same workers found out that their tax
We forsht this
dollars were subsidizing the most excessive of CEO salaries, that shock
would probably turn to anger.
As America's major business publications have recently released
their annual surveys of CEO compensation, there have been the usual
fight in 1993.
denunciations of the excess. Organized labor has even responded with
a web site to track the problem. But to me, more troubling than the size
of a CEO's salary is the skewed relationship between that salary and
In Putting People First
the pay of other workers in the same company.
Businessweek's most recent survey illustrates how one-sided this re-
lationship has become. While average wages rose 3% in 1996, the aver-
age CEO salary and bonus grew 39% to $2.3 million.
Americans have always assumed that when a company succeeds, all
The President proposed
employees will share in that success. But for the past two decades that
has become alarmingly less true. In 1974, CEOs in manufacturing firms
made 34 times what average workers did. By 1995, that figure had ex-
ploded to 159 times the pay of average workers.
Concern over excessive executive pay should not only arise in May
limiting the dedicker of
when the top salaries are publicized. We need an ongoing national dis-
cussion about its impact on income inequality and how that inequality
affects both our economy and our society. Income inequality has grown
CEO pay to Imillia.
almost continuously in America since the 1970s and the Income gap has
become more pronounced in the United States than in any other indus-
trialized nation.
Part of the problem is our tax code. It now allows extremely high
salaries to be tax deductible as a business expense. In short, the very
Buben, Altma, &
Americans who are repelled by excessive executive salaries are subsi-
dizing them with their hard-earned tax dollars. Like many, I don't be-
lieve that our tax code intends to make excessive executive pay com-
pletely tax deductible.
Rubin hated this icha.
Under current law, business may deduct "a reasonable allowance
for salaries or other compensation." However, the law defines reason-
able as $1 million, which is more than what 99.9% of Americans earn.
And were abk to coken
Companies have therefore been able to deduct salaries that are vastly
disproportionate to those of their lowest-paid employees.
We need to redefine what is "a reasonable allowance." We can do
that by capping the tax deduction for executive compensation at 25
it to the point that
times the salary of the lowest-paid full-time employee in a firm. In oth-
er words, if the lowest-paid worker is a clerk who makes $12,000, the
CEO could make $300,000 before the company loses any deduction.
I'm not out to attack CEOs. In fact, I am a strong believer in the
it doesn't affect an anybody;
importance of organizational leadership. Skilled executives make vital
contributions to their companies and deserve to be compensated ac-
cordingly. But a company doesn't exist solely for the benefit of those
running it. It has a relationship with shareholders, consumers, commu-
nities and workers - all of which are essential to the company's suc-
that's the "ressonable
cess.
The goal is not limiting pay at the top, but rather raising pay for those
at the bottom. I would offer businesses a choice: if they wish to have
U.S. taxpayers subsidize executive salaries, they should create an equi-
allowance" language.
table link between the top and bottom of their pay scales. If they don't,
they give up part of their tax deduction.
My plan is by no means the entire solution to America's income in-
equality. I hope, however, that it will spur private-sector decision-mak-
ers to think about their workers when they make compensation deci-
sions. Those who work on the factory floor should be as important as
those who work in the executive suite.
Rep. Martin Olav Sabo, D-Minn., is sponsor of the Income Equity
Act.
The Middle Class:
By LOUIS UCHITELLE
Winning in Politics,
HE great American middle class. Politicians of
T
the left and right court it. Policies, liberal and
conservative, are proclaimed on its behalf.
Health care reform was to have eased its cares.
Tuition subsidies educate its children. President Clinton
made a "middle class tax cut" a centerplece of his
election campaign.
Losing in Life
Most voters see themselves as members of the
middle class, so Newt Gingrich, the House Speaker,
picked up the theme. When the Republican-controlled
Congress finally passed a tax bill last year, he described
it as the Republican "fulfillment of what President
Clinton promised - a middle class tax cut."
But for all its mythic power, the middle class is
finishing last in the race for Improvement in the current
economic boom. At the top and bottom of the economic
ladder, wages are rising briskly. In the middle, they are
rising slowly. This is unusual. While upper-Income peo-
ple often improve their lot faster than the middle class,
lower-income workers hardly ever do.
The middle class of political exhortation and nation-
al myth isn't the same as the statistical middle of the
wage scale, the place where progress is surprisingly
slow. Half of the so-called middle class tax cuts enacted
last year went to people earning more than $93,000. And
while the median household earns almost $40,000 a year,
the median Individual wage is much lower: $11.13 an
hour last month, or about $23,000 a year for a 40-hour
work week.
It isn't that workers in this statistical middle -
people earning roughly $23,000 to $32,000 a year for a 40-
hour week - are visibly aggrieved because they are
losing ground to their upper- and lower-earning fellow
citizens. After all, their pay has gone up faster than the
inflation rate over the last two years, even if the
increase Is not as great as the one experienced by lower-
and upper-income workers.
"Everyone seems to be reacting to the favorable
improvement in their pay," said Richard Curtin, direc-
tor of consumer surveys at the University of Michigan
"But the longer the expansion lasts, the more people will
turn toward comparisons with other groups. That's
when the grumbling and the wage demands begin. When
you look across society, you are not really seeing that
yet."
The Middle-Class Life
Lots of things can help someone improve his lot in
life, of course. A rising stock market, tax breaks, inherit-
ance, government subsidies like Medicare and Social
Security, extra hours on the job and overtime pay all play
roles, particularly for those at the top and bottom of the
income ladder. The really wealthy often rely not on
wages but on earnings from their Investments. And many
households put together the wages of two or three
household members, bringing the median household my
come to nearly $40,000, which is enough to live a middle
class life in most of the United States.
The New York Times
By some estimates, a family of four must bring in
least $27,000 a year from one or more wage earners
maintain what John Schwarz, a political scientist
Arizona State University, describes as "a minimali
Week in Review
adequate standard of living." In pursuit of that goal, mot
people measure their standing In the work force by who
they earn Individually on the job.
The bottom 20 percent on the national wage scal
Continued on Page
Continued From Page I
"The higher minimum wage is the key
factor that has lifted people at the bottom,".
earning $14,500 a year or less for a 40-hour
said Edward Wolff, a labor economist at New
week, has gained the most ground over the
York University, whose own earnings calcu-
last two years, once wages are adjusted for
lations produced roughly the same results as
inflation. Upper-income Americans, those
those of the Economic Policy Institute.-
earning north of $75,000 a year, have gained
The economy has played a big role, too. A
almost as much as the low-income people in
surge in growth over the last two years and a
the same two-year stretch. The middle
falling unemployment rate produced labor
group has gained a little ground since 1996,
shortages that showed up first at the low end
but less than the others.
of the work force. Meanwhile, middle-level
workers, while finding jobs easily enough,
Breakthrough
had more difficulty raising their wages. Mr.
Wolff and other labor economists tick off the
Viewed over the full eight years of the
reasons.
current economic expansion, the middle has
Computers have diluted the demand for
actually lost ground, while the top and the
clerks, secretaries and other medium-skilled
bottom have gained at roughly the same
workers. Unions, once the powerful bargain-
gradual pace. Once wages are adjusted for
ing agents of middle Americans, are weak
inflation, the low end, for the first time, has
today. Rising imports have hurt workers who
regained all the ground lost in the early
make the same goods in this country. Corpo-
1990's and is now earning more than in 1989,
rate downsizing spread in the 1990's through
when the last economic expansion ended and
white-collar ranks, making middle-income
a recession set in, undercutting wages.
people feel less secure In their jobs and more
Workers earnings slightly more than the
reluctant to push for raises. And a bigger
poorest group or, at the other extreme, some-
what less than the richest wage earners, also
percentage of the work force now has a
did better than those in the middle, although
college education or at least some college
not as well as those at either extreme.
training, diluting the demand for them. The
The breakthrough came this year. The
wages of people with only four years of
low-end wage, a maximum of $6.99 an hour
college are no longer rising.
last month for the bottom 20 percent, was 20
"While middle income people benefit from
cents higher than in 1989, adjusted for infla-
the tight labor market, they have a harder
tion, according to the Economic Policy Insti-
time digging themselves out of the wage
tute, which calculated the trends from data
hole," said Jared Bernstein, a labor econo-
provided by the Labor Department's Bureau
mist at the Economic Policy Institute.
of Labor Statistics.
By comparison, the median wage, smack
Hard to Help
In the middle, was $11.13 an hour in June, or
17 cents lower than in 1989. The upper end,
They are also harder for government to
mostly peopled by well educated and skilled
help, says Edward Montgomery, the Labor
workers, seldom loses ground in any year. At
Department's chief economist. A huge swath
the high end, the wage of $24.63 an hour
of people who earn roughly $23,000 to $55,000
today, adjusted for inflation, is 91 cents
a year - and pay more than 40 percent of all
ahead of the comparable 1989 level
Federal income taxes - are much more on
There are reasons, of course, for the slide
their own than lower-income workers. There
in the middle. Despite all the rhetorical em-
are government-subsidlzed training pro-
phasis on policies that favor the middle class,
grams, for example, to get unemployed peo-
it is low-income workers who have gotten the
ple into the low end of the labor force. The
extra nod from Washington in this economic
minimum wage and the earned-income tax
expansion - particularly through a 90-cents-
credit (a Republican initiative that rebates
an-hour increase in the minimum wage since
tax revenue to low-wage workers) put a floor
October 1996. It was an increase that the
under their income. But middle-level people
Democrats proposed and the Republicans in
depend much more on their own dealings
Congress finally favored.
with their employers to determine their situ-
The minimum reached $5.15 an hour last
ations.
September, and the ripple effect has pushed
"It is harder for government policies to
up wages for workers earning as much as 50
reach these middle level people," Mr. Mont-
cents an hour over the minimum. That is a
gomery said. "In a free enterprise society,
big portion of the people in the lower 20
we are hesitant to subsidize an employer for
percent of the American work force.
something he would do anyway."
Aug-30-00 07 : 35A
P.01
James Carville
112 5th Street SE, Washington DC 20003 Phone: (202) 543-1196 Fax: (202) 546-1490
TO:
Mrs. Clinton C/O Jenn Klein/Neera Tanden
FAX:
456-2878
DATE:
July 31, 1998
I understand that you wanted a response to this article, I hope the
attached is acceptable. Enjoy your vacation!
James
PAGES (INCLUDING THIS ONE): 2
If you have any problems receiving this fax, please call 202/543-1196
Aug- 30-00 07 : 36A
P.02
JAMES CARVILLE
Pamphleteer and Raconteur
Letter to the editor of the New York Times:
In an article on the politics of the middle class, the New York Times
called the Earned Income Tax Credit, one of the best programs for lifting
up low income working families, a "Republican initiative." (Louis
Uchitelle, "The Middle Class: Winning in Politics, Losing in Life," July
19, 1998). I beg to differ.
On a charitable day, I could see calling the EITC a bipartisan
initiative, but a Republican one? Get real. While Gerald Ford did sign it
into law, it was Russell Long, a Democratic Senator from my home state of
Louisiana, that pushed the EITC through Congress. More important, for the
past six years Republicans have ridiculed the EITC as "welfare spending,"
and tried to undermine it in every way.
In 1993, President Clinton doubled the EITC so that he could give tax
cuts to 15 million low-income working families - without a single
Republican vote. In 1995, they tried to cut the EITC by $31 billion, which
would have raised taxes for nearly 8 million working families with incomes
under $30,000. Now-they're at it again. The Gingrich-Kasich House budget
eliminates the EITC for married couples without children. If that's not
enough, the Speaker himself recently said that we could siphon off the
money from the EITC to pay for eliminating all estate taxes for the richest
1.4% of Americans. Given the past six years of Republican raids on EITC,
offering them credit for this initiative is like giving Marie Antoinette
credit for promoting cake.
Jan line
James Carville
WASHINGTON
VIRGINIA
LONDON_
OFFICE OF JAMES CARVILLE
WASHINGTON SPEAKERS BUREAU
GOULD, GREENBERG, CARVILLE/NOP
112 5TH STREET, S.E.
1633 PRINCE STREET
LUDGATE HOUSE, 245 BLACKFRIARS RD.
WASHINGTON, D.C. 20003
ALEXANDRIA, VIRGINIA 22314
LONDON SE1 9UL
202-543-1196 FAX 202-546-1490
703-684-0555 FAX 703-684-0291
+44(0)1718909003 FAX +44(011718909004
EMAIL: [email protected]