A Stern Glance

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $408.0 billion, an increase of 0.1 percent from the previous month and 6.4 percent above April 2011. Total sales for the February through April 2012 period were up 6.6 percent from the same period a year ago. The February to March 2012 percent change was revised from 0.8 percent (±0.5) to 0.7 percent.

Retail trade sales were up 0.1 percent from March 2012 and 6.1 percent above last year. Nonstore retailers sales were up 11.0 percent from April 2011 and building material and garden equipment and supplies dealers were up 10.3 percent from last year.

Stern And Company
Public Relations
www.sdsternpr.com
info @ sdsternpr.com
702-240-9533

Real average hourly earnings for all employees was unchanged from March to April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This stems from no change in both the Consumer Price Index for All Urban Consumers (CPI-U) and average hourly earnings.

Real average weekly earnings was unchanged over the month, as a result of no change in both the real average hourly earnings and the average workweek. Since reaching a peak in October 2010, real average weekly earnings have fallen 1.2 percent.

Real average hourly earnings fell 0.5 percent, seasonally adjusted, from April 2011 to April 2012. A 0.3 percent increase in average weekly hours, combined with the decline in real average hourly earnings, resulted in a 0.2 percent decrease in real average weekly earnings during this period.

Production and nonsupervisory employees

Real average hourly earnings for production and nonsupervisory employees rose 0.2 percent from March to April, seasonally adjusted. The increase stemmed from a 0.2 percent gain in average hourly earnings, combined with an unchanged Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Real average weekly earnings rose 0.2 percent over the month, as a result of the increase in real average hourly earnings, combined with an unchanged workweek. Since reaching a peak in October 2010, real average weekly earnings for production and nonsupervisory employees have fallen 1.6 percent.

Real average hourly earnings fell 0.7 percent, seasonally adjusted, from April 2011 to April 2012. The decrease in real average hourly earnings, combined with a 0.3 percent increase in average weekly hours, resulted in a 0.4 percent decrease in real average weekly earnings during this period.

Stern And Company
Public Relations
www.sdsternpr.com
info @ sdsternpr.com
702-240-9533

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.3 percent before seasonal adjustment.

The energy index, which had risen in each of the three previous months, declined in April on a seasonally adjusted basis and offset increases in the other major indexes. The gasoline index fell 2.6 percent in April and accounted for most of the decline in energy, though the indexes for natural gas and fuel oil decreased as well. The food index rose in April as five of the six major grocery store food group indexes increased.

The index for all items less food and energy rose 0.2 percent in April, the same increase as in March. Increases in the indexes for shelter, used cars and trucks, medical care, airline fares, new vehicles, and apparel all contributed significantly to the April increase.

The 12-month change in the index for all items was 2.3 percent in April, the lowest figure since February 2011. The index for all items less food and energy also increased 2.3 percent over the last 12 months. This is the first time since October 2009 that the 12-month all items change has not exceeded the 12-month change for all items less food and energy. The food index has risen 3.1 percent over the last 12 months, and the energy index has risen 0.9 percent.

Food

The food index rose 0.2 percent in April, the same increase as in March. The index for food at home, up 0.1 percent in March, increased 0.2 percent in April. Five of the six major grocery store food group indexes rose in April. The index for fruits and vegetables posted the largest increase, rising 1.0 percent in April after a series of declines. The index for cereals and bakery products rose 0.4 percent in April after declining in March. The index for nonalcoholic beverages rose 0.2 percent, and the indexes for meats, poultry, fish, and eggs and for other food at home both rose 0.1 percent. In contrast, the index for dairy and related products fell 1.0 percent in April, its third consecutive decline. Over the last 12 months, the food at home index has increased 3.3 percent. Five of the six food groups have risen over that time; despite the April increase the fruits and vegetables group is the only one to decline over the last 12 months, falling 1.7 percent. The index for food away from home rose 0.3 percent in April and has increased 2.9 percent over the last 12 months.

Energy

The energy index, which rose 0.9 percent in March, declined 1.7 percent in April. The gasoline index fell 2.6 percent in April after rising sharply over the first three months of the year. (Before seasonal adjustment, gasoline prices increased 1.8 percent in April.) The fuel oil index also declined in April, falling 1.1 percent. The energy services index declined slightly in April, falling 0.2 percent. The index for electricity rose 0.2 percent after falling in March, but the index for natural gas declined 1.8 percent, its sixth decline in seven months. Over the last 12 months, the gasoline index has risen 3.2 percent, the fuel oil index has increased 0.9 percent and the index for electricity has advanced 0.6 percent. In contrast, the index for natural gas has declined 11.6 percent.

All items less food and energy

The index for all items less food and energy increased 0.2 percent in April after a 0.1 percent increase in February and a 0.2 percent increase in March. The index for shelter increased 0.2 percent for the seventh month in a row, with rent and owners’ equivalent rent both rising 0.2 percent. The index for medical care increased 0.3 percent, with the index for hospital services rising 0.6 percent. The index for used cars and trucks increased sharply for the second straight month, rising 1.5 percent in April after a 1.3 percent increase in March. The index for airline fares also rose significantly in April, advancing 2.1 percent. The new vehicles index rose 0.4 percent, as did the index for apparel. The indexes for tobacco, alcoholic beverages, and personal care each increased slightly. The index for household furnishings and operations was unchanged in April, while the index for recreation fell 0.1 percent as the indexes for video and audio products and for toys both declined notably.

The index for all items less food and energy has risen 2.3 percent over the last 12 months, the same figure as last month and the sixth month in a row it has been either 2.2 or 2.3 percent. The index for shelter has risen 2.2 percent over the period, as has the index for new vehicles. The apparel index has risen 5.1 percent, the largest 12-month increase since January 1991, while the index for medical care has risen 3.4 percent.

Not seasonally adjusted CPI measures
The Consumer Price Index for All Urban Consumers (CPI-U) increased 2.3 percent over the last 12 months to an index level of 230.085 (1982-84=100). For the month, the index increased 0.3 percent prior to seasonal adjustment.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.4 percent over the last 12 months to an index level of 227.012 (1982-84=100). For the month, the index increased 0.3 percent prior to seasonal adjustment.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 2.1 percent over the last 12 months. For the month, the index increased 0.3 percent on a not seasonally adjusted basis.

Stern And Company
Public Relations
www.sdsternpr.com
info @ sdsternpr.com
702-240-9533

Effective crisis or emergency communications planning is an absolute requisite of any company’s comprehensive communications program for both corporate and economic survival, as well as humanitarian reasons.

Unfortunately, this sort of planning, because of its perceived complexity, is generally developed with little regard for what realistically can be accomplished, or it falls into the ad hoc category and is effected ineffectually on the fly.

The fact of life is that depending on the hazard or situation, a company will at some time be called upon to issue an evacuation notice, respond to public or press inquiries regarding financial irregularities, discuss legal, health or environmental matters, explain system failures or contend with questions on losses of dollars or proprietary information….to name just a few of those vicissitudes that might become somewhat nettlesome at any time.

Both internal and external publics will want to know who, what, where, when, why and how when it comes to casualties, property damage, accompanying incidents or lawsuits, descriptions of events, acts of heroism or cowardice, resumption of work and financial implications.

When the telephone rings, however, its generally too late to plan a response, determine who will serve as spokesperson and decide how much information should be disseminated and when.

The sheer size of crisis communications planning can be reduced by grouping types of events into situational categories:

• An ordinary event involving a senior manager, e.g. the death of a chief executive officer.
• An extraordinary event, e.g. the 1992 Southern California earthquake.
• An event in and of the company that the company has caused, e.g. a valve indicator misread results in a toxic waste spill.
• An event in, but not of, your organization, where the company is a victim, e.g. a hostage situation.
• A regulatory event, e.g. an insider trading investigation by the Securities and Exchange Commission.
• A financial event, e.g. a hostile takeover attempt.

The aforementioned represent a few of the more generalized situations that can occur. In all, flexibility is essential, an regardless of the categories used to plan, all crisis communications plans follow a reasonably simple logic.

First, what vulnerabilities create demands for information of what kind? Second, who must be talked to and in what order? Third, who will do what to whom by when to carry out the established communications objectives? Fourth, whose help will be required to develop and implement activities, internal coordination, public relations liaisons and mutual aid agreements? Fifth, how will the plan be tested and improved over time? And sixth, when will dissemination occur? Is there a commitment to communicate effectively during emergencies? Has a general policy statement on crisis communications been prepared and approved by senior management?

The first action determining the quality of crisis communications activities will be the alacrity and propriety of notifications. Although dispatch is important, establishing priorities and protocols is absolutely critical.

Most often the order of notification priority should be:

• Those who should respond, i.e. police, fire, emergency medical teams, the company’s crisis management team.
• Those who must comment, i.e. spokespersons, headquarters units, local government officials.
• Those with a special need-to-know, stock analysts, customers and suppliers, employees, victims and their families and union representatives.
• The broadcast and print media.
• The general public.

News media notification, of course, is quite different than notification given other audiences. During crises or disasters, the media usually gets word of the event and winds up contacting the company, thus placing the communications team in a reactive, rather than proactive position.

The communications team’s reaction must be a joint venture combining the expertise the public relations department, senior management, and security and technical operational experts, if required.

Working with the media during a crisis is clearly critical. Whether assigned to a metro or city desk, or the business page, most reporters are generalists and therefore must be backgrounded in highly complex, technical or scientific information before they can even ask appropriate questions to report the news in layman’s terms.

Wherever possible, glossaries of technical terms, charts, graphs and visual depictions should be prepared in advance. With respect response precision, particularly at the outset, it is important to recognize that it is acceptable to say “This is what we know…this is what we do not know…This is what is ambiguous.”

Negotiations between the media and corporate sources of information are always delicate. They require the corporate communications team to understand the media’s needs, know their own guidelines and limitations and know what is negotiable and what is not. It also means strict adherence to a “single-source philosophy.”

A single-source philosophy  is quite simply speaking with one voice and requires that all statements made, all actions taken, all film footage shown, present the crisis response responsibly, competently and humanly. It also means that spokespersons are credible, accurate, timely, reliable, articulate, authoritative and available and that all information and interpretations complement or supplement the basic message being imparted.

A fully developed liaison program touching internal contacts, as well as external key publics, is a useful tool for managing information. Through these contacts, your company can determine the efficacy of the messages being disseminated.

Finally, the success of a crisis communications response can be enhanced by the following guidelines:

• Release only verified and approved information.
• Promptly alert the media to all key events or news releases.
• When they are on site, ensure that the media have a corporate escort.
• Have a designated spokesperson.
• Maintain accurate records and logs of all inquiries and media coverage.
• Meet press deadlines.
• Provide equal opportunities for print and electronic media.
• Do not speculate on the cause of the crisis or emergency.
• Do not speculate on dollar losses.
• Do not permit unauthorized personnel to comment to the media.
• Do not mislead the media.
• Do not place blame.

There are, of course, many nuances and other elements of crisis communications. Many must be handled on an ad hoc basis, others require specific preparation. The aforementioned, however, is meant to give you an overview.

About Stern And Company

Stern And Company, based in Las Vegas, develops and implements strategic corporate communications, financial relations and marketing programs for public and private companies.

All of our professionals have extensive senior-level experience as financial journalists with major publications or as communications executives at leading major corporations. Our firm’s practice areas include corporate and financial relations, public relations, strategic and product marketing, crisis communications, transaction communications, restructurings, bankruptcies and litigation support.

Stern And Company
Strategic Communications
http://www.sdsternpr.com
info@sdsternpr.com

By Martin Lobel
Tax Notes
May 14, 2012

Martin Lobel is a partner at Lobel, Novins & Lamont LLP and the chair of Tax Analysts’ board of directors.

Lobel argues that we need to stop posturing and get serious about simplifying our tax code and making it more equitable and that we should focus on the political and economic power of the top 0.01 percent of the income population, not just the top 1 percent.

It’s time to get serious about reforming our tax code and corporate compensation to foster economic growth. We need to stop whining about things like the “Buffett rule” because it would require people earning more than $1 million a year to pay 30 percent in taxes1 or how it’s a violation of the “rule of law” to eliminate tax subsidies (aka expenditures, loopholes) for the largest oil companies.2 Focusing on requiring those with million-dollar incomes to pay more in taxes or on eliminating subsidies for the major oil companies is good politics, but obscures the real reforms needed to raise revenues, make our tax code fairer, and spur economic growth in the United States. It’s time to focus on tax simplification and making the system more progressive, as was done under President Reagan. Of course, that won’t be easy, because everyone is in favor of eliminating tax subsidies except those who benefit from them — usually those wealthy and well connected enough to have gotten tax subsidies in the first place. But, if we are going to solve our economic problems, it is essential that we simplify the tax code, lower rates for most Americans, and increase revenues. Contrary to what the Tea Party would have us believe, tax revenues are actually at their lowest levels as a percentage of GDP in the last 60 years.(3) We know how to increase tax revenues.(4) We just lack the will.

Individual Income Taxes

President Obama has focused on people in the top 1 percent of earners, because from 1993 to 2010, the income of the top 1 percent grew 58 percent while the bottom 99 percent saw its income increase by only 6.4 percent. Indeed, in 2010, the top 1 percent captured 93 percent of the income gains.5 But that obscures the rapid shift of income to the top 1 percent and the shift of power within the 1 percent.6 In 2010 the top 1 percent had an 11.6 percent increase in income, but the top 0.01 percent had a 21.5 percent increase, while the bottom 99 percent had a 0.2 percent increase. The top 0.01 percent, about 15,000 individuals, had an average income of $23.8 million while the 400 richest Americans each made more than $110 million in 2010.

One need only read the newspapers to know that the very richest Americans are able to exert far more influence than those who only have $1 million a year in income. The Koch brothers and Sheldon Adelson on the right and George Soros on the left are probably the most visible examples. And the problem is even worse now that the Supreme Court has decided corporations are people and are entitled to spend essentially unlimited unreported money to influence elections. Better education for the masses will not solve that kind of income and power disparity; only a change in the tax code and corporate management will help.

If you include tax subsidies, almost 70 percent of income goes to the top 20 percent of the population and only 10 percent goes to the bottom 40 percent. In 2010 taxpayers earning more than $1 million a year before taxes received $447,259 on average in tax subsidies while those earning less than $10,000 received $427. Much of this disparity is because of our tax code’s favorable treatment of the very wealthy’s income. Although there is little economic justification for taxing income from investments at a lower rate than income from labor,(7) this disparate treatment has benefited primarily the top 1 percent, who own half of the country’s stocks, bonds, and mutual funds, while the bottom 50 percent own only 0.5 percent of these investments. Unsurprisingly, the top 1 percent owned 40 percent of national wealth while the bottom 80 percent owned only 7 percent, according to Saez’s 2010 updated summary of income equality. And, according to IRS statistics, the top 400 earners paid only 18.11 percent in income taxes in 2008, primarily because 56.7 percent of their income came from capital gains.

One of the most egregious loopholes is the carried interest provision, which allows hedge fund managers to convert ordinary income, normally taxed at a marginal rate of 35 percent, into capital gains taxed at 15 percent — and then only when taxpayers repatriate gain from where they supposedly earned it in the Cayman Islands, Bermuda, or some other low- or no-tax country.

More broadly, the mortgage interest deduction, a third rail in politics, is another example in which the wealthy benefit disproportionately. In 2010, 76 percent of mortgage interest deductions went to the top 20 percent in income, at an average of $1,952 a year.8 It is not only inequitable, it is inefficient, ineffective, and costly.(9) If we want to continue to subsidize homeownership, a limited tax credit would be more equitable and efficient.

We seem to have forgotten that under President Eisenhower, the top income tax rate was more than 90 percent. Why shouldn’t those in the top 0.01 percent income bracket pay substantially more than the 30 percent that Obama is proposing? Economists Peter Diamond and Emmanuel Saez have estimated that the rate could increase to between 50 percent (the rate during the first Reagan administration) and 70 percent before it would have an adverse impact on revenue.10 They also found that even if the rich worked less, it would not slow the economy because much of what the rich do, particularly on Wall Street, does not generate economic growth. To paraphrase Paul Volcker, the only thing that the financial institutions have done in the last 30 years to benefit consumers is deploy automatic teller machines. If we raised the income tax rate on the top 1 percent to 67 percent we could raise about $4 trillion over a decade, according to Saez. That’s not chump change.

Corporate Taxes

Corporate trade associations are screaming about how we have the highest corporate tax rate in the world. That’s true of the nominal tax rate, but the reality is that our effective corporate tax rate is about average for most of the industrialized countries.11 The two primary reasons for our low effective tax rate on multinational corporations is that the multinationals can deduct current foreign expenses but not pay taxes on their overseas profits until they repatriate them to the United States,(12) and they shift their profits to low- or no-tax countries.(13)

Every IRS commissioner who has testified before Congress has had to admit that the IRS cannot police the transfer pricing system we now use to allocate profits to various countries. Although the system was a “historical accident,”(14) the multinationals that benefit from it have defended it without remorse. This is particularly true of the high-tech and pharmaceutical companies where by shifting the “home” of a royalty payment to a low- or no-tax country, they can avoid literally billions of dollars in taxes.(15) For example, Microsoft once saved $300 million in taxes by renting a desk in an Irish solicitor’s office and “locating” some patents there. More recently, although Apple has 54 percent of its long-lived assets, 69 percent of its retail stores, and 39 percent of its sales in the United States, the company reported that it earned only 30 percent of its profits in the United States. If we assume 50 percent of its profits came from the United States, it would have paid $2.4 billion more in taxes and, if we assume 70 percent of its profits came from the United States because that is where it designs its products, it would have paid $4.8 billion more in taxes.(16)

Just as importantly, our tax code puts domestic companies at a real competitive disadvantage in competing with multinational corporations(17) because it encourages them to avoid taxes and shift jobs offshore.(18) Between 1999 and 2008, multinational corporations cut more than 1.9 million jobs in the United States and added nearly 2.4 million foreign jobs.(19) And the trend is continuing. In 2010 the Commerce Department reported that multinational companies increased domestic employment by 0.1 percent while expanding overseas employment by 1.5 percent.(20) To put this in perspective, between 2000 and 2010 we lost 33.1 percent of manufacturing jobs, more than the 30.9 percent of them lost between 1929 and 1933.21 Yet you never hear about these provisions as being “job-destroying” actions. Why the small business trade associations are not complaining about the undue advantages of the multinational corporations is an interesting question.(22)

We need to stop trying to solve the problem by adding increasingly complex provisions to the tax code.23 Nor can we solve the problem by going to a territorial system, as the multinationals are pushing. That would increase the shift of jobs and profits offshore because it would ensure that no foreign profits would ever be taxed.(24) We need to shift to a unitary tax system in which, for example, a corporation with 30 percent of its property, 30 percent of its sales, and 30 percent of its personnel in the United States would pay a 30 percent tax on its worldwide profits regardless of how many patents or profits it shifted to low- or no-tax countries.(25) Alternatively, we could impose a flat tax on the profits that corporations report to their shareholders and the SEC under oath.(26)

We also need to make sure the directors of corporations represent the interests of shareholders and not of management who nominated them in the first place.27 The growth in management income has been phenomenal and cannot be justified by any rational economic theory.28 Since the 1970s, median pay for executives at the nation’s largest companies has more than quadrupled, even after adjusting for inflation, whereas pay for a typical non-supervisory worker over the same period has dropped more than 10 percent, according to the Bureau of Labor Statistics.29 Are American CEOs really worth more than 10 times what British CEOs are paid, as measured by the median income of their employees? A study done by Harvard law professor Lucian Bebchuk et al. showed that “the top executive teams of Bear Stearns and Lehman Brothers derived cash flows of about $1.4 billion and $1 billion respectively from cash bonuses and equity sales during 2000-2008.”(30) They also found that 10 percent of the profits of the largest 1,000 corporations in the United States went to those companies’ top five officers in 2005, but that the CEO’s pay correlates negatively with the profitability and market valuation relative to book value.31 In short, the firms with high CEO pay are not the best performers.(32) What percentage it is now, particularly on Wall Street, is probably beyond mere mortals’ comprehension.

Wall Street, or the financial sector, is in a class by itself. From 1960 to 1984 Wall Street’s share of U.S. corporate profits averaged 17 percent, but from 1985 to 2008 its share rose to an average of 30 percent. This huge bundle of money attracts some of the best minds in America to Wall Street, where they spend their time designing financial instruments that add little or nothing to economic growth,33 according to Volcker, but generate huge fees that Wall Street is fighting to protect.(34)  This helps explain why in 2010 the share of pretax income going to the wealthiest 0.01 percent reached its highest levels since the IRS began recording incomes in 1913. Of course, some of the CEOs, like Steve Jobs, deserved substantial salaries because of what they have accomplished, but why did the average executive’s pay at the nation’s largest companies grow from 42 times the average worker’s income in 1990 to 325 times it in 2010?(35) And, what is the justification for the enormous sums given to seemingly failed CEOs like Hewlett-Packard’s Carly Fiorina?

Solutions

We need to increase effective tax rates, not marginal rates of the wealthiest.(36) To this end we should simplify the tax code, eliminate most, if not all, tax expenditures, and lower the rate so our revenues are sufficient to fund what we decide we need while also cutting our deficit. For activities we want to support, we should appropriate the money so we know what their costs are. It’s all too easy to hide these subsidies in the tax code, where they are hard to police or to analyze from a cost-benefit perspective.

We need to level the playing field for domestic and multinational corporations by eliminating the tax code’s bias toward shifting profits and jobs overseas. The easiest way to do that is to recognize that we are in a global economy and adopt a unitary accounting system that cannot be gamed by shifting profits to low- or no-tax countries. We should not adopt a territorial system that will ensure that multinationals won’t have to pay taxes on profits they shift out of the United States.(37)

Unfortunately, because any reform of our existing tax structure will be very difficult to accomplish, many of our so-called tax “experts” think the only solution is to adopt a VAT on top of our current tax system because it can raise huge sums of money without the public noticing.(38) There are two problems with the VAT proposals: A VAT is incredibly regressive (the poor would pay a much greater percentage of their income than the rich), and a VAT is not as simple as its advocates claim.(39) A quick perusal of Tax Notes International articles on existing VATs shows that they are just as complex as an income tax code. For example, is children’s clothing exempt? How do you define “children’s clothing”? Etc., etc.

We may have to wait until after the 2012 election for any serious legislation, but now is the time to begin discussing what needs to be done. We can no longer condone proposing cutting tax expenditures, as the Ryan budget does, without specifying what would be cut and how revenue figures can be achieved. Nor should we allow the Buffett rule to distract from basic, necessary changes to alleviate the growing and dangerous income rift between the very wealthy, the top 0.01 percent, and the rest of us. Read the rest of this entry »