Third Party & Independents Archives

The Excessive Compensation Assessment

Everybody knows that our nation’s top business executives receive an excessive amount of financial compensation annually, but I hadn’t realized the extent of this profligacy until I did a little bit of digging. As we enter a holiday weekend that commemorates American labor, I think that it is especially appropriate to reflect upon some numbers that are truly mind-boggling.

So how much did the average CEO of America's 500 biggest companies collect last year? Well, it was probably at least a million dollars, right? Nope, that's their pocket money. More than two million? Sorry, that doesn't even get them out of bed in the morning. More than three million? You're headed in the right direction. More than five million?!? Getting warmer. More than ten million dollars?!?!?! You're almost there.

According to Forbes magazine the average CEO of one of our largest companies received approximately $10,200,000 last year:

"The heads of America's 500 biggest companies received an aggregate 54% pay raise last year. As a group, their total compensation amounted to $5.1 billion, versus $3.3 billion in fiscal 2003."
America's top 500 business executives raked in almost TWO BILLION dollars more in personal income in 2004 than they pocketed in 2003?!?!? Did I miss something last year or did the corporate earnings of America's 500 largest companies increase by more than 50%? Did the prices of their stocks and bonds jump by more than 50%? Did our national economy grow by more than 50%?

In short, what the hell is going on out there? Something is seriously wrong with this picture.

And it's not just the top 500 business executives, either. Since the advent of Reaganomics in 1980, the percentage of the total American income received by the top percentiles has increased steadily. Notwithstanding the dip in incomes since the Internet bubble burst earlier this decade, according to an economist at the University of California, Berkeley, the percentages of total income received by the most highly compensated Americans has risen to levels comparable to the Roaring Twenties. How bad is it? The top 10% receives of more than 40% of all income; the top 1% gets 15% of all income; the top 0.1% gets 6% of all income; and the top 0.01% gets 2% of all income, or 200 times more than the average American wage-earner!

This gaping disparity in incomes yields two distinct questions. Ethically what, if anything, can the American people and their elected representatives do to diminish them, and even if it is ethical to diminish them, what, if anything, should we do?

To begin, the ethics of "fair market" capitalism (i.e. the regulated "free-market" capitalism that exists in today's industrialized democracies) forbid the placement of some kind of hard or fixed limitation upon the amount of personal compensation that any individual receives. Significant pecuniary rewards are justified for those who take advantage of the opportunities presented to them by the marketplace and in so doing realize significant economic achievements. In a capitalistic environment, those achievements produce economic value, and the reward for the production of economic value is the acquisition of private property. Fixed limitations upon personal remuneration cannot be implemented ethically because corresponding limitations cannot be placed upon personal initiative and accomplishments. Because we are capable of producing virtually anything, we should be capable of earning virtually anything. Placing a fixed cap upon personal income would certainly imply and probably induce the placement of a fixed cap upon personal productivity, which is the antithesis of Americanism. Although Horatio Alger is more of a myth than a reality, he endures as an integral component of the American self-definition.

The reinstatement of the steeply progressive tax rates of Lyndon Johnson's Great Society is not an ethical solution either. Although the taxation of income is ethical, the more progressive the rate of taxation becomes, the less ethical it becomes. The opportunity to acquire personal property exists as a direct result of the stable and secure economic environment created and maintained by our federal government. Therefore, our government is entitled ethically to be compensated for the services it provides, which it receives in the form of personal income taxation. The syllogism is simple: personal remuneration cannot exist without profit; profit cannot exist without a stable and secure marketplace; and a stable and secure marketplace cannot exist without government. Thus, since personal remuneration could not exist without government, income taxation is ethical. Because it is based on the same principle as an income cap, however, the steeper the progression, the less ethical and productive it becomes. Highly progressive individual tax rates might narrow the huge chasm between the incomes of workers and executives, but they also reduce the incentive for personal productivity concomitantly. This ancillary consequence renders them an economically inefficient and counterproductive method of mitigating income disparities.

Conversely, the most fundamental precept of the American government can be summed up in Lord Acton's famous aphorism, "Power tends to corrupt, and absolute power corrupts absolutely." Hence, the founders of the United States created an elaborate system of checks and balances in order to mitigate any dangerous concentrations of political power. Economically, the possession of large amounts of property connotes the possession of cultural power. Since both political and economic power tend to corrupt, it follows that massive accumulations of capital tend to corrupt those who possess them and the economies in which they operate. Thus, although the placement of a fixed cap upon income or steeply progressive tax rates would be contrary to America's economic ethic, placing some kind of check so as to discourage excessively large personal incomes appears to be economically analogous to the political ethos upon which our nation was founded.

If placing some kind of check against dangerous concentrations of economic power represented by excessive incomes is valid ethically, what would be the practical consequences of doing so? In other words, even if we can do it, should we? As socially and economically inefficient allocations of scarce financial resources, massive concentrations of income tend to discourage genuine economic productivity in two ways. First, excessive compensation inefficiently diverts the capital resources of private corporations from more productive applications such as dividends, investment, product research, market development, and employee benefits. Second, it engenders the complacency and arrogance inherent in excessive affluence. The acquisition of property induces productivity; the possession of it induces apathy. Ethics notwithstanding, economic efficiency implies the validity of placing some kind of negative economic pressure upon excessive compensation.

Therefore, we've arrived at an apparent conundrum: if checks upon concentrations of economic power are both ethical and efficient but imposing a fixed limit or a steeply progressive tax rate upon personal income is not, what, if anything, should our government do to reduce the American income gap?

Since our economy relies upon an open labor market to determine the degree of personal remuneration, that same open market must be relied upon to determine a commensurate amount of governmental compensation. When any private organization compensates its employees exorbitantly, despite the adverse effect this compensation has upon the individual recipient, the organization itself and society at large, it implies that the government, by facilitating this compensation, must be entitled to a correspondingly exorbitant amount of remuneration, as well.

Companies are legal fictions created by governments. Unlike people, their very existences would not be possible without governmental assistance. Thus, any economic success that these organizations enjoy that is disbursed to its owners or operators subsequently as extravagant compensation could not occur without the direct cooperation and assistance of government. Since our public institutions share in the responsibility for the economic success of these private organizations, whenever the degree of that success justifies an organization to provide any individual with an excessive amount of personal remuneration, then the government is ethically entitled to an equally excessive amount of public remuneration. Therefore, because the government has provided these private organizations with the public conditions that have enabled them to realize a degree of prosperity that permits luxurious remuneration, it is entirely ethical and appropriate for that government to receive a similar degree of luxurious remuneration, a corporate luxury tax if you will, as compensation for its efforts.

In sum, although the federal government should never discourage excessive individual achievement or the remuneration it implies, it can and must discourage private companies from compensating their owners and employees excessively.

As a result, Congress must enact an Excessive Compensation Assessment (ECA). The ECA would be a graduated, non-deductible surcharge payable by any economic entity that provides any form of personal compensation in excess of $1 million per year, and it would be applied at a rate of 10% per million dollars of income per year. In this way, the ECA would be more similar to the limitations placed upon the personal remuneration of professional baseball players than professional basketball players: it does not institute a fixed salary cap; rather, it imposes a surcharge upon those organizations that compensate their employees lavishly. For example, a corporation might provide its CEO with $8 million in annual compensation for the essential private services that this individual rendered to it. If it did so, it would then also be compelled to provide the federal government with an ECA surcharge of $6.4 million (80% of $8 million) for the essential public services that the government rendered to it. Of course, the ECA would compel corporations to match any annual remuneration in excess of $10 million on a dollar for dollar basis. If the ECA surcharge should increase the cost of conducting business for a corporation, this cost is undoubtedly justified by the increased value that this excessively compensated individual has added to that corporation's productivity.

In conclusion, just as in any uncontrolled market, a laissez faire approach to executive compensation will yield unethical and inefficient concentrations of power inexorably. Concentrations of power that affect a particular industry create monopolies, which is why Congress adopted the Sherman Anti-Trust Act as well as a myriad of other laws designed to preclude the creation of dangerous and inefficient consolidations of economic power. Concentrations of power that affect the personal incomes of the leaders of every industry create aristocracies, which is why Congress must adopt the ECA. Much like the flip side of the same coin, just as a fixed cap on income is the antithesis of Americanism, so too is aristocracy. Successful private companies that choose to compensate their employees generously must extend that same generosity to the public institutions that facilitate these profligate incomes. The ECA will provide the United States government with a commensurate amount of public income for the lavish private remuneration it abets.

Posted by Chuck Hanrahan at September 2, 2005 12:09 PM
Comment #77346

Does anyone know what the salary of the president of United Way is ?

Now, that’s truly disgusting.

A federal judge in New York has ruled that United Way of America must pay the $4.4 million pension of former United Way president William Aramony, who is currently serving a seven-year jail term for defrauding the organization out of more than $1 million, the Washington Post reports.

And, where was the SEC ?
Where was law enforcement ?

I don’t support salary caps, but the huge salaries of upper corporate management is ridiculous, and just one more symptom of a nation in decline; in an era of selfishness, fiscal irresponsibility, complacency, apathy, dependency, and fiscal & moral bankruptcy.

Posted by: d.a.n at September 2, 2005 12:47 PM
Comment #77353

Socialist! ; )

Come on, Chuck — you aren’t going to try to tell me that those CEO’s don’t work 10,000 times harder than any carpenter, plumber, mason, or single mom, are you? They earn every penny, I’m sure!

The problem is that we have a social problem (greed) that’s causing an economic problem (the income gap). You can’t write legislation to correct that (and not just because the legislators are all brothers, brothers-in-law, and second cousins to the CEO’s), you need a change in attitude. We as a culture need to tear ourselves away from the practice of acquisition even though every business and advertising firm will fight us every step of the way. How do we do that? I don’t know. I don’t know if it’s even possible anymore, since we’ve built this house of cards out of work more to have more to work more.
How depressing.

Posted by: Alejo at September 2, 2005 1:02 PM
Comment #77358

So you’d impose a 250% ECA, or $75 million, surcharge to the New York Yankees for Alex Rodriquez’s salary this year. Sounds good to me! But seriously, you can’t surcharge professional athletes’ slaries because they’re only employed for about 10-20 years at the most. They’re increased pay is supposedly meant to sustain them for the rest of their lives.

Your ECA system has its merits though. It sounds similar to the indirect costs that supposed “non-profit” universities and others charge the government (e.g. NIH, NASA, etc.) for administrating grants. For example, Harvard University has something like an 89% indirect cost rate. That means if a scientist is granted $1,000,000 for his/her research the lab gets the million dollars, but Harvard pockets an additional $890,000 for the indirect cost of lab space, electricity, etc. for that time period.

Posted by: JP at September 2, 2005 1:15 PM
Comment #77387

First of all, progressivity of taxation is reasonable. The rich guy and the rich investor gain a lot more from our government than do those on the bottom of the ladder. The vast majority of government executive departments are there to serve the needs of business. People who work for a living get a tiny amount of government help in comparison.

Second, we stress too much business and investment in business. What about people who work for a living? They are at least 100 times more numerous than investors. The corporation can not exist without the efforts of its employees. Why isn’t there an employee representative on the board of directors? This alone would reduce the zooming compensation for CEOs.

Posted by: Paul Siegel at September 2, 2005 2:31 PM
Comment #77401

Come on, Chuck — you aren’t going to try to tell me that those CEO’s don’t work 10,000 times harder than any carpenter, plumber, mason, or single mom, are you? They earn every penny, I’m sure!

At least carpenters, plumbers, and masons guarantee the quality of their work!

Posted by: Bobo at September 2, 2005 3:02 PM
Comment #77408

“At least carpenters, plumbers, and masons guarantee the quality of their work!”

But they still make more money than me! and thats not fair.
I see them rich plumbers driving around in their new trucks while I’m stuck driving my old beat up Vega, thats not fair.
Some of them rich masons get 60+ an hour, I only get 7.25, thats not fair.
I dont owe it to myself to do anything, the GOVT owes it to me and should do it for me.

EVERYBODY should make the exact same amount and never be rewarded for good work.

Posted by: kctim at September 2, 2005 3:13 PM
Comment #77419


Sounds good, Chuck, so long as the money was guaranteed to be used to help all the other people hurt by corporate greed. If it provided workers with lower income taxes, or better benefits, or safer working conditions, or something real, then it would be worth while. Otherwises, all those legislators would just poor that money (and probably more) back into companies to make the “service” worth the expense.

Posted by: Stephanie at September 2, 2005 3:31 PM
Comment #77420

As things are, corporations already “pay” for government services in the form of lobbying and campaign contributions.

Posted by: Stephanie at September 2, 2005 3:33 PM
Comment #77421


Please tell me you’re joking.

Posted by: Stephanie at September 2, 2005 3:34 PM
Comment #77423

I donít like it that CEOs make so much money. I think rock stars are way too well compensated. The amounts of money big guys get paid to play games like basketball and football (which I play for free) is appalling & even smaller guys are in on it. Tiger Woods made $80 million last year. Letís not even get started on movie stars and television personalities. Oprah made $225 million last year. If you consider holidays and vacation time, she essentially makes a million for every workday.

I see the top paid CEO was the head of Yahoo. He got salary and bonus of just over $600,000. It is true that he made a little more than Oprah (230) when you count in stock appreciation, but that is his property. It is a little different than salary. What if the stock price drops?

But none of this is really my business, and itís not yours either. I wish they didnít make so much, but my feeling is based on envy, not much else. If the sharholders don’t think the guy is worth the money, they don’t have to pay. As a stockholder, I can vote against pay raises and as a consumer I can refuse to shop at the Oprah store.

Posted by: jack at September 2, 2005 3:39 PM
Comment #77428

Please tell me you’re joking.

I sure hope he is too, Stephanie, because no one suggested everyone should make the same amount for work done. Tell me, Tim, do you really think anyone does work that’s worth $80 million a year? I’m no socialist, but I also have no love for runaway gluttony.

Posted by: Alejo at September 2, 2005 3:48 PM
Comment #77433


The ECA would mandate dollar for dollar matching on everything over $10 million, so the Yankees would be assessed a surcharge $25,705,117, which is 100% of A-Rod’s 2005 salary. And if George said that he couldn’t afford to pay out two A-Rod sized salaries, I’m afraid that Rodriquez might have to scrape by on only $12,703,558.50. Maybe he clipping coupons would help.

Paul Siegel,

I’d make one slight modification to your first statement:

First of all, progressivity of taxation is reasonable.
I’d put it this way: “First of all, progressivity of taxation is ethical if it is reasonable.”

Generally, I agree with you, however. A box seat should cost more than a seat in the bleachers. A modest amount of progressivity, such as the degree of proression found in the current tax code, is reasonable and therefore eithcal, IMO.

Posted by: Chuck Hanrahan at September 2, 2005 3:55 PM
Comment #77439

“do you really think anyone does work that’s worth $80 million a year?”

Actually, I do not think or care about what another persons work is worth.

“I’m no socialist, but I also have no love for runaway gluttony”

Without envy, gluttony does not exist.

Yes, I was joking. But I do believe our once great country is very close to making it a reality.
The govt has no business in how a private corporation uses its money.

Posted by: kctim at September 2, 2005 4:15 PM
Comment #77448

“I’m no socialist, but I also have no love for runaway gluttony.”

Even Adam Smith endorsed progressive taxation.

Although back then it was progreffive taxation!

Posted by: bobo at September 2, 2005 4:34 PM
Comment #77450


I’m not sure I understand … are you saying that if I don’t envy someone else’s millions then they aren’t gluttonous, or are you saying that if I’m envious it will lead me to be gluttonous? If you’re saying the latter it seems like you’re agreeing with my original assertion.

Posted by: Alejo at September 2, 2005 4:39 PM
Comment #77455

You can have the average annual compensation for let’s say the top 100 corporate executives and Iwill take the average annual compensation for the top 100 entertainers/athletes.

Posted by: steve smith at September 2, 2005 4:53 PM
Comment #77462


If it means getting your support, I’d go so far as to stipulate that every penny goes to the Gifts to Reduce Debt Held by the Public program. You can jump online & give them a couple of bucks yourself, if you want to. So far this year, they’ve collected a little more than $750,000. (Unfortunately $750K doesn’t make too much of a difference when the national debt is $7,929,658,283,890.28 though. Maybe you’ve got a couple of billion to spare.)

jack & kctim,

Guess my point about aristocracies was lost on you guys. Guess my point about not telling any company what they can or should pay any of their employees slipped by you, as well.

Got a couple of questions, though.

* Want to bring back monopolies and oligopolies? Where’s the Sugar Trust when you need it, right?

* How about child labor? After all, if it’s my company, it’s none of your damn business who I hire or how old they are.

* How do you feel about NLRB? It’s none of your business if I fire or intimidate anybody who tries to organize my workforce, is it?

* While we’re at it, should we get rid of OSHA, too? I mean it’s none of your business if I force my employees to work in dangerous or unhealthful conditions.

* Now that we’re on a roll, how do you feel about the Pure Food and Drug Act? After all, if I make my customers sick by throwing a couple of rats into the meat grinder, it’s my company & it’s none of your business how I make my hot dogs, right?

* You know what? I think I just had a brainstorm. I’ll get into the heroin business. After all, it’s none of your business what my company makes, is it? The marketplace will take care of itself, right? If I kill all of my customers, I’ll be out business soon enough, won’t I? All hail the self-correcting market. Maybe I’ll get started by selling a couple of nickel bags to your kids. Shouldn’t be any laws against that, should there? Want to invest?

The point I’m driving at, of course, is that the ECA has nothing whatsoever to do with envy. Would I like to own a monopoly? Hell, yes I would! Should monopolies be legal? Hell, no they shouldn’t! It’s the same way with excessive salaries. They’re my business, your business, and everybody’s business.

In an ostensibly classless society, we’re quickly creating an affluent aristocracy whose connection with the day to day lives of the average American is becoming more and more tenuous. I think that that’s wrong. I think that that’s bad for our democracy and our economy.

Now, you can agree with that opinion or you can disagree with it, but please don’t insult me by telling me that’s it’s none of my business how much these avaricious greed-heads earn if their gluttony is hurting the economy I depend upon for my livelihood and the country that I love.

PS kctim: What the hell does “Without envy, gluttony does not exist” mean?

Posted by: Chuck Hanrahan at September 2, 2005 5:05 PM
Comment #77468

This is good. By monopolizing the posting arena nobody can post the standard Bush bashing stuff and, we get a break from the hurricane criticisms.

Posted by: steve smith at September 2, 2005 5:20 PM
Comment #77471

Am I the only one here that thinks that the CEO’s outrageous salary makes the product more expensive?

That cutting jobs because the stock holders aren’t making enough money, then turning around and raising the CEO’s salary is hypocritical?

One has to wonder what a billionaire’s lifestyle would be on just 1 billion insted of 2, how rough would that really be?

Posted by: Rocky at September 2, 2005 5:23 PM
Comment #77475

It means exactly what it says.
A person can only have too much, if others believe he has too much and desire what he has.
How much a person makes or how much money he needs to live his life the way he wants, is of no concern to me and should be of no concern to you.

Since you took the time and I thank you for doing so:
“it’s none of your damn business who I hire or how old they are”
- Nope

“It’s none of your business if I fire or intimidate anybody who tries to organize my workforce, is it?”
-Nope, but hey, I believe unions suck.

“I mean it’s none of your business if I force my employees to work in dangerous or unhealthful conditions”
-Not really. If you want to pay somebody $5 to wait tables in a bar that allows smoking and they accept that offer, more power to you.

“it’s my company & it’s none of your business how I make my hot dogs, right?”
-Right. But if you make too many people sick, you’ll loose money.

“I’ll get into the heroin business. After all, it’s none of your business what my company makes, is it?”
-Since I’m not a big fan of the drug war, I’d have to say good luck with that one. I’d just say that if you target kids to make your point that you won’t be in business long. Not all of us sit back and let the govt think for them. Market correction for this type of business would be extreme. But good luck with that.

“It’s the same way with excessive salaries. They’re my business, your business, and everybody’s business”
-Not mine. I don’t envy them.
Sorry to insult your intelligence, but your green is a pretty bright shade.

Posted by: kctim at September 2, 2005 5:51 PM
Comment #77476


No, you’re not the only one who realizes those things. I guess I figured they were just too obvious to mention. Then again, you’re probably right that some people just don’t get it.

Though, that is part of what I meant about helping the workers.

Posted by: Stephanie at September 2, 2005 5:53 PM
Comment #77477

“Am I the only one here that thinks that the CEO’s outrageous salary makes the product more expensive?”

I doubt it Rocky, I bet many people believe that.
Its only fair to say that to IMO. Just as forcing companies to pay their workers more per hour does the exact same thing.
Do what I do, go to the next product that isn’t as expensive.
Its your right to spend your money how you want.

Posted by: kctim at September 2, 2005 5:56 PM
Comment #77478


While that may get my support, that’s not exactly what I meant. And, right now I’m strapped and looking for work since my husband is unable…you’re hope for a few billion from me was ill-placed.

My point was more to the effect that, as things stand now, even if that got passed that money would be funneled right back into specialties for businesses, when they already get more than they need.

Posted by: Stephanie at September 2, 2005 5:57 PM
Comment #77481


The reason I think it’s my business how much these people make is because they use their money and their company’s money to buy the government from the rest of us, which then the government gives them special treatment to increase profits or decrease spending, which means increased profits.

The word is C-O-R-R-U-P-T-I-O-N!!!

As wide spread as it is in America, I sincerely believe it’s going to lead us into another civil war. And, I’d really rather we avoided that by cutting it out of our system.

Posted by: Stephanie at September 2, 2005 6:01 PM
Comment #77489

kctim —-

I’d forgotten you were a libertarian. My girlfriend is too, and we have had the same debate over and over, which is that while I think libertarianism sounds good, I think if there were a real-world example it would have failed the same way communism did.

The problem is that both ideals rely on the essential goodness of human nature which, while it does exist, is in short supply for many. For example, in your world companies wouldn’t be held accountable by the EPA, so people wouldn’t know who was polluting or poisoning or just generally pissing in the Wheaties. Sure, there could still be private companies who could do emissions testing and so forth, but who would pay them? — And how would you know, if you did pay them, that they weren’t also on the payroll of the company you asked them to investigate, since there would be no law stopping them from doing so?

Nah, libertarianism isn’t the way either. We get f***ed by the corporations as it is, we don’t need to make it easier for them.

Posted by: Alejo at September 2, 2005 6:16 PM
Comment #77499


Your arguments are non sequitur. I believe in the free market. Therefore I oppose monopoly. I observe, however, that few monopolies can long endure without the connivance of government officials. I have also never written here against government regulations, except when they become excessive. I donít oppose those you mention.

As I said, I donít like it that people are paid that much. But the solution is that the government can confiscate property is worse. Some of these guys made money with their ownership of stocks. Others (the sports and Oprah) made theirs through endorsements. How are you going to get at this wealth? If the government punishes obscene profits, does it compensate from obscene losses?

What about the littler guys? Where do you stop? I bought a home a couple of years ago. It has nearly tripled in price. Many people donít think it is worth that much and I did nothing to earn that money. Should the government demand that I sell it for less?

The metaphor for what you are trying to do is the road to serfdom. By putting such power in the hands of government, you would be achieving the opposite of what you want. When government holds the power, you get hereditary aristocracies. In free markets, you donít. That has been our experience. It is messy all the time and it never seems to work, but it does. The Paris Hiltons of this world manage to piss away their money. We despise them and are fascinated by their antics, but without the force of government to protect them, they are superceded by the next group of rich guys. Look at the big name families of a generation ago. Not many are in the top 25. And as your stats pointed out in an earlier posts. ALL the top ten richest people in the U.S. can trace their wealth to some time after 1955. That is not much of a hereditary aristocracy.

Interestingly - the ones that have been able to maintain thier wealth best were those who went into politics - like the Kennedys. BTW - does anybody know what they do to earn their money?

Posted by: jack at September 2, 2005 6:34 PM
Comment #77502


Kind of hard to argue with someone who advocates bringing back child labor. I’d ask you what you thought about bringing back racial slavery, but I’m afraid of what your answer might be.

Oh, by the way, gluttony has absolutely nothing to do with envy. It has as much to do with envy as it does with lust, sloth or any of the other seven deadly sins.

BTW, perhaps the green you see in me is from my Irishness, not envy.

Posted by: Chuck Hanrahan at September 2, 2005 6:38 PM
Comment #77531


If you believe in a “free” market, how can you, with any logical consistency, oppose monopolies? If some market regulation is unethical (not “good” or “bad”, but unethical), why isn’t every market regualtion?

Don’t you understand that “free market” and “government regulation” are mutually exclusive terms. The minute you start regulating the market, it goes from “free” to “fair”, or at least what a majority of the regulators consider to be fair.

How do you feel about income taxes (besides your obvious contention that they’re too high, of course.) Do you think that the government has a right to collect them. If not, why not? If so, why?

My proposal would have nothing whatsoever to do with selling your house. It only pertains to income from corporations, partnerships, etc.

“The ECA would be a graduated, non-deductible surcharge payable by any economic entity that provides any form of personal compensation in excess of $1 million per year… .”

No hereditary aristocracies in free markets? Are you kidding? Free markets created aristocracies. Inheritence was invented to keep the sons of the nobility from killing each other after the death of the lord. Before free markets (in pre-capitalist economies) inheritence was unnecessary because concentrations of wealth did not exist. Unless governmental power is inherited, as it is in monarchies such as Saudi Arabia, hereditary aristocracy is the ultimate rationale for the very existence of captialism. It’s the reason inheritence exists: since you can’t take it with you, you want to give it to your kids.

And if you don’t believe me, why don’t you go ask Arthur Sulzberger? His family has owned and operated The New York Times for over 150 years now. He’ll be able to fill you in on the relationship between capitalism and aristocracy.

Posted by: Chuck Hanrahan at September 2, 2005 7:14 PM
Comment #77562


One other thought.

Like many on the right, you confuse “free” markets with “competitive” markets.

Think of it as a football game. Football games have rules or “regulations”. Hence, the teams are “free” to compete within the rules; they’re not “free” to do whatever they want to do. They have liberty, not freedom.

The definition of freedom is “absolutely unencumbered.” Liberty is regulated freedom. That’s why I can be prevented from stealing your car or burning down your house or cheating on my taxes (thereby having my “freedom” constricted) and still have my liberty. I’m free to conduct myself within the parameters of what the majority considers to be socially acceptable behavior.

If you oppose monopolies, you have to support some kind of market regulation ipso facto. Otherwise you’d contend, like kctim, that I should be “free” to monopolize a market. If that is so, as it must be, then we simply disagree on what regulations are reasonable and whether or not my proposal is fair and/or beneficial to our economy and our society.

Posted by: Chuck Hanrahan at September 2, 2005 8:09 PM
Comment #77564


We have a problem with the definition of free market.

A completely free market had never existed and does not exist today. I am practical, not theoretical. But what approaches a free market began to come into existence about 200 years ago. Until that time, the state controlled (or tried to control) every economic activity. You had to get permission from the authorities for any activity. Governments set ďfair pricesĒ and ďfair returnsĒ on investments. In many cases there were rules governing peopleís choice of profession. And government granted monopolies and trading rights. Sometimes governments lacked the power in practice to enforce these rights, but those who traded without government permission were outlaws.

There were plenty of hereditary aristocrats around during these times. There just wasnít much wealth. Everybody was poor by our standards. None of us would trade places with the richest man in the world in 1600 if we had to live with the medical, heating, sanitation etc that he endured. Those palaces were pleasant to look at, but not so nice to live in.

When Adam Smith published the Wealth of Nations in 1776, he was describing a system that was emerging. Smith is not the father of capitalism in any way similar to Marx being the father of communism and the free market does not have a strong theoretical basis. Socialism and communism work a lot better in theory. The free market has the virtue of working in practice.

A place like Saudi is nothing like a free market. Do you think you can just open a business there? Can you buy and sell without government permission? Are you free to invest in the local industries? What chance does someone have of making or keeping money if he doesn’t have government connections? Having piles of money does not a free market make.

Re monopolies Ė with few exceptions, you can’t maintain a monopoly without government help. If government remains neutral in enforcing contracts and preventing coercion competition returns. There are some cases when government action is required to break a monopoly, but those cases are not as common as we are led to believe. The government spent a decade going after IBM. By the time the case was decided, IBM had lost its ďmonopolyĒ status because of changing technologies.

Re income taxes Ė the government has the right to levy what taxes it thinks fit. We render onto Caesar that which is Caesarís. The problem is that when taxes are too high or misplaced they hinder economic growth and innovation. The highest paid guy on your list got his money from Yahoo. If you confiscate his money, he will not be able to invest. Government bureaucrats make really bad business people. Thatís why they have the jobs they do. The rich already pay most of the taxes, as well they should. But I donít want the government to take all their wealth.

Your idea about taxing would not get the big guys you are after. Our Yahoo guy only made about $600,000 in salary. The rest came from his appreciated stock, not from the “entity”. Oprah doesnít work for anybody at all. You wouldnít get at any of her $225 million. You might be able to tax some of Tiger Woodís money, but Mel Gibson evidently made about $250 million on the Passion. That is not income from one entity.

It is interesting that you mention the owners of the NYT as hereditary aristocrats. So are the owners of the Washington Post. The Kennedy, Kerrys and this generation of Rockefellers are all living off dead ancestors. It seems that inherited wealth makes you liberal. Maybe we should tax it away.

Posted by: jack at September 2, 2005 8:10 PM
Comment #77606


Do you think it is appropriate for the wealthy few to BUY government support with campaign contributions and lobbying? IMO, that is what happens now. I don’t think it is at all appropriate. If this program were to insure that they fairly bought it with actual tax money AND didn’t get any more specialty benefits, then I would be content with that.

As I understand what Chuck is suggesting (correct me if I’m wrong), it’s not for the government to tax the PEOPLE making these big bucks, who’s ingenuity supposedly made them worth so much, it’s taxing the CORPORATIONS who pay them this much. There is a difference there.

Posted by: Stephanie at September 2, 2005 10:35 PM
Comment #77613

The corporation is a transfer point. Taxing business is essentially a sales tax. That may or may not be a bad thing, but taxing firms is not a free lunch.

Posted by: jack at September 2, 2005 11:04 PM
Comment #77618


Yes, you’re right. I propose taxing corporate largess, not personal initiative.


Hard to know where to begin.

Of course free markets existed. Where do you tink the phrase “world’s oldest profession” comes from? You’re trying, or at least I think you’re trying, do discuss feudalism. The government, such as it was, didn’t control anything. The Lord did. No one controlled prices, the person who controlled the market was “free” to gouge or not, as he saw fit. The rules governing occupations were set by the nobility, not the government, and it’s a fair (i.e. regulated and controlled market) not a free market that has the “virtue of working in practice.” Free markets engender consolidations of wealth and the exploitation of labor and natural resources inexorably. Fair markets engender competition and productivity.

Why do you think that governments are a necessary precondition for monolpolies? History tells us that the exact opposite is true. Although some charter monopolies did exist, they were quasi-governemental in nature, such as the Hudson Bay Company. The vast majority had nothing whatsoever to do with government. They were created by businessmen who had the vision and the means to control a market, usually in opposition to governmental regulation, hence the various American trusts in rail transportation, oil, steel, etc.

Finally, I don’t want to confiscate the money from the CEO of Yahoo. I don’t want to confiscate anybody’s income. I just think that if Yahoo thinks that his efforts are worth $X millions, so are the government’s efforts. And if Harpo Productions pays Oprah $225 million, it should be free to do so. But if it does, it should pay the government $225 million, too. Without governmental services, such as the restrictive lisencing of televison stations, Oprah wouldn’t have made anything last year.

Lastly, I couldn’t care less if the aristocrats affected are liberals or conservatives. Aristocracy is aristocracy, and in a democracy it’s wrong.

Posted by: Chuck Hanrahan at September 2, 2005 11:26 PM
Comment #77633

I was describing all systems before the free market. I donít deal in ideals. What we called feudalism existed in a variety of different forms at different times and different places. It was usually not well organized or centrally controlled. It doesnít take away from the fact that whoever was the strongest local authority (what passed for government) tried his best to control and regulate local enterprise. You can’t imagine a stranger coming into town, paying a small fee and being able to run his business according to the laws of supply and demand.

I think you make distinctions two strongly as when you say that regulation and free markets are incompatible. In the real world things mix freely. The key to the free market is that we use market forces.

Let me build on your point about governments and monopolies. You are right, but you are making the wrong point. A government IS a giant monopoly. It demands a monopoly on coercion. It is hard to tell whether in the beginning monopolies developed into governments or governments developed into monopolies. I suppose the line of causality was unclear as it is today.

Our U.S. governments are generally fairly benign. Most governments throughout history have not been so.

Maybe it took a minimum amount of wealth to allow the diverse and competing power centers of private and public enterprise, but we didnít have any examples of this before around 200 years ago.

Finally returning to your confiscatory tax, you say, ďif Yahoo thinks that his efforts are worth $X millions, so are the government’s efforts. And if Harpo Productions pays Oprah $225 million, it should be free to do so. But if it does, it should pay the government $225 million, tooĒ

So Harpo decides that such as high tax is not justified. It stops paying Oprah or pays her less than whatever maximum you decide. Where does that money go? It stays in Harpo enterprises, where it either is paid out in dividends or reinvested where it raises the stock price. And who owns most of the stock? Money is fungible. To get at your targets, you would eventually have to tax the firms. But if you take too much of their profit, they will stop making new things. I donít know how much you follow business, but firms often make big profits one year and suffer big losses the next. How fast would you drive them out of business? Yes, this sounds a lot like feudalism.

Posted by: jack at September 3, 2005 1:11 AM
Comment #77683

I’m probably more of a Repub/Libertarian mutt. Everybody on here seems to think I’m a conservative, so I don’t know where the hell I fit in.
While you don’t believe a Libertarian govt could never work if given the chance, you must remember that socialism has been given a chance, is not working and never has worked. (not suggesting you are pro socialism either my friend, just a statement about it)

“gluttony has absolutely nothing to do with envy”

Then how do you know if a person has or wants more than they need? There has to be a way to determine that.
Good spin on the child and race slavery, way to add that in there. Too bad its become such common practice to label people who disagree as such or it may of bothered me some.

”* How about child labor? After all, if it’s my company, it’s none of your damn business who I hire or how old they are”

Lets see, a single mother has 5 kids and I own a deli. She works hard and barely makes it. I hire her 9 and 10 year olds to sweep, clean glass and stuff but only pay them $2 an hour.
Now what business is it of yours or the govt if I am helping this family out or not?

An extreme example? Not anymore extreme than your solutions of govt is the answer for all and the govt should redistribute the peoples wealth.

Posted by: kctim at September 3, 2005 11:23 AM
Comment #77725

Interesting idea, Chuck.

To get at your targets, you would eventually have to tax the firms.

I don’t think so, Jack. Stocks are usually treated as income. And really, it doesn’t sound like Chuck has a “target”, just a goal: shrink the income gap.

Discouraging excessive compensation, rather than explicitly regulating it sounds like a good compromise.

Posted by: American Pundit at September 3, 2005 2:01 PM
Comment #77744


“Discouraging excessive compensation, rather than explicitly regulating it sounds like a good compromise.”

Wow, we actually agree on something, I’m speechless… ;-)

Posted by: Stephanie at September 3, 2005 3:04 PM
Comment #77748


“I’m probably more of a Repub/Libertarian mutt. Everybody on here seems to think I’m a conservative, so I don’t know where the hell I fit in.”

You’re you, you’re special and the fact that you defy convenient labeling isn’t something to be down about, it makes your commentary especially interesting. Keep it up!

Posted by: Stephanie at September 3, 2005 3:09 PM
Comment #77749


“Stocks are usually treated as income.”

How exactly does that work? I’ve never owned stocks and have no money to buy any now, so the headache of going through the taxation process hasn’t been worth it to me, but if you could give me a simplified version of the stock taxation process I’d appreciate it.

Posted by: Stephanie at September 3, 2005 3:11 PM
Comment #77807


Stocks are not treated like income. They are investments. There are different tax rates for investments you hold for a long term v those you hold for a short time. This is to discourage gamnbling in the market (it doesn’t often work)

You can make money from stocks either from the dividends that most stock pay out every three months (usually less than 3% you can get at banks) or when the stock goes up in value. You are taxed when you get the money. So if you own stock A that pays a 10% dividend, you are taxed on it that year. If you own stock B that pays no dividend but increases in value by 10%, you have no income so you pay no tax Ė just like you donít pay taxes on the appreciation of your home (or jewelry etc) each year. Most investor prefer not to pay taxes. That is why many firms pay low or no dividends. Growing firms, of course, are using all the money they can to grow and they can’t afford to pay dividends. And of course, some firms are actually losing money.

The price of the stock reflects what the market thinks the firm will be worth in the future. There is nothing magic about this price and it changes every day. The riskier the stock (i.e. if it can lose money or go out of business) the better chance you have of making big money. Of course the greater chance of losing it all.

You should never own only one stock, because it may lose money, no matter how good it is. You have to diversify by buying a variety of stocks that are not closely related. If you have own ten different oil companies, you do not have a diversified group. If you own an Exxon, Wal-Mart, Citibank etc you do have diversity. You also want to have some foreign stocks in your portfolio for even greater diversity. You probably need at least 20 different stocks worth about 100K to have a diversified portfolio. Most people can’t afford this, so they buy mutual funds, where you own a share of a diversified portfolio that somebody else manages for you.

Anyway. If Bill Gates holds a billion dollars of Microsoft stock and if it goes to 2 billion, he pays no taxes until he sells it. This is the flaw (among others) in Chuckís tax program. We can’t tax until he sells. And you can’t tax the supposed value because you donít know what it is. Beyond that, stocks go up and down. Would the government GIVE people money in years the stock went down? Finally it would be different than other assets. I own a forest. I expect it will be worth four or five times as much when the trees are big. But it produces no income now. In fact it costs me money. There is a difference between having cash and having income, in other words. You can go broke while making piles of money on paper.

Sorry to write too much. Stocks are not as hard as people think. A person who buys a diversified portfolio and holds onto it for at least five years has always made money. Those that try to buy and sell all the time often end up with holes in their shoes.

Posted by: jack at September 3, 2005 5:43 PM
Comment #77813


So, people don’t get taxed for holding stock (which is kind of like saving money, and kind of like investing, but is really somewhere in between), but they do get taxed for dividends and for selling stock. Is that what you’re saying?

BTW, trees seem like a good way to go for many reasons. Good luck with that.

Posted by: Stephanie at September 3, 2005 6:23 PM
Comment #77828

The best way to think of a stock that you hold long term is my forest analogy. Saving and investment are different. Saving implies what the word says. You pu away some money to have it later. You might get a small return too. Investing is when you buy something in hopes of making money either on appreciation or on whatever returns it produces. A stock is just a part ownership in a firm to presumably produces a profit and you get a share of that according to how much you own.

Of course many people buy and sell all the time. What they are doing is closer to gambling, but since stocks generally go up they have a better chance of winning than losing. I donít do this kind of thing and I donít think anyone should unless they are really ready to do the research and they can stand the losses.

Uncle Sam doesnít get a cut until you make actual money, not potential money. Those that buy and sell have to pay higher fees and taxes because they generate cash. Take the example of two guys. One buys and sells all year and at the end he has 10% more money. He owes tax on that. Another guy holds onto his stocks and they get to worth 10% more. He pays no tax that year. Of course, he will eventually sell and he owes at that time.

Re the forest Ė this in my last project, the one for my old age. I can’t lose on the trees. Even if they make no money at all, I really like having them. I am reestablishing a cattail wetland and some rain gardens. I am also replanting along my creeks. It is really fun to watch it all come in. I have 140 acres of pine plantation and 36 acres of hardwoods near the creeks. The hardwoods have not been cut since 1956 and I have no plans ever to cut them, except for managment cuts. The little pines are a joy to watch. They are ďsuperĒ loblolly pines that grow 30% faster than their normal cousins.

Posted by: jack at September 3, 2005 7:26 PM
Comment #77839
Second, we stress too much business and investment in business. What about people who work for a living? They are at least 100 times more numerous than investors. The corporation can not exist without the efforts of its employees…-Posted by: Paul Siegel at September 2, 2005 02:31 PM

Ah, but if the employees are not American citizens and not on American soil ..

Best of both worlds, American name and market and corporate benefits with cheap docile NON-American work force.

Buy American … or is it Buy America

Posted by: jo at September 3, 2005 7:59 PM
Comment #77842


Re: stocks

Do you pay taxes when you sell them (and make a profit) or at the end of the year with all other earnings?

Posted by: Stephanie at September 3, 2005 8:10 PM
Comment #77881


You have no stock earnings until you sell, so you pay no taxes. Whenever you sell (AND make a profit) you pay taxes.

In some years (like 2000 and 2001) you can lose money. You also canít claim losses until or unless you sell. But if you sell a stock for less than you paid, you can deduct that loss on your taxes.

It is different for mutual funds. The mutual fund is buying and selling over the year. It might make capital gains from sales and have to declare them. That is a disadvantage of mutual funds. You donít get to choose when to pay taxes.

Posted by: jack at September 3, 2005 10:24 PM
Comment #77883
This is the flaw (among others) in Chuck’s tax program. We can’t tax until he sells. And you can’t tax the supposed value because you don’t know what it is.

I hope Chuck will jump in here and defend his position, but you don’t get it because you’re thinking about this in terms of taxes, rather than a market-based regulator on excessive compensation.

Stocks are widely recognized as compensation, and it would be easy to put a value on them at their rate on the date of issuance.

Again, the idea isn’t to extract taxes from corporations, it’s to discourage excessive compensation of CEOs.

If you believe excessive CEO salaries are a bad thing, Chuck’s plan sounds like a good market-based solution.

Posted by: American Pundit at September 3, 2005 10:36 PM
Comment #77885


I think I’ll stick to “real estate.” I only have the one house, but it’s “made” $20,000 with only $10,000 worth of work in two years. Since I get to live here too, I think it’s a deal! ;-)

Posted by: Stephanie at September 3, 2005 10:40 PM
Comment #77888


As I’ve proved, I don’t know much about stocks, but explain…

“Stocks are widely recognized as compensation, and it would be easy to put a value on them at their rate on the date of issuance.”


Would the government get money, or a percentage of the stocks?

Posted by: Stephanie at September 3, 2005 10:43 PM
Comment #77898

Chuck could probably answer better, but from reading his article, the corporation would pay the government a penalty for excessively compensating its CEO.

Jack made the point that the corporation would just give the CEO stock instead of cash, but that’s not really an effective shelter since stock is tracked and has a monetary value. It could easily be counted as salary.

Posted by: American Pundit at September 3, 2005 11:21 PM
Comment #77899

Umm… The government would get money.

Posted by: American Pundit at September 3, 2005 11:21 PM
Comment #77903


It is still unworkable.

Most of those guys with the really big fortunes were compensated with stock before the stock had much or any market value.

I start a firm. It is doing well but I have no cash. I want you to work for me. I offer stock. The book values of the stock (my actual assets) is very low. We are not trading publicly yet. You think this is not a serious scenario, but think of Google

You would be putting the government into the business of management and government is really bad at that.


Real estate is the basis of a lot of prosperity. Choose the investment that works for you and that you feel comfortable with.

Posted by: jack at September 3, 2005 11:50 PM
Comment #77912


“Umm… The government would get money.”

I kind of figured, but that gets into the category of separate but equal…and well, that didn’t go over too well the last time. Granted, this is money, but I could imagine the Supreme Court case.

Speaking of the Supreme Court, does everyone realize Chief Justice Rehnquist has passed on?

Posted by: Stephanie at September 4, 2005 1:52 AM
Comment #77913


Well, right now my real estate portfolio consists of my house, so I’m pretty sure I’m safe with that one.

Posted by: Stephanie at September 4, 2005 1:53 AM
Comment #77954

Well, Jack. I’m not convinced its even necessary, so I’m not going to argue any more over whether it’s doable. I’ll let Chuck handle it from here on out. :)

Posted by: American Pundit at September 4, 2005 9:23 AM
Comment #314289

These CEO’s are making a ridiculous amount of money and their compensation goes up every single year.

Posted by: Richey paul at November 30, 2010 7:42 PM
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