Asking for higher taxes
I saw a great op-ed in the New York Times last week by Reed Hastings, the CEO of Netflix. It’s called “Please Raise My Taxes.” He proposes that government regulators should form a new tax bracket, taking 50% of salaries above one million dollars, rather than follow President Obama’s proposal of capping executives’ salaries at $500,000. I think this idea makes a whole lot of sense.
A salary cap sounds good, but it’s not actually helpful. Another NYT article recently pointed out that given the cost of living in Manhattan and the pressures of social expectations, it would actually put some families at the point of “selling their home in a fire sale,” despite how weird that seems. Of course, if all those salaries were capped, social expectations would change, and this isn’t the real problem. However, this salary cap would only apply to companies supported under TARP, and there are plenty out there that aren’t. All these highly-paid executives are extremely capable of finding other jobs when their current ones are suddenly a lot less high-paying. Offering high salaries is the way companies compete for the best CEOs. If you can’t pay at least as much as the other guys, you haven’t got a chance of getting top-notch management. It’s not good for the public’s investment to set these corporations up to fail, but that’s what salary caps are ultimately doing.
The higher tax bracket, on the other hand, gets plenty of benefits, but none of those harms. It allows companies to offer varying salaries to compete with each other. Additionally, this rule applies broadly to anyone making over a million dollars — whether their company is TARP-supported or not, whether they’re a CEO or a movie star or an athlete or a plumber named Joe. After all, it’s easy to make CEOs out to be the bad guys, but that’s not fair. People are generally paid according to how valuable their work is, and surely the head of a major investment bank is at least as valuable as the star of “Confessions of a Shopaholic.” Finally, of course, we have to remember that the government needs to be taking in more revenue somehow. That’s the main reason this nearly-trillion-dollar bailout is so terrifying: we were already $10 trillion in debt. The cap is more like scapegoating, blaming CEOs for being too greedy and decreeing how much they deserve to make. The tax increase actually addresses the underlying problem and increases government revenue. This is exactly where taxes ought to be raised if they have to be, because the marginal utility of money is much lower for the outrageously wealthy.
I think there are lots of good reasons to listen to Hastings’ proposal. But seriously, when someone’s begging the government to raise their taxes… that in itself is a pretty good indicator that there’s a solid case behind it.
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2 Responses to “Asking for higher taxes”
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It’s an interesting solution, but is it a fair one?
What I think would happen if this were implemented:
- The salaries & bonuses this is meant to address will simply be converted to perks of some kind that are not taxable.
- The tax laws would not be able to discriminate between the bloated salary of a wall street executive and the small business owner who does well one year out of five.
- The middle class will again take the hit when they do not have the resources to “work the system” and take advantage of the loopholes.
I fail to see the fairness in forcing someone to bear more of the burden simply because they can (assuming all who qualify can). Regarding salary caps, I agree completely with your points and it is certainly not the government’s business to dictate salaries except where the company is using government funds to pay them. However, the TARP money is not “normal business”, so I hope that rules in place for it do not set precedents.
“Of course, if all those salaries were capped, social expectations would change, and this isn’t the real problem.”
I don’t think I agree with you here. I think that culture is the problem. I cannot fathom why top execs of failing companies are paid bonuses for their failures; every company that I worked for in my past career (I’m in academics now) only gave bonuses for success. Yet now it seems to be expected as part of their base salary rather than performance-based and anyone who knowingly invests in a company with these policies accepts them.
I think there is a fair way to distribute the tax burden that ensures that virtually nobody “feels the pain” disproportionately: sales tax.
Similar to the “luxury tax”, the more expensive an item, the higher the percentage of sales tax. Currently, we have no federal sales tax, so this is an untapped resource.
What about a flat “fee” on items over a specific dollar amount, say $1K? They could exclude cars & homes & perhaps a few other things. Even a 5$ per item “surcharge” would generate quite a bit of income.
The added bonus of taxing higher priced items is that the additional cost would be negligible.
Just some thoughts…
The “perks” loophole problem applies just as much to a salary cap, and really those perks are just as taxable as salary, though it’s harder to enforce.
Your other complaints I don’t really buy. Yeah, it’d be better if your tax bracket was determined by a rolling average of the last five years or something like that, but for simplicity we don’t do it. Small businesses don’t have profits that oscillate by millions of dollars year to year. (Those with oscillations that big aren’t small by any normal definition.)
Also, how on earth would this hurt the middle class? Sure, they can’t hire the expensive accountant to minimize what they pay perfectly, but it doesn’t matter because the tax doesn’t apply to them.
Do you support progressive taxation in general?
Sales taxes are not nearly as great as you think, but it’s too complicated an issue to get into here. Maybe I’ll write a post on it soon.