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.

February 14, 2009 · Written by
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