The budget battles

[Winstonm]

No wonder some folks believe claims that the wealthy in the US carry more than their share of the tax burden. Seems that many do not know how skewed the distribution of wealth here actually is:

 

http://assets.motherjones.com/politics/2011/inequality-page25_actualdistribwithlegend.png

 

You can read the paper upon which this chart is based here.

 

This information allows us to explain why of total taxes collected it is the wealthy who contribute the most.

 

15% X Gazillions > 28% X air.

[PassedOut]

The irrational ballooning of executive pay in the US is one reason for the erosion of the middle class: Where the women are strong, the men are good looking, and all the CEOs are above average:

 

Few if any corporate boards consider their executive teams to be below average, so the result has become known as the Lake Wobegon effect.

 

It wasnt until recently, however, that its pervasiveness and impact on executive pay became clear. Companies have long hid the way they set executive pay, but in late 2006, the Securities and Exchange Commission began compelling companies to disclose the specifics of how they use peer groups to determine executive pay.

 

Since then, researchers have found that about 90 percent of major U.S. companies expressly set their executive pay targets at or above the median of their peer group. This creates just the kinds of circumstances that drive pay upward.

Business lobbyists contend that the way to fix the problem is to take away the SECs power to compel disclosure. But a better way would be to increase the progressivity of income tax rates.

[mike777]

I am not sure why if the owners of a company want to overpay the CEO it hurts the middle class. I mean it is the owners money. If they want to play the fool they wont be owners for very long.

 

 

I would hate to tax the head of GM more and then just turn around and send the money back to the company...that just sounds silly.

[hrothgar]

FWIW, I whole heartedly concur that CEOs are dramatically over paid. I think that there are a small number of CEOs that are worth rock star salaries. (Steve Jobs would probably be at the top of that list)

 

With this said and done, I think that this is largely symbolic. If I look at revenue for company XYZ, I might find the CEO's salary deplorable and the ratio between the CEO and the average worker more so. However, I doubt that there is a direct effect between holding down the CEO's wages and boosting for the average workers.

 

From my perspective, the real issue isn't so much the size of the compensation package but rather the nature of the compensation.

I'd argue that things would be a lot better if the bulk of CEO pay consisted of highly illiquid long term options.

[mike777]

What I love is washington accounting. An actual increase in spending can often be called a budget cut and reduction in spending. This way we can spend alot more and be frugal and cutting the budget, saving money at the same time.

 

Congress can force the CBO to assume all kinds of crazy accounting stunts and then turn around and call the CBO the gold standard when it comes to issues on budget accounting.

[luke warm]

The irrational ballooning of executive pay in the US is one reason for the erosion of the middle class:

i don't know anything about your business, but let's assume you have a ceo, cfo, and a board of directors... is it your position that the gov't should tell you (or your stockholders) how much to pay them?

[PassedOut]

i don't know anything about your business, but let's assume you have a ceo, cfo, and a board of directors... is it your position that the gov't should tell you (or your stockholders) how much to pay them?

We do have a corporation, privately held, so we don't have to meet the quarterly expectations of analysts nor make filings with the SEC. We do, of course, have corporate officers and a board, and we do have to meet the requirements of the IRS. As with any business, we take careful account of the tax laws to make sure that we pay no more and no less than we legally owe.

 

I'm not aware of any suggestion that the government should dictate actual compensation amounts rather than adjusting tax rates, so I'm not sure exactly what you have in mind. If your idea is to set a maximum spread between the lowest salary and the CEO's compensation, it might be workable. If that is your idea, what spread do you think would be reasonable?

[awm]

In general the federal government shouldn't interfere with how much private companies pay their executives.

 

With that said: (1) The pay rate of publicly traded company executives should be public information, and shareholders should be able to vote yes or no on any proposed raise. (2) It is reasonable for the government to place restrictions on executive pay at companies which receive large federal loans or bail-outs until that money is repaid. After all, we don't want taxpayer money going directly into the pockets of super-rich CEOs.

[mike777]

In general the federal government shouldn't interfere with how much private companies pay their executives.

 

With that said: (1) The pay rate of publicly traded company executives should be public information, and shareholders should be able to vote yes or no on any proposed raise. (2) It is reasonable for the government to place restrictions on executive pay at companies which receive large federal loans or bail-outs until that money is repaid. After all, we don't want taxpayer money going directly into the pockets of super-rich CEOs.

 

 

 

1) fed bailouts may very well mean the govt gets a vote in these matters...yes.

2) as to the second issue, you cant have shareholders vote on everything...that is for BOD. I am in favor of public information

 

 

btw the word payrate can be a very very confusing issue, we are not just talking about a basic salary here.

 

 

But for decades I have said that BOd are horrible just horrible in so many ways.

 

Perhaps the worst is the concept of "independent board members"

 

 

In fact Independent board members are very very often the most dependent and least qualified.

[luke warm]

I'm not aware of any suggestion that the government should dictate actual compensation amounts rather than adjusting tax rates, so I'm not sure exactly what you have in mind. If your idea is to set a maximum spread between the lowest salary and the CEO's compensation, it might be workable. If that is your idea, what spread do you think would be reasonable?

nope, i'd not be for a system where the gov't sets salaries for anyone in the private sector... but if you think there aren't those who believe the gov't should "dictate actual compensation amounts," i don't think you're hearing the same rhetoric i am

[PassedOut]

nope, i'd not be for a system where the gov't sets salaries for anyone in the private sector... but if you think there aren't those who believe the gov't should "dictate actual compensation amounts," i don't think you're hearing the same rhetoric i am

Haven't seen that, but I'd like to get up to speed. Could you post a link or two?

[PassedOut]

But for decades I have said that BOd are horrible just horrible in so many ways.

Yes, there are companies with incompetent boards and that is a problem. I do not buy shares in a company unless I feel that I can count on the board to do a good job of acting in the shareholders' interest, and that narrows the possibilities considerably.

 

But reversing the erosion of the middle class in the US is not the sort of thing that corporate boards can deal with, nor should we expect them to. We have a government to look out for the common good, and the erosion of the middle class goes against the common good.

[the_dude]

No wonder some folks believe claims that the wealthy in the US carry more than their share of the tax burden. Seems that many do not know how skewed the distribution of wealth here actually is:

 

http://assets.motherjones.com/politics/2011/inequality-page25_actualdistribwithlegend.png

 

You can read the paper upon which this chart is based here.

 

If you would like an actual dispassionate view of the facts surrounding this issue, try: http://www.the-american-interest.com/article-bd.cfm?piece=907

 

(warning though, not recommended for those that prefer only facts that confirm already-made conclusions)

[luke warm]

Haven't seen that, but I'd like to get up to speed. Could you post a link or two?

you really don't know that obama wants to limit compensation for company leaders? there are a lot of people who want to limit the income of not only the CEOs of the companies that received bailout money, but others as well... taking the pro side of an online discussion is Dean Baker of the Center for Economic & Policy Research... there are many more that you can find

 

"President Obama has proposed restrictions on the pay of top executives at banks that are getting bailed out by taxpayers. It remains to be seen how effectively these restrictions, which would set a maximum salary of $500,000 a year for these corporate officers, will be applied, but lower pay for top executives in the financial sector is a good idea that can help set an example for the rest of the economy."

 

then you have some of the idiots in the 'occupy wallstreet' movement... some of the things they're saying is quite laughable

[PassedOut]

you really don't know that obama wants to limit compensation for company leaders? there are a lot of people who want to limit the income of not only the CEOs of the companies that received bailout money, but others as well... taking the pro side of an online discussion is Dean Baker of the Center for Economic & Policy Research... there are many more that you can find

 

"President Obama has proposed restrictions on the pay of top executives at banks that are getting bailed out by taxpayers. It remains to be seen how effectively these restrictions, which would set a maximum salary of $500,000 a year for these corporate officers, will be applied, but lower pay for top executives in the financial sector is a good idea that can help set an example for the rest of the economy."

I was aware of the restrictions placed on companies bailed out by the Bush TARP program, as discussed in your link from February of 2009. I have no quarrel with Obama about that.

 

I thought you had seen more current proposals to dictate actual compensation amounts to companies, those operating legally and not being bailed out by taxpayers. It seems to me that dictating actual compensation would be impractical for a lot of reasons, so I was interested in getting an idea of how those advocating that proposed to make it work. I have not seen anything from Obama about his wanting to do that (and that is the kind of proposal that would ordinarily catch my attention).

[phil_20686]

It seems to me that dictating actual compensation would be impractical for a lot of reasons, so I was interested in getting an idea of how those advocating that proposed to make it work. I have not seen anything from Obama about his wanting to do that (and that is the kind of proposal that would ordinarily catch my attention).

 

Its been done in the netherlands, maximum salaried earnings including bonuses are capped at the level of the prime ministers salary. about 200000 euros. This does not include money earned from investors, so small business owners can earn much more. So can the owners of capital.

[PassedOut]

Its been done in the netherlands, maximum salaried earnings including bonuses are capped at the level of the prime ministers salary. about 200000 euros. This does not include money earned from investors, so small business owners can earn much more. So can the owners of capital.

Good point. I suppose setting a maximum salary wouldn't be impractical to administer, but that's not going to happen in the US.

[mike777]

I guess this depends on the definition of salary. In anycase it sounds like the Netherlands did not set limits on total compensation which is what really matters.

 

One can already see problems such as to whom does it apply and where does it apply. If it applies to noncitizens or to people outside of the Netherlands how do you enforce it? Again this gets back to the basic issue of how do you define income and exactly what is your goal in all of this. If fairness, how and who defines fair? Do we get to change the definition of fair or salary or income from year to year or what?

 

 

Just for example how does this affect Shell Oil?

[y66]

http://3.bp.blogspot.com/-DYDSOniKI-E/To8VXVC2IKI/AAAAAAAAD-8/SNPpmUSiaAk/s640/Zombie+Economics%252C+as+Cartoon+by+ACEMAXX-ANALYTICS%252C+Oct+6%252C+2011.jpg

 

From Acemaxx-Analytics via Krugman.

[y66]

From Krugman's blog today:

 

A question to which I think I know the answer: A number of my colleagues in the commentariat write longingly about the need for a “centrist” who will propose doing what needs to be done — combine short-run stimulus with long-term measures that will reduce the deficit.

 

So, will any of them notice that, according to the CBO score (pdf), Harry Reid’s version of the American Jobs Act does exactly that?

[PassedOut]

Following up on LukeWarm's suggestion that executive pay be limited, I think this chart is interesting:

 

http://tmotr.files.wordpress.com/2011/07/table_sm.jpg

 

This chart is from an article in The Middle of the Road:

 

In the 1950′s the pay separation between the average worker and CEOs in what we now call the Fortune 500 companies used to be about 20 to 1 (for every dollar a mid level manager made, a CEO made 20 dollars. ) 20 to 1 was here in American and extreme compared to the rest of the world where even now it is more commonly about half of that. During the 1980s the pay gap between CEOs and average workers grew from 42:1 to almost 85:1. By 2004 it had jumped to 301 : 1. And now???… well now, right here in the good old US of A, the ratio of CEO pay to average worker pay is running 475 to 1 while in Japan, a very profitable nation with a very good standard of living, the ratio is 11 to 1. The average Japanese CEO would kill himself in shame if his company failed so badly that it needed to be bailed out by the government in order to stop the world economy from crashing. American CEOs take bonuses of 15 million dollars for doing that.

 

In case you need somebody to characterize that for you… thats a bad thing. This level of greed is not a sign of American business success and superiority. It is an example of institutionalized insanity because these companies can and do lose billions of dollars in a single year and the CEOs still make the monster money.

LukeWarm hasn't said what ratio he'd find acceptable, but it seems to me that all compensation above the 20:1 ratio could be heavily taxed to support a nation-rebuilding program in the US.

[luke warm]

Following up on LukeWarm's suggestion that executive pay be limited, I think this chart is interesting:

you made me go back and look, cause i couldn't imagine ever making such a suggestion... i found this quote from me, in answering one of your posts, "nope, i'd not be for a system where the gov't sets salaries for anyone in the private sector..."

[PassedOut]

you made me go back and look, cause i couldn't imagine ever making such a suggestion... i found this quote from me, in answering one of your posts, "nope, i'd not be for a system where the gov't sets salaries for anyone in the private sector..."

Okay, but seems to me you brought the matter up in the first place. Are you saying now that this disparity is not a problem for the US?

[mike777]

Income disparity seems to be a very minor issue to most people.

 

There is always an easy solution that is to claw the money back to the government through closing gift tax loopholes and raising the rate much higher.

 

 

If the owners of capital want to grossly overpay their ceo's then it simply becomes a transfr to the govt when they try and gift the money or die. Most of these CEOs are not young and it just means the govt has to wait a few years.

 

In the meantime the govt can tax them when they earn the income or try and spend it.

[blackshoe]