There was broadscale outrage yesterday with the revelation that Wall Street bankers collectively walked off with almost $20 billion in bonuses — associated with their stellar 2008 performance. Barack-O even chided them for gross irresponsibility — sucking money from taxpayer and digging our nation’s financial hole deeper.
It is ironic that Obama’s criticism comes at a time that he’s planning to dig our financial hole deeper by taking current and future taxpayer money and throwing it irresponsibly into a trillion dollar, pork-laden grab bag of whacky, non-stimulating social programs. Nonetheless, he has a point.
Now, if he really wants to fix the problem, here’s some free advice
First, require all companies to publish — as an appendix to their proxy statements — a list of all employees who get annualized W-2 compensation over, say $250,000. Companies are already reporting their 5 most highly compensated execs. It would be easy to expand the list since the numbers are already compiled and reported to the IRS. If companies push back on the idea, then — privacy be damned — simply post the information to a government web site.
Hopefully, sheer embarrassment and activist shareholder pressure would dampen some of the excesses. Failing that, the transparency would at least provide a centralized target list for outrage and “clawbacks”. At an absolute minimum, these publicly identified, highly compensated folks would get “punished” by being hounded endlessly by annoying boiler room investment hawkers.
More substantively, change the income tax codes. For corporations, eliminate the tax deductibility of any annualized compensation exceeding $250,000 per individual. If companies feel the need to pay people more, that’s fine. They just do so on their own dime — not on the back of other tax payers.
For individuals, go pre-Reagan and re-introduce a couple of very high income tax brackets with draconian marginal rates. For example, leave the current brackets where they are (35% starts at $357,700), but add a bracket that starts at $500,000 with a marginal rate of 40%, a million dollar bracket at 50%, and a $5 million bracket at 75%. Business incomes — like family farms — could be exempted, and individuals could continue to income average so they don’t get blasted in isolated windfall years. While individuals might clamor for still higher compensation to cover their added tax burden, their claims would likely be throttled by the corporate provisions which would disallow corporate tax deductibility.
This multi-part plan has a couple of related benefits: (1) Obama fulfills his pledge to fill the tax coffers bysoaking the rich, (2) it becomes very expensive for companies to over-compensate employees, (3) it makes uber-compensation less valuable — at the margin — to individuals, and (4) it can be implemented Monday morning.
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Related point: Wall Streeters argue that they have to pay high levels of compensation to retain their talent pool. Aren’t these the smart men and ladies that cratered firms and threatened our entire economy? I say: let ’em walk. Try recruiting randomly from the jury pool. Results can’t be worse.
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