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Tax the Rich by Bob Merriam |
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July 28, 2011
Most Americans have little
trouble accepting high compensations that come with hard work and
unusual talent. Getting ahead is part of the American dream. And
indeed we all enjoy many gifts from wealthy, civic-minded people:
concert halls, national parks, museums, and foundations that do all
sorts of worthy work.
But wait. There is an anomaly in what “high compensation” means.
For people whose work directs large numbers of people such as the nation’s president, university chancellors, military generals, and senators, compensations are roughly $ 0.25 to 2.0 million a year. For those of unusual ability whose work entertains millions, such as actors, athletes, or musicians, compensations might be a few million a year.
The anomaly in compensation becomes apparent with what top executives in business and finance earn. As reported in the New York Times July 2, the median compensation of chief executives of 200 of America’s large corporations and financial institutions was $10.8 million a year. At the top, Philippe Dauman of Viacom took home $84.5 million. Not bad.
The Wall Street Journal reported that pay and benefits for CEO’s at just 25 of the top publicly-traded banks and security firms on Wall St. was $135.5 billion in 2010. To give some perspective, the combined compensation of top executives of just 25 companies was greater than the combined discretionary budgets of the U.S. Departments of Education, Labor, Commerce, and Agriculture (combined $112.3 billion in 2010). These executive compensations are an anomaly in the economic environment of 2010, recovering from severe recession and unemployment at more than 9%.
Trends also are revealing. Workers’ wages increased 0.5% from 2009 to 2010 while top executives’ increased 23%. But, while top executives at publicly owned companies were gaining 23%, shareholders averaged 16% return on their investments while the median gain in company revenue was 7%.
Congressional Republicans stubbornly resist increasing taxes on America’s wealthiest people. Why? Well, the wealthy are among large donors to Republican campaign coffers of course. Republicans also note that raising taxes on the wealthy could compromise a shaky economic recovery. They also might claim that only the wealthy are in a position to invest in Angel or Venture Capital support of start-up businesses. Therefore, wouldn’t it be risky to raise taxes on the wealthy?
A little history helps here. In 1945 after the great depression and WWII, the national debt was 117% of GDP, as compared to about 100% of GDP today. From 1946 to 1981 both Democratic and Republican administrations progressively reduced the deficit. To accomplish this, the top tax on high incomes decreased from 86.5% in 1946 down to 70% in 1981, rates much higher than the 35% top rate today. Still, during those years, aside from short recessions, economic indicators showed steady growth, steady employment, and rising wages until 1981 when the debt was down to 32.5% of GDP. With the election of Ronald Reagan in 1981, however, top tax rates went from 70% to 38.5% and the national debt again went skyward, increasing to 83.4% of GDP by 2009 under administrations of low-tax Republicans.
An important way to put more money into consumers’ hands and thus stimulate the economy would be to direct more of companies’ profits into benefits for their workers and/or increased dividends for shareholders. The ‘excessive’ part of executive compensations represents profits that are not needed for company expansion, research, or development. This money is currently sequestered in portfolios of top executives, too often for personal profit-making investments and support of political candidates and lobbyists who work the political system to support their lifestyle.
In the interest of stimulating the economy and raising the standard of living, we should raise taxes substantially on the super wealthy above a point that general marketplace standards deem reasonable. Boards of Directors, hand picked by CEO’s, then would have little incentive to compensate executives above that point and profits in excess of this could be plowed back into dividends and their work force benefits or improvement of the company’s position in the marketplace.
The income from these taxes would greatly facilitate the urgent reduction of the national debt!
Robert Merriam is an academic scientist who received his Ph.D. from the University of Madison in 1953.
Dr. Merriam has published over 50 papers in professional journals.
Today, Dr. Merriam resides in Chapel Hill, North Carolina.
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