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For this month’s dive into the fetid waters of politics, I’ve decided to tackle income inequality.
When it comes to the topic of income inequality, I’m weird. On the one hand, income inequality doesn’t bother me. This is so because I firmly believe that America is still a meritocracy. Drive and discipline beget wealth, and sloth and imprudence beget poverty. That’s why Asian-Americans are flourishing economically and the denizens of our ghettos, barrios, and trailer parks aren’t.
There are, however, a couple of things about income inequality that do bother me. First, the rich and organized (e.g., too-big-to-fail banks, multinational corporations, doctors, lawyers, teachers, etc.) are not above using the government to garner subsidies, erect trade barriers, and hamstring anyone who might challenge the status quo. Not good. Rent-seeking only exacerbates income inequality.
The second thing that bothers me about income inequality is the utter lack of imagination on the part of our punditry class. Whenever I read or hear a pundit’s solution to income inequality, it invariably amounts to more welfare for the great unwashed, higher taxes on the rich, of course, and more government control. Really guys? A free college edumacation for everyone is going to stop rent-seeking and lower CEO pay?
Okay, those are my weird thoughts on income inequality. Great disparities in wealth don’t bother me. But unearned wealth does. There’s a difference between someone who makes millions of dollars playing quarterback in the NFL and someone who makes millions of dollars owning a cab company and bribing…er, I mean, lobbying the local politicians to make sure Uber and Lyft remain illegal.
So what would I do if I were the Grand Poobah of the United States to combat income inequality? I’m glad you asked, groovy freedomist. Here are three laws that I would immediately institute.
CEO Compensation
CEO pay bugs me. I know they’re bright people, and I know they work very hard. But I just don’t think their skill sets are so rare that we need to pay elite CEOs tens of millions of dollars per year.
If I had my way, I wouldn’t peg a CEO’s pay to his or her company’s stock performance. Stock performance is too crude a metric, especially in a bull market when stock prices in general are rising. You don’t know if the CEO’s performance is the result of unsurpassed business acumen or just dumb luck. I’d much rather peg CEO pay to more discriminating metrics—revenue and earnings growth, return on invested capital, and gains in market share.
But then again, what the heck do I know? I’m just a little ol’ country blogger who has a penchant for talking out of his backside. Maybe stock performance is a great metric to base CEO pay? Maybe the CEOs of Fortune 500 companies do deserve the eye-popping pay they receive?
Since I’m acutely aware of my fallibility, I propose a test. Boards can choose between two corporate tax schedules. Whichever one they choose must be used for 10 consecutive years. The first schedule is the current one that tops out at 35%. The second schedule is a flat tax of 0% on all corporate profits. If the 0% schedule is chosen, however, corporate governance must adhere to the below restrictions.
35% Tax Rate
- Nothing changes. The board may compensate its CEO however lavishly it wants.
0% Tax Rate
- The board may not compensate its CEO with stock options.
- The board may not grant its CEO an annual compensation package that exceeds 50 times that of the lowest compensated full-time American employee. If the lowest compensated full-time American employee in Corporation X makes $22,000 annually (salary plus benefits), the CEO of Corporation X may not get a total compensation package that exceeds $1,100,000 annually.
- If a corporation’s part-time workforce or overseas workforce exceeds 20% of its total workforce, the board may not provide its CEO with a total compensation package that exceeds $754,000 annually. This compensation ceiling was derived by multiplying the annual salary of a full-time minimum wage worker ($15,080) by 50. (This is to make sure corporations don’t ditch all full-time American employees or shift the bulk of their employment overseas.)
- The board must maintain a dividend of at least 10%.
Again, I’m not saying that elite CEOs aren’t worth tens of millions of dollars per year. And my proposed changes to our corporate tax laws wouldn’t stop such generous compensation. But the possibility of a 0% tax rate and a guaranteed 10% dividend would certainly give boards and shareholders something to think about.
Taxpayer-Backed Stadiums
“No equity. No stadium.”
“No equity. No stadium.”
“No equity. No stadium.”
According to Forbes, the San Francisco 49ers are worth $3 billion. In 2010, Santa Clara created the Santa Clara Stadium Authority (SCSA) for the sole purpose of building the 49ers a new stadium. To build this new stadium, the SCSA had to borrow $850 million. That’s a very nice thing to do for the billionaire owners of the 49ers and their millionaire employees.
Taxpayer-backed stadiums are a scam. At first blush, that statement may seem harsh. But consider this. If you had a great idea to make oodles of money, would you want to share some of that money with the government? In other words, if modern-day sports palaces make economic sense, why do owners want to partner with the government to build them? Why don’t owners just build the palaces themselves and reap 100% of the profits for themselves?
We all know the answers to these questions. They don’t want the costs and risks associated with building and maintaining a modern-day sports palace. So owners turn to politicians who are happy to shift most or all of those costs and risks to the taxpayers.
To end this nonsense, I propose the following law.
No taxpayer-backed stadiums are permissible unless the government entity building and managing the stadium receives equity in the stadium’s franchise equal to 50% of the stadium’s cost. Moreover, the franchise may not move to another stadium and city until it finds a buyer for the government entity’s equity.
If my proposed law had been in effect prior to 2010, the Santa Clara Stadium Authority would have gotten a 46% equity stake in the 49ers. The 49ers back in 2010 were valued at $925 million. Half the cost of building the stadium was $425 million. $425 million divided by $925 million equals 46%. Today, that 46% equity would be worth $1.38 billion. Now that’s how you invest taxpayer dollars.
Note: I chose an equity stake equal to 50% of the stadium cost because a typical sports season lasts about six months. During the off season, owners of stadiums can generate additional revenue from concerts and events.
Higher Education
Higher education feasts on government largesse. If it weren’t for Pell Grants, federal student loans, and a competition-destroying accreditation system, there’s no way colleges would be able to charge a student tens of thousands of dollars annually in tuition and fees so he or she can listen to poorly paid adjuncts stand in front of a chalkboard and lecture. It’s a freakin’ joke. The higher-education establishment (i.e., administrators, tenured professors, and coaches) has sucked enough from the teat of government. It’s time they became a little less gluttonous. To acquaint them with the notions of self-control and restraint, then, I propose the following law.
A post-secondary school that gets any of its revenue from federal aid (i.e., Pell Grants or federal student loans) may not provide any of its employees with a total compensation package that exceeds the salary of the United States president (currently $400K). Any outside compensation an employee makes—whether that consists of speaking fees, consulting fees, endorsements, royalties, or gifts—will be counted toward this compensation ceiling. If the compensation ceiling is breached by any employee, all federal aid to the school will cease.
There are at least 93 presidents, 10 professors, and 167 coaches (see here and here) who currently make more than the POTUS. Ah, what would we do without these selfless individuals dedicated to the cognitive, physical, and spiritual development of our young people? Sorry for the snarkiness, but these numbers indicate that something is terribly amiss in academia today. My $400K compensation ceiling would go a long way toward re-establishing the true calling of college: preparing young people cognitively for the rigors of our complex and increasingly global world.
Final Thoughts
Okay, groovy freedomists, that’s all I got. Would my proposed laws end income inequality? And if not, would they at least stop a lot of nonsense (i.e., unearned wealth)? Let me know what you think when you get a chance. I’d love to hear your thoughts. Grease for peace.
Absolutely excellent ideas. As with any new law I am sure someone will spend hours tirelessly trying to find a loophole that will work to their advantage, but these are definitely things I would support.
A while back I saw some discussion about the fact that professional sports stadiums do not actually create economic growth for the immediate area. I found an article that discusses that (and the person talking about it has a fancy degree and teaches at Stanford so he must be right 😉 haha)
http://news.stanford.edu/2015/07/30/stadium-economics-noll-073015/
Thank you for the link, Patrick. I’ll be checking it out shortly. When I was in grad school I had a professor who studied publicly funded stadiums and he came to the same conclusion. Stadiums are a bad deal for the taxpayers. But we live in a time where everybody feels entitled to goodies from the government. Homeowners want their mortgage interest write-off. Farmers want their crop subsidies. And sports fans want their public funded stadiums. Sigh. I don’t see how this plunder by all against all ends well, but that’s grist for another post. Thanks for stopping by, Patrick. I really appreciate your thoughts.
This is a controversial comment to make, but you know what would help with society and social mobility? Access to family planning. This is why you see people like Warren Buffet and Bill Gates are big supporters of free access to birth control and why insurance companies actually like paying for birth control. The initial cost of just having a baby is super expensive, the negative affects it has on the mother job and health-wise is expensive, the time it takes away from doing other productive things for society with ones’ life is expensive, etc. If young adults have access to education and family planning measures for free, it is a HUGE boon for society. There was a study in Colorado that proved this: https://www.nytimes.com/2015/07/06/science/colorados-push-against-teenage-pregnancies-is-a-startling-success.html?_r=0
From the text, “Proponents say the program is working. The state health department estimated that every dollar spent on the long-acting birth control initiative saved $5.85 for the state’s Medicaid program, which covers more than three-quarters of teenage pregnancies and births. Enrollment in the federal nutrition program for women with young children declined by nearly a quarter between 2010 and 2013.”
As a mom of a young child, I am NOT in anyway against having children. But I had access to family planning measures so I could have kids when I was in a partnership with someone (I am married, but marriage doesn’t matter), and we both were financially able to raise our son. It’s not about NOT having kids, it’s about having kids when people are ready and willing, (and maybe after they discovered the cure for cancer? 😉 )
So true, Tara. Excellent points. Having kids when you’re neither financially or emotionally ready is a great way to sabotage your economic future. If access to family planning can reduce this scourge, I’m all for it. Thanks for stopping by, Tara. I really appreciate your thoughtful contribution to our conversation. Bravo.
I couldn’t disagree more with a few of the premises of this post, namely: “This is so because I firmly believe that America is still a meritocracy. Drive and discipline beget wealth, and sloth and imprudence beget poverty. That’s why Asian-Americans are flourishing economically and the denizens of our ghettos, barrios, and trailer parks aren’t.”
Asian-Americans do not flourish as a totally vague all encompassing group – this is the myth of the model minority at work that harms the very many AAs who do not flourish because they lack access to basic healthcare and education, or exist in this country under dire conditions. My own family has examples of this – people who have worked incredibly hard their whole lives but due to one serious illness or a few mistakes in their businesses, they live below the poverty line.
The myth is also used, just as you have above, against others who are usually primarily minorities (barrios and ghettos usually being understood as code for poor Hispanics and poor blacks): http://www.npr.org/sections/codeswitch/2017/04/19/524571669/model-minority-myth-again-used-as-a-racial-wedge-between-asians-and-blacks
Drive and discipline CAN beget wealth, as in my life, but sloth and imprudence do not ALONE beget poverty – poverty is influenced by a multitude of factors including the fact that even if you ARE the hardworking individual in your family, if you live in a community at all and not totally isolated, then the need to provide for your family falls on your shoulders.
This is a complex subject but I think we can only start to do it justice when we take into consideration all of the factors that make our society not entirely a meritocracy.
I love it! Revanche is not taking any prisoners today. You make a lot of excellent points. Let me see if I can defend myself.
First, saying that Asian-Americans are “flourishing economically” may have been a bad choice of words. Not every Asian-American has a computer science degree from Stanford. And there are surely a number of Asian-Americans living below the poverty line. But, damn, a lot of Asian-Americans are doing good. As a group, they have the highest median income and the best scholastic achievement in America. Asian-Americans are less than 6% of the population, but they make up about 25% of the students at our most selective colleges. And I attribute this success, not to Asian “privilege,” but to the hard work and discipline that Asian-Americans, on average, exhibit. In fact, I wrote a post a while back encouraging non-Asian-Americans to be more like Asian-Americans. Here’s the link.
Second, I did use ghetto and barrio as code for poor black and Hispanic communities. I also used trailer park as code for poor white communities. If there was a code for poor Asian communities, I would have used that too. But I don’t know of one. What does that tell you?
Finally, third, I really don’t think the causes of poverty are complicated. The longer a person adopts the habits and attitudes preached in the personal finance blogosphere, the better the shot he or she has of reaching the middle-class or beyond. In fact, when you control for such economically critical traits as age, education level, and marital status, the differences in household income between Asians, whites, blacks, and Hispanics practically disappears. It’s all about making good decisions consistently over many years versus making poor decisions consistently over many years. Those with a penchant for making good decisions will generally do well. Those who don’t, will not generally do well.
Okay, Revanche, that’s all I got. I don’t know if my defense of my post was successful, but I gave it a shot. Let me know what you think when you get a chance.
P.S. I really appreciate you taking me to task in such a respectful way. First, it makes me think. Second, it makes me smile. There’s no reason why people can’t disagree with each other and remain friends/colleagues.
The capitalist in me would support CEO pay, but, my big gripe is CEO pay is rising while employee wages are relatively stagnant even though workloads are increasing. The CEO for my former employer literally called himself a “10 million dollar cheerleader” at one of the corporate culture events we attended one year.
I don’t think “mob rule” and taxing the rich will solve the problem of income inequality.
As others have mentioned, poor people are poor for a reason and until their mindset changes, the trend continues.
As you mentioned with higher education & stadiums, both really good points. The government malinvestment wastes so much money and only a select few actually profit from it.
Totally agree with you, Josh. CEO pay is definitely tricky. I was trying to create an incentive that was respectful of liberty and would give corporations a reason to increase the pay of its lowest paid employees. That’s why I made the CEO compensation limit voluntary. It would only go into effect if a particular board wanted a 0% corporate tax. As you pointed out, Josh, the optics of a “10 million dollar cheerleader” is not good. It’s bad for company morale, and it’s fodder for SJWs who want full-blown socialism in this country. Thanks for stopping by, my friend. I really appreciate your thoughts.
I like the 0% proposal. If memory serves me correctly, you have written that before.
This is just me speaking, but, it’s a new take on “trickle down economics” for lack of a better phrase at the moment.
LOL! I kind of cringe when I hear “trickle down.” But I guess, when you really think about it, that’s what my proposal amounts too. Well, better “trickle down economics” than “trickle down government.”
I nominate Mr G for Grand Poobah of the United States!
On second thought, you’d prob rather be the Grand Poobah of a college. Make a lot more $$, and don’t have to deal with the N Koreans.
Great post, Me G. How do you come up with this stuff!? It actually makes a lot of sense!!
Looking forward to our trash talk next week!
Haha! Thank you, Fritz. I don’t know how I come up with this sh%t. I guess it comes from years of being a recovering political junkie. My brain’s still not right. See you next week, my friend. Whether we’re picking up trash or poop, I’m sure we’ll have a blast.
I love the way you are thinking. Not many FIRE blogs have this kind of mindset.
I would also allow student loans to go into default. If you allow defaults I think the spicket would slow to a trickle and the price of college would drop. It’s ridiculous that an 18 year old kid that has probably never balanced a checkbook can get hundreds of thousands of dollars of loans to learn something that may not even be profitable to them.
Wow, Shane. I love it. My sentiments exactly. College just on the knowledge front is largely ridiculous. You spend four or more years learning stuff for mid-term and final exams, and then little of that stuff is ever remembered or needed. Now on top of that inefficiency add tens of thousands of dollars of debt. What the college-industrial complex is doing to young people is a crime. Like you pointed out, allowing student loans to go into default would stop a lot of this nonsense. Putting colleges on the hook for some portion of the defaulted loans would stop the nonsense completely. Thanks for stopping by, Shane. Made my day.
Love your work but I must timidly disagree. How about a law that capped entrepreneurs earnings at 50 times the minimum wage? Or capped blog revenue at some arbitrary level. And why is a quarterback justified earning a fortune for throwing a ball but a CEO to be limited for perhaps creating hundreds of thousands of quality jobs? There is a force out there that already regulates compensation, it is called the free market. I know you are making a point but to me it is an all too common example of picking a target nobody likes for punishment when the top people of hundreds of professions make more than 50x vs the worst people in their field. It’s true for actors, singers, designers, artists, realtors, investors, managers, salesmen, engineers, etc.
Excellent push back, Steveark. I have no defense other than to say that my arbitrary cap of 50 times the minimum wage would be put in place voluntarily. In other words, corporate boards are free to pay their CEOs whatever they would like. If they want a 0% corporate tax, however, they would have to abide by the cap. Does my suggested change to our tax laws make sense? Probably not. I was just trying to think of ways of addressing income inequality while not eroding our freedoms. Sigh. Not only is blogging hard, but so is social policy. Who knew? Thanks for stopping by, my friend. I totally concur with your comment.
I’m too dense what some of those terms. Thank goodness for Google. I’m learning!!! 🙂
Well I was one of those inner city kids so I think my perspective is from the ground up. I was friends with the drop outs and the academics in highschool. Same level of poverty, different mindset. Nothing to do with intelligence but more to do with emotional sensitivity and uhh…not sure how to call it… being bitterly realistic about life?
Yessss they are so uncreative with taxes! Everyone’s got a blame finger pointed at someone else!
Some CEOs don’t make as much as people think (smaller companies) but there are definitely those who throws it wayyyyy off the Richter. How much did Marissa get for Yahoo? That’s a rarity.
The whole stadium thing is just silly. Can I opt out my tax dollars? It’s a like forced high school pep rally and we’re the nerds that just don’t care.
I love the way your mind works, Lily. I looked up the top paid CEOs for 2016 and very few of them made “obscene” money. According to the New York Times, only 53 CEOs made more than $20 million in 2016. So the vast majority of CEOs get paid less than what an elite professional athlete gets paid. And considering that CEOs are the NFL quarterbacks of the business world, median CEO pay isn’t so out of whack. Elitism costs, after all. You want the best, you got to pay for the best. Thanks for stopping by, Lily. Your comment made me a little less ignorant.
Thanks for sharing. Similar to you, I have mixed feelings. I’m big on merit-based stuff. But find it hard to justify either extremes (any extreme on any spectrum). I think ideally, we should be able to build a world where there is no poverty. Ideally. The better technology gets, I just don’t see why we couldn’t do this long term. But I also feel like people shouldn’t be lazy and milk the system. There should be a give and take.
Amen, brother. It’s such a tough problem. We want to provide a decent safety net, but we also want to avoid the moral hazard of encouraging people to be lazy and duplicitous (i.e., we don’t want people milking the system). All I know is that our current system isn’t working. We seem to be better at creating dependency than self-reliance. The system doesn’t have to be blown up, but it definitely needs to be tweaked. Thanks for stopping by, my friend. I really appreciate your thoughts. As always, it elevated our conversation here.
Unfortunately I do feel that inequality (of any sort) is.. natural. Boy, my inner idealist is screaming from that statement. I always look for the biological basis of just about anything, including cultural evolution and economics, and, well, inequality goes back almost as far as primordial soup. Back when single cell organisms were beginning to clump together, some of the cells had the advantage of being protected by huddling in the inner most part of the clump. The unlucky (or maybe they were altruistic?) cells were the ones on the outside.. taking on the constant beating of life-destroying radiation and widely fluctuating temperature and chemical variability. Things continue today as they did back then. I don’t know if it’s called inequality at the cellular level, but many bodily systems rely on this concept, particularly the areas that have to interface with the outside elements such as the skin, digestive track and blood. These cells are constantly dying and being replaced (skin cells last 2 weeks, colon cells live 4 days, blood cells live for a month… and there are more of course). But I believe this idea scales up in what I call the organic organizational domains (which go in this order: the cell, the individual, the family, the social institutions, the biosphere.. this list is not exhaustive BTW) In other words because it is a part of life it becomes inherently part of our social structures. In general society sends those with the least capacity or fitness (as defined in many ways) to do the unsavory or dangerous tasks. You can make a lot of money as a professional athlete. You can make a lot of money (or marry rich) if you’re incredibly attractive. You can amass a large amount of power and wealth if you’re incredibly smart. I suppose it’s survival of the fittest or whatever… that doesn’t mean we shouldn’t even out the playing field. Of course this is a generalization and there are amazingly talented and hardworking contributors that go unnoticed or under-compensated. But I don’t know. I tend to believe that if the system wasn’t working it would change. The body just “knows” that it has to kill off the skin and colon cells. Could our social institutions have a similar innate “blueprint” of sorts? I don’t know. But I’m sure there is something to it and therefore I will never be able to jump on anyone’s band wagon who is claiming they’re going to get rid of inequality. Just never going to happen. It’s probably not supposed to.
Consider my mind officially blown. Great freakin’ comment, SJ. And I think you’re right. Inequality is just an unavoidable aspect of life. The smarter and stronger will naturally rise. And that isn’t necessarily a bad thing. Scarcity, disease, and an unsympathetic natural world are our constant enemies. Who will subdue these forces? The dull and the weak? No, we need the smart and the strong to focus their energies on easing human suffering. The trick is to incentivize the smart and strong to make the world wealthier and healthier and to also see that the dull and weak aren’t treated like crap or relegated to a dreary existence. Have we incentivized the smart and strong properly? No, we haven’t. But we’re doing a better job than we did, say, 50 or 100 years ago. Thanks for stopping by, SJ. You submitted the most thought-provoking comment I’ve ever seen. Bravo.
This is such a thought-provoking post. You have raised some key issues about CEOs’ salaries and higher education that might be seen as touchy subjects for many.
I agree with you that if someone works hard and is driven, they should be rewarded for their efforts. But oftentimes we see people working hard in fields that don’t pay a lot (i.e. academia) and still struggle financially to make ends meet.
I have heard of so many adjunct professors who are making less than 20k a year trying to give students what they need in college – a good education. But many universities keep hiring administrators that earn much more than what adjunct professors make. It’s just really sad to see the people who have power make sub-optimal decisions for their beneficiaries.
You are so right about adjuncts. And that’s what kills me about higher education. I think the last statistic I saw claimed that adjuncts were now teaching about 70% of the classes in academia today. 70%! How do colleges get away with this nonsense; that is, how do they get away with charging the same tuition for a class taught by an adjunct as they do for a class taught by a full professor? The average adjunct makes $20K a year. The average full professor makes $125K a year. Something’s definitely rotten in the state of academia. Sigh. Thanks for stopping by, Ms. FAF. I really appreciate your comments.
I attended a small, private university in the 1990s but worked at a very large state university for 3 years in the early 2000s. My job was to do the financial reporting for federal research grants (e.g. CDC, NIH, etc). This meant that I also had access to the full grant details and it was eye opening. It’s been over 10 years so don’t quote me on this but this is how it works from what I recall:
The school I was at had a department of around 30 people, dedicated to helping professors apply for research grants. This is important for a few reasons, one of which being that almost half of the grant is paid to the university to cover “overhead” in the form of use of buildings, current equipment, electricity, heat, water, etc. So if a professor is awarded a $1M grant, almost $500k of that will go straight to the university.
I can see why professors would want to apply for grants — they get their normal university paycheck (often well over $100k/year), plus they are paid a salary out of the research grant. A lot of the professors would have multiple grants/research projects going at once, so it wasn’t uncommon for me to see certain names over and over again. And this was just on federal grants – I never had access to the private grants awarded by corporations. The other half of my team worked on those.
I suspect that this is why classes are taught primarily by adjuncts and TAs. What professor would have time to teach with 5-10 research projects going on at the same time?
Nailed it, Kate. Thank you. And this is another reason why the current higher-education business model has to be radically changed. I’ve been advocating for years that the services provided by college should be unbundled. College basically provides three services: an education service, a research service, and an entertainment service (i.e., climbing walls, frats, sports, etc.). Right now, if a someone wants to buy the education service, he or she also has to buy the research and entertainment services. But if colleges spun off research and entertainment as their own entities, and students could just buy education, the cost of a college education would drop by at least half. Let the adjuncts teach and the professors research. And get rid of the entertainment service. If a student wants to work out, he or she can join the local Gold’s Gym or Crossfit Box. There’s no reason why a college also has to run a health club. And there’s also no reason why a college has to run a minor league sports team. Let the NFL and the NBA set up their own developmental leagues. Sorry for the rant, Kate. But there’s so much inefficiency and corruption in higher education, I can’t take it anymore.
A zero percent corporate tax? No. Not unless the corporation’s capital gains and qualified dividends also get taxed as ordinary income, even if they are corporations. Otherwise, it’s a huge giveaway to the (wealthier than average) investors and investing corporations.
I do like the idea of tying compensation to revenue and profit growth instead of stock price, as it rewards sustainable growth rather than short-term shenanigans and market forces.
I’m (surprise!) way more liberal than you, so the fact that poor kids so clearly get left behind in our society is a big problem for me. Hungry kids don’t learn very well, and 28% of the kids in our state don’t get enough to eat. They are far more likely to attend schools with substandard infrastructure (cold, damp, and moldy places aren’t good for learning either.) Nor do sick kids whose parents can’t skip work to stay home with them.
When the basics aren’t met for kids, inequality becomes far, far harder to overcome.
Plus there’s the system of middle-class welfare: tax-advantaged retirement savings, untaxed employee health insurance, mortgage interest and property tax exemptions, etc. (and yes, I either benefit from these or have benefitted in the past from them. I’ll take them if they’re there.)
I read somewhere that the US system promotes socialism for the rich and cut-throat capitalism for the poor. Yeah, it was a liberal article. That didn’t make the sentiment completely untrue. As you yourself pointed out, there’s a fair amount of ridiculousness in the level of government support for those who don’t really need it.
Hey, Emily. I like the idea of a zero corporate tax because I think corporate taxes are largely an illusion. The cost of taxes is just passed on to the consumer. But in my post, I didn’t run the numbers to see how a zero corporate tax would affect federal tax revenue. I think right now, roughly 10% of federal revenue comes from corporate taxes. Would the taxes paid on a mandatory 10% dividend make up for the loss of corporate taxes? Good question. I got to do some investigating. Damn this blogging stuff is hard. Thanks for the push back, Emily. You make a lot of great points. I wish I had a comeback for them, but I don’t.
I completely agree with tax payer stadiums. Just look at what’s become of the Pontiac Silver Dome. When the Lions wanted a new stadium they wanted the taxpayers to front the money. It was opposed, they put it on the ballot and got voted down. Guess what, we still ended up paying for Ford Field. I think the same thing happened to you, maybe before you moved to Charlotte, with the Hornets. So I totally agree that the city/state/taxpayer should have a stake. Study after study has shown that the surrounding community doesn’t get the boost that the owners say they bring in either. I also agree that golden parachutes should also go the way of the Dodo. You pay a CEO millions, the company is in the shitter he gets fired and still gets millions, C’mon. If anything some of their salary should be held in escrow in those cases to pay back the company for poor performance. That would make CEO’s really pucker. I also think there should be company bylaws that states executive salaries need to be cut in order to minimize how many employees it has to layoff, i.e. everyone feels the heat.
Yeah, we built the Hornets a stadium, and we also built our minor league baseball team a stadium too. Now they’re talking about building a soccer stadium to attract or get an MLS franchise. Meh. And I absolutely agree with you about CEO compensation. Something’s definitely not right. Like I said, I’m talking out of my backside, but I think stock performance is a poor metric to peg CEO compensation. Maybe that’s because I’m retired now and I care less about stock price appreciation than I do about dividends. Oh, well. At least we’re discussing the matter. Thanks for stopping by, Jeff. Always a pleasure.
Oh I love this topic. I agree on some but not on others. My general view is income inequality is fantastic and necessary. If really rich people weren’t buying the first cell phones 20 years ago I would never have one today. If the owners of my company weren’t rich I wouldn’t have a job.
Any of the problems I have aren’t so much income inequality but just government involvement. I would much prefer them to stay out of almost everything.
CEO compensation while seems insane, it really isn’t. A CEO can make or break a billion dollar company so it is critical to get the best possible person. If you look at CEO pay of companies owned by investment firms their pay is usually even higher than CEO’s of public companies. This means the investment firms are willing to use their on money to pay for the right CEO and aren’t just taking it from the stockholders.
I agree the government should not be using tax dollars to build stadiums and should get out of the business. Owners should instead work through private investment firms. The Owners are usually quite rich but a $825 million is a lot for anyone.
And the government should absolutely quit writing blank checks to the university. Again this should go back to the private and local level. If the government would stop guaranteeing everyone in the world money to pursue any worthless degree they want the college would have to cut back on their spending.
Haha! Great points, Grant. My cousin who is very wealthy bought one of the first 50″ flat-screen televisions back in the day. It cost him $7,000. I was in Walmart the other day and I saw a 50″ Visio for $400. I remember years ago reading a book called, “Two Cheers for Capitalism.” One of the chapters was called, “The Utility of the Rich,” and it pointed out exactly what you alluded to. Without the rich paying through the nose for innovation, our world would be a lot less wealthier and a lot less comfortable. Thanks for stopping by, Grant. Awesome contribution to our conversation.
As usual, I pretty much agree with you. I think the core of it all is that we need to each be responsible for our own financial situations. Educate ourselves about earning money and managing money. Choose to stop wasting it on stupid sh*t. Learn how to best utilize the dollars you have, no matter how small. Like the janitor who died at 92 with $8M in wealth because he put away money each month in blue chips and was frugal as arse. If we can all choose to take responsibility for our own situations, and if we can straighten out tax laws and the mess at the college level, we could go a long way to help income equality. And totally agree about the stadiums too. So sick of the uber rich sports teams owners milking the average Joe, and government allowing it! I may not be able to change that, but I can teach myself and my family how to make the system work for them.
Nailed it, Laurie. Prior to 40, I was a personal finance moron. And that’s the only reason I was struggling financially. Once I woke up, and started practicing the principles of the personal finance community, nothing could stop my economic advancement. Not our stupid government. And not the evil One-Percent. And I think this is the case for most people. Once they stop sabotaging themselves, they’ll be fine.
As is probably expected by now, I will agree and disagree right off the bat. 🙂 I would not be bothered as much by income inequality if I firmly believed that we were a pure meritocracy. The numbers make me question that, though.
If we were a pure meritocracy, then we would have high rates of social mobility. Right now, the number one indicator of which income quintile you will end up in is which income quintile your parents were. (Raj Chetty, an economist out of Stanford, has done some great work on this if you’re interested). If you’re born poor, you will probably die poor. If you’re born rich, you will probably die rich.
This would suggest either that merit is genetic, or that we are not really a meritocracy anymore. Obviously there are exceptions and hard work can overcome a lot of obstacles. There are plenty of anecdotal stories about people that went from rags to riches. But on the whole, this isn’t really happening.
(I should note that in order to succeed I think we all need to act as if we are in a pure meritocracy. Each individual absolutely should be trying their hardest and doing their best to succeed and overcome whatever obstacles are in their way. That’s on us. But if we are looking at policy prescriptions, then I think we need to look more systemically.)
So I agree that CEO compensation is out of control and needs to come back to earth. I agree that stadium funding needs to be revamped. I agree that college costs need to come down. But I think if we are looking at income inequality we need big policy changes to the whole system to push us back in the direction of meritocracy.
Thanks for another thought-provoking post!
Hey, Matt. Thoughtful criticisms as always. Love your style. I’m a little leery of social mobility studies. I don’t think their methodology captures the true dynamic. If people born into the lowest income quintile largely maintain the same beliefs and habits of their parents, is it really any surprise they fail to advance economically? What I’d like to see is a study of people born into the lowest income quintile but who have adopted the principles advanced in the personal finance community. If those people remain in the lowest income quintile, then I would agree that America is no longer a meritocracy. I’d bet, however, if social mobility studies were fine-tuned along these lines, we’d see that social mobility in this country is just fine. Ah, the plot thickens, my friend.
That’s interesting. I hadn’t considered that possibility. I would be curious to see the results of such a study (although I don’t know how or if it would be possible).
So if the theory is that the lack of social mobility is that people pick up traits largely as a result of the family they were raised by, then should we be looking at some sort of intervention to teach positive traits across the board?
I think I get stuck on the fact that regardless of the reason, the poor tend to stay poor and the rich tend to stay rich, which feels like an unfair system. If the majority of the difference is actually in parenting, then shouldn’t we try to find a way to level the playing field so that your future wealth is less connected to the situation into which you were born? Maybe a massive strengthening and revamping of the public school system to get everyone access to the same information. Maybe some sort of mentoring system to match up poor kids with successful leaders. Maybe even some sort of system to have those rags to riches success stories teach in poor schools and allow kids to build relationships with them.
I think you’re on to something, Matt. Maybe we could start teaching wealth studies in junior high and high school? Various aspects of personal finance could be taught in math and social studies. We could also discuss the habits that increase your odds of becoming financial secure/wealthy in social studies as well. Kind of like “The Millionaire Next Door” meets Horatio Alger. We got to try something. What we’re doing no isn’t working.
But it seems your parents relationship to money exposes you to how you think money should be handled. For example, as a small child I accompanied my father to the bank to deposit his paycheck ( before direct deposit! I am old). The teller greeted my father respectfully as Mr. Doe and handed me a lollipop. I was conditioned to believe the bank is where we went for financial services, not the local payday loan outlet.
Likewise, I saw my parents use credit cards and pay them off in full. When I was a young adult, my father recommended I open up an account as his brokerage. The list goes on.
Without a doubt. Family is the first and most important Department of Education. Children learn by watching what their parents do. My parents weren’t super sophisticated when it came to money. But they both worked. They also lived within their means and always paid their bills. So when I grew up, those habits were part of my DNA. If they were spendthrifts who were always dodging bill collectors, my road to financial independence would have started from a less enviable position. Thanks for stopping by, Lizzy. I really appreciate your contribution to our conversation.