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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.
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