Are Executive Pay Caps Getting Sliced From the Stimulus?
During an interview with TPMDC yesterday, a senior Democrat on the House Financial Services Committee delivered troubling news: His party could remove the Senate's strong executive pay limits from the stimulus bill in an attempt to keep the measure's costs down.
"The plan is to take out the executive compensation provisions ... and blame the Republicans for setting out the level [of $800 billion]" for the final version of the stimulus, Rep. Brad Sherman (D-CA) told me.
The Senate's limits on compensation for executives receiving government bailout money -- a welcome sign after President Obama's CEO pay caps were revealed to be riddled with loopholes -- were scored as a $10 billion money-loser by the Congressional Budget Office. Because of pressure to limit the size of the stimulus in order to retain GOP senators' support, Sherman's prediction about the executive pay caps is looking likely to come true.
But why would Democrats want to send such a bizarre signal about their commitment to reining in corporate excess? When MoveOn.org has gotten more than 300,000 signatures on a petition calling for even stronger salary caps at bailed-out companies, why would Congress want to water down its proposed pay limits?
Neither Senate Majority Leader Harry Reid's (D-NV) office nor Finance Committee Chairman Max Baucus' (D-MT) office responded to queries about cutting the pay caps. But we'll know more this afternoon, when a formal conference meeting is being held with GOP negotiators in the room. Of course, all signs are pointing to an agreement that already exists after closed-door talks among Democrats stretched into the night yesterday.
"I am a negotiator, but yesterday at 2:30, [when Democrats met], I was not invited to negotiating," Sen. Chuck Grassley (IA), one of two GOPers named to join the stimulus conference, told reporters this morning. "Now, today, I am invited to negotiate. So, you know, who knows whether Republicans are going to count in this process or not."
Sen. Olympia Snowe (ME) isn't technically a conferee, but her status as one of the stimulus' three GOP centrist supporters means that she's been kept in the loop throughout the process. Snowe is also a chief sponsor of one of the more controversial executive pay measures that's on the chopping block -- Snowe's vote may not be contingent on keeping her proposal in the bill, however.
"She would obviously like to see it included," Snowe's spokesman told me, adding: "For her, a total dollar figure isn't the sticking point, as long as the provisions in the figure create jobs ... if [the pay limits] come out as a matter of the negotiations, I don't know that it's going to be a deal-breaker."
Josh
Matt
Eric
Brian
This is beyond stupid. Can't these people count? The "revenue" is just coming from the bailout money that we're sending them in the first place. We send them hundreds of billions, they send us back 30 cents on the dollar (if that) and we call it revenue?
February 11, 2009 11:07 AM | Reply | Permalink
Not if we go back to post World War II rates on top earners. They still get paid and we don't get screwed.
February 11, 2009 11:09 AM | Reply | Permalink
Well, I'd argue that 91% is a tad too high, but I've argued for some time for two additional tax rates
50% on AGI above $350k
70% on AGI above $1 million.
When you know the history of the top marginal tax rates (especially when you consider that those years were some of the most economically expansive years in our history) it puts the lie to people insisting that 38% is strangling growth.
February 11, 2009 11:21 AM | Reply | Permalink
That is really my main point - our highest growth years as a country EVER occurred during times with high marginal tax rates on top earners. I like your numbers as a starting point as long as those are individual incomes and not combined.
February 11, 2009 11:29 AM | Reply | Permalink
The AGI thresholds are negotiable. I like two more marginal rates, and I wouldn't go higher than 70%.
February 11, 2009 11:48 AM | Reply | Permalink
I have a theory that individuals with excessive amounts of cash due to extremely low tax rates are largely responsible for these bubbles that form and pop in markets. With the large sums of money these people throw around, they are able to artificially create bubbles in commodities in oil, housing, telecom, gold and foreign and domestic currencies.
Remember, when FDR went to raise top rates, it was industrial leaders that tried to lead a coup and overthrow the Govn't. Too much power and our Govn't power could become marginalized.
We are at the will of a few dozen powerful individuals and our only hope is tough regulations created by the SEC to protect every day citizens.
When I pledge the allegiance, I'm not pledging to free-market capital rules and laws, I'm pledging to this country, it's flag and the constitution. The market here exists because of this countries laws. This country doesn't exits because of the markets.
February 11, 2009 11:34 AM | Reply | Permalink
I don't think there's any question that the steady regressivization of the tax code starting with Reagan and continuing in earnest under Bush has put enormous pools of money in the hands of a few people. Without a corresponding increase in quality investment opportunities, the money started chasing more and more speculative routes. In the 80's it was junk bonds. Today it's sub-prime mortgages. Same shit, different year.
February 11, 2009 11:46 AM | Reply | Permalink
Great point. "Idle hands are the devil's play things..." could be amended to "idle money" instead.
February 11, 2009 12:09 PM | Reply | Permalink
When you read that a marginal tax rate is 91% on wealthy people, a little common sense bell should go off on your head saying "there's no way those people wouldn't spend enough money on accountants to figure out how to reduce the numbers that actually gets taxed at that rate". I'm 100% sure that only complete idiots were paying 91%. The rest of the rich paid substantially less.
February 11, 2009 12:26 PM | Reply | Permalink
When you read that a marginal tax rate is 91% on wealthy people, a little common sense bell should go off on your head saying "there's no way those people wouldn't spend enough money on accountants to figure out how to reduce the numbers that actually gets taxed at that rate". I'm 100% sure that only complete idiots were paying 91%. The rest of the rich paid substantially less.
February 11, 2009 12:28 PM | Reply | Permalink
Top rate of 91% too high?
Given that it's a marginal rate?
Why do you think so?
Seriously, I don't think so, because I know it's possible to live on 8-12k a year - if you have no dependents and good health.
I'd suggest not changing the rates, just inflation-adjust the threshold - that $500K would have to be something like 6 or 8 million in 2008 dollars, no?
And to sweeten the pot from a legislative horse-trading perspective, give it a sunset provision - when the national debt is back under 1 Trillion in 2008 dollars. I'd be OK with $0.00 too ...
February 11, 2009 1:59 PM | Reply | Permalink
The best place to fix executive compensation is in the tax code, not in the stimulus legislation. This is just another example of piss-poor leadership in Congress when it comes to offering innovative solutions to our structural weaknesses. Can someone please get these people a scalpel to replace the hacksaw they are using now?
February 11, 2009 11:07 AM | Reply | Permalink
There is one flaw in this argument. If we increase the tax rate, what's to stop them from just jacking up their bonuses to compensate? I suggest, as a second leg of this, that all executive compensation be by direct shareholder approval. No more sitting on each others' boards and approving ever-increasing packages.
February 11, 2009 1:50 PM | Reply | Permalink
Bonuses should be taxed as income. Stock grants should be taxed as income at the current market rate. All of these shenanigans by the so-called elite of this country need to stop in all industries, not just the financial sector.
February 11, 2009 1:54 PM | Reply | Permalink
I don't get it. I thought the salary caps had to do with TARP and not the 800 billion bailout.
February 11, 2009 11:08 AM | Reply | Permalink
Here's 20 billion Savings Measure! If we give them 30 billion and get back 10 billion, that puts us out 20 billion. Give the banks about 30 billion less and keep the salary caps, puts us ahead by 20 billion.
February 11, 2009 11:09 AM | Reply | Permalink
Umm. What is Jessie Jackson doing at the Wall Street executive hearings right now and whoever that CEO talking right now just said executive pay actually decreased 1%. Woohoo.
So, instead of making $100,000,000 he only made $99,000,000.
I feel much better now. Thanks executive guy!
February 11, 2009 11:11 AM | Reply | Permalink
Could someone please explain how having a salary cap could possibly cost the government money. On its face that sounds like a load of BS. It sounds more to me to be a made up excuse for not doing anything.
February 11, 2009 11:11 AM | Reply | Permalink
Take the total salary of all employees, divide by 7, multiply by 14, subtract 6, add 47.2, divide this by 3.14, take the square root of 2, quadruple that, then subtract the (GDP-executive salary pay).
It's really pretty simple.
February 11, 2009 11:16 AM | Reply | Permalink
The theory is that the government taxes this revenue at a fairly high rate, and if they make less money, the government gets less in taxes.
Others above point out problems with the theory (or ways around it), but that's the theory, and it actually makes sense if you don't think about it too much.
February 11, 2009 11:45 AM | Reply | Permalink
Remind me again why we elected an overwhelming Democratic majority in the House and Senate, as well as a Democratic president. It wasn't so that we could blame the Republicans for preventing us from doing the right thing, was it?
February 11, 2009 11:39 AM | Reply | Permalink
I know that this is contrary, but this has nothing to do with stimulus. Do another bill or cap it through the tarp, or whatever it is called now, outlays. This is a waste of time arguing about this in the stimulus package. Just get the deal done.
I still think that they should fire these fools and nationalize the big banks and then privatize after everything is straightened out.
February 11, 2009 11:50 AM | Reply | Permalink
why no outrage against obama for allowing this?
pathetic losers.
February 11, 2009 11:50 AM | Reply | Permalink
Obama is the President and head of the Executive branch, not the head of either Democratic congressional delegation. While he can do a lot behind the scenes, officially the only thing he can do at this point is sign the bill, or veto it.
February 11, 2009 12:24 PM | Reply | Permalink
Obama is the head of the Democratic party.
February 11, 2009 1:47 PM | Reply | Permalink
Hey Elana if you read this stuff answer me a question. You refer exec pay limits and the stimulus in the same blog here.
I thought the exec pay limits was associated with the limits they were planning to place on TARP loan limits.
Do I understand this wrong or what?
February 11, 2009 11:51 AM | Reply | Permalink
They're discussing incorporating pay limits into the stimulus bill because the ones in the TARP program are like swiss cheese.
February 11, 2009 11:58 AM | Reply | Permalink
Hey Elana if you read this stuff answer me a question. You refer exec pay limits and the stimulus in the same blog here.
I thought the exec pay limits was associated with the limits they were planning to place on TARP loan limits.
Do I understand this wrong or what?
February 11, 2009 11:52 AM | Reply | Permalink
Senate democrats not happy with the weak caps suggested by Obama decided to include a more robust provision. I think McCaskell had something to do with that.
February 11, 2009 12:05 PM | Reply | Permalink
Looks like a deal has been reached at 790 billion.
Money back in for school construction and money for the state governments.
http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus
February 11, 2009 11:58 AM | Reply | Permalink
OK well that part's good! Now let's restore the caps.
February 11, 2009 12:39 PM | Reply | Permalink
Looks like a deal has been reached at 790 billion.
Money back in for school construction and money for the state governments.
http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus
February 11, 2009 12:00 PM | Reply | Permalink
You know, the Hannities and Limbaughs on the AM(crazy) radio band have been equating the pay caps with socialism. Shocking, I know. Even though somehow this wasn't a problem when the Detroit bailout included pay reductions for union workers. But nevermind. To (painfully) quote the Hannity example, the caps are “a dramatic move away from capitalism and toward socialism."
Are some feckless D's capable of running scared from the specter of the label sticking to them come reelection time? Um, I'm gonna say yeah.
February 11, 2009 12:34 PM | Reply | Permalink
You know, the Hannities and Limbaughs on the AM(crazy) radio band have been equating the pay caps with socialism. Shocking, I know. Even though this wasn't a problem when the Detroit bailout included pay reductions for union workers somehow. To (painfully) quote the Hannity example, the caps are “a dramatic move away from capitalism and toward socialism."
Have we seen these mountains move mountains and change the shape of legislation lately? And are some feckless D's capable of running scared from the socialist label, fearing it will come back haunt them come reelection time? Even though capitalism could be a dirtier word by then, I'm gonna go with "hell yeah."
February 11, 2009 12:40 PM | Reply | Permalink
You know, the Hannities and Limbaughs on the AM(crazy) radio band have been equating the pay caps with socialism. Shocking, I know. Even though this wasn't a problem when the Detroit bailout included pay reductions for union workers somehow. To (painfully) quote the Hannity example, the caps are “a dramatic move away from capitalism and toward socialism."
Have we seen these mountains move mountains and change the shape of legislation lately? And are some feckless D's capable of running scared from the socialist label, fearing it will come back haunt them come reelection time? Even though capitalism could be a dirtier word by then, I'm gonna go with "hell yeah."
February 11, 2009 12:43 PM | Reply | Permalink
Yikes. Sorry folks. I kept getting a traffic related error posting message to "try again" Apparently it was confused.
February 11, 2009 12:47 PM | Reply | Permalink
I think this is a trial balloon. Hoping it gets shot down ASAP.
February 11, 2009 1:14 PM | Reply | Permalink
Surely no one can be surprised at this? Not now anyway after the Daschle tax episode. Does anyone truly think that our elected officials are in this for anyone but themselves. The Senate is referred to as the millionaires club after all. The only change we are getting is party affiliation. Can Obama clean this up? By the looks of his economic advisers I don't know.
February 11, 2009 1:40 PM | Reply | Permalink
I think this is a trial balloon. Hoping it gets shot down ASAP.
February 11, 2009 2:15 PM | Reply | Permalink
Can anyone explain how capping pay for banks changes the cost of the bill???
I don't get the basic premise here.
February 11, 2009 3:09 PM | Reply | Permalink
Because when the Masters of Universe get 40 million bonuses we tax 'em 30% or so. NO bonus no 30% cut. They say it would cost us 30 billion in lost revenue. But it sounds like a false argument since in order to collect the 10 billion, execs have got to get paid 30 billion. We are paying the 30 billion needed to pay the jerks and the n getting 10 back. Seems to me we are out 20 billion in this deal.
But I like the idea of raising the top tax levels on income over 1 million.
February 11, 2009 3:27 PM | Reply | Permalink
Correction: They say it would cost us 10 billion in lost revenue.
February 11, 2009 3:46 PM | Reply | Permalink
Correction: They say it would cost us 10 billion in lost revenue.
February 11, 2009 4:06 PM | Reply | Permalink
Executive compensation is not the problem per se. How we determine executive pay is. Compensation committees are completely incestuous and incentivised to make their buddies rich.
The government really shouldn’t be in the business of telling folks how to run their companies, UNLESS they are doling out tax payers’ money. Half measures are pointless, if the government has to fund some banks and wants to determine compensation, then they should just take them over.
Don’t be surprised if Uncle Sam pays bonuses to executives of nationalized banks.
February 12, 2009 1:08 PM | Reply | Permalink