The horizon is not so far as we can see, but as far as we can imagine

It Is Impossible to Control Corporations Without 90%+ Progressive Tax Rates

Probably 95 percent on any income over about a million, 90 percent on anything over 500K, honestly.

Dick Fuld earned about $69.5 million in 2007, the year before Lehman Brothers filed for bankruptcy in Sept. 2008. From 2000 to 2007, he was awarded about $889.5 million and cashed out about $529 million of that before the company went bankrupt.”

Why would Fuld, or any other executive earning millions of dollars a year care if their company went bankrupt?

The man walked away with 529 million dollars for seven years. It’s irrelevant to him that Lehman went bankrupt.

You cannot have a good economy, where executives plan for the future, unless they need their companies to continue to do well.

That means high, progressive tax rates on income, on capital gains, AND on unrealized capital and wealth, with no loops.

Taxes on unrealized capital gains and wealth are necessary because, without them, rich types don’t cash out capital; instead, they use loans to pay their bills. When you’re worth 500 million or even just a 100 million, banks are happy to lend, at under 2 percent.

Now, obviously this doesn’t apply to people who have all their securities in one company, but most rich diversify.

The larger point, however, is just that the rich are too rich, and that people who can get rich in a few years don’t care much if everything crashes after they’re rich.

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Who Do You Want to Win an Iranian/American War?


Week-end Wrap – Political Economy – May 11, 2019


  1. bruce wilder


    If there is one critical piece, this is it. There has to be a hard ceiling placed on the ability of professional managers aspiring to chief executive rank to draw salary and bonuses large enough to make them independently wealthy in a short period. To allow it is to put everything at risk of depredation by the people handed authority to build and administer the most powerful organizational structures in the political economy. To allow it is to invite sociopaths to run the country and maybe the world.

  2. Rd

    “The larger point, however, is just that the rich are too rich, and that people who can get rich in a few years don’t care much if everything crashes after they’re rich.”

    Once they get to these levels, they have a sickness. There is no fixing that sickness. The french figures out the cure in 1789.. and as Jefferson suggests, you’ll need to revitalize, or reinitialize the system, every 20-25 years. preferably the french way.

    OTH, the other side of the larger point, are the people. who just are a lil’ slow to respond, till they are in the choke hold. then they start struggling. people in US are a very long way from that point.
    going more and more in debt, plus all the entertainment, is a good remedy to distract the public, despite all social and economic challenges.

  3. Hugh

    Societies and their resources are finite. Money is a potential call on those resources. So you decide what are the maxima for a fair reward for socially useful contributions, and you tax accordingly. You treat all income from whatever source the same. To enforce your maxima you use high marginal tax rates on income, and wealth and inheritance taxes to keep wealth within whatever target range you decide on. You use wealth panels to assess the value of imponderables like mansions and works of art. Hiding and failure to declare wealth or income should result in its forfeiture and jail time.

    Suggested maxima for income would be $300,000-$500,000, and wealth $5-$10 million. The two things to keep in mind are what can your society afford and how much keeps people attached to their society and its well-being.

  4. The problem isn’t that Lehman went bankrupt. The problem is that others like it did not, because the government stepped in a prevented them from doing so.

    If Lehman was typical, in that companies which paid management in a way that allowed them to loot the company and run away filthy rich crashed and burned, destroying investors in the process, then such companies would soon have no investors to be destroyed. Investors would see what management was paying its management, would see the manipulation of its stock prices by things such as corporate stock buybacks, and would stay away from that company in droves.

    Instead, because of inept reporting about the “success” of such companies, and the knowledge that the government will protect the stakeholders, investors see high gains to be made and flock to the phony stock prices like ducks on a june bug.

    The problem is the stupidity and greed of management, the stupidity and greed of the government they have bought, and the stupidity and greed of investors. Nobody and nothing can protect anyone from their own stupidity and greed, including high progressive tax rates.

  5. StewartM

    I agree that high progressive tax rates are necessary, but overall, more for the investors as a whole, not just CEOs. Also, we need to make paying CEOs in stock options illegal, as it once was, plus stock buybacks.

    Though eventually, I believe, the best solution is to use our tax structure to declare corporate “people” as people and make them pay the individual tax rates, for big corps, this would be 95 % on their profits, but give them the ‘out’ of morphing the stockholders’ stocks into bonds and morphing the corporation into a cooperative with the leadership elected by the workforce on a one man, one vote, basis. In return for the investors ceding control the coop gets a low (or maybe even non-existent) tax rate (the investors would still have to pay taxes, mind you, as individuals, which means the richest ones would still pay a high tax rate):


    1) The compensation of the leadership is voted on by the workforce;
    2) The leadership lives in fear of pleasing the workers, more so than the investors;
    3) Company takeovers by raiders and the like are not possible. The big stockholder now has no more power than the little one currently has, it’s egalitarian for the investors too.

    What I think you would see, is that:

    1) Layoffs become rare–at my company, we used to handle such problems by giving out ‘no work’ days, where one in essence people got a day of unpaid vacation every other week or so. Everyone would get one, before anyone got two. (That way, you still have a job, and benefits, and most people can handle that).

    2) We spend more on capital–workers want to not only higher pay and better benefits, but also want to see infrastructure replaced and modernized. Instead of useless stock buybacks and other paper manipulations, the firm’s money will go into improving real assets

    3) Management would be paid less, because other managers wouldn’t be inflating their pay scales (your CEO sits on other corporate boards and votes for extravagant pay raises for other CEOs, while theirs sits on your firm’s board and returns the favor). And you wouldn’t see cases where the workers get axed or have their pay cut or frozen, while the CEO and his team all get fat raises. The expectation is that the people making the most take the biggest hit when times are lean.

    4) Profit-sharing plans would become more egalitarian. I personally favor everyone getting the same absolute dollar amount, as I believe that incentivizing people at the bottom, not the top, works best. At my company, in the old days, even with everyone getting the same % it meant that in good years ordinary line workers got bonuses big enough to go out and buy new, low-end, cars (that would be $10-$15k today). Now the execs get the huge bonuses, while the line workers get maybe bonuses in the hundreds to $1000 or so–one year with a small bonus a coworker used his to take his family out to dinner. Contrast that to them being able to pay for a major purchase, like a car, with cash.

    5) Investors actually experience, gosh by golly, *risk* again. No longer do they dictate that they win while everyone else–workers, customers, communities, lose. Or that worst case, they lose last. No, they would the among the first to lose, as they should.

    As a consequence of this, the financial markets would make far less. They would thus shed thousands of workers in what are essentially unproductive jobs, for employment in jobs actually producing goods and delivering real services. This, and more, if done right, would move us more to a full employment-low inflation economy (as our workers would actually be making things economically useful, instead of much of them working on economically worthless jobs).

    This is also why I still favor a change in the capital gains tax, to reward long-term investments (15 or 20 or 25 years, say). I once proposed a system where the capital gains tax rate would start at the normal income tax rate, then drop 3 % every year the asset was held, to a max of 15 years. I still think that’s not a bad idea, when the investors like everyone else have to focus on the long-term they tend to make better decisions. Right now, short-term thinking by investors drive all US companies save those in gamed markets to “burn down the house to heat it”; long-term thinking drives capital infrastructure maintenance and improvement and more R&D, and that’s what I think our tax system should encourage. Mind you, as I also favor a tax on all incomes for universal health care and doubling SS, of about 25 % (that should cover both), the richest people in best-case would still be paying an effective tax rate of something like 60 %. Day-trading would and should come to a screeching halt.

    I would also treat IRAs and 401ks as capital gains, which would mean that most ordinary working people would likely owe little or no taxes on their retirement assets (as they have been held long), and only have to pay like the 25 % or so for SS and universal health care out of it I would require. I don’t favor IRAs and 401ks as retirement income vehicles; I believe that pensions should be required plus we should double SS payouts (which we can do by removing the caps and taxing all income at the same rate only wage earners pay). SS and one’s pension by themselves should allow you to live in reasonable comfort. But retirement savings are a good thing to encourage too, and the fact we would have universal health care is that it wouldn’t be something sucked up at the end-of-life by the medical-industrial complex.

    My two cents.

  6. johnm33

    Maybe extending credit to the whole citizenry at the same %rate the banks/corporations pay instead of continuing the current failing socialist system for the banks/corporations. A $30,000 annual limit would do it, no interest until the end of the year then the interest as a fee to roll over the debt, repayment collected at 2.5% on every transaction in parallel with a wider transaction tax, as per
    This would represent a dynamic shift of power to the people.

  7. bruce wilder

    ah, the responsible investor is going to step in and discipline greedy management . . . NOT!

    there is a mutually beneficial alliance in place between the mega-capitalists and the cleverly sociopathic executive class, a discovered symbiosis!

    sure, the stupid, looting executive who crashes the company in a couple of years is desired by no one, but that is not what this class of chief business executive has been doing in the main. The example, Dick Fuld, kept Lehman going for a number of years. His numerous colleagues at other institutions banded together to extort favorable policy from the central bank and the government that stabilized their game of jenga.

    this symbiosis between smart-money capitalists and the executive class is a distinctive feature of American capitalism after 1975 or so and it has driven the redistribution of income and wealth upward. it shows up clearly in the findings of Piketty and Saez on long-term trends in income distribution: there is a heavy weight in top incomes composed of super-high “wage” earners. Very few of these super high earners are film stars and sports stars. no, they are executives. and, they do not “earn” those paychecks from performance before cameras amplified by communication technologies — no, the chief executives are “earning” their money by the strategic use of the authority and power of their positions in the hierarchy of bureaucracy that organizes the political economy. They are altering the structure and policy of business to extract money by cleverly altering the rules of the game and the distribution of risk, selectively breaking contracts, exploiting workers, cheating consumers, privatizing the profit and socializing the losses, corrupting and defeating systems of regulation that try to protect the public interest.

    Fuld crashed a great and storied bank. Fuld is unusual. What was usual was assembling super-giant banks too huge to fail, too big to prosecute.

    A competitive market economy is an obfuscating myth. There are very few markets. The actual economy is composed of bureaucracy and the organization of bureaucracy is the source of political power.

    There is some useful intuition in the myth of the competitive market: it is that the interests of players is naturally opposed. Buyers and sellers, employees and employers — their interests are opposed and a mutually beneficial result requires a respectful balance and such a balance implies constraint. Healthy mutual opposition constrains the ways in which the ambitious can obtain profit and how much profit they can obtain. To get to the kind of money Fuld was making for himself (and for his smart-money capitalist backers — they are not usually victims in this arrangement) requires breaking many constraints and foisting risks onto the society at large.

    In the abstract, we can imagine a leadership running a bureaucracy in a way that makes the organization highly efficient (genuine efficiency is a very good thing!) or the ecology of many bureaucracies in which it thrives healthy and resilient. That kind of leadership can do relatively well for itself, but it is not taking vast sums — taking vast sums requires disinvestment, control fraud, disabling the effective opposition of opposed interests and trading away efficiency.

  8. nihil obstet

    A post that proposes a simple Copernican call to use tax rates to stop destructive plundering immediately produces comments that suggest Ptolemaic epicycles of design. I’d like to change totally how we organize the economy, but the first step is simplification. Anything complicated is subject to capture by and for the people in power. In nothing flat, you get assumptions about how incentives will work (investors will become more knowledgeable and CEOs will care more about the workers) if we just adopt some extra provisions. Political vision is reduced to wonkery.

    The first step is to render it impossible for any persons to accumulate wealth that allows them untrammeled power over others.

  9. bruce wilder

    nihil obstet: . . . the first step is simplification

    maybe. maybe not.

    consider the design problem posed by a mechanical pocket watch for which the only answer is complexity. for the pocket watch, the problem is that the time-keeping device will be exposed to shock and a great variety of environmental conditions — huge variations in temperature and humidity among other things along with vibration and shocks. the only mechanical design that will work is one that carefully balances and compensates every tendency and response. and that will be a complex design, indeed.

    actual watches today are no longer mechanical; they may rely on quartz crystals and can be in some respects admirably simple as a result.

    the thing about society and its political economy is that we people are the gears and levers and springs of political economy. getting rid of us is not necessarily an inherently appealing option. (cf the desire of the overclass for self-driving taxi’s)

    and the problem of political economy is not the exogenous shocks so much as the endogenous developments: in society, every human gear and lever and spring is also a self-interested architect of the society, scheming and gaming the system, changing the game even as the game is played.

    yes, sometimes you may be able to defeat gaming the system by selective simplicity. voting is an example: use opaque electronic systems to count the vote and you invite subterfuge; hand-marked paper ballots counted in public as Lambert Strether preaches — that is using simple, strategically to defeat strategy.

    but sometimes simple is your enemy, in part because there is no hope that it will remain purely simple in the course of playing the game. in government, separating powers so as to force the players to try to persuade and build coalitions has proven to be a good design. special-purpose agencies — a water board, a school board, a central bank and treasury — this kind of complexity is better than the ball of corruption that results from the simplicity of putting it all in the hands of a single, legislative chamber empowered to decide everything by majority vote. and, about majority vote — sounds simple enough, but we do not want to make it too easy to assemble a permanent majority (or “majority”) coalition able to oppress the rest. We need complexity in society to keep alive dissent and alternatives and critique.

    laissez-faire in a competitive market economy has been a seductive form of simplicity and easy answers for at least two hundred and fifty years. an economy without the complexity of a variety of for-profit, non-profit, and government productive enterprise, without the complexity of countervailing regulatory agencies, watchdogs, labor unions is in deep trouble. just remove those damn subsidies and let competition take care of it — yeah, that will work! (that was sarcasm)

  10. nihil obstet

    @bruce wilder: sometimes you may be able to defeat gaming the system by selective simplicity

    I think the tax code is one of those times. I think delivery of medical services is another. The ACA sought to retain all the complexity of competing providers both of payment and of actual service delivery, multiple sources of funds, multiple coverages. I would prefer the simplicity of a National Health Service (“VA for all”). Similarly, I’d prefer Dean Baker’s simplification of corporate taxation — issue non-voting stock to government, which will then get its proportion of dividends and increased value without the thousands of pages of exemptions and workarounds. I’d like the government to fill out our tax forms based on W-2s and 1099s and standard exemption, that we can either sign and return or redo on our own — H&R Block and TurboTax add nothing to the process that’s worth a couple of $billion to them every year because a majority of Americans don’t feel confident enough to do a simple 1040 on their own. Having everybody figure out how to file every year provides more competition and complexity, but it’s for nothing.

    Some things require complexity. Others don’t. I guess I get on this stuff because I’ve seen the putative good guys for the last 40 years hold high-complexity wonking as a value of good government and either lose the arguments or come up with Rube Goldberg policies.

    Should we tax high income and wealth at 90%? That’s simple. Yes.

  11. StewartM

    nihil obstet

    I would prefer the simplicity of a National Health Service (“VA for all”).

    You could actually do both “VA for all” and “Medicare for all”, they’re not mutually exclusive, and in fact I regard that as the superior alternative, as instead of negotiating compensation rates for provide providers, you just have the VA set them (a stipulation would have to be that no private provider can ever reject any patient, nor can they charge extra–no special health care service just for the rich).

    Similarly, I’d prefer Dean Baker’s simplification of corporate taxation — issue non-voting stock to government, which will then get its proportion of dividends and increased value without the thousands of pages of exemptions and workarounds.

    If you’re going to keep large corporations–and I don’t think that’s ideal–then why not voting shares? A big problem with capitalism is that you have all these stockholders essentially wanting the company run for short-term profit, so companies eventually go out of business by ‘burning down the house in order to heat it’, as Ian has written. Why not a major player that is interested in long-term outcomes that can outvote all those short-term fixated idiots? Large institutional investors with long-term focus were part of why the Japanese auto makers could sell autos in the US market making less than $500 a car–because they could execute a long-term strategy that no US firm today could execute because the short-term idiots want it NOW.

    I’d like the government to fill out our tax forms based on W-2s and 1099s and standard exemption, that we can either sign and return or redo on our own

    I would want this for another reason than simplicity–though having sold some family stock I inherited last year, trust me, the simplicity would be appreciated. As most “unearned income” has nothing withheld, it creates more of an enforcement problem for the IRS, which has been starved for employees by Republican Congresses (and note, that Dem congresses do not correct this…hmm). Even though the deficits they squawk about so much could be largely eliminated if tax evasion by the rich on our already-low rates was stopped. Withholding the tax up-front would go a way to helping to stop tax evasion by the rich.

  12. bruce wilder

    It was an old joke when the corporate income tax was 50% (and actually had to be paid!) that every business was in partnership with the government.

    Two things: 1. corporate income tax was refundable in the event of loss and losses could be averaged back — sometimes a very helpful stabilizing factor. A shareholder cannot be tapped in that way.

    2. Actually collecting corporate income tax entails control of financial accounting standards, enforced by audits — the government, at least potentially, can be more effective as an enforcer of standards and audits than typical shareholders.

    As things stand, the federal government has lost control of the corporate form of ownership because it has lost control of the corporate income tax and with it much of its ability to meliorate business financial corruption.

  13. Mike Barry

    Ian\’s right, of course. And that leads to a follow-up question: How do we get there from here? Can there be a peaceful transition?

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