Should the federal government tell companies how much they may pay their executives? The Obama administration plans to do just that. The president announced Feb. 4 that companies receiving "extraordinary" levels of bailout money from taxpayers would be forced to limit top salaries to $500,000 a year.
Rep. Barney Frank, the Democratic chairman of the House Financial Services Committee, then suggested Congress might seek to extend those pay caps to all financial institutions — and perhaps even all U.S. companies.
Are pay limits an outrageous imposition on free markets? Or are they a responsible method of reining in the financial risk-taking that helped cause the country’s economic problems? RedBlueAmerica columnists Joel Mathis and Ben Boychuk jump into the fray.
Pity the poor CEO. He’s spent the last few years making tens of millions of dollars while running his business into the ground — helping destroy retirement accounts, explode the unemployment rolls and generally devastate the economy. Now he goes hat in hand to the federal government for help and he’s supposed to take a pay cut? To only $500,000 a year? As the saying goes: Cry me a river.
President Obama is right to insist on pay caps for executives at companies receiving federal assistance. Taxpayers shouldn’t have to subsidize, say, Merrill Lynch’s $1,200 wastebaskets as the cost of saving the country from a new Great Depression.
That’s not to say Americans should completely give in to their populist rage. Capping the compensation of executives at thriving companies might feel good for a moment, but it’s almost purely punitive and it probably won’t revive the economy. That’s where our focus should be.
Executives at businesses getting a federal handout, though, have already failed. In a real free market economy they’d be out of work, their companies shuttered. They’re lucky taxpayers are helping them survive; they shouldn’t also expect to get ultra-rich in the process.
Don’t pity any company that went to the U.S. government in search of a handout. There are always strings attached to receiving tax dollars. Always. It doesn’t matter whether you are on food stamps or whether you are the CEO of a multinational bank. Often, the strings are unacceptable, which is why Goldman Sachs is scrambling to repay the $10 billion the Treasury loaned the investment bank last year as soon as possible. Extra government regulation is bad for business, and the financial institutions know it.
As a matter of principle, however, government has no business dictating the salaries of corporate executives — or the salaries of doctors, lawyers, university professors, grocery clerks or newspaper columnists, for that matter. Ultimately, the market will determine wages. When government tries to intervene with wage and price controls, as it did in the early 1970s, the results are always to the detriment of the economy.
But leave it to liberal regulators in the Obama administration and Congress to overreach. Barney Frank might succeed in extending executive pay caps to all U.S. firms, but it is highly unlikely that he will be held accountable for the predictably disastrous results.
If Frank and his liberal colleagues do get their way, they will hobble the economic recovery and depress federal tax revenues. Conservatives often refer to the law of unintended consequences. Americans will now have a chance to see the law in action.
According to a new Congressional Budget Office report, Obama’s executive pay cap will cost the U.S. Treasury about $11 billion in lost revenues over 10 years. How is that? For starters, pay caps reduce taxable income. And smart companies will look to adopt other forms of compensation that are not subject to higher taxes.
By sticking it to those fat cat CEOs, in short, liberals are really sticking it to the country.
(Ben Boychuk and Joel Mathis blog daily at http://www.infinitemonkeysblog.com and http://politics.pwblogs.com/.)