Robert Reich: Friend Or Foe Of The Rich?

In this article, from Salon, Robert Reich (Clinton's former Labor Secretary) suggests that the Democrats are afraid to raise taxes on the rich:

At the very least, you might think that Democrats would do something about the anomaly in the tax code that treats the earnings of private-equity and hedge-fund managers as capital gains rather than ordinary income, and thereby taxes them at 15 percent -- lower than the tax rate faced by many middle-class Americans. But Senate Democrats recently backed off a proposal to do just that. Why? It turns out that Democrats are getting more campaign contributions these days from hedge-fund and private-equity partners than Republicans are getting. In the run-up to the 2006 election, donations from hedge-fund employees were running better than 2-to-1 Democratic. The party doesn't want to bite the hands that feed.

If the rich and super-rich don't pay their fair share, the middle class will get socked with the bill. But the middle class can't possibly pay it. America's middle class is under intense financial pressure. Median wages and benefits, adjusted for inflation, have been going nowhere for 30 years; health costs are soaring (employers are quickly shifting co-payments, deductibles and premiums to their employees), fuel costs are out of sight, the prices of the houses occupied by the middle class are in the doldrums.

What's fair? I'd say a 50 percent marginal tax rate on the very rich, meaning those earning over $500,000 per year. I'd also suggest an annual wealth tax of one-half of 1 percent on the net worth of people holding more than $5 million in total assets. Can't be done, you say? Well, the highest marginal tax rate under Republican Dwight Eisenhower was 91 percent. It dropped under John Kennedy to the 70 percent range. You say the rich will leave the country rather than face a marginal tax of 50 percent? Let them, and take away their citizenship.

If the Democrats stand for anything, it's a fair allocation of the responsibility for paying the costs of maintaining this nation. So far, neither the Democratic candidates for president nor the Senate Democrats have shown much eagerness to advocate this fundamental principle. It seems the rich have bought them out.

However, in this article from Slate, it is suggested that he is "the new best friend to CEOs":

Stepping back a little further, we might question the very premise that a CEO's pay increase should be commensurate with the increase in the value of his company's stock. Between 1980 and 2003, Reich writes in Supercapitalism,

as the average value of America's largest five hundred companies rose by a factor of six, adjusted for inflation, average CEO pay in those companies also rose roughly sixfold.

Reich offers this up as evidence that CEO pay makes economic sense. But CEOs aren't puppeteers. As Paul Krugman writes in his smart new book, The Conscience of a Liberal,

Assessing the productivity of corporate leaders isn't like measuring how many bricks a worker can lay in an hour. You can't even reliably evaluate managers by looking at the profitability of the companies they run, because profits depend on a lot of factors outside the chief executive's control. Moreover, profitability can, for extended periods, be in the eye of the beholder: Enron looked like a fabulously successful company to most of the world; Toll Brothers, the McMansion king, looked like a great success as long as the housing bubble was still inflating. So the question of how much to pay a top executive has a strong element of subjectivity, even fashion, to it. In the fifties and sixties big companies didn't think it was important to have a famous, charismatic leader: CEOs rarely made the covers of business magazines, and companies tended to promote from within, stressing the virtues of being a team player. By contrast, in the eighties and thereafter CEOs became rock stars—they defined their companies as much as their companies defined them.

Are corporate boards wiser now than they were when they chose solid insiders to run companies, or have they just been caught up in the culture of celebrity?
One might wonder the same about Reich.

Hmmm, maybe he feels CEOs deserve their salaries, but that they should also be taxed heavily for it. Can he be a freind and foe to rich?

Comments

[Eric]

Robert Reich makes me want to listen to Motorhead's "Eat the Rich," then actually, physically, eat a rich person.

[MC]

Hmmm, I remember a Krokus song of the same name, perhaps they were covering the Motorhead song. I'm not as schooled in classic heavy metal as I should be..

[Edward]

In Australia we have a 45% top marginal rate applied (I think) to above 170,000 AUD (about 150K USD at current rates). It wasn't so long back that the top income bracket was much lower - so I can't imagine a mass exodus of the top US rich list should the rates be put up to 50% for over 500K, but then I don't know what your top rates and brackets are now - I'd be interested to know if you can fill me in...