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Apropos of Wall Street's dominance: I've read that the "greed is good" [0] obsession with money started to catch on in the 1980s, after the Reagan tax cuts. Pl

Apropos of Wall Street's dominance: I've read that the "greed is good" [0] obsession with money started to catch on in the 1980s, after the Reagan tax cuts. Plus, corporate executives use their financial compensation as a way of keeping score in the career game, while compensation committees look to consultants to tell them what the average comp is for executives — which means that the average comp keeps drifting up (because we certainly wouldn't want to pay our CxO less than the average, would we?). The problem, of course, is that this obsession makes for a bad combination with a focus on the short term, which is practically Wall Street's middle name. I'm intrigued by the notion that the best long-term fix for short-term financial thinking is to go back to a 70% top marginal tax rate, for that portion of incomes that exceed some multiple of the median (maybe 10X?). That'd still be less than the 91% top rate in 1960 [1] — and it would reduce the competitive incentive for executives and investors to scratch and claw for more and more money as a proxy for [anatomy] measuring. [0] https://www.wikiwand.com/en/Gordon_Gekko https://www.wikiwand.com/en/Gordon_Gekko [1] https://taxfoundation.org/some-historical-tax-stats/ https://taxfoundation.org/some-historical-tax-stats/

microcolonel 7y ago
The tax code is completely different today from what it was when there were considerably higher marginal tax rates. The actual ratio of tax to GDP has not changed considerably since then. Try to actually understand the totality of the circumstances you're talking about. Too many people think they have just-so solutions to a problem they can't even characterize in any useful way. Please don't add fuel to the fire. The problems facing America can not be reduced to a misunderstood slogan or the name of a president or a street name or a single policy strategy. "Fight for fifteen"-ism and "the one per cent!"-ism do not magically make ordinary Americans richer. The catchier it is, the more likely there is a hidden beneficiary you aren't considering.
- dctoedt 7y ago
  > Try to actually understand the totality of the circumstances you're talking about. Please enlighten us. > The tax code is completely different today from what it was when there were considerably higher marginal tax rates. I'm aware. (I was in law school taking a couple of tax-law courses during the 1980 election debates about Reagan's proposed tax cuts.) > The actual ratio of tax to GDP has not changed considerably since then. Please explain how this is relevant to individual incentives and the "emergent behavior" that they create.
  - microcolonel 7y ago
    > I'm aware. (I lived through those days, and was in law school and newly in practice during the Reagan tax cuts.) So yes, like most people here, you did not personally file taxes as a one-per-center before the Reagan administration. Nobody here is expecting you to muse accurately on pre-Reagan tax filing and how people accounted for their wealth. Just remember that nobody pays marginal rates on any money, ever. The deduction structure changed with the rates, as happened for FY 2018. The relationship between marginal rates and revenue/liability is modulated by deductions. > Please explain how this is relevant to individual incentives and the "emergent behavior" that they create. I'm saying that the "incentives" you cite (marginal tax rates you arbitrarily consider to be low) probably don't create that behaviour, because those same people have actually been paying about the same amount of tax this whole time; with the difference mainly coming in the form of subtle differences in compliance and in the way that people account for wealth. If you want to tax the caricature baron-type people you seem to be talking about, make playing by the rules as cheap as the creative strategies they inevitably and understandably employ when nominal marginal tax rates are higher than the cost of doing business a bit differently. Also consider that dragging down the rich doesn't uplift the lower and middle classes. If we have a monopoly problem (as the article's framing conveys), then we should maybe look at a solution to the incentives for excess corporate consolidation and anti-competitive behaviour, rather than getting dragged into the weeds with tired conversations about personal income taxes. Or if we're looking at the personal income tax side of things, at least look at something more relevant to the pain that small businesses face: people who are self-employed are at a tax disadvantage in the U.S, and self-employed people are often the ones who start businesses with their after-tax self-employment income.
    - dctoedt 7y ago
      https://en.wikipedia.org/wiki/Gordian_Knot https://en.wikipedia.org/wiki/Gordian_Knot Or: The swordsman scene in Raiders of the Lost Ark: https://www.youtube.com/watch?v=anEuw8F8cpE https://www.youtube.com/watch?v=anEuw8F8cpE
      - microcolonel 7y ago
- rossdavidh 7y ago
  "The tax code is completely different today from what it was when there were considerably higher marginal tax rates. The actual ratio of tax to GDP has not changed considerably since then." That part, was a good and highly relevant addition to the conversation. It would be given more attention, if it were not surrounded by the rest.
  - microcolonel 7y ago
    Fair enough. I'm a bit frustrated today and I let too much of that come out in my phrasing. Sorry to dctoedt and everyone else who felt I was too coarse. I've moved things around a bit (without removing anything, for posterity, and so that the replies make sense), and moved the important statement to the top.
    - rossdavidh 7y ago
      Thank-you!
inflatableDodo 7y ago
I remember something from years ago regarding tracking boardroom compensation before and after executive compensation transparency laws were brought in, that made this exact point. It also said that because it became an investment signal, the situation developed that companies could raise far more money from investors by inflating their executive compensation, compared to their competitors, than the compensation itself cost them, so it for a while it almost became dumb not to, resulting in a large part of the escalation of executive compensation in publicly traded companies.
- api 7y ago
  Why would investors consider overcompensating executives a buy signal?
  - JetSpiegel 7y ago
    If you can waste money on worthless crap like executive compensation, your company must be flushing with cash.
    - devonkim 7y ago
      I’d argue “wasting money” with higher wages for employees is more of an indicator of being comfortable in its business model and margins rather than just a few people paid millions. For example, Costco seems a lot healthier than Walmart and last I checked the stock for the latter was underperforming against Costco (although Costco is also underperforming in comparison to broader indexes because of the Amazon fears by investors).
      - JetSpiegel 7y ago
        Agreed, but by "executive compensation" I did not mean wages only. Not even employees, most of them have non-trivial amounts of stock.
  - inflatableDodo 7y ago
    Most investors are surprisingly low detail. They are looking for indications of confidence in comparison to competitors, as opposed to knowing a lot about the specific companies business. If company A in sector Z pays out a load of executive bonuses, or headhunts a new CEO at a higher rate than companies B, C & D, then the stock will usually rise at such news, unless there is some other very public news to cancel that out.

microcolonel 7y ago

The tax code is completely different today from what it was when there were considerably higher marginal tax rates. The actual ratio of tax to GDP has not changed considerably since then. Try to actually understand the totality of the circumstances you're talking about. Too many people think they have just-so solutions to a problem they can't even characterize in any useful way. Please don't add fuel to the fire. The problems facing America can not be reduced to a misunderstood slogan or the name of a president or a street name or a single policy strategy. "Fight for fifteen"-ism and "the one per cent!"-ism do not magically make ordinary Americans richer. The catchier it is, the more likely there is a hidden beneficiary you aren't considering.

dctoedt 7y ago
> Try to actually understand the totality of the circumstances you're talking about. Please enlighten us. > The tax code is completely different today from what it was when there were considerably higher marginal tax rates. I'm aware. (I was in law school taking a couple of tax-law courses during the 1980 election debates about Reagan's proposed tax cuts.) > The actual ratio of tax to GDP has not changed considerably since then. Please explain how this is relevant to individual incentives and the "emergent behavior" that they create.
- microcolonel 7y ago
  > I'm aware. (I lived through those days, and was in law school and newly in practice during the Reagan tax cuts.) So yes, like most people here, you did not personally file taxes as a one-per-center before the Reagan administration. Nobody here is expecting you to muse accurately on pre-Reagan tax filing and how people accounted for their wealth. Just remember that nobody pays marginal rates on any money, ever. The deduction structure changed with the rates, as happened for FY 2018. The relationship between marginal rates and revenue/liability is modulated by deductions. > Please explain how this is relevant to individual incentives and the "emergent behavior" that they create. I'm saying that the "incentives" you cite (marginal tax rates you arbitrarily consider to be low) probably don't create that behaviour, because those same people have actually been paying about the same amount of tax this whole time; with the difference mainly coming in the form of subtle differences in compliance and in the way that people account for wealth. If you want to tax the caricature baron-type people you seem to be talking about, make playing by the rules as cheap as the creative strategies they inevitably and understandably employ when nominal marginal tax rates are higher than the cost of doing business a bit differently. Also consider that dragging down the rich doesn't uplift the lower and middle classes. If we have a monopoly problem (as the article's framing conveys), then we should maybe look at a solution to the incentives for excess corporate consolidation and anti-competitive behaviour, rather than getting dragged into the weeds with tired conversations about personal income taxes. Or if we're looking at the personal income tax side of things, at least look at something more relevant to the pain that small businesses face: people who are self-employed are at a tax disadvantage in the U.S, and self-employed people are often the ones who start businesses with their after-tax self-employment income.
  - dctoedt 7y ago
    https://en.wikipedia.org/wiki/Gordian_Knot https://en.wikipedia.org/wiki/Gordian_Knot Or: The swordsman scene in Raiders of the Lost Ark: https://www.youtube.com/watch?v=anEuw8F8cpE https://www.youtube.com/watch?v=anEuw8F8cpE
    - microcolonel 7y ago
rossdavidh 7y ago
"The tax code is completely different today from what it was when there were considerably higher marginal tax rates. The actual ratio of tax to GDP has not changed considerably since then." That part, was a good and highly relevant addition to the conversation. It would be given more attention, if it were not surrounded by the rest.
- microcolonel 7y ago
  Fair enough. I'm a bit frustrated today and I let too much of that come out in my phrasing. Sorry to dctoedt and everyone else who felt I was too coarse. I've moved things around a bit (without removing anything, for posterity, and so that the replies make sense), and moved the important statement to the top.
  - rossdavidh 7y ago
    Thank-you!

inflatableDodo 7y ago

I remember something from years ago regarding tracking boardroom compensation before and after executive compensation transparency laws were brought in, that made this exact point. It also said that because it became an investment signal, the situation developed that companies could raise far more money from investors by inflating their executive compensation, compared to their competitors, than the compensation itself cost them, so it for a while it almost became dumb not to, resulting in a large part of the escalation of executive compensation in publicly traded companies.

api 7y ago
Why would investors consider overcompensating executives a buy signal?
- JetSpiegel 7y ago
  If you can waste money on worthless crap like executive compensation, your company must be flushing with cash.
  - devonkim 7y ago
    I’d argue “wasting money” with higher wages for employees is more of an indicator of being comfortable in its business model and margins rather than just a few people paid millions. For example, Costco seems a lot healthier than Walmart and last I checked the stock for the latter was underperforming against Costco (although Costco is also underperforming in comparison to broader indexes because of the Amazon fears by investors).
    - JetSpiegel 7y ago
      Agreed, but by "executive compensation" I did not mean wages only. Not even employees, most of them have non-trivial amounts of stock.
- inflatableDodo 7y ago
  Most investors are surprisingly low detail. They are looking for indications of confidence in comparison to competitors, as opposed to knowing a lot about the specific companies business. If company A in sector Z pays out a load of executive bonuses, or headhunts a new CEO at a higher rate than companies B, C & D, then the stock will usually rise at such news, unless there is some other very public news to cancel that out.