Reed Hastings: "Please, Tax Me More!"

The little Fool on my left shoulder loves President Obama's initiative to cap salaries at bailout beneficiaries. Asking top executives to keep a lid on their own compensation seems only fair when the same guys are asking for government handouts, after all. Bank of America (NYSE: BAC  ) , American Express (NYSE: AXP  ) , and General Motors (NYSE: GM  ) may not fall under that umbrella yet -- but they would have to comply before asking for more money.

A $500,000 total compensation cap shouldn't be too onerous a limit. Apple (Nasdaq: AAPL  ) CEO Steve Jobs and the Larry/Sergei/Eric triumvirate over at Google (Nasdaq: GOOG  ) famously collect only a symbolic salary, and their stock holdings haven't made anyone rich lately. None of them has asked for a raise.

The Swedish way
But Netflix (Nasdaq: NFLX  ) CEO Reed Hastings disagrees. "It's a terrible idea," he says in a New York Times Sunday op-ed. Rather than placing a limit on executive compensation, the government should simply tax the living daylights out of people earning million-dollar paychecks. A 50% income tax on salaries that large would pump some of those corporate excesses back into the nation's economy.

"The president should take advantage of our success by using our outsized earnings to pay for the needs of our nation," Hastings says. That's how a true humanitarian thinks; I'm not surprised that Hastings sponsors an "award for moral courage" at Wofford College.

The little Swede on my right shoulder loves Hastings' proposal. Coming from a background where regular working stiffs have to drop as much as 60% of their income right back in Mother Svea's hands, a 50% levy on the ultra-rich sounds very reasonable. And as Hastings says, that rule would do more than keep a leash on highly paid executives: "It would also cover the sometimes huge earnings of hedge fund managers, star athletes, stunning movie stars, venture capitalists and the chief executives of private companies."

And there'd be no burden on the poor, the needy, or even on the struggling middle-class families of America. Almost everybody wins. Those who lose can afford it -- and might still prefer strenuous taxation over a hard salary cap.

What about the fallout?
I wouldn't worry about seeing America turning into a socialist Shangri-La anytime soon, even if President Obama were to take Hastings' advice and raise taxes on the super-rich. If anything, those fat bailout packages come from far deeper in the Left field than this modest proposal does.

Some would worry about celebrities and executives leaving the country for low-tax paradises like Monaco or Bermuda. (It happened in Sweden.) But could you imagine the public-relations firestorm we'd see if Texas Instruments (NYSE: TXN  ) CEO Rich Templeton took his comfy paycheck to the U.S. Virgin Islands, showing up for business meetings via telepresence monitors while sipping Mai Tais in cutoff jeans?

More importantly, the PR disaster would outweigh the tax gains for American idols like John Travolta or Britney Spears. It's un-American to dodge your duties to Uncle Sam. And how do you do serious business outside Manhattan, Silicon Valley, and Hollywood?

It all comes down to this
The war between my tiny shoulder-mounted advisors has subsided. Now I see the little Fool on the left nodding along with the economical sense of the Swede on the right. If Hastings gets his way, both of my miniature mavericks win. His proposed taxes might not have the deterrent effects of a compensation cap, but the economy at large should benefit while the bailouts burn.

"Please raise my taxes," Hastings says. Gutsy call, Reed. I hope our President is listening.

Further Foolishness:

Bank of America is a Motley Fool Income Investor selection, American Express is a Motley Fool Inside Value pick, and Google is a Motley Fool Rule Breakers recommendation. Netflix and Apple are Motley Fool Stock Advisor picks. The Fool owns shares of American Express. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund owns shares in Google and Netflix, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like. The Motley Fool is investors writing for investors.


Read/Post Comments (16) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 09, 2009, at 12:21 PM, rbstern wrote:

    We've been down that road before. Once upon a time, the highest marginal tax rate in the U.S. was 92%. As recently as the early 1980s, the highest marginal rate was 70%.

    The net result of such policy is:

    1) It's a boon for tax lobbyists to finegal exotic tax shelters (a genuine staple of our tax system a few decades ago) that are available only to the rich and serve only to piss off the average tax payer even more.

    2) While the Reed Hastings of the world, already established, who no longer want for anything material, can live with such laws, the next generation of industry builders will be dissuaded from taking the risks necessary to create winning products, services and businesses. Why should they, when the government is has a 50% (or higher) no risk share in everything they accomplish?

    Massively progressive tax schemes are a ball-and-chain attached to the leg of the very people who have not yet but will eventually build our next generation economy.

  • Report this Comment On February 09, 2009, at 1:13 PM, trav1m1m wrote:

    All of those super-rich ("hedge fund managers, star athletes, stunning movie stars, venture capitalists and chief executives") deserve more than they're getting, *but* that's the only way it can work.

    All these people have been playing in a lottery. In finance and movies and the rest of these games, there are hundreds of losers for each winner. You need the overly big prize in order to get people to play in the first place. If you tax them down to a reasonably oversized income, who's going to gamble their life away to get that?

    I think folks like Paul Graham say this more eloquently than I do. Check it out.

  • Report this Comment On February 09, 2009, at 1:53 PM, Jgrimm4 wrote:

    "That's how a true humanitarian thinks" as Anders Bylund puts it in regards to an individual who wants to raise their own taxes to help society. Funny thing is he can accomplish this by just sending in more money to the IRS voluntarily which he can do....but he choses not too.

    This statement by Bylund has to be one of the dumbest I have ever heard.

    This nation is slowly driving(maybe speeding up) to socialism. Just give to charity you morons who want higher taxes. I promise most charities will spend your money for more worthy causes and do so more efficiently.

  • Report this Comment On February 09, 2009, at 1:59 PM, helpisnowhere wrote:

    This is such a great topic - I hope it gets a lot of coverage. I think it addresses a lot of basic beliefs that people hold. I will state some of mine, not to convince anyone, but to clarify a position for others to accept, reject or tweek.

    Presumptin. People with intensity and brains and the right social climate will pursue their "love", be it sports, music, finance, wealth, teaching, religion - whatever it may be. I don't have a hold on all the great people of the universe, but of the one's I have read about, money usually appeared to be secondary to their drive for perfection in the field of their choice. I'm not saying that is an absolute, but I do believe at the same time that many people would have pursued their interest(s) because of innate drive and personality traits - coupled as noted with the right social environment.

    Prsumption. We are not all working on a level playing field. As Warren B. has noted in his "ovarian lottery" concept, if he'd been born at a different time in a different country, he would not be as rich as he is. Society and its rules and regulations and wealth etc, - they all have an effect on the person who is "born into it" I think that some people truely believe that anyone in America, if they just have the drive, can be all they want to be. I just find that unacceptable. There were no black players in the first half of the 2oth century who really wanted to be the best in baseball? There was no woman prior to the past 20 or 30 years that could not have been a great President? The playing field just wasn't level - (though I will say that our country really seems the best at trying to make it happen.)

    One more comment - how big does the trophy have to be? $100 million over 4 years? A $70 million bonus for the year? ! am not sure of the answer - but I think I can recognize the extremes .

    my 2 trillion cents (inflation you know)

    tom

  • Report this Comment On February 09, 2009, at 2:14 PM, rbstern wrote:

    tom, on the one hand, you laud the removal of artificial barriers that prevented woman and blacks from attaining high office or professional sports acclaim. The lesson from this should be: Artificial barriers are not good. Don't erect them. Don't maintain them. Tear them down when they exist.

    For people without wealth, who hope to accumulate wealth, what are very high marginal tax rates?

    Artificial barriers.

  • Report this Comment On February 09, 2009, at 2:16 PM, JGBFool wrote:

    I don't think we should change anything. The economy is clearly doing great with the status quo!

  • Report this Comment On February 09, 2009, at 2:47 PM, holdenhunt wrote:

    With this sort of advice being pedaled, your stock is plummeting with me. As for Mr. Hastings, if you wish to contribute more to the “black hole of federal coffers” than required you are welcome to write a big check and make it payable to the United States treasury.

  • Report this Comment On February 09, 2009, at 3:51 PM, Luwingo wrote:

    With all due respect- the idea of taxing wealthy CEOs and the rest of the super-rich at 50% or more of their earnings has to be one of the dumbest ideas I've heard all month.

    Every time supposed "humanitarians" argue in favour of taxing the ultra-rich, they always leave out one simple fact: the super-rich are always free to send personal cheques to the Department of the Treasury. The fact that they do not, even as they call for higher taxes on the owners and managers of America's best businesses, strikes me as deeply hypocritical.

    Mr. Hastings runs a brilliant business- without question. I'm a user and big fan of Netflix. But his comments about taxing the wealthy even more as a solution to bad behaviour aren't just uninformed, they're silly.

  • Report this Comment On February 09, 2009, at 6:21 PM, Lubomyyr wrote:

    I'm from Denmark, which has pretty much the same taxation problems as Sweden.

    While one on hand, we're trying be an innovative country, we are on the other hand losing a lot scientists and other highly skilled labour to countries with lower taxation schemes.

    Our total marginal tax is around 64% at the moment, and around 40% of the working population pays this rate.

    This has recently become such a large debate that our government is considering moving in the other direction, lowering taxes, to retain our own educated work force, and attract more skilled foreign labour.

    Maybe a few movie stars and super rich for PR reasons cannot leave the country, but the next 10.000 people whom you have never heard of, but are working for high tech coorporations etc, most likely will.

  • Report this Comment On February 09, 2009, at 7:20 PM, xetn wrote:

    I have a much better idea, get rid of the income tax for everyone, get rid of the irs and the fed. And even better, for all of you wanting more government regulation on business, get rid of the 170000 pages of government regulation that is already chocking American businesses and adding tremendous costs to the consumer. Understand this, there is no such thing as a corporate income tax, it is in reality, a consumer tax. If you like paying taxes (government theft) then make a contribution.

  • Report this Comment On February 10, 2009, at 8:39 AM, Jedermann wrote:

    Whatever we have entered here is essentially another Pandora's box like Iraq. The riddle about that myth is that there is no right answer or wrong answer and we may never know which is best. Just don't open the box. But we're here now, so let me respond to one bogus argument that gets pitched by hundreds of Fools, the media and millions of Americans. We're on our way to socialism and socialism is bad. Socialism, it is said, in whatever shape or form will kill innovation. These fears go on and on, but they're bous.

    Case in point: Would you rather drive a BMW or a Chevy?

    I'm American, but I live in Europe - Vienna, Austria.

    Sadly, socialist have us beat on technology in just about every market, from infrastructure (even parking garages) to the quality of appliances to helicopters. Yes, the U.S. makes space shuttles and drone aircraft, but that's all government sponsored.

    Think before you speak. Don't pick side for the sake of picking sides. Investigate the facts. First. Opinions later.

    I'm not saying I support bailout packages or hefty taxes to the rich or salary caps. Sometimes I do, sometimes I don't. But before you form judgments on these things, open your mind to the reality. Understand what socialism is and what sort of socialism still exits, because the kind prescribed by Marx hardly exists anymore in the western world, and has been improved upon greatly. Socialism isn't a sin and it doesn't kill innovation. Half your nation being being no more literate than an eight grader does. Here in Austria I have rich friends, I have middle class friends, I have ease of life, comfort, peace, security, etc., but I have no poor, sick, uneducated friends. Most importantly, for the sake of this commentary, I have access to technologies far better than what is available at home.

    The US can learn from "socialist" nations and the socialist nations can learn from us.

  • Report this Comment On February 13, 2009, at 7:45 AM, ChrisHastings131 wrote:

    When I hear this socialism stuff I just want to puke. What we need is a flat tax. It ends influence peddling as lobbyists lobby over the tax code.

    And everybody pays so everybody has a stake in the country.

    The Dems and the Repubs are both to blame.

    Make no mistake Europe is dying from socialism.

    There is no free lunch

  • Report this Comment On February 13, 2009, at 10:49 AM, DukeTG wrote:

    A flat tax would be good, but I think scrapping income tax altogether for a consumption tax like the FairTax plan is better. You can boil this entire financial crisis down to American over-consumerism. People over-leveraged themselves to buy more stuff, and when their home values dropped they got screwed. Giving people an incentive to save money for once would be a welcome change of pace. The rich will always buy more than poor, so their effective tax rate will be higher. You can even build in a rebate like the FairTax does to make it progressive, so that the very poor pay no tax, the middle class pays some, and so on.

  • Report this Comment On February 14, 2009, at 9:42 AM, MedPeddler wrote:

    "Case in point: Would you rather drive a BMW or a Chevy?"

    As a matter of fact I drive the 2008 Car of the Year, Chevy Malibu. It may not be as fine as a BMW, but I also didn't pay through the nose to get it. Also, consider this: American cars have been produced by union labor for decades. While unions once served a useful purpose, they now stifle innovation and productivity. At GM people are even paid not to work...a socialist idea if I ever heard one.

    "Socialism isn't a sin and it doesn't kill innovation. Half your nation being being no more literate than an eight grader does."

    Socialism does kill innovation. It has in the car industry and does in education. Remember, our schools are run by government with union teachers. Home schoolers consistently do better on standardized tests, have higher college enrollment and graduation rates, and, in some studies, go on to earn a better living. Education was much better in the US when it was a community-based effort.

    Socialism is a sin. Taking more from the rich just because they are rich is stealing. I agree that charities can do the same work as government more efficiently, They often do and would be able to do more if our top earners weren't already shouldering most of the tax burden. In fact, I daresay that those that give wouldn't knowingly contribute to a charity that spends as much on its own bureaucracy as the US government.

    What I'd like to know is why so many banking CEO's pulled similar shenanigans as the boys at Enron and the government is bailing them out instead of making them do the perp walk.

  • Report this Comment On February 15, 2009, at 7:21 PM, afleetfeet wrote:

    After reading the comments on this article, I will never listen to anything one of you "fools" has to say. What a bunch of self-serving, greedy SOBs. Now I know why term "capitalist pig" was coined.

  • Report this Comment On February 15, 2009, at 9:29 PM, Jgrimm4 wrote:

    My simple point is this. The writer references a "true humanitarian" as one who is in favor of the government raising their taxes to help the masses, but the subject does not do so voluntarily. To voluntarily do something without any recognitions for ones efforts is a true humanitarian. Also it is not much of a humanitarian effort if you need special recognition for your efforts either. BUTTTT we are not even talking about this e...we are talking about force. We are talking about forcing people to do something. The subject in the article is only willing to do so if someone else forces him to do so.

    Paying taxes and being a humanitarian or even morally right do not mix AT ALL. We are talking about people doing what other people are telling them to do forcibly.

    I am just shocked at how blind people are. It is truly amazing. Although I am not surprised by the misunderstanding since statistically speaking liberals/democrats are the least giving when it comes to charity. I assume in their eyes the only way to get money for a good cause is through force.

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