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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.