Sunday, March 17, 2013

It's easy to go too far

The new story that people are talking about is how Switzerland just voted to implement wage controls on CEOs. I am as in favor of increasing the minimum wage as the next progressive, and wish to see that taxes on the super rich rise substantially to where they used to be in this country. I suspect they are doing this so that they will pay workers more. They also say they are angry at the corporate fraud that has been going on worldwide over the past few years. However, this method won't work for a few reasons. News story here
  1. The Stock Market. Warren Buffett is the richest man in the world and his annual salary is $100,000, which is a middle class income level. He gets almost all of his gains from capital gains through Berkshire Hathaway's stock, so he mostly pays himself by taking his company's gains and putting them into stock which is where he keeps over 99% of his wealth. Curbing CEO pay will not substantially affect their wealth.
  2. It doesn't affect minimum wage. Since they are just going to put their money in the stock market where most of their money already is, they have no extra incentive to increase the pay for their workers, because they haven't raised their minimum wage, that would be the real step towards improving Switzerland's economy. (which is already pretty good)
  3. It doesn't effect corporate fraud. I completely agree that there need to be strong regulations against fraud from corporations, and that the destruction of reasonable regulations  over the past 30 years in America and Britain (among others I am sure) needs to be reversed. This change in law doesn't effect that massive problem at all, so will be ineffective towards their stated goals.
There also is the possibility that such a radical change in how the uberrich are treated by the Swiss government will cause them to leave Switzerland and move to Germany, France, Austria, Liechtenstein, or Italy where they won't have the regulation, which will mean the Swiss government could potentially lose a lot of revenue. This isn't the case with income tax increases however, because taxes on capital gains only come into effect when you pull the money out; not to mention that Australia already has the most progressive capital gains tax, the most stable economy in the world, and the fifteenth highest concentration of billionaires in the world despite having the most (one might successfully argue only) progressive income tax globally; but capping wages is a totally different matter, even in the unlikely case of it working. It would be far more reasonable to make a balanced approach through taxing capital gains at a progressive rate and cracking down on tax fraud and other international crimes that Swiss corporations commit every year. In short, this is a poor solution and they need to be more rational and less reactionary.

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