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Tuesday, February 10, 2009

Obama To Cap Executive Pay

Last week, President Obama announced a $500,000 pay cap on certain senior executives whose firms received TARP funds

Obama reminded executives that they need to "take responsiblity." He characterized firms that received TARP funds and paid "customary lavish bonuses" as the "height of irresponsiblity" and "shameful." He also reminded executives that Americans "don't disparage wealth" or "begrudge anybody their success." However, he pointed out that the American people become upset when failure is rewarded, and the "rewards are subsidized by U.S. taxpayers."

In addition to the pay caps, executives who receive "perks and luxuries" are going to have to publicly explain "why these expenses are justified," Obama said.

The Rich Got Richer

For the first time, everyone on the 2006 Forbes 400 list was a billionaire. The 2005 Forbes 400 list contained 374 billionaires, with a combined net worth of $1.13 trillion. No new editions were added to the 2005 list. Steve Forbes, Forbes magazine publisher, did not make the list because his net worth is only $400 million.

The collective net worth of the Forbes 400 billionaires is $1.25 trillion.  In fact $1.13 trillion is more than “the combined gross domestic product of SwitzerlandPolandNorway, and Greece,” as New York Times columnist Nina Munk observed.

The minimum net worth needed to make the list went from $500 million to $625 million in 1998. In 1999 the Forbes 400 list had as much wealth as bottom half of U.S. population, over a trillion dollars. The average Forbes 400 member increased their wealth by 177 percent in the last decade, and more than 55 percent in the last two years.

A 2004 study by UC Berkeley professor Emmanuel Saez reported that the income of the median household in 2004 only increased by 1.6 percent. During the 1998 to 2001 period it increased by 9.5 percent. The New York Times conducted a study on the 2003 tax cuts. They found that someone earning $26 million paid the same amount of taxes as a $200,000 to $500,000 wage earner. The median income taxpayer receives a tax cut of $600, while a $10 million dollar wage earner receives a $500,000 tax cut.

Given the above facts, it is clear why Obama declared, "we're taking the air out of the golden parachute."

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