Tax the rich! Have fat cat CEOs made socialists of us all?

On Thursday, the House of Representatives passed a bill that would, effectively, nullify the $165 million in bonuses that insurance company AIG recently paid out. The bill, which was ratified by a vote of 328-93, imposes a tax rate of 90 percent on bonuses given to employees whose household income is more than $250,000 per year. The new rate would only apply to companies, like AIG, that have taken more than $5 billion in bailout funds.

The bill is the latest step in what has become a sort of populist chess game between conservatives and liberals. Last month, when Rick Santelli launched into his now-famous rant, many conservatives immediately branded him a populist hero, a Samuel Adams for the 21st century. Suddenly, populism was a good thing, a sign that one was in touch with the common people. As Santelli yelled at the President, it seemed like an uprising was in the air, and the Chicago Tea Party started to look like Woodstock, only with better tailors and a more refined class of people.

Among conservatives, populism wasn't always a good thing. In fact, in the summer of 2008, when Barack Obama cited the massive compensation discrepancy between CEOs and ordinary workers, the conservative website American Thinker accused him of being a populist, and indulging in class warfare. The unspoken message was that populism was a de facto evil, an appeal to the worst aspects of America's mob mentality.

The odd thing is, Santelli's and Obama's populism arguably come from the same place. When Obama noted that many CEOs make more in a day than their workers make in a year, people across the country found themselves nodding their heads in frustrated agreement. A few months later, when Santelli railed against "the losers" who couldn't pay their mortgages, many of the same people found their hearts going pitty-pat.

A big part of America's self-image is the notion that anyone can succeed, that all it takes is hard work and ambition to get to the top. Tied in with a somewhat Calvinist belief that individual success is a measure of one's moral superiority, this may explain why American workers don't tend to criticize their CEO's pay packages, as long as the company is doing well.

On the other hand, businesses haven't been doing very well lately, which has led to a serious reconsideration of the relative pay packages of America's workers. When President Obama proposed an executive pay cap of $500,000 for banks accepting bailout funds, executives responded like scalded cats. Never mind that the sum in question was almost twenty times the median individual income in the United States; for executives who had grown accustomed to seven and eight-figure compensation packages, it was comparable to asking them to eat cat food.

And therein lies the problem. In 1965, the average CEO made 51 times the minimum wage; by 2006, CEO salaries had risen to 821 times times the minimum wage. Put another way, in the same period of time, CEOs went from making 24 times the wages of their average workers to 262 times the wages of the average worker. This means, incidentally, that the average CEO in 2007 made more in the first day of work than their average employee made all year.

The American Thinker piece that criticized Obama for his populism also accused him of inciting class anger. This was a particularly interesting choice of words, given that every middle school student knows that America is a land without class separations, where the children of former aristocrats and the children of former serfs enjoy equal opportunities.

However, when CEOs make 242 times the average salaries of their workers, the term "class" has new relevance. Living in gated communities, sending their children to expensive private schools, and vacationing in exclusive resorts, CEOs no longer have the slightest interaction with their workers. What's more, with reduced inheritance tax, private schooling, and the rising cost of higher education, it's likely that their children, and their children's children, will also never need to interact with the filthy masses. After a while, this starts to look more like 18th Century England and less like 20th Century America.

This may also explain why executive actions after the bailout have often seemed so out-of-touch. For Chrysler's executives, full-page thank you notes plastered in The Wall Street Journal and USA Today probably seemed like a classy way to show appreciation. For people making less than $40,000 a year, however, it seemed like a waste of a quarter million dollars.

Some congressmen have proposed legislation that would encourage companies to limit executive compensation to 25 times that of the average worker's salary. While it seems unlikely that these laws will ever be enacted, there is a lot to be said for them. In addition to putting more money in the pocket of the average consumer, they would also give executives a little better understanding of the lives of their customers. In the meantime, a tax rate of 90% on bailout bonuses might be a pretty good place to start.
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