Saturday, February 07, 2009

Netflix CEO To Congress: Please Raise My Taxes to 50%; Hey, He Can Pay That Higher Rate Right Now

I’m the chief executive of a publicly traded company and, like my peers, I’m very highly paid ($3.5 million in 2007 including options exercised). The difference between salaries like mine and those of average Americans creates a lot of tension, and I’d like to offer a suggestion. President Obama should celebrate our success, rather than trying to shame us or cap our pay. But he should also take half of our huge earnings in taxes, instead of the current one-third.

Then, the next time a chief executive earns an eye-popping amount of money, we can cheer that half of it is going to pay for our soldiers, schools and security. Higher taxes on huge pay days can finance opportunity for the next generation of Americans.

Another advantage is that 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. Surely there is no reason to focus only on executives at publicly traded companies.

This week, President Obama proposed imposing a $500,000 compensation cap on companies seeking a bailout. It’s a terrible idea. We all want the taxpayers’ money returned, and capping compensation at bailout recipients will just make it that much harder for those boards to hire and hold on to the executives who can lead their companies to compete and thrive.

Perhaps a starting place for “tax, not shame” would be creating a top federal marginal tax rate of 50% on all income above $1 million per year.

~Reed Hastings, CEO of Netflix, in Thursday's NY Times

According to one writer at US News and World Report, in an article "One CEO Who Gets It":

The jury’s still out on whether there’s a modest CEO in the land. But there’s at least one very clever CEO: Reed Hastings of Netflix. In a New York Times op-ed, Hastings argues that President Obama’s proposal to limit certain CEO pay is “a terrible idea.” Most CEOs probably agree. But instead of the usual bromides about how CEOs are geniuses who deserve every penny they earn, Hastings proposes an alternative: Tax anybody who earns over $1 million – which includes most Fortune 500 CEOs – at 50%. Including him.

Dear Mr. Hastings:

If you think that you should pay more in taxes, you don't need to wait for Congress to increase the highest marginal tax rate to 50%. You can actually voluntarily pay more taxes right now, today by making a gift to the United States Government. Tax yourself for your 2008 earnings above $1 million at your proposed rate of 50%, and then simply write a check payable to the "United States Treasury" for your additional taxes owed, and mail to the address below. And if you think 50% is a good rate for earnings above $1 million now and in the future, please consider paying that rate on your earnings above $1m in 2007 and all previous years, and add that amount to your gift. You could not only be clever, you could also set a great example for other CEOs.

Gifts to the United States
U.S. Department of the Treasury
Credit Accounting Branch
3700 East-West Highway, Room 6D17
Hyattsville, MD 20782


At 2/07/2009 10:20 PM, Blogger bix1951 said...

I agree we need some higher brackets and a return to more progressive taxes.

On the other hand, some income averaging should be included because frequently the high income is a one time event,such as selling a business

I also believe income taxes should be paid by everyone with an income.
That would make lower income people stakeholders and give them a more realistic perspective on government spending.

At 2/07/2009 11:40 PM, Blogger KipEsquire said...

Another oft-forgotten fact is that the Internal Revenue Code disallows any individual compensation above $1 million as a business deduction. So those "exorbitant" executive salaries are already punitively taxed twice.

P.S. That $1 million ceiling is not indexed for inflation the way ordinary tax brackets are.

At 2/08/2009 12:44 AM, Anonymous Anonymous said...

With hyper-inflation coming because of the borrowing and printing of money because of this insane 'stimulus' bill, 1millipn dollar is not going to be very much anymore....

At 2/08/2009 1:22 AM, Anonymous Anonymous said...


Cap the execs who are getting TARP money. And people are crying foul?

But what if they didn't NEED THE TARP MONEY TO BEGIN WITH?

If you're running a company that turned down the TARP money, and an exec from one of these failed companies comes running over saying "Hey! I screwed up XYZ Inc. and now I can't make bank there any more. Can I work for you and make 14million?"

Again, if these multi-millionaires are so great and worth more than 500,000, then why is their company on the verge of collapse?

At 2/08/2009 2:21 AM, Blogger J Young said...

I've seen this form letter a couple of times now. Ie the one that asks someone who believes in a more progressive tax system to make a voluntary donation to the federal government. Trying to undercut someone's argument like this is stupid.

Why don't people who believe in lower taxes just stop paying them? It would set a great example for others to do the same.

At 2/08/2009 3:14 AM, Anonymous Anonymous said...

You're killing me here...

Again, if these multi-millionaires are so great and worth more than 500,000, then why is their company on the verge of collapse?

Fair enough. But how about: "Hey, you there who's company is in great shop. Come rescue us."

"Yeah, huge pay cut, no thanks."

Why don't people who believe in lower taxes just stop paying them?

While I'm hoping that's scarcasm.... There's these people with guns who get sent to chat with you when you do that.

At 2/08/2009 7:09 AM, Anonymous Anonymous said...

Bix1951, I agree with your take on this issue. We use to have "income averaging" where you could spread a single year's largesse over several years.

The most ominous part of this issue though is the fact that basically 1/2 of the voters do not pay federal taxes. A sizable no. receive the "unearned income tax credit".

At the end of the day these people are not stake holders. To me, it would be like a company sending it's dividends only to those who have not purchased the stock.

At 2/08/2009 9:03 AM, Blogger Unknown said...

This is insane. The only reason higher earnings create tension is because the news media (in their multi million dollar salary wisdom) says CEOs are screwing the little guy.

As for Mr. Hastings assertion that government could then use the taxes to "pay for our soldiers, schools, and security", has he seen the abominable creature that Congress just birthed called a stimulus plan? Does he really think Congress is better capable to make spending decisions on 50% of his salary? Highly paid CEOs have done more for society than anything congress can do. Their businesses create jobs, but that's just a start. What about the foundations they create (see Bill & Melinda Gates)? What about the charities they contribute to?

If there is anything that can be done to reduce the tension between CEOs and us normal guys, it's fairer treatment by the media and better PR for highly-paid execs.

Oh, and Mr. Hastings, be on the lookout for my NetFlix cancellation along with a copy of Atlas Shrugged.

At 2/08/2009 3:45 PM, Blogger BlogDog said...

Time to close my Netflix account.

At 2/08/2009 4:15 PM, Anonymous Anonymous said...

I did not know Netflix was taking TARP funds. If he is not, he should shut the fuck up.

He will be sodomized on his granite counter tops before years end by angry and hungry commoners.

At 2/08/2009 4:18 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

I closed my Netflix account three years ago because of Hastings. He's funded initiatives in California to raise our taxes.

The Tax Foundation has us listed as the fourth highest taxed state, but Hastings wants us to be numero uno.

At the time, I sent out via my RIDER RANT free e-newsletter weekly publication (available if you send your email address to me at an explanation why we limited government types should switch to Blockbuster (the only realistic DVD mail service alternative).

As it turns out, Blockbuster is the better deal, as you can make free exchanges of your mail-rented DVD in their stores -- PLUS get a new DVD mailed to you.

At 2/09/2009 4:13 PM, Anonymous Anonymous said...

Mr. Hastings soon be getting his wish, and them some, although I doubt it will improve the image of CEOs. Between federal income and medicare taxes and state income tax, the marginal rate on Mr. Hastings $3.5 million income is now about 46%. When the Bush tax cuts expire in 2010 the combined marginal rate will be about 50.4%. Accordingly a check for $140,000 today should bring him up to his standard.

Of course Mr. Hastings is being somewhat disingenuous. His salary is a small part of his total income. As founder of Netflix the vast majority of his gain from the company is in lightly taxed increases in value of stock he owns - about $20 million over the last year. On the other hand most CEOs get no break on their exercise of stock options, and pay full income tax rates on the whole gain.

The extra $140,000 has suggested he should pay is barely a rounding error. I would be more impressed if he paid half of all his salary and stock gains to the government.

The CEOs that most are up in arms about are on Wall Street. Including NYC tax they are paying about 49% now, and on reversion to the Clinton rates they will be paying about 52.4%. I think they would be happy to cap tax rates at 50%

At 2/10/2009 2:18 AM, Anonymous Anonymous said...

That letter to hastings is rather inane. I hope the professor who wrote it can see why this is so.

But if not, the whole point of taxation is that it is a shared burden; So the sardonism in this post that "if he wants to, he can" is rather juvenile, to say the least. Of course he doesn't want to. Who does? But perhaps he does, or is willing to, if everyone else does.


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