Friday, February 6, 2009

Capping Pay: How Far Should it Go?

Those banks and firms which accept government funds in the future will be subject to annual executive compensation limits of $500,000. What’s good for the goose should be good for the gander.

Take Tom Daschle and Leon Panetta. Daschle earned $5 million in two years and Panetta $700,000 in one. Did they produce any goods or services other than influence peddling? Not really. They were paid to consult or speak on the basis of their past and prospective political influence.

A better example is White House chief of staff and former Member of Congress Rahm Emanuel, who served as an advisor to President Bill Clinton. He resigned from his position in the Clinton administration in 1998 and went to work as an investment banker at Wasserstein Perella (now Dresdner Kleinwort), where he worked until 2002. In 1999, he became a managing director at the firm’s Chicago office. According to Congressional disclosures, Emanuel made $16.2 million in his two-and-a-half-year stint as a banker, a profession in which he had no prior experience.

Public service is supposed to be serving the public, not working a stint in the White House, an executive branch or agency, and Congress, and then cashing in big time in the market for influence peddling. So, for the sake of symmetry, let’s cap post-public service earnings at $500,000 a year for at least five years. All income over $500,000 would be subject to a 100% tax rate.

How far might we extend the cap? How about professors who have outside earnings from royalties, speaking, consulting, or business? Let’s cap them too. After all, almost every academic institution is either funded by state governments, and/or receives federal grants, and accepts tax-deductible (tax expenditure) contributions. Ditto for every other business, profession, or line of work that receives government support.

It’s one thing for a person of means to use his or her own money to run for office and then return to private life so long as their subsequent economic activities have no connection to government. That’s real public service. But all too many individuals do a stint in government and then make millions in a few short years peddling influence. Let’s stop using the word public service for these persons. Perhaps some enterprising person might set up a web site that posts the annual earnings of those who convert public service into private fortunes.

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