To the Editor: Mors Comments on Corporate Profits, Corporate Funny Money

I have read three issues of We the People and in general agree with Mr. Sudia's outlook.

Since my career was in teaching economics and finance I would like to comment on his proposal on taxation of corporate profits. I favor a high tax on retained profits but would make a few concessions as follows:

• For smaller corporations (with assets of, say less than $5 million or profits of less than $1 million a year) I would exempt them, since for the most part they are closely held.

• Unlike European countries, which have higher corporate tax rates, we have had lower rates for so long that corporations have come to depend heavily on retained earning for both capital additions and buy outs. In putting much higher rates on corporate profits, I would favor exempting up to say 25 or 30% of these profits, if within a year the corporation could show it had invested these profits in new capital equipment and real estate by purchasing them (not buying out another company or companies).

• Given higher tax rates on undistributed profits, corporations would have to raise more funds externally (through bond and stock issues) than they do flow. Fortunately, our investment banking facilities are adequate to do this and should be happy to get the added business.

• I would also favor changing the Federal income tax law to have higher tax rates on income from dividends, interest and capital gains (net capital losses) than on wages, salaries and other forms of compensation derived from labor. The Massachusetts income tax law does this now.

. . . Wallace Mors . . .

The Federal Pay Goof

I'm One of Them

I am a Federal employee so I had an obvious vested interest in the Federal pay raise. My reason for writing about it is not to anguish over why I didn't get it, but to explore, not only why it failed but why it seemed like feeding time at the funny farm.

Bashing the Civil Service

After 12 years of bashing the Federal government (through the Carter and Reagan years) and after 8 years of reckless budget deficit spending, why would it seem reasonable to reward handsomely the object of the scorn and the hated instrument of big government? Why should Congress reward itself and the senior officials of the Federal government, elected and appointed after they ran up a trillion dollar domestic debt and a trillion dollar foreign debt?

A Parliamentary Bag of Tricks

The strategy of the pay raise was to have the Senate reject the pay raise and enact legislation that would have eliminated the outside money they get for speaking, etc. and have the House let the deadline for the vote pass by and then enact laws to limit their outside money. The pay raise would have become effective bylaw if both the Senate and the House did not vote to reject it.

"All Politics are Local Politics"

The event or process that defeated that plan is explainable by the maxim of former Speaker of the House Tip O'neill who said, "All politics are local politics." The Speaker of the House Jim Wright of Texas was given to understand by the movers and shakers of his district (Fort Worth) that if he did not allow a vote on the pay raise, he just might lose his seat in the House. Local politics ruled the day, not the talk shows or Ralph Nader, but Wright's constituents in Fort Worth. In this case it was in the public interest for the local voters to control a national issue, but in myriad other cases it is not, but it happens.

The Alaska Native Claims Settlement Act, which was a vital national issue, was greatly influenced by the Alaska delegation as though the lands in question were State lands not Federal lands belonging to all the people (unalienable right, "An equal share of the common wealth.")

Postponing the Vote

For the pay raise to have taken place by a parliamentary trick, when a great number of the electorate did not think it was deserved would simply have postponed the vote, for surely there would have been repeated attempts to roll it back if it had passed taking up much valuable time and effort of the Congress.

Surviving in the Congress

The problem with the process of compensation of Federal employees, whether it be the President a Congressman or the lowliest civil servant is inextricably tied up with the way the people see the system work and the way the Congress sees its right to survival.

The Founding Fathers expected the House of Representatives to turnover rapidly, with no Representative serving more than a few years. The Senate was expected to be the cool headed deliberating body so the turnover was expected to be on a longer cycle. That's why they set the House term to two years and the Senate to six. It hasn't worked that way. Now 90% of all incumbents are returned to office.

"What it Costs to Run"

Adlai Stevenson as long ago as the late 1940s pointed out this situation in an article called What It Costs To Run. His example for the time was the Chicago alderman who spent $30,000 to obtain a three year term job that paid $3000 a year. House and Senate salaries are in the neighborhood of $80,000 yet it is not uncommon for 6 to 8 million dollars to be spent on a Senate race and 1 to 2 million to be spent on a House race. If you divide $9000 (three years salary for a Chicago alderman into the $30,000 it costs to run, its obvious that the excess is going to have to come from someplace in exchange for what a Chicago alderman can do for that source of money.

What Do You Get For $5,520,000?

The six year salary of a Senator will amount to about $480,000 yet it may cost 6 million dollars to get the job. Some one is going to want something for the $5,520,000. Ditto for House races.

The Three Point Plan

What needs to happen is three things:

• The executive, legislative and judicial branches of the Federal government have to be fairly compensated for their work from taxes. That is to say public officials must be paid with public money.

• All forms of outside payment for services (lectures et al) have to be considered bribes for future favors and have to be proscribed.

• Campaign funds for all seekers of Federal office must be limited and must be provided from Federal taxes.

The sum of this proposition would simply be that Federal officials would be elected and paid from public monies and would have only one boss, the American public.

Who Should Pay For Government?

How does that square with the IdT notion of government? Well the Federal government is established by the people to serve them and to secure for them the unalienable rights. The sovereign (We the People) want a government and we the sovereign should be willing to pay for it. On the other hand we want it to serve the sovereign not just the railroads et at. (The late John Bricker, Senator from Ohio in the 1950s said, "If I don't represent the railroads in the Senate who will?")

Publicly Financed Campaigns

To insure all qualified citizens have a chance to run and to insure that all elected officials know for sure who put up the money for their campaign, the money should come from taxes paid by the citizen/sovereign this elected official will serve. To insure that all elected and appointed officials will not be tempted to bestow official favors for money, goods, or services, all outside money in excess of salary not accounted for in personal wealth or assets should be considered bribes and treated accordingly.

(It is a sorry footnote to history that during the legislative effort to provide for public funding for elected Federal offices, the Congress provided for public funding for the Presidential race, but not only struck similar provisions for the House and Senate from the bill, but added provisions allowing for the political action committees the so called Pacs which have placed the Congress squarely in the hands of monied lobbyists. In an effort to remove corruption from the system more corruption was added instead.)

The nonsense of putting the government up to the highest bidder and compensating sitting members with substantial outside income simply removes the legislature from the ecosystem of the common good for the common citizen and places it in the monied community.

What can be done? Nothing can make honest politicians out of dishonest politicians. But they can be removed from temptation. And what's more other eligible citizens should have the opportunity to serve even if or especially if they do not have wealthy backers. Money is not the sovereign the people are and it is the sovereign who should be served.

Fair Compensation

On the matter of compensation, there should be two salary schedules for the entire Federal government. One schedule should be for the President alone. One person is asked to accept the responsibility for the entire executive branch. Sure the President has helpers, but they do not have the responsibility for the executive branch, only the President does. They may act with the President's authority but they cannot assume the President's responsibilities. The President should be compensated at a rate that is somewhere in the middle of compensation of Fortune 500 Chief Executive Officers. My estimate says that would be about $3 million per annum. The President should also get the perquisites of office and the perquisites of a President in retirement when that time comes.

The Symbolic Salary

The President's salary is the salary of the official with the biggest job in the United States. Stock holders in publicly held corporations should be encouraged to prevail upon corporate management to follow a similar guideline. Why should the chief executive of a mere Fortune 500 company get more than the President when he has only a fraction of the responsibility. The president's salary is a gauge for the greed factor. The presidents salary could be used to urge restraint on the part of corporate managers with respect to personal compensation which should be of immediate benefit to stockholders.

The Key Salary

The salary of every other elected and appointed Federal official should be on the second salary schedule.

The key salary should be the salary of the Vice President. Once the salary of the Vice President is set every other salary in the Federal government (except the President's) should be keyed to it. Since they have roughly equivalent duties President of the Senate (Vice President), the Speaker of the House and the Chief Justice should have equivalent salaries. All the salaries in the Senate should be set starting with that of the President of the Senate. The salaries of the House should be set starting with the Speaker of the House and the salaries of the Judiciary should be set starting with the Chief Justice, and the salaries of all the executive branch should be set starting with the Vice President.

In the Defense Department a judgement should be made as to the level of the Chairman of the Joint Chiefs of Staff. Should he be at the level of the Undersecretary or an Assistant Secretary, well then that would set the salaries for all the military. The head of the Coast Guard and the U.S. Public Health Service would similarly be set inside those departments thereby setting the schedule for those uniformed services.

The Grand Spreadsheet

There is no reason why the entire Federal Salary schedule could not be put on a single spread sheet (Boeing Calc would handle it nicely).

The President's salary would be set at the top but it would not interact with any other block. The Vice President's salary would be set immediately below it. Then in turn in different columns of the spread sheet all the derivative positions would be placed and the salaries would be represented as a percentage of the Vice President's salary.

The Speaker of the House would head one column, the President of the Senate (Vice President) another and the Chief Justice yet another. The coefficients for their salaries would be 1.00, that is to say they would get 100% of the Vice President's salary or in simple terms their salaries would be the same. Each lower official in each column would receive a lesser salary but calculated in each instance as a percentage of the person at the head of the column (The same person would head two columns as the Vice President over the executive branch and as President of the Senate over the Senate). Every salary down to the lowest clerk and even to the hourly wage earners could be placed on the sheet. Since all salaries would be expressed as a percentage of the Vice Presidential salary all the salaries would be tied into a single system.

Authorizing Salaries

The Congress could adopt such a system and fix the rates to some desirable level. The rates in the schedule would be authorized salary levels but might not represent actual appropriated amounts for those ranks. For calculation purposes assume the Vice President has an authorized salary of $15,000 but an actual salary of only $10,000. Everybody else would obviously be in a lesser category.

The Congress even in this stage of the development of the schedule could provide appropriations for pay raises in the entire Federal System by simply raising the Vice President's salary. If the Vice President got a 3% increase in salary the entire spread sheet would adjust to show the new levels and the amount of the raise instantly ascertained.

In no instance, however, would any official receive more than the amount authorized for the position held. Once everybody was at the authorized limit, salary adjustments would center on only one salary, that of the Vice President. The Congress could increase, or decrease the authorization for the Vice President which would automatically increase or decrease the authorization for the entire schedule. In a second action the Congress could increase or decrease the appropriation for the salary of the Vice President thereby increasing or decreasing the salary of every other individual in Federal employment. The system would cover the entire universe from the Army private to the Secretary of Defense—the lowliest Park Ranger to the Secretary of the Interior etc.

Debating the Vice President's Salary

When it came time to debate Federal salaries it would not be necessary to hide behind a parliamentary trick or a gimmick, the discussion could be in the open. The Congress would not have to worry about some civil servant making more money than they do since the system would lock the relative positions of all Federal officials and no group, not the Congress, the Executive or the Judiciary could move ahead of their place.

It need not penalize the military which in recent years has received pay increases substantially greater than the civilian side, the schedule would simply have to be adjusted to reflect the greater importance of the military. An Army Colonel or a Navy Captain is at the level of GS 15 in the current Federal schedule. Maybe the Colonels and Captains have to be moved into the Senior Executive Service and thereby bring the rest of the schedule up with them. But once set there should be no reason to introduce differentials since they would introduce inequities which the system is designed to eliminate.

Congress Should Never Again Get Caught Holding The Bag

The Congress should never again be put in the position of raising just their own salaries. They should be in the position of setting the entire Federal pay schedule. They could always adjust the Federal schedule in two steps—authorizations in one Congress appropriations in another. One Congress could set the authorization levels without appropriating a dime of salary increase and a subsequent Congress could increase the Vice President's salary. Nothing would be hidden, but time and the separation of functions would take the passion and emotion out of it.

All three functions: public campaign funding, adequate compensation, and the elimination of outside compensation, might well put the government of the United States back into the hands of the sovereign, and we just might get a government of, by, and for the people.

. . . Ted Sudia . . .

© Copyright 1989
Institute for domestic Tranquility