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Insights “Buffett Rule”) and for the preservation of the federal estate tax. Notwithstanding their advocacy of higher taxes for the rich, Buffett and Gates conduct their own affairs to avoid any federal taxation on their contributions of their appreciated shares to charity. This is perfectly legal, but hard to square with the Buffett-Gates programme of taxing the affluent. There is, in short, considerable tension between the Buffett-Gates project to protect the federal fisc and the Buffett-Gates effort to encourage philanthropy as that effort has in practice been implemented. Mr. Bezos can now set an instructive example. He can sell Amazon shares, pay tax, and then contribute the net after-tax proceeds to charity. This would produce less for charity but more for the federal fisc. In addition or instead, Mr. Bezos could

make a voluntary contribution to the federal treasury to compensate for some or all of the income, estate, and gift taxes avoided by his contributions to charity. Warren Buffett has eloquently observed that large fortunes such as his result not just from the skill and work of entrepreneurs such as Gates and Bezos, but also from the taxpayer-provided public services which support these entrepreneurial efforts. Mr. Bezos could open a new chapter in charitable giving by acknowledging the role of public overheads in facilitating his success and by paying some tax on the gains he will donate to charity. CT Edward J. Zelinsky’s latest book is The Origins of the Ownership Society: How the Defined Contribution Paradigm Changed America. This article was originally published at Oxford university’s

Why should bosses make so much more than staff? Unlike movie stars and athletes, skyrocketing pay for CEOs has nothing to do with markets, writes Steven Clifford


EO pay at America’s 500 largest companies averaged $13.1-million in 2016. That’s 347 times what the average employee makes. So CEOs make a lot of money. But, some say, so do athletes and movie stars. Why pick on corporate bosses, then? First, because the market sets compensation for athletes and movie

stars, but not for CEOs. Teams and movie studios bid for athletes and movie stars. CEO pay is set by a rigged system that has nothing to do with supply and demand. NBA teams bid for LeBron James because his skills are portable: He’d be a superstar on any team. CEOs’ skills are much more closely tied to their knowledge of a single compa-

ny – its finances, products, personnel, culture, competitors, etc. Such knowledge and skills are best gained working within the company, and are not worth much outside. In fact, a CEO jumping between large companies happens less than once a year. And when they jump, they usually fail. Lacking a market, CEO pay is set by a series of complex administrative pay practices. Usually a board, often dominated by other sitting or retired CEOs, sets their CEO’s pay based on the compensation of other highly paid CEOs. The CEO can then double or triple this target by surpassing negotiated bonus goals. This amount then increases target pay for his or her peer CEOs, giving another bump. Since 1978, these annual rounds of CEO pay leapfrog have produced a 1,000 percent inflationadjusted increase in CEO pay. At the same time, the bottom 90 percent of American workers have seen their real incomes decrease by three percent. American workers were once rewarded for productivity. Real wages and productivity rose in tandem at about three percent annually from 1945 through the mid-70s. But since then the bosses have taken it all. Although productivity growth increased real per capita GDP by 84 percent over the last 36 years, real wages have remained essentially flat. Where did the money go? It went to the 1 percent, and especially to the 0.1 percent. The latter group, a mere 124,000 households, pocketed 40 percent of all economic gains. Business executives, CEOs, or others whose compensation is guided by CEO pay constitute two-thirds of this sliver. In other words, it’s business | August 2017 | ColdType


ColdType Issue 144 - August 20174