Thursday, February 12, 2009

Who needs $500,000 to live?

I'm sitting in tomorrow morning for my husband as he wings his way home from giving a speech in the snowy climes of Alaska. Despite Juneau being called "the banana belt" of that wintry state, he reported to me the temperature outside was 10.
Meanwhile, in the name of preparedness, I've been catching up on my "mountain," ie the pile of newspapers I haven't had time to devour. At its zenith was the Sunday Styles section of the New York Times, where I found a headlining article relevant to the venomous debates about capping the salaries of highly-paid corporate executives. I can understand the reasoning that if a company is so desperate as to take taxpayer "stimulus" funds, it ought not to use those funds to fulfill stratospheric salary contracts for its Chief Executive Officers.

I'm one of those people to whom $500,000 looks like a jaw-droppingly large amount of money. As mentioned in previous posts, I was raised in modest circumstances and cannot bear to spend even a tiny bit more than necessary for anything at all.

So Allen Salkin's piece "You try to live on 500K in This Town" immediately brought a smile--must be a joke! And then shock. Not over the lavish expenditures the 500K guys consider necessities, like $35,000 for three fancy dresses the matron must wear to charity balls. Not even for the $4 million summer place in the Hampton's, with its yearly mortgage of $240,000. These are the kinds of things easy to dismiss as expendable playthings the wealthy could cast off without pain.

What blew my mind was that out of the $500,000 this hypothetical New York CEO earned, almost HALF of it, right off the top, goes directly to Uncle Sam. Federal and local taxes, social security and medicare leave this married parent of two with $269,000, before sales taxes are added in. Before the mortgage payments and home association fees, before transportation or food or clothes or insurance, the government has already become by far the single greatest expense. In other words, even a highly-paid exec ostensibly in "the private sector" works to pay the government nearly half his time.

It almost seems ironic, then, that the government should kick in to keep his company afloat--so he can pay it.

We must remember that government is an "it" and has no money of its own--just what it coerces under penalty of imprisonment from its citizens. Perhaps you're thinking that the uber-rich have lots of smart tax guys working for them so they can connive their way out of paying taxes. I won't argue with that.

But I'll answer it. First, "lots of smart tax guys," don't come cheaply. That exec has to pay plenty to his accountants and lawyers, who may average $200-600 per hour. That money gets subtracted from what he's got available--and goes to support other professionals who keep their jobs (and their secretaries' and assistants') by helping him. In the end, tax laws are so complicated that what the CEO saves in taxes is likely a wash with what he has to pay out to his accountants. But he's supported several more families with that money.

My second response to the notion that our $500,000 exec might be saving on taxes through sharp legal maneuvering is that if he does, and gets to keep more of his earnings, others still benefit. It's like a mini stimulus. Because our wealthy guy is bound to do something with his money beside just hoard it like Scrooge McDuck inside his home. He's going to either buy things, like fine clothing or vacations or restaurant meals, or he's going to put it in financial institutions or investments that will then make loans to others and give the CEO a return for letting them use his money.

Either way, even though the CEO collecting $500,000--or more correctly--$269,000--may be earning what appears to be an astonishing amount, he ultimately gives other people jobs and income with it. The NY Times piece describes his kids' tutors, the nanny, the car and driver. They earn between $45-125,000 annually, each. He assuredly donates some to charity, and even if it's an opera guild or an art museum, it's something that increases quality of life.

And, not unimportantly, he earns that money because somebody thinks he's worth it.

Some entity was willing to pay that much money for his services, for his expertise. He probably was an early star, went to business school, then took a series of lower and middle-level positions and finally did some magic with a company. Or, perhaps he came up with a fabulous product or idea--Bill Gates and Meg Whitman come to mind--and carried it into mass popularity and profitability. What small businessman doesn't dream of leading his company into big bucks and himself into a $500,000 salary?

The article ends with another extravagance the wealthy can afford--frozen hot chocolate at Serendipity: $8.50 per cup. Now that has got to go.

Serendipity frozen hot chocolate recipe created by Serendipity 3 Restaurant.
(Recipe from

6 half-ounce pieces of a variety of your favorite chocolates
2 teaspoons of store-bought hot chocolate mix
1 1/2 tablespoons sugar
1 1/2 cups milk
3 cups of ice
Whipped cream, Chocolate shavings

Chop the chocolate into small pieces. Place it in the top of a double boiler over simmering water. Stir occasionally until melted. Add the hot chocolate mix and sugar. Stir until completely melted. Remove from heat and slowly add ½ cup of milk until smooth. Cool to room temperature. In a blender, place the remaining cup of milk, the room-temperature chocolate mixture and the ice. Blend on high speed until smooth and the consistency of a frozen daiquiri. Pour the frozen hot chocolate into a giant goblet and top with whipped cream and chocolate shavings.


  1. You say, "And, not unimportantly, he earns that money because somebody thinks he's worth it."

    I work for a company that is doing quite well right now. On the same day they announce big earnigs for the last quarter, they cut some of our benefits. The company is also in the process of moving job offshore, so the company can make 10 billion/year instead of 6 billion. At what point does this become immoral?

  2. I'll try to tune in today although my schedule looks quite busy.

    That frozen hot chocolate recipe sounds fantastic. I'll have to try it sometime.

  3. Childsplay: Can't comment on your company, but I do know that some benefits, like health insurance, get cut by the provider--I'm thinking of my health insurance that went up a LOT this year. And while I think employees are the foundation of the company and should be treated well (like my husband who voluntarily gives a percentage of what he makes to his staff in recognition that without them, he couldn't go out and make what he does), companies work by providing return to investors, which motivates its efficiency.

    Cam, let me know how the recipe turns out; I'm always cold, so I'll stick to HOT chocolate!