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Income Distribution For Minimum Decency, a Maximum Wage

Amid rising inequality, a new book argues, the notion of capping income has suddenly become politically plausible.

"Disclosing data on the gaps between corporate execs and what they pay their typical workers will help us become more civilized." (Photo: Dean Chahim/flickr/cc)

"Disclosing data on the gaps between corporate execs and what they pay their typical workers will help us become more civilized." (Photo: Dean Chahim/flickr/cc)

In the United States today, a just-released Federal Reserve report informs us, over a fifth of the nation’s families simply cannot afford to “pay all of their current month’s bills in full.”

Over a quarter of families, the report goes on, skip “necessary medical care” because they can’t afford the cost. And an even greater share — 40 percent — wouldn’t be able to cover an unexpected expense of $400 without having to borrow cash or sell something they own.

In other words, many millions of American households have essentially almost nothing in the way of savings. And not much in the way of income either. Two out of every five Americans, the new Federal Reserve study details, have annual household incomes less than $40,000.

We find ourselves in a United States where nearly half the nation lives at the edge of economic disaster while government wallows in a “gridlock” that magically vanishes only when lawmakers have a chance to enrich the already rich.

Meanwhile, at the other end of America’s economic spectrum, we have households raking in much more than $40,000 every day. Half the CEOs at America’s 200 biggest corporations now make over $336,538 per week, according to a review of 2017 corporate compensation that Equilar, a pay consulting firm, has just completed for the New York Times.

These top execs and their fellow wealthy can afford to handle any personal emergency life may throw their way. More importantly, they can also afford to buy a level of political influence that turns their needs — and their needs alone — into national priorities.

The end result? We find ourselves in a United States where nearly half the nation lives at the edge of economic disaster while government wallows in a “gridlock” that magically vanishes only when lawmakers have a chance to enrich the already rich.

So what do we do about all this? Maybe we need to start thinking more boldly about solutions to our ever-widening economic divide. One such solution: a maximum wage.

I started writing about the idea of a “maximum wage” — a cap on how much richer an already rich person can become over the course of a year — over a quarter-century ago. Back then, few people took the idea of a capping income seriously because serious people just weren’t talking about income caps, not anywhere in the world.

What might an appropriate limit on income be? In 1942, Franklin Roosevelt, the President of the United States, had one answer. After paying federal income tax, FDR proposed, no individual American should have an annual income greater than $25,000, about $375,000 in today’s dollars.

In effect, FDR was proposing a 100 percent tax rate on income over $25,000.

Congress didn’t buy Roosevelt’s 100 percent top rate, but Congress did set a top tax rate at 94 percent on income over $200,000, and that top rate would hover around 90 percent for the next 20 years, years that would see the United States become the first mass middle class nation in the history of the world.

But those steeply progressive tax rates in the United States did not last. They could not withstand the fierce political pushback from the rich. The wealthy simply had more of a direct stake in slashing high rates than average Americans had in keeping those high rates in place.

We need a tax system that gives average Americans a clearer personal stake in keeping tax rates on high incomes high — and the wealthy a reason to care about those without wealth.

So those top rates fell, to 70 percent in the mid 1960s, to 50 percent in 1982, to 28 percent in 1988, before jumping up a bit. The current top rate: 37 percent, and that’s only for paycheck income. On income from investments, America’s richest pay taxes at just a base 20 percent rate.

Progressive taxes, as traditionally structured, proved unsustainable in the 20th century. We need a new structure. We need a tax system that gives average Americans a clearer personal stake in keeping tax rates on high incomes high — and the wealthy a reason to care about those without wealth.

A new tax structure that linked incomes at top and bottom could meet both these goals — by placing a 100 percent top tax rate on income above a set multiple of the annual income that comes from working at the minimum wage. If we had this linkage in place, our richest and most powerful could only see their incomes increase if the incomes of our weakest and poorest increased first.

Imagine a world with this sort of “maximum wage” in effect. Our most privileged would have a direct personal interest in improving the life chances of our least advantaged.

Those of us already graying will likely never see that world in our lifetimes. But we could move meaningfully in that direction if we began challenging the pay practices now common in our single biggest contemporary contributor to inequality, the modern American corporation.

And this takes us back to that new corporate pay ratio disclosure mandate. By the end of this year, every major U.S. corporation that trades on Wall Street will have made these disclosures. Many already have. At Walmart, we now know, typical employees would have to work 1,188 years to equal the pay that went last year to Walmart’s CEO. At McDonald’s, typical workers would have to work 3,101 years. At the toymaker Mattel, just under 5,000 years.

What if we placed consequences on the corporations with outrageous ratios like these? What if we subjected corporations with wide ratios to a higher corporate tax rate? Or denied them government contracts and subsidies?

Work toward these ends has already begun. In Oregon, the city of Portland has raised the business tax rate on companies that pay their CEOs over 100 and 250 times typical worker pay. San Francisco has a similar proposal up for a referendum this November. Six states have legislation pending that either ups business taxes on companies with wide ratios or penalizes these companies in the government procurement process. In the UK, the Labour Party is pushing for legislation that would deny government contracts to companies with a CEO-worker pay ratio wider than 20 to one.

If we made pay ratios central to our progressive political project, we wouldn’t have to limit ourselves to legislative actions like these. Published corporate pay ratios could inform and inspire grassroots citizen campaigns on a wide variety of fronts.

With pay ratios, almost every social situation would become a potential arena for egalitarian struggle. Students could join with university faculty and staff to demand that their institutions link top administrator salaries to a modest multiple of pay at the base. Donors to nonprofits could insist that the organizations they support limit their executive pay to a similar multiple. Workers could take pay ratio demands to the bargaining table.

Every such grassroots campaign waged would help stitch an awareness of pay ratios into the fabric of everyday life. Every victory won, no matter how small, would help people understand that the level of inequality that surrounds us has been and always will be a human construct. No force of nature leaves some of us enormously richer than others. We can choose to be more equal. Struggles around pay ratios can make these choices plain.

We can wage these struggles at every level, from local to national, calibrating each campaign to whatever political realities confront us. Lawmakers not ready to impose consequences on private companies with unconscionably wide gaps? Then the struggle starts in the public sector: No one paid with public funds should walk away with more than 10 or 25 or 50 times what any other person in the public sector makes. A 50-times ratio too politically difficult to achieve, in either a public- or private-sector struggle? Then the push becomes a call for a 100-times standard.

No magic, perfect ratio number exists, just as no magic, perfect minimum-wage level exists. Our income floors globally have evolved over time. Our income ceilings will evolve over time as well. And every ceiling we set, in whatever setting, will leave society’s remaining sky-high incomes less tolerable — and more vulnerable.

This is the world we live in. This is the world we cover.

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