Debating a Maximum Wage

While there is debate about where to set it, the concept of a minimum wage is firmly established in our political debates about the economy. Recently, there have been murmurs, including by some mainstream politicians, to look at the scourge of inequality from the other end. Perhaps there should be a parallel maximum wage.

In the wake of the lively debate following Rep. Alexandria Ocasio Cortez's proposal for a top marginal tax rate of 70% on annual income over $10 million, it is clear the mood is ripe for a national discussion of ambitious proposals to tackle inequality.

And in a modern media environment that rewards simple, bold, and slogan-ready proposals, the maximum wage is an intriguing idea with clear rhetorical punch.

Moreover, the moral arguments in favor of it are substantial. So much so, that it is revealing to look at what someone, from the right or left, who would resist an upper limit on annual income has to be committed to in rejecting it.

There are many forms a "maximum wage" could take. One option would merely set an upper limit on the ratio between the highest and lowest earners (e.g., capping the CEO-worker pay ratio).

But for the purposes of argument, consider a simpler version which simply selects an income point past which all earnings are taxed at 100%.

Being morally generous, and still firmly placing someone in the top .1%, imagine that is $2.5 million per year (I actually think the most morally defensible top income would be significantly lower than this given the force of the arguments below).

The most basic arguments for a maximum wage come in two main forms.

The first results from the recognition that there are morally urgent unmet needs which could be eliminated with appropriate funding generated by the tax revenue on income above the maximum wage. And that relief would come, at most, at the cost of significantly less morally important values, mere luxuries, in the process.

Wealthy people are able to convert their financial power into political power to skew nominally democratic processes toward their interest. This strips lower earners of the real value of their democratic participation.

The second argument comes from a recognition that rampant economic inequality undermines core democratic values and rights of political equality. Wealthy people are able to convert their financial power into political power to skew nominally democratic processes toward their interests (via campaign and Super PAC spending, lobbying, gatekeeping, media access, agenda setting, think-tanks, etc.). This strips lower earners of the real value of their democratic participation.

Given the clear worries about unmet urgent needs and the erosion of fundamental democratic values, what, then, would one have to do to say in order to justify rejecting a maximum wage proposal?

Desert?

First, a high earner might suggest they deserve their riches as a product of their labor. However, it is important to recognize that many claims about desert are indexed to a set of rules, institutions, or expectations. For instance, I might "deserve" free-throws, given the rules of basketball. But because what is at question here is how we should structure the fundamental political and economic rules of "the game" in the first place, one couldn't simply point to an existing contract, current tax law, or market expectations, in order to justify that one "deserves" more than the hypothetical $2.5 million limit. All of those are precisely what is up for grabs in the debate.

Given the alternative purposes such excess income could go to in halting the erosion of democratic equality and securing the most basic human rights of the worst off, resistance to the maximum wage proposal as a matter of desert, amounts to a claim that the rich morally deserve their surplus resources more than the countless innocent victims of terrible, avoidable suffering. But it is simply not plausible to think someone deserves their 2.6^th or 10^th million dollar more than someone in poverty deserves their basic human rights fulfilled.

Incentives?

Failing a plausible desert claim, others might worry that the maximum wage proposal would stifle incentives for innovation and wealth creation. It is of course worth scrutinizing the idea that the ultra-rich substantially foster innovation and wealth creation, rather than, say, contributing to financial collapses. Regardless, let's unpack this thought for a second, and reflect on what it means.

If true, it amounts to a claim that $2.5 million is not be enough incentive for the wealthy to do socially beneficial work; that they are so opposed to limits on their surplus, luxury, incomes that they would work less or less productively.

The philosopher G.A. Cohen evocatively compares this kind of mindset to a ransom. It effectively holds the poor and downtrodden hostage. The wealthy could do the same productive work, for $2.5 million--still living in world-historical luxury. But they choose not to. And that choice to ransom their productivity for ever more luxury is something we shouldn't excuse or encourage, morally.

If we knew that, in the real world, the wealthy would reliably, predictably make this anti-social choice, then we might have a reason to avoid a maximum wage. Indeed, some economists suggest that the so-called "optimal top marginal tax rate," whereby total tax revenue is maximized, is around the 70% recently floated by Rep. Ocasio Cortez (some say higher). Beyond that, there are efficiency losses, preventing the whole economic pie being as big as it could be.

Needless to say, on this strategy for resisting the maximum wage, we don't arrive at a point where the wealthiest look very good at all from the moral point of view. Indeed, as a way of strategically coping with their greedy, hostage-holding-mentality motivational structures, it exposes part of the morally rotten deal at the heart of inequality.

Moreover, it is worth saying, this kind of objection to the maximum wage can only be genuinely raised by someone who is willing to endorse a tax rate which maximizes tax revenue in support of basic rights. That is quite the consolation prize, but most objectors to a maximum wage on the right won't be so willing, which defangs much of the force of this kind of objection.

Even among those on the left willing to endorse such a rate, much of the debate (like Krugman) has simply assumed that finding the point at which total tax revenue is maximized is a decisive argument for the selfsame top tax rate. But this is too quick. Given that one of the fundamental arguments in favor of a maximum wage is for the sake of realizing the fair value of political equality, it may be the case that further reducing inequality with an even higher rate (for reasons of democratic equality) is important enough that sacrificing some total economic productivity is worth the trade-off. So, in order to reject the maximum wage proposal, someone on the left also has to be committed to denying that there are other reasons powerful enough to deviate upwardly from the total tax revenue maximizing rate. That argument may be plausible, but it is a normative one, and can't simply be assumed.

When paired with the prima facie arguments in favor of a maximum wage, scrutinizing the implicit commitments of those who would resist it should put us closer to jump-starting the debate about such a bold, ambitious option for egalitarian justice. If nothing else, it may move the so-called Overton window so as to make less radical proposals more palatable.