Why Is There No Maximum Wage?

A few days ago I ran across the following photo on Facebook. I immediately reposted it to my own account there with this comment:

Even if it was a billion dollars a year, there ought to be a limit to how much wealth and power one person can accumulate.

This prompted a long, wide-ranging and occasionally coherent discussion of what a Maximum Wage would mean.  The comments proved that people bring a load of pre-formed opinion to this idea. If you're nearly infinitely patient you can read that discussion yourself.

Before you read on however I suggest you take a moment to reflect on your own reactions to this picture and to my comment. Possibly the notion of limiting the amount of money one person can accumulate is anathema to you and you'll have some sort of heart attack thinking about it.

Is there a pain in your chest?  Is your breathing labored?  If so, please realize that my opinions about this subject are not important enough for you to jeopardize your short-term survival.  Please get medical help quickly.  I hope you can afford insurance.

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So, anyway.

In the course of that Facebook discussion I wrote a long comment exploring my notions about why people who are not rich, and never will be, identify with, protect and even vote for extremely wealthy people.  In a Presidential election season such as this one, where fully 50% of the viable candidates made massive fortunes as predatory capitalists, this seems very relevant.

I wrote more about people's beliefs and faith than about economics.  Therefore, it should not be surprising that many of my arguments below are about religion.

Since I spent a lot of time on that essay, I figured I should share it where it might be read by three more people, the entire Mixed Meters' readership.   Enjoy.

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Reading back over this discussion I find myself mystified by the notion which some people hold that they will inevitably be able to manipulate the economic system to become as rich as Midas, or, as it is said, "rich beyond the dreams of avarice." This faith in their own exceptionalism seems to me to be obviously and patently without basis in the real word. All it really takes to convince me of its unreality is a little bit of observation (that most people are struggling just to stay even) and the merest hint of statistics (that there are very very few super rich people - most of whom were born to at least some wealth in the first place).

Of course, I am equally mystified by some people's belief in religion. And the notion that one is destined to become super rich seems (to me) very much like a religious belief. In one, if I work hard and follow the rules, I will be richly rewarded. In the other, if I pray hard and follow the rules, I will be richly rewarded after death in heaven. Some sects have even combined the two forms of reward overtly. Oh well - it's a free country and we have freedom of religion. And indeed a few lucky driven individuals do actually become rich beyond the dreams of avarice I guess. So maybe that means there really is a heaven ... but I doubt it.

And I am mystified by the attitude of certain people toward our democratic government - namely that the government is the problem and is keeping them from their dreams. While I would never suggest that our government or society is perfect, the democratic system seems to have done a remarkably good job of allowing people of different beliefs, cultures, ethnicities and economic status to live together peacefully, pursue their dreams, adhere to their personal beliefs and resolve their disputes. And we've done this by following the basic principals laid down in the Constitution: the most important of which is that by a certain vote we can change the rules and adjust the "eternal" principals in order to adapt our democracy to changing times and conditions. If only religions could be this enlightened and adapt to the modern world just a smidgen more quickly.

And, if all my mystification weren't enough, I'm thoroughly mystified by the notion that the positive things which our government does (those things which are disparaged by some under the name "entitlements") are the deeper source of our problems. Instead I would suggest that these are actually among the highest manifestations of our morality, the positive application of all those abstract religious rules and commandments which get repeated by rote in church and then ignored in the rat race to get rich during the workweek. These "entitlements" are actually the very things that make our society good - or, at least, better - and I believe that our government should do everything it can to preserve, refine and amplify them for the benefit of everyone.

And if our government can come together and agree on positive goals - like health care or a clean environment or the equality of every human - then it can also ask those very few very rich people, those exceptional, lucky, driven, acquisitive, materialistic, rapacious people, to forego a larger part of their accumulated wealth for the benefit of the very society in which they themselves live and which helped them get rich in the first place.

But the reality seems to be that the rich people are busy trying to get even richer - maybe they're greedy for power or in competition to be richer than other rich people or maybe they just don't know when to stop. So it seems perfectly reasonable to me for the government to lay down a marker, a point at which people become rich enough. Get hundreds of millions in the bank and it's time for you to step aside and let someone else accumulate wealth beyond the dreams of avarice.

In my opinion if you become a billionaire it's time to retire. If you still need to work after that, then you should be doing it for the benefit of everybody, not just yourself. I know this will not be a popular opinion with people who believe in their own exceptionalism. I am not mystified by their negative reaction to this idea.

So the whole concept seems to distill nicely down to the single phrase which started this discussion: "maximum wage". I like that notion of a maximum wage a lot - because at some point an individual can simply have too much money for the good of everyone. And if money is a religion in America these days, then this idea makes a great article of faith.

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Now for some reference material showing how the U.S. taxation system has gotten seriously out of whack over the years.  Plus more of my comments.

The following chart comes from Wikipedia. It shows the change in Marginal Tax rates over history. Take a look at the column marked TOP BRACKET which shows the tax RATE (in purple) which the highest income earners paid on their income above a certain level (INCOME).

What's really interesting is the column called ADJ.2011 (the tan colored column).  That shows what income the top rate would kick in it at in 2011 dollars if that law applied now.  Last year's dollars are close enough to this years for anyone to relate.    As an example, if 1981 laws applied today, people would pay 70% in Federal tax on any income over $532,000.

Partial History of Marginal Income Tax Rates Adjusted for Inflation Income First Top Bracket Year Brackets Bracket Rate Income Adj. 2011 Comment 1913 7 1% 7% $500,000 $11.3M First permanent income tax 1917 21 2% 67% $2,000,000 $35M World War I financing 1925 23 1.5% 25% $100,000 $1.28M Post war reductions 1932 55 4% 63% $1,000,000 $16.4M Depression era 1936 31 4% 79% $5,000,000 $80.7M 1941 32 10% 81% $5,000,000 $76.3M World War II 1942 24 19% 88% $200,000 $2.75M Revenue Act of 1942 1944 24 23% 94% $200,000 $2.54M Individual Income Tax Act of 1944 1946 24 20% 91% $200,000 $2.30M 1954 24 20% 91% $200,000 $1.67M 1964 26 16% 77% $400,000 $2.85M Tax reduction during Vietnam war 1965 25 14% 70% $200,000 $1.42M 1981 16 14% 70% $212,000 $532k Reagan era tax cuts 1982 14 12% 50% $106,000 $199k " 1987 5 11% 38.5% $90,000 $178k " 1988 2 15% 28% $29,750 $56k " 1991 3 15% 31% $82,150 $135k 1993 5 15% 39.6% $250,000 $388k 2003 6 10% 35% $311,950 $380k Bush era tax cuts 2011 6 10% 35% $379,150 $379k

I think it seems entirely reasonable that someone who earns over $2,500,000 in today's dollars should pay 94% of their income above that level to the government - just as the chart says they did in 1944.  There was a war going on then also.

I'd even think it appropriate if current extreme earners paid 79% of their income over 80.7 million dollars - like they they were asked to do in 1936, at the height of the depression.

These days the politicos are talking about simply repealing the Bush tax cuts - and raising that top rate by less than 5% - not even to 40%.  A paltry request.

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Here's more background info - an article entitled The Great Capitalist Heist: How Paris Hilton's Dogs Ended Up Better Off Than You by an economics professor named Gerald Friedman.  The article begins with Paris Hilton's new $350,000 two-story house just for her dogs.

More importantly the article covers the history of how top 1% in the United States convinced the rest of us to let them become even more wealthy.  Here's a quote:

By the time it was finished, [Steven Cohen of SAC Capital Advisors]'s house had swelled to 32,000 square feet, the size of the Taj Mahal. Even at Taj prices, cost mattered little to a man whose net worth is estimated by the Wall Street Journal at $8 billion -- with an income in 2010 of over $1 billion. Cohen’s payday is impressive, but by no means unique. In 2005, the 25 hedge-fund managers averaged $363 million. In cash. Paul Krugman observes that these 25 were paid three times as much as New York City’s 80,000 public school teachers combined. And because their pay is taxed as capital gains rather than salary, the teachers paid a higher tax rate!

Just in case you're skimming, yes, one man "earned" over $1,000,000,000 during a single year.  Compare this to my original comment with the "Maximum Wage" picture, that there ought to be a limit to how much wealth one person can acquire.  Most likely Stephen Cohen paid less percentage of his billion as tax than you do on your income.  Why shouldn't he have paid at least 80% or 90% of everything above, say, $100,000,000?

Here's another quote about how the federal regulators during the George W. Bush administration let the financial industry nearly destroy our entire economy:

Acting with the virtual consent of Congress and the president, in 2004, the Securities and Exchange Commission established a system of voluntary regulation that in essence allowed investment banks to set their own capital and leverage standards. By then our financial regulatory system had largely returned to the pre-New Deal situation in which we trusted financial institutions to self-police. Advocates of deregulation, like Federal Reserve chair Alan Greenspan, were unconcerned because they expected banks and other financial firms to limit their risk for fear of failure. Either they misunderstood the incentives facing company managers, or they did not care.

Remember that in 2004 we had a Republican president, a Republican-controlled Senate and a Republican controlled House.  The country (by a narrow vote) had put wealthy Republicans in charge of our government, and they declared open season on fiscal prudence.  The damage that was ultimately done to the economy has yet to be repaired.

In reality I have no expectation that the damage done to this country by inequality of income can be undone.  But it feels good to rant about it.  If you've actually read this whole article you deserve a tax break.

And in conclusion ... here's my final comment in that long Facebook debate...

As for entitlements, I believe that anything the government can do to promote health, education and environment for all the people is money well spent. It's even worth going into debt for. But it would be better for the entitlements to be paid for by taxes paid by a large healthy educated employed citizenry. And it would be better for those who earn more than enough to pay a higher rate of tax. Such progressive taxation existed during some of America's most prosperous times. And, unsurprisingly, as the top tax rate has dropped, since Ronald Reagans first cuts, the inequality in our country has only increased. How could it be otherwise? Only fools would believe it when greedy rich people spin yarns about how we will flourish while living on the trickle-down crumbs.

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The original "Maximum Wage" photo was posted on Facebook by The Other 98%.

Wikipedia has a discussion of Maximum Wage.

Maximum Wage Tags: Maximum Wage. . . income tax. . . progressive taxation