Economy

Runaway Greed Is Destroying America: Should There Be a Lid on How Much Someone Can Make?

Today we take the idea of a minimum wage for granted. Who knows what tomorrow may bring?

Social decency, most Americans today would agree, demands a minimum wage, a floor that keeps working people out of dire privation. Does social decency also demand a “maximum wage,” an income ceiling that discourages wealth from dangerously concentrating?

Philosopher Felix Adler certainly thought so. We remember Adler today as the tireless reformer who led the national effort to end child labor in the early 1900s. Adler also founded the Ethical Culture movement and introduced the kindergarten concept into American education. Much less well known: Adler advanced America’s first serious maximum wage proposal.

The exploitation of workers young and old, Adler believed, generated grand private fortunes that exerted a “corrupting influence” on American politics. To curb that corruption, he proposed a steeply graduated income tax — with a 100 percent top rate at the point “when a certain high and abundant sum has been reached, amply sufficient for all the comforts and true refinements of life.”

This 100 percent top rate, Adler told a packed 1880 lecture hall in New York City, would leave with the wealthy individual “all that he can truly use for the humane purposes of life” and  tax away “only that which is to him merely a means of pomp and pride and power.” 

The New York Times would give Felix Adler’s call for an income maximum widespread circulation, but the notion of a maximum wage wouldn’t take a specific legislative form until World War I, when progressives demanded a 100 percent tax on all income over $100,000 to help finance the war effort.

The group backing this $100,000 income limit, the American Committee on War Finance. would assemble a network of 2,000 volunteers and publish clip-out ads in daily newspapers across the country that readers could sign to “pledge” their support.

Americans who signed the Committee pledge were committing themselves “to further the prompt enactment into law” of the boldest tax-the-rich proposal any American political grouping had ever promoted. They were demanding a fixed limit on income, what the Committee would call “a conscription of wealth.”

“If the government has a right to confiscate one man's life for public purposes,” Committee on War Finance chairman Amos Pinchot, a progressive New York attorney, declared, “it certainly ought to have the right to confiscate another man's wealth for the same purposes.”

The richest 2 percent of Americans, Pinchot would testify to Congress, owned an incredible 65 percent of America’s wealth.

“Neither the United States nor any other country can carry on a war which will make the world safe for democracy and the plutocracy at the same time,” Pinchot would note to lawmakers. “If the war is to serve God, it cannot serve Mammon.”

Amos Pinchot and his fellow progressives would not, in the end, win the 100 percent top tax rate they were seeking. But by war’s end their campaign had totally changed the tenor of America’s political discourse on taxes. The nation’s top tax rate on income over $1 million, just 7 percent in 1914, would hurdle to 77 percent in 1918.

The “Red Scare” that followed World War I in the United States would quickly dash progressive hopes for a more egalitarian America — and usher in a right-wing political reaction that once again made America safe for plutocracy. Incomes and wealth would concentrate at a ferocious pace, and top Democrats and Republicans alike would push throughout the 1920s for lower taxes on America’s richest. By 1925, no dollar of income over $100,000 would face more than a 25 percent tax rate.

America’s Great Depression years would see a renewed call for capping income. From Louisiana, a flamboyant young senator — Huey P. Long — would mobilize an enormously popular Share Our Wealth movement that urged a $1 million lid on individual annual income.

Franklin Roosevelt would hear Huey Long’s political footsteps and move, in June 1935, to steal Long’s thunder. FDR would outrage Corporate America and the nation’s deepest pockets with a “soak the rich” tax plan that would, later that year, raise the top tax rate on income over $5 million to 79 percent. 

Roosevelt’s political maneuver — and Long’s August 1935 assassination — would shove income caps off America’s political stage. But Roosevelt himself would bring them back on. In April 1942, FDR would call for what amounted to a 100 percent tax on all individual income over $25,000, the equivalent of about $350,000 in today’s dollars.

The idea for this war-time income cap came from the newly created industrial unions that made up the CIO, America’s left labor federation, and these unions would keep up the drumbeat for a 100 percent top rate for the rest of the war. They would not get it. But by 1944 lawmakers in Congress would hike the top tax rate on income over $200,000 to a record 94 percent.

America’s top tax rate would hover around 90 percent for the next twenty years — the years of the greatest middle class prosperity in the nation’s history — before dropping down to 70 percent under President Lyndon Johnson in the 1960s. In 1981, under President Ronald Reagan, that top tax rate would sink down to first 50, then 28 percent.

The current top rate: just 35 percent. But even this rate overstates the tax burden  America’s rich today actually bear. Much of the income these rich report comes from capital gains, the profits the wealthy make buying and selling stocks, bonds, and other assets. These capital gains currently face only a 15 percent tax rate.

The bottom line: In 2008, the latest year with statistics available, America's 400 highest-earning taxpayers collected an average $270.5 million each in income. They paid just 18.1 percent of that, after exploiting all the loopholes they could find, in federal income taxes.

In 1955, by contrast, America’s richest 400 taxpayers averaged only $13.3 — in today’s dollars — and paid, after exploiting all available loopholes, 51.2 percent of that in taxes.

How best to overcome today’s stunning U.S. inequality? Some contemporary heirs to the maximum wage thought of Felix Adler are placing the emphasis on action that directly targets the generation of inequality at the enterprise level. These activists are urging that governments in the United States — local, state, and national — leverage the power of the public purse to deny tax dollars to corporations that pay their top executives at unconscionably high multiples of what their workers are earning.

Almost every major American corporation, these activists point out, currently depends on tax dollars in one shape or form or another. Companies get tax dollars to perform government contracts or for economic development subsidies or, indirectly, via tax breaks and preferences.

No tax dollars, progressives are arguing, should go to corporations that pay their executives over 10 or 25 or 50 times what their workers are making. Major corporate CEOs in the United States are currently averaging 325 times the average U.S. weekly wage.

“The federal government currently denies contracts to companies that increase, through discriminatory employment practices, racial or gender inequality in the United States,” as an Institute for Policy Studies report notes. “The same principle could be invoked to deny contracts to companies that, through excessive executive compensation, increase the nation’s economic inequality.”

The ultimate goal? A true “maximum wage,” tied to the minimum wage. Such a maximum could be enforced through a progressive income tax, just as Felix Adler first proposed over a century ago. The “maximum” would be set as a specific multiple of the nation’s minimum wage. All income over 10 or 25 times that minimum would then be subject to a 100 percent tax.

This “maximum wage” would almost immediately start encouraging and nurturing a solidarity economy. For the first time, society’s wealthiest would have a vested self-interest in the well-being of society’s poorest. In a maximum wage America, after all, the after-tax incomes of the nation’s richest and most powerful would only rise if the incomes of the nation’s poorest and most vulnerable rose first.

Before Occupy Wall Street, a vision this lofty seemed pure political fantasy. No longer.

One sign of our changing times: Two eminently respectable U.S. academics — one a law professor at Yale, the other a Berkeley economist --have recently published in the New York Times a cogent case for tax reform that would limit the after-tax incomes of America’s richest 1 percent to 36 times the nation’s median income.

Today we take the idea of a minimum wage for granted. Who knows what tomorrow may bring?