Time for a Maximum Wage Law

Having a federal minimum wage helps a little in spreading more economic justice. But the more important question in these terrible economic times is this: Should we have a maximum wage law?

With the American and global economies battered by the actions of greed-obsessed, criminal and incompetent people it is important that the victims understand economic inequality. That means nearly all of us. This term refers the disparity between the poorest and richest segments of the population. When economic inequality is high it reflects that social, economic and political conditions have allowed the rich to get richer and poor to get poorer. In other words, wealth is channeled to an Upper Class at the expense of the poor and middle class people. For many years economic inequality has risen in the US.

Here is something that very few people know. Way back in 1942 when the nation was still suffering from the Great Depression, President Franklin D. Roosevelt proposed what amounted to a maximum wage. He asked Congress to enact a 100 percent top tax rate on annual individual income over $25,000, about $315,000 in today's dollars. Of course, the fact that you never heard about this is because Congress didn't accept the proposal. But lawmakers did set the top rate at 94 percent on income over $200,000, and that rate stayed around 90 percent for the next two decades. That was a period of enormous middle class prosperity. In the ensuing years when that rate was sharply cut, economic inequality rose and the middle class suffered.

To see what happened, understand that in 1943, the very richest Americans paid 78 percent of their total incomes in federal income tax. But 60 years later in 2003 the very richest Americans paid a mere 17.5 percent of their total incomes in federal tax.

More recently, as the global economic meltdown hit Europe, Switzerland's largest trade union and the Swiss Social Democratic Party's youth wing loudly demanded a maximum wage at UBS, the Swiss banking giant and now notorious company that was recently bailed-out. In protests at UBS branches, Swiss demonstrators demanded capping all UBS executive pay at 500,000 Swiss francs, or $431,816. They did not succeed.

One thing seems perfectly clear. In recent years a very small fraction of Americans have been making astronomical sums of money, not just millions or tens of millions or even hundreds of millions, but in some cases billions of dollars in a single year. Countless studies and analyses have confirmed that elites have sucked a huge fraction of the nation's wealth from a corrupt and, as now increasingly revealed, criminal economic system. Obscene annual incomes have come not just from extremely high salaries but also from bonuses and stock options. So what we really should be talking about is a maximum annual income that could be achieved by the government imposing a very, very high tax rate above a certain figure. This offers the advantage that over-achievers could still feed their egos by receiving ludicrous amounts of income but that the government could obtain greatly increased tax revenues at a time when our national debt is beyond comprehension. Whatever income figure was used could also be applied to corporations so that they could not deduct their excessive payments for tax purposes, providing still more revenues to the government.

One idea for setting the maximum annual income is to use a multiple of the yearly income for a minimum wage earner, say 200 times or even 400 times.

The point is that there should be a reasonable amount of economic incentive to work hard and amass some wealth, but that things have gotten completely absurd.

Lending credence to this idea is what Richard Breeden, who had been a chairman of the Securities and Exchange Commission, the federal agency that regulates Wall Street, did in 2003. He had been appointed to come up with a fix-it plan for WorldCom, the scandal-ridden telecom giant. He came up with a plan to dismantle the company's lavish structure of executive pay incentives that he said had encouraged a "reckless pursuit of wealth." Besides banning executive stock options and ending the practice of granting WorldCom executives millions in bonuses, he set a limit on "total compensation from all sources" for the top executive at MCI, the successor company that emerged out of WorldCom's failure. Breeden fixed this "maximum dollar amount" at "not more than $15 million" a year.

In 2007 Harvard psychologist Howard Gardner caused a stir when he wrote the article "An Embarrassment of Riches," published in Foreign Policy. He advocated a cap on the income and wealth that any one individual can accumulate. He said that no individual should annually take home no more than "100 times as much money as the average worker in a society earns in a year." "If the average worker makes $40,000," Gardner proposed, "the top compensated individual may keep $4 million a year." He also advocated a cap on wealth, proposing that "no individual should be allowed to accumulate an estate more than 50 times the allowed annual income." If that capped annual income were $4 million, then Gardner's proposal would allow no one, at death, to bequest a fortune greater than $200 million. Any individual wealth above that would have to "be contributed to charity or donated to the government."

Another way of looking at a maximum wage is this: "You'd have a very interesting situation because for the first time the richest and most powerful people in the country would have a vested interest in raising the wages of the lowest paid," said Sam Pizzigati, author of "The Maximum Wage."

My point is that the idea of capping income and wealth in the US should not be seen as a crazy idea. Indeed, Aristotle wrote that no one should have more than five times the wealth of the poorest person.

Considering the endless stream of bad news about our economy and the raping of it by greed-driven crooks, this is an ideal time to seriously pursue a maximum income public policy. Listen to the wise words of Gardner: "Our standards of 'enough' have become irrationally greedy. Were these proposals enacted, I predict that they would be accepted with amazing speed, and individuals would wonder why they had not always been in effect." So, let's do it. Let's tell President Obama that's what we the people want.