Friday, November 25, 2011

Maximum Wage - Bridge the Divide

Like many people, Occupy Wall Street has been occupying my mind and I’ve been thinking a lot about maximum wage. It’s an idea that went off like a light bulb in my head a few years ago, when I was discussing the issue of income disparity with a friend. “We have a minimum wage, why not a maximum wage?” I suddenly exclaimed.

I was obsessed with the concept for several weeks, wrote an article (which for some reason I can’t find now) and brought the idea up to a dozen people, all of whom basically reacted with horror. Friends whom I considered progressive accused me of being un-American. I was unable to come up with a rejoinder until another friend said that the idea isn’t un-American, it’s un-capitalistic. Which was so true, I wondered how it happened that America became synonymous with Capitalism. What ever happened to freedom and individualism and the catalytic ideals of the founding fathers that ignited revolution in France and Haiti? Nope, now America equals institutionalized greed.

When I began researching the idea of maximum wage, it amazed me to discover that there is a historical precedence for the idea. In fact, there was, in effect, such a thing as maximum wage in America from 1942 until 1964.

In 1942, Franklin Delano Roosevelt proposed 100% taxation on income above $25,000 (equivalent to about $300,000 now). Congress did not approve of this, but they did pass an act later that year for an 88% tax to be levied at income above $200,000 ($2.78 million in today’s dollars). The next year, the highest tax bracket rose to 94% of all income over $200,000. The rich continued to be taxed over 90% of maximum wage until 1964. So basically, during this time, wealthy people paid $9 out of $10 on anything they made over the top income level, which rose from $200,000 to $400,000. It’s pretty remarkable that the years that teabaggers themselves cite as those of America’s greatest prosperity coincided with what they would perceive as oppressive taxation.

A salary cap of $500,000 to executives was floated around during the early years of Obama's administration, as was a tax hike for the super-wealthy to 40% (see below cartoon from 2009), but this was shouted down and disappeared.

But there’s another way of imagining a maximum wage that doesn’t have to do with taxation, one that I think is infinitely more practicable – and that’s to correlate maximum wage with minimum wage.

If you take a look at the CEO salaries disclosed at, a website created by the AFL-CIO, you’ll find that at McDonald’s, the CEO makes $9,732,618, which is 645 times the lowest salaried worker who makes a paltry $15,080. Or okay, if you want to pick a company where the lowest paid worker is making more than minimum wage, at Texas Instruments the CEO makes $12,213,420, which is 315 times his lowest paid worker at $38,730. Right there, it's apparent the source of the vastly skewed ratio between rich and poor.

And it wasn’t always like this. According to sociologist G. William Dumhoff in his highly annotated article Wealth, Income and Power, “The ratio of CEO pay to factory worker pay rose from 42:1 in 1960 to as high as 531:1 in 2000, at the height of the stock market bubble, when CEOs were cashing in big stock options…By way of comparison, the same ratio is about 25:1 in Europe.” CEOs now make approximately 325 times what the average workers make.

Linking maximum with minimum wage is in practice now at Whole Foods, where the highest salary is capped at 19 times the lowest salary. In other words, if John Mackey wants to raise his salary, he would also have to raise the salary of all his baggers and checkers. Last year, the Greater London Assembly, the government arm that supports the Mayor, voted “to commit themselves to reducing the difference in pay between the lowest and highest paid staff to no more than 20 times, with a long term goal of no more than 10 times.”

Doug Smith makes a compelling argument for a 25-to-1 ratio in his article The Maximum Wage, while labor journalist Sam Pizzigati argues for a 10-to-1 ratio, stating in his 2004 book Greed and Good, that “before inequality began exploding in the 1980s … [a] ten times ratio defined income distribution patterns in nearly every major American workplace.”

Tying minimum to maximum wage at each corporation would definitely mitigate the extreme gap between the haves and have-nots in America but CEOs would probably attempt to compensate themselves through other derivatives. Currently, there is a ghoulish scheme afoot where banks have their employees name them insurance beneficiaries and CEOs collect (millions sometimes) from employee deaths. An underlying change really has to occur in America, a change in the American Dream from profit as an end, to profit as a means to an end. We all have a share in society and a responsibility to it as well. It’s ridiculous that anyone should be making 400 times someone else. It’s ridiculous that some people make $58 a day while others make $20,000 a day and adamantly believe they should be able to hang onto every red cent.

See also:
J.K. Malone. "Maximum Wage Law Passes Congress" New York Times, July 4, 2009.
Especially those alarmist comments.

"History of Marginal Tax Rates: Will Higher Taxes End the Rat Race?" Greenewable.
Comes with link to site showing tax tables from 1913 to 2011. 

Paul Rosenberg. "Reagan's Mean-Spirited Legacy of Economic Disaster." Open Left, February 1, 2011.

Carola Frydman and Raven E. Saks. "Executive Compensation: A New View from a Long-Term Perspective, 1936-2005." July 6, 2007. Intense study of executive pay, using data from the Security and Exchange Commission (SEC). Page 9: Consistent with previous studies, we find that executive pay increased moderately during the mid-1970s and rose at a faster rate in the subsequent two decades, reaching an average growth rate of more than 10 percent per year from 1995 to 1999. This acceleration represents a marked departure from the trend in compensation in the past.” They further noted, “The remarkable stability in the level of executive compensation from the end of World War II to the mid-1970s is surprising in light of the robust economic activity and considerable growth of firms during most of this period.”

And an argument from the other side:
"Diving Into the Rich Pool." The Economist, September 24, 2011. 
Argues that taxing the rich will not help the economy, but does not mention taxation history pre-1980.