Wednesday, September 1, 2010

Minimum Wage. Maximum Wage? (12.12.08)

What if the maximum wage determined the minimum wage?  So that a CEO desiring a raise was thereby raising the salaries of his or her lowest paid workers.

Here's some food for thought (according to the latest statistic I was able to find in a simple google search):
In 2005, an average Chief Executive Officer (CEO) was paid 821 times as much as a minimum wage earner, who earns just $5.15 per hour. An average CEO earns more before lunchtime on the very first day of work in the year than a minimum wage worker earns all year.
It's worth clicking the link to see the graph of how obscenely inflated the highest salaries have become over time - in comparison to the lowest paid workers (from a factor of 51 in 1965 to a factor of 821 in 2005)

And how does the minimum wage compare to a living wage?  More food for thought, compiled just 2 months ago by a job seeker in Seattle:
I want to use a recent job offer to discuss minimum wage and living wage jobs, and talk about the actual cost of health care, not in esoteric terms, but using the real numbers from a job offer I received just two weeks ago.

Salary offer: $32,500 a year, full benefit package.

Just for comparison, a minimum wage job currently pays $8.07 an hour, and this rate will go up in January to $8.55. This would be a yearly salary of $16,785 to $17,784 a year, respectively. This is roughly half of the salary I was offered at this institution.

Along with this offer, I received the insurance plan information from the employer that spelled out employer and employee contributions. From that information, I created the following data.  [follow link and scroll down to table]

I'm not making these numbers up.

As you can see, as an individual, it really isn't that bad a deal. But add another person-spouse, child, parent- and it gets tough. Add a spouse and more than one dependent, and the cost is astronomical.

It is also important to note that this is a job offer at nearly twice the minimum wage. This is what is described as a living wage, and no doubt the person they hired for this job had a college degree and experience in the work.

[italics and bold are mine]
Next, let's consider, as this student did, how minimum wage living conditions compare to slavery:
Just who is it that has the authority to decide who is worthy of excess and who is worthy of crumbs?

When I think of earning $5.15 per hour and then being told to provide my own housing, transportation, food, clothes, etc., I cringe. There is no way it could be done. The figures just don't work. Idealistically, it may sound like living in slavery would be worse than living "free" on minimum wage but realistically, living in slavery may actually be the better of the two evils. A ludicrous thought? Yes, according to my Sociology professor, but realistic to me. To work for an amount that does not pay for acceptable food, shelter, clothes, and transportation is worse than slavery and gives no hope for survival. A life of poverty with no hope to do better possibly drives people to crime, drugs, and dependence on others.

Ironically, CEO's who shovel in millions of dollars in pay are actually dependent on workers accepting less pay and minimum wage workers in order to be able to feed their greed. Why are these CEO's who have taken much and turned it into nothing worthy of a $700 billion bail-out by "our" government when some who work hard and honestly are only "worthy" of minimal pay? CEO's can be compared to slave owners in that they consider themselves more deserving and minimum wage workers can be compared to obedient slaves because in reality, they are able to exercise no control over their destiny.

[italics mine]
I'm no expert in economics or sociology.  But I'd call myself an expert in empathizing with pain.  Apparently CEO's and many in the media lack such compassion. 

This is a topic that needs to be discussed.  Limits need to be placed.  In Europe CEO's earn far less (as a multiple of the minimum paid worker, with Spain as the lowest among them).  I can speak from experience that one brother-in-law in Spain was able to live far, far above the average Madrid resident on even that relatively low multiple, which is nevertheless far, far below the US CEO multiple.

Here is an eloquent plea by a German who was interviewed on Radio Vatican:
The escalating salaries of managers are a scandal. They violate our sense of justice. However the real scandal is indifference toward workers. Persons with responsibility are not concerned about their workers doing well. Quite the contrary! The high salaries that the managers give themselves must be paid by employees whose incomes stagnate. That is the great fraud! While on one side, not enough money can be shoveled there, the other side is often in distress. The real shame is that persons with responsibility stand back and watch. Most economic leaders probably do not even worry about the inhumanity. In contrast, payment of a minimum wage is vehemently refused out of "concern" that jobs could be endangered. The one-sidedness of this way of looking at things is terrible because people are not worried about paid wages enabling survival. Instead an economic upswing is announced officially that will not reach the majority of workers. This deceit has been occurring for decades. It is practiced by all government departments and nearly all the media, not only by the wealthiest persons.
This is an essay question.  Please discuss!



This post was suggested by dickday in a comment to a previous blog. I never imagined it would turn into such a project!
Well, thanks for doing it. It's an eye-opening post.
It's my fervent hope that many CEO's this year will forego the huge bonuses they routinely reward themselves with, and instead provide higher bonuses to their employees. But, the cynic in me says that just ain't gonna happen.
Actually, Lis, I think one more thing needs to happen. As a society we need to value what people "donate" or "give back" to society - rather than what they "take" in greed.
Somehow things need to change. A carrot in addition to a stick might do it.
What if the minimum wage determined the maximum wage... turn it on its head. Whatever the federal minimum is, the marginal tax rate goes to 100% for wages that are, say, 10 times that, with no trick accounting.
Since the members of Congress and the Senate are, every last one, well-paid (and well-off, usually, even beforehand) the odds of this passing are quite small. Very much in the same way that second-home mortgage interest deductions will never be removed - all members of Congress need two residences.
It's only the underpaid and undereducated who can be induced to vote against their personal interests.
I had a similar idea yesterday, so I will repost and modify.
How about 10x government defined poverty level?
So if poverty level is set at, say, 20,000 per annum for household of 2 then the income ceiling would be 200,000 per annum. The new "class" structure resulting:
Upper Class: 140,000-200,000
Middle Class: 80,000-140,000
Lower Class: 20,000-80,000
This feels still a bit unfair: I have a hard time thinking one person's hour of labor is worth 10 times another person's hour of work. But our compensation rates for differing work are all skewed anyway.

I don't believe there is any level where 100% taxation is appropriate, but it sure seems like 60-70% at the $1M mark might be justified.
Let's face it, some of us are just better at making money than others. It seems unfair/unwise somehow to penalize those that are really good at it to the point where they just won't do it anymore. And it is equally unfair/unwise for those who won't/can't make tons of money to enjoy the same standard of living as those who do.
But, the divide between rich and poor is getting too great, and the middle class is disappearing. SOMETHING needs to give.
Bingo, Lux. I've been carrying this around in my head for years. We need to cut through all the crap, all the pseudo-justifications and rationalizations. 10 to 1. Bring it on, buddy.
What some don't get is how deeply the concentration of income ends up hurting the entire economy. And in our societies, it's just wandered off the face of the Earth. 800 TIMES larger? I mean, think about that - not just in terms of absurdity, but how many people it could pay. You could cut that person back to 100 times, and have enough money to pay for 700 entirely new employees in that firm.
But after this recent run, I think we're also going to have to go after already-accumulated WEALTH. A lot of people stuck a lot of hundreds of millions and billions away. And a billion $ is still a lot of money. Can they spend it? Not possibly. Wealth tax, to claw some of the 90's-00's excesses back, get it into the mainstream economy and its citizens, or else we're stuck with deep economic imbalance, and political over-weighting, for decades to come.
Here's another idea I've toyed with for years Quinn but don't know how to make work in real life.
How about we index fees/charges to incomes on some kind of pro-rated hourly wage basis?
Example, I have to go to a neurosurgeon to have that part of my brain that believed we could leverage 50-1 safely, removed. He can charge me no greater than 1-1 hourly rates indexed on my income. If I make 10.00 an hour that's all he can charge me per hour. Likewise if he comes to my quant shop for some heavy duty modeling and he makes 60 an hour (under the new regime) I can bill him no greater than that. Kind of a monetarized barter
Lux, all you have to do is take OUT the brain implant that they put in after you get an MBA. That will remove the 50-1 leverage problem.
I think the last 5 months would have fried that part to a crisp!
Bermuda beckons! Oh for the carefree life of a crab-shell shucker!
I've already proposed in terms of health care that all docs should be paid for their time, not by the procedure! Thus primary care docs would then be adequately compensated and would have sufficient time with a patient to really do a careful diagnosis or physical. Once you equalize salaries by time, med students would be less likely to go into specialties (which are now much better compensated, do to the fee structure tied to procedures)
Put that idea together with the idea of the govt assisting in the cost of med school and you eliminate the outrageous debt, which also leads med students to choose a high paid specialty.
Pay for time worked. Especially in health care, that would lower the overall cost to us as a society. And eliminating the hassles of practice, by having one payer (ideally) would so far exceed the current work hurdles that lower pay would not be such a bitter pill for some.
Pay for time worked in view of schooling if you want. Nevertheless, why should I earn more, simply because I was born of intelligent parents who saved and paid for my college education? Or that I got nearly free grad school due to winning a fellowship? Yes, I worked hard for those things and I've made use of my native gifts. The thing is that those of us who are intelligent and resourceful end up doing work that is very fulfilling. And at a certain point, no one really should be greedy and just amass a fortune.
I think we all need to be ready to "give up" something - so all can benefit and have a decent life.

Boy, do I like that idea. I work with dentists and doctors (and other borrowers) most frequently, and their income projections are often based on increasing the number of patients they can see or procedures they can do. This may be a good idea for making money manufacturing pencils, but it is an awful practice for health care.
I would be thrilled to have played a small role here, Lux. I hope we can keep this ball rolling! I so value your voice. And quinn's. And others, of course.
So, please, yes, a blog of your own, fleshing this out!
I will give it due thought, TheraP, as I price my library for the coming yard sale. I wonder what I should ask for my copy of Dynamic Hedging? 50 cents, a quarter.....hmmmmmmm.
I know! I will create a structured instrument yard sale! You buy my DH book and you get an option on the delta of my sale of Binomial Asset Pricing, and I will sell that book with a package of used Borland tech manuals that you have to give me a 10% option on the range-price accrual within a 90 day limit otherwise you have to dispose of the tech manuals in the local landfill.
I may claw my way back after all!!
Heck, I might raise you some outdated assessment books! How about if we cut them up and then put them into bundles. Clearly the bundles will have greater validity than the independent outdated books all by themselves! So we can price them accordingly. We could make a fortune here!
I bet lots of other TPM commenters can chip in other books. And we'll cut my bundles up and rebundle with those! Valuing higher as we go! I'm going to put you in charge of all of it. Along with quinn for some music videos thrown in. And Emma Zahn and Kate O for further VIP cache!
I look forward to your blog and the yard sale!
I like that idea, TheraP, you missed a brilliant career in financial engineering! But I forgot, what am I supposed to blog on?
Follow your muse, Lux! Could be about the min-max wage. Or go for the yard sale! Whatever strikes your fancy.
Hey, I want to be the ratings agency for this stewed yard sale. I can guarantee A, but depending on how my coffers fill, AA or AAA are not out of the question.
That makes us all alcoholics or tow truck heroes, I think.
The job is yours! A no-bid contract! Because you're our friend! Glad you stepped up to the plate. Which gives me another idea. We'll break plates. And bundle the pieces. Then smash the bundles and remix. Revaluing as we go! Oh, the fun we'll have!
Its an hour of human life that someone will never get back. Even though this bill will never get the umph it needs to get pushed into a law
What if the minimum wage determined the maximum wage... turn it on its head. Whatever the federal minimum is, the marginal tax rate goes to 100% for wages that are, say, 10 times that, with no trick accounting.
Such a good idea, you had to say it twice, Marquis Marq?

Stoopit use of back button made this happen :(
Actually, my original idea had been yours, to determine maximum based on minimum. And dickday was the one who turned mine on its head. But your idea of taxing wages way beyond the minimum is also an intriguing idea!
If enough of us put our heads together here, we might get some traction on this!
Interesting thought, TheraP. I like how Marquis reversed it as well.
Want another project? One that may be more in line with your profession?
I've been thinking about how much our identities are tied to our jobs/occupations. How the loss of a job can be so much more than just the loss of an income.
Your post here stimulated another train of thought, that is, what impact pay levels and the status they confer have on identity, especially at the extremes.
Do maximum wage earners become more arrogant because they are paid so much? After all, why would someone pay them that much if they weren't worth it?
I'll give it some thought, Emma. But here's my off the cuff initial thought. I wonder if what you suggest would be true of highly paid narcissists versus low paid folks with an inferiority complex.
So I'd throw in a few more variables - not just the social stigma of low pay versus the social status of high pay. Because for people with positive self-esteem, society's valuation of their work in terms of pay (or status tied to pay) is not their only source of either social status or personal satisfaction. I'm thinking of college professors, who earn much lower than physicians or CEO's. Or I'm thinking of the many people who leave high-paying jobs in finance or whatever for organic farming or to open a bakery or pursue painting or writing.
In other words, I think enduring personality configurations likely have more sway here than a simple ratio of pay to self-esteem. Indeed, I would wager that narcissists may seek or come to be viewed as management types - when for myself, I'd pick someone with a conscience and a bit of anxiety over them any day!
But your comment about the effect of losing a job on one's mental health. Absolutely!
You're really opened up several valuable lines of inquiry. Maybe others can weigh in on this too.
Hi Thera, this is timely!
re: narcissists - I seem to recall reading somewhere in the intertubes, between 2 and 3 years ago, that some researcher(s?) had gotten some results suggesting that upper managers and executives in the business world often showed traits in common with sociopaths. To varying degrees, as I recall, and narcissism may have been one of those traits.
Just curious if you had run across that as well.
Well, sociopaths are narcissists to the extreme. They lack empathy. They lack a conscience but the basic personality structure is narcissistic.
This is such a complicated subject...As a former small business owner, I can tell you that if all employers in the country are required by law to provide a living wage to all employees, life as we know it will change dramatically. Maybe that will be a good thing in the end, but it will be very strange getting there.
For one thing, all independent small businesses like florists, gift shops, boutique style shops of any kind (small eateries, ice cream stores, souvenir shops, etc.) that cater to anyone other than the wealthy, will cease to exist. I know from experience. These types of places can be very labor intensive, but in the end make such a small amount of money, there is no way to pay a living wage. The only reason my business survived for 20 years was because my husband made enough money that my contribution was just for extras. I provided a second income for about 10 women who didn't need living wages, but needed to supplement their husband's incomes to make ends meet.
I remember way back when, writing to Hillary Clinton and enclosing a copy of my schedule C, asking where, pray tell, will the money for health care insurance come from? I'm working 60 hours a week because I love what I'm doing, but they make more per hour than I do. I did not receive a reply.
Now, maybe none of this stuff that these types of businesses sell are necessary. An argument can be made that life will not end if husbands buy their wives a bunch of wrapped roses at Costco for their anniversary instead of having a beautifully designed vase sent from the local florist. I will probably continue to take vacations even though there are no little souvenir shops full of cute little trinkets to buy. I'm not sure where I will buy my clothes, because all of the places where I normally shop (J.C. Penny's, Kohl's, Mervyn's - oh, wait Mervyn's is already out of business) will be gone, or the stuff will be too expensive for me to afford...maybe naked will come back into style (God help us all!) No one NEEDS cute little earrings to survive. I suppose I could probably live another 20 years without absolutely
NEEDING to buy another purse. And Lord knows, I would be better off if I never went to that cute little yogurt shop w/ the 50 different toppings...
Life will be different, that's for sure.
Consider that decently-compensated workers will also be able to be customers for goods and services that many are forgoing now.
The transition will not be easy, true. It is worth working toward as a goal, I'm just in agreement with you - for the moment - that we don't know how to get there from here.
Sounds good in theory, only prices have to rise to pay for the higher wages, so the goods are still out of their reach. Elsewhere in the thread are ideas for making it work, other than on the backs of employers, so maybe w/ enough creative people working on a solution, one can be found.
You are caught in the middle, indeed. But let us start with the issue of health care. ... If we move health care to taxes and tax those who can afford it, then your small business is not going to get hit very much. Your employees are not going to have to get more pay (to cover that topic), the realistic tax policy (progressive tax of some form) will shift the cost of health care to the well off in some way. This is America's top economic problem. It is the problem with the Auto Cos. It is a lot of why your employees are underpaid (and you are deluding yourself if you don't think you have *any* uninsured employees). It is the root of many other problems.
Now if we implement a policy that levels income somewhat (as I described) we put pressure on people who want the most to do what they can to help those who have the least. Forget the noblesse oblige stuff, just get them their own money. Nobody is going to give anyone a million/year minimum wage to make sure that corporate fat cats can have $10/million a year. Instead the maximum wage is going to come down a lot while the minimum goes up a little. Luxury goods will suffer price competition and lack of demand. Mansions will become rare. That sort of thing.
You're getting into the nitty-gritty that policy makers and legislators would have to wrestle with. But if you stop and think about it, your pay (to yourself) was likely NOT of a magnitude of even 10 to 1.
Also, you cite the problem of health insurance. And this is exactly why government should provide health care as a human right. Employers should not be in the business of providing healthcare, any more than they provide public education or garbage disposal or other services for their workers.
I can't answer all the fine points of how to do this. But you've surely made excellent points and a valuable contribution to the discussion.
I think you need to look at the gap between the worker's wage and the owner's profit or however you accurately describe that for small business. If the owner can afford to pay the living wage and still clear enough to make it worth his while to stay in business, then he should do so. If nothing else, it's his moral duty to do so.
If nothing else, it's his moral duty to do so.
I so agree, Bluebell. Got tell it to the 'Universal Moralists', aka Republicans.
That is why I tried to turn it around.
We have to have a minimum wage. There are yogurt shops, and flower shops and I do not wish to put them out of business by making them pay employees $15.00/hour.
If I am making $8/hr and I get a housing allowance, and I get a good amount of food stamps, and I get a negative income tax stipend and my spouse gets $8/hr for a 25 hour week and I get medical insurance from the state/feds. I am close to an economic floor with my two children. Now, if my wife and I are a member of a church and attend regularly and appear at functions and do some volunteer work through the church and they provide school clothes and a school bag I am even better off--hence Barack's defense of working with religious institutions.
Now, what I was thinking about was how to cap management in large corporations. Not flower shops. The CEO decides he gets a percentage of gross as decided by his crooked accountants. This is what has taken place. The percentage applies to their 'crew' so that the corp is paying tens of millions of dollars for services that have no relation to work or merit or anything else tangible.
But the law says that there has to be a formula like TheraP is saying that ties the janitor's salary to management's salary. So that if a VP is going to be paid 2,000,000 the janitor gets $100,000.00. Now the janitor does not need food stamps or a housing allowance, or anything else.
It would come to the point that the corporation cannot give these pigs that kind of money.
The problem of overpayment to management also is a function of republican legislation that has taken power away from shareholders to veto these ridiculous salaries. But that is for another blog by someone that knows what they are tolking about.
Thereap's formula does not have anything to do with a flower shop owner who works 60 hours a week and makes $60,000.00. The formula would not apply.
Bless you, dickday! For explaining all that!
My concern comes from the discussion of minimum wage vs. living wage. I don't see a way to make the minimum wage a living wage on the backs of employers. I DO like the idea of government help for the people who fall into that inbetween place...make too little to survive, but too much to get government assistance.
I am painfully aware that some of my employees were uninsured. Some had insurance through their husband's jobs. Others had none. I looked into every program I could find, but there were none that were even close to feasible.
I sold my business almost 3 years ago, and I'm retired, so for me personally, I have no dog in the fight anymore, except that I really like shopping at the cute little places I'm concerned about.
I know we have a very broken system, we just have to be careful about how we fix it.
It is quite apparent and has been for some time that these inequities exist and have grown worse over several decades.
Where we really have a problem is our government promotes this by refusing to alter the scheme of elections and the like. The interdependence between government and the finacial sector and big business in general has completely corrupted our nation.
This is easily understood by examining the regulatory scheme that has created this mess. The practical application of regulation requires the regulators and the regulated to exist in an adversarial environment. We have no such thing.
Until this altogether illogical arrangement is corrected we will continue going along the road of corruption and ultimately arrive at total collapse. Our system of governemt with the supposed checks and balances, establishes a similar regulatory scheme. However, in spite of some serious transgressions by the Bush administration, the regulators (congress) did nothing. An equivalent circumstance would be one where a person committed a crime but had a cop buddy who looked the other way. What we end up with is exactly what has been voiced time and again here on TPM and all over the web. Accountability is non-existent. This mirrors the financial inequity that is under discussion but crosses over into the realm of gross injustice and very real criminal malfeasance. So the pay inequity, while absolutely absurd in its disparity, is only the tip of the iceberg. In true fact, it has gotten so bad, I'm uncertain if it can be fixed at this point. The very people that have to change it are also the ones running the show. And they are in serious denial.
Eloquent comment.
Thank you TheraP for this excellent piece. It makes you consider the fundamentals and that is what I prefer to focus upon. The wage ratio you commented upon is symptomatic of what is wrong.
I'll give you another number to contemplate that I am fond of repeating. In 1949 (the year I was born) federal tax receipts from businesses represented 49% of federal tax revenues. Today that number hovers around 16%. The differential of 36% represents many trillions of dollars. Those trillions have been used in ways that are very disadvantageous to the typical working American. Why do you think a seat in the U.S. Senate is so valuable? Even a seat in the U.S. House is not without considerable reward. Banks and huge corporations throw money around like water and a lot of it happens to splash on government officials.
Across my lifetime the entire finacial scheme of this country has changed in very fundamental ways. That change is absolutely by intent and has resulted in the problems we now have and is responsible for inequities that are antagonisitc to democratic governance. As I said, I don't think its possible to roll back the social and financial inequities that have been introduced into our system of governance over the last sixty years.
This can only end badly. If you look at all the other things that have gone on over the Bush years the single thing that stands out is the very real consolidation of power and authority that has been taken by our central government. Never before in our history has our military been an integral part of domesctic intelligence and surveillance like it is today. There is a much larger picture in all of this and we would do well to understand its implications.
Just a reply comment I posted on my blog that actually seems more appropriate here.
If there is one basic lesson of history that that the knotheads at the top are perpetually incapable of learning as a class, it is that the middle class (or whatever its equivilent is in a given historical economy is) is the goose that lays the golden eggs. They can never stop themselves from killing the goose to accelerate their acquisition of those eggs.
I don't claim to be an economist, but I know a little bit about history. I think one of the recurring themes of history is that when the middle thrives--be it the working class plus the bourgeoisie in an industrial state, the yeoman farmers in pre-industrial or industrializing economies, the upper class (be they nobles, capitalists or patricians) thrives as well.
Invariably, however, there comes a point when the high accumulate so much political power that think they have the ability to further enrich themselves by impoverishing the middle and, having acquired that power they cannot resist doing so. It is always self-defeating. It is always self-destructive. And they can never stop themselves.
The patricians could not resist the temptation of snapping up the farms of all the good citizens who left the plow to defend the Republic from Hannibal. And, of course, the Punic War provided the patricians with a horde of cheap slaves to work those farms, which drove the remaining freeholders out of business, which put more farms on the market, and so on and so on and so on. When the Gracchi tried to raise the alarm and show them that they were harming themselves, they murdered them.
In the Middle Ages, they did the impoverishing with brute force. In the nineteenth century, they did it with technology. Today, they do it with outsourcing. Their unending delusion is that they can make themselves richer by slashing labor costs and then, eventually, putting the impoverished plebes into debt to them. And invariably, then are shocked, appalled and mystified when the economy collapses because the plebes/serfs/workers/middle class just can't afford to buy stuff anymore.
We never seem to learn so, instead, all we can do is take advantage of economic disruptions to beat back the self-destructive rapacity of the upper class. Marx notwithstanding, rich people are necessary to the functioning of an economy, but as a class, they're as stupid as domestic turkeys--they'll eat themselves to death if we give them the opportunity. And that's exactly what we've been doing for the last decade.
Glad you reposted that comment. :)
Another thought that comes to mind is that there is no way in heck there should be a ceiling on the amount of money a person can make. This is America, and in America the sky is supposed to be the limit, and I like that. The problem is that the way we tax it needs to change. People who make these crazy amounts of money need to be doing more to help others. Not just CEOs, but movie stars, sports figures, t.v. personalities, and day traders...
I don't know exactly where the high tax rate should start, but I do know that $250k a year when you live in New York or California and are trying to own a home and raise a family, is not as much as it sounds like to folks in Kansas and Tennessee.
On the other hand, when you live in a 10,000 square foot house with servants (and have 3 vacation homes, as well) every toy known to man, and fly off to Paris for dinner in your private jet, while people in this country (let alone the world) are struggling to put food on the table and a roof over the family's head when both parents are working 40 hours a week it is just plain WRONG.
I don't think you could try to legislate a maximum wage. They have armies of accountants and they will most assuredly finagle a way around the law by calling it something else. Currently, American CEO's of major corporations make about 250 times the salary of their average worker. For comparison, Japanese and European CEO's make about 25 times the salary of their average worker. American CEO's justify this by pointing to each other and claiming that's what's needed to attract executives, then they sit on each others' board and approve each others' ridiculous salaries.
The solution is to remove the incentive by re-instituting higher tax rates for the highest incomes. One of the most productive times in our recent history was the 1950's and 60's. People bought houses, they bought cars, they bought televisions, they bought everything. They could afford to because it was the golden age of the middle class and the economy was booming. Top marginal tax rates were as high as 91%. Sorta makes you laugh when you hear people today claiming that the economy can't grow because the top rates are too high at 38%.
The tax code needs to be made more progressive. Institute two additional tax rates: 50% at about $250K and 75% at $1M.
I like it except that the $250K gets changed to maybe $650K...Seriously, $250K in some parts of the country is really not all that much.
I can be flexible on the amounts, but $250k doesn't strike me as that high. Remember, you only pay 50% on the amount above that.
According to that report I cited above, the CEO's were making 821 times the average worker - and that was in 2005! (the most recent figure I read for Spain was I believe 31 times the average worker and Spain was the lowest in Europe) Perhaps someone else has better or more recent figures. And I apologize if any of my citations were off.
BTW...great subject Thera! Got my brain activated for a change!
Here's another painful twist. If you are disabled, like my brother is, and only able to work in a minimum wage job with no benefits, you cannot collect SSDI if you make more than $900/month. That's $10,800/year, which Social Security considers gainful employment. This is true even for someone like him who is 57 and has been paying into the system for 40 years. So, for some people artificial ceilings get set as well as bottomless floors. We have to do something about low income workers, especially these rules about what is considered gainful employment, which seems to depend on which agency you're dealing with and in all cases is cruel.
I so agree. Makes it very hard for people who are permanent disabled but truly can contribute something to society and want to feel like productive, contributing members even if they are unable, for whatever disability, to work full time or cannot work in a usual work environment (I'm thinking of people disabled due to mental health, but it could work for physical disability too.)
Yes, my brother has schizophrenia and wants to/needs to work--downtime is bad time. But he gets told he would do better to just not work at all--collect welfare, etc... It is a constant battle with the system. As you probably know, it is hardest for people with mental illness because they are often the most stigmatized.
By the way, TheraP, great blog. Really focuses on a critical issue.
I so agree. It's tragic. Especially for those people, like your brother and some of my patients, who are very bright, even brilliant, and kept from contributing to society - though clearly disabled.
Sam Pizzigati made the case for a 10x rule, whereby the best paid person could make no more than 10x the (presumably boosted) minimum full-time wage, in his 2004 book Greed and Good: Understanding and Overcoming the Inequality That Limits Our Lives.
The intellectual case for it would strike me as fairly strong, actually, if I could get myself to believe that it wouldn't make so many Americans so irate over not being able to make over, say, $300,000 or $400,000 as to trigger something like an upside down French revolution.
Just think of how many of the TV contest shows would wither in popularity. They'd have to rename "Who Wants to Be a Millionaire", for starters.
Most Americans would be shocked to learn that the top marginal tax bracket into the Eisenhower years was 90%. If the right-wing economic orthodoxy about the effect of taxes on the economy were true irrespective of many context-specific factors, our economy couldn't possibly have both grown well and seen income disparities gradually shrink for a full generation following World World II, right up until the great U-turn in 1973.
Obviously, our culture permitted that 90% upper bracket rate at one time. I am not sure it would permit anything remotely close to that today. If there is even a third party politician who has suggested something like this in the last 30 or 40 years I've not heard of it. Even politicians who are committed to reducing poverty or inequality stop short of calling for anything like a maximum income, from what I have observed.
The best effort I've seen to date to start the kind of conversation that would probably need to underlie cultural change in attitudes about income and wealth disparities in this country is the one that Bill Gates, Sr. and Chuck Collins have been devoting themselves to, in their excellent book Wealth and Our Commonwealth, and their various related advocacy activities.

Thanks for that info on Gates' father and colleague. Also, Bill Gates himself and Warren Buffet are, if we're lucky, beginning to change how extremely wealthy individuals exercise a social duty to see that their wealthy is redistributed for the good of all.
This comment would merit its own blog, if I didn't want to take the space from someone else. But I am fascinated by the number of blogs lately which, independent of one another, have been addressing similar themes of social, economic, and health ills. It's as if we've all become part of some larger system, circling important issues - I used the image of a jet stream the other day, as if we've all caught the same wind and are riding it. But it's a beautiful thing to see this! Previously it was The Muck or the main page that seemed to spark a team of TPM worker-bees. But this time it's happened in the Cafe.
And I just want to thank this group! Here we are, toiling away for no money, out of our desire to point out problems and seek solutions, to try to make the country and the world a better place.
I'm proud to be among you!
Here we are, toiling away for no money, out of our desire to point out problems and seek solutions, to try to make the country and the world a better place.
You just pointed out something else that doesn't gel with the rational expectations and free markets theories. Yet, here we are. The new Linux group for political economy.
The Blue Hats?
I love it!
BTW...great subject Thera! Got my brain activated for a change!
I remember reading, in the middle of the Bush years, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else, by David Cay Johnston. I don't remember exact percentages, but the gist was that the further you went up the income scale, the less proportionately you paid in taxes. $250,000 a year in the range was absolute peanuts, and around that income range were the folks paying in, as a percentage of total overall tax revenues, the most. Essentially the function of the taxation system was & is, as noted by The Commentator Formerly Known as NCSteve, to funnel more and more wealth up the income ladder. The more you make above the middle class, the more you get to keep; and if you make insanely more, you get to keep insanely more. Logarithmic, practically.
As a small business owner who through salary/take-home pay makes nowhere near 10 times the current minimum wage per hour (at the 40-hour work week, not actual hours worked, at that!), I pay a lot more than that salary amount in taxes every year. Why? Because the company is organized as an S-Corp. This means all profits flow through to the individual owners. I lend back the money to the company, so we can pay back the bank for loans we've taken out to make improvements, and to make more improvements. (Hopefully by the time I retire, the company can pay me back!) But these capital expenditures are not deductible as expenses (except over the long haul). So we are in a continuous catch-22 where if we make a lot of money, we pay a lot in taxes, leaving not much cash to stay competetive -especially against the multinationals - by reinvesting in our business. Other than bank loans - at least the interest is deductible! (And, I suspect, another reason so many small to mid-size businesses are in debt.)
That's why I also favor a return to high taxation rates, and some form of "clawing back" the millions/billions stashed away in the last decade by the super rich. I think, however, that if it was coupled with 100% deductibility on all new capital expenditures (not just machinery & SUV's, as in the Bush tax cuts, but actual construction, too), it would give not only small business owners breathing room to pay taxes on a closer equivalent to cash flow, but also be another big incentive to jump-start this economy again. SBO's not expecting to make a lot of money, wouldn't invest; those who were, would.
And perhaps it should be limited to small make sure big companies couldn't just sell themselves & their debts to other big companies, who would then have even more leverage to grow bigger. Sigh. It's complicated, is all I can ultimately say!
Thanks for that background info.
OK, Professor TheraP, I'm here to discuss my fragmentary understanding of wages and poverty.
In the 1960s, Mollie Orshansky, a statistician in the Social Security Administration was worried about poor children and wanted to help make them visible and estimate how many there really were. She used food plans to determine how much variously sized families would need to make in order to insure that their children ate well. These were “by no means subsistence diets,” Orshansky later wrote. “But they do assume that the housewife will be a careful shopper, a skillful cook, and a good manager who will prepare all the family’s meals at home.”
Using a survey, she found that most people spent one third of their pay on food. She did not calculate heating, clothing or rent costs and instead relied on tripling the amount needed for food to come up with the minimum income needed to survive.
Believe it or not, we are still calculating poverty rates the same way today in 2008. A National Academy of Science panel concluded in 1995 that we need a better form of poverty measurement.
As stillidealistic has repeatedly pointed out, that isn't going to fly on the coasts, and not even in Tennessee or Alabama, either.
As far as the minimum wage thing and the objections that stillidealistic and others have brought forward, aren't we forgetting that during the 50's and 60's when the middle class was rising, they were usually rising on the salary of one earner, not two? The low wage jobs were held by the disabled, teenagers and others working for extra 'pin' money, where a family was not dependent on their income, usually.
And at the same time, there was still the concept of the upwardly mobile, where the lower waged people would eventually rise to the middle and so on. The low paying jobs were not for life, just for a while until an education was completed, or job training or something like that. The upwardly mobile concept is just a concept now in the United States and not reality, although it is an especially cherished one that some people still think tends to exist.
During this golden period, wages and productivity were essentially connected. The more you worked and produced, the more you made. That connection has gradually widened since the 1980's and now there is no connection between wages and productivity.
And finally, just to complete the fragments, here is an excerpt from a speech by Paul Krugman in 2007:

We can argue about which is the natural market outcome. But the point is, in fact, that we had a society 25 years ago in which there were some constraints imposed by public opinion, by strong unions, by a general sense that there were things that you don't do. And maybe that led firms to make a decision to think of there being a sort of tradeoff between a "let's have a happy high morale" workforce, or let's have a super star CEO and squeeze the workers for all we can. There were some things that tilted the balance in that decision.
Great topic and really interesting comments, TheraP!

Wow, that is very important info, seashell. But I'm no professor. Just a humble therapist, way out of her field (except for "feeling the pain" of so many people) - who made a suggestion and followed the request of dickday to turn it on its head and into a blog. (The proof of my amateur status is that other commenters promptly turned that on its head.. and back to my original idea!) Which it turns out is really Lux Umbra Dei's idea! (or something like it!)
But calculating poverty rates - just based on an assumption of how much it would cost to minimally feed a family (from scratch). Wow!
Not my idea! I remember Fred Harris in 1976 advocating something like it. Got the national press in an uproar and lickety split he was marginalized as a wild-eyed loony! Despite the fact he was a Rhodes scholar!
See, I'm lucky being a psychologist. I can be eccentric and get away with it!
There's the funniest chapter in a book about manic depression by a woman psychologist who's also manic depressive: She's manic and it's the middle of the night in the parking lot of the university medical center where she and colleagues work. The police come by as her colleagues are trying to talk her down from her mania (or whatever occurred). And they manage to get the police to leave with this line: "Don't worry. We're members of the Dept of Psychiatry!"
Great thread. This is the big issue. Inequality and what we should do to try to reduce it. BTW, I have a post up now that includes suggestions about how we could use tpmcafe to generate and refine ideas to submit to I think that the wisdom of this crowd could be of significant value.
Just a couple of remarks about some relevant history. The original approach, which worked pretty well, was to use progressive income tax on income and the inheritance tax on wealth. The idea was that people could keep their wealth while they were alive, then the state took a big chunk. That's a good idea politically, because selfish rich people are much less opposed to taxes when they're dead. However, I think the time has come to look at making that tax progressive.
The income tax has been subverted in many ways, but for my money the biggest in by cutting capital gains taxes to only 15%, with a bunch of exemptions even from that. The idea that hard work should be taxed at 36% while sitting by the pool looking at income statements should only be at 15% shocks the conscience, and the argument, incredibly, was that capital needed the incentives. You need more incentive to sit by the pool than to go out a and work? Unbelievable.
My general feel is that the system has been stacked against the everyone except the rich in so many ways that it is going to take a while to reintroduce fairness into the system, but I do believe Obama has that as a major goal.
Another reform that would help is doing something about payroll taxes, which are highly regressive.
You are a great addition to this place, Tom! I love your image of capital gains as sitting by the pool looking at income statements!
Actually, I have to admit the original version I read somewhere was 'sitting by the pool clipping coupons' so it's not really original.
This is a little off track, but is tangentially related to the topic...
I would like to propose that since a corporation is a legal entity equivalent to a person that we should treat them like people. The basic idea goes like this: Corp A commits fraud. The sentence for fraud is 3-5 years. So Corp A goes non-profit for 3-5 years. Any profits go to the gov't to pay for enforcement. The stockholders can file a class-action lawsuit against the CEO for their projected losses. All the sudden breaking the law got a lot less economical.
As for executive compensation, maybe stock options should count as pay? Seems like a good place to start.
I'd like to hit you with something: In business administrative costs are usually considered "fat" to be trimmed as they do not generally contribute to the bottom line. But in medical insurance, administration IS the product. So we end up with the worst of government and business models holding our lives in it's hands. Oh, and it costs a lot of money.
As for living wages, they're a good idea, but they can have unforseen repercussions. Take San Fransisco for example. The wages in SF are higher than the surrounding areas (because the cost of living is so high). So people start to commute over 100 miles to get that money. The next thing you know Tracy is damn near a major city and houses in Placer County cost 20 times the median income of people who live there. Money leaves SF in buckets and inflates the cost of everything in a 150 mile radius.
Every civilization needs it's serfs at the bottom of the economy to keep the rich and powerful fat and happy, respectively. Like the foundation of a house they hold the edifice up, bear the weight, and get no recognition. Nothing is going to change that. Not even bullets. Sorry for the buzzkill.
Thanks for this great comment! Even the critiques are helpful! (I didn't take your last paragraph seriously. I'm assuming it's tongue in cheek and you get extra credit for that.)
Your analysis of medical insurance should be required reading for our new Sec of HHS.
I also love your idea for punishing corporations by making them go non-profit. Mind you my endorsement is not gonna get us very far. But this is the time for bold ideas! And you're giving us more food for thought.
TPM Cafe: Serving food for thought!

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