Doug Smith: The Maximum Wage

By Douglas K. Smith, author of On Value and Values: Thinking Differently About We In An Age Of Me

We face severe and growing income inequality with negative effects on people and the economy. Yet, no surprise, the ‘can’t do’ right wing continues a scorched earth campaign against the minimum wage. These self-promoting haters actually prefer no wages and indentured servitude – for example using prisoners to replace employees and cheerfully promoting ‘internships’ for the unemployed.

They glory in income inequality and wish it to expand instead of contract. Enough of that. They are destroyers of the American Dream.

But people who seek to shrink income inequality — to insure life, liberty and the pursuit of happiness for all and not just some — must now focus as much on the maximum wage as the minimum wage.

So, be it proposed:

“That any enterprise receiving taxpayer funds shall not compensate that enterprise’s highest paid person in an amount greater than twenty-five times what the lowest compensated person receives.”

First, note that this proposal would not apply to enterprises that do not receive any taxpayer funds.

For those, however, receiving bailouts, deposit insurance, government guarantees, tax breaks, tax credits, other forms of public financing, government contracts of any sort – and so on – the top paid person cannot receive more than twenty-five times the bottom paid person. This ratio, by the way, is what business visionary Peter Drucker recommended as most effective for organization performance as well as society. It also echoes Jim Collins who, in his book Good To Great, found that the most effective top leaders are paid more modestly than unsuccessful ones. And, critically, it is a ratio that is in line with various European and other nations that have dramatically lower income inequality than the United States.

Note, second, that this identifies the top paid person – not the CEO. Even though outrageous CEO pay and its ill effects on severe income inequality is much in the news, CEOs are not always the highest paid person.

Third, the proposal uses a ratio – 25-to-1 – instead of an absolute dollar figure. If a taxpayer funded enterprise wishes to pay the top person, say, $50 million, they can do so: just as long as the lowest paid person receives $2 million. In other words, instead of today’s limitless top wage being supported by taxpayer money – that is, socialism for the rich and only the rich — this proposal is equitable toward all.

Fourth, the choice of compensation is made by the enterprise – not by government officials.

Fifth, this approach to the maximum wage dramatically benefits the economy through some blend of more job-creating investment by the enterprise (through deploying higher retained earnings), and/or more consumer spending, savings and investment because of increased take home pay (and/or shareholder dividends) for the many instead of the few. It would, for example, immediately provide stimulus to restart our heavily consumer-driven economy.

Sixth, this proposal is competitively neutral: all enterprises using taxpayer funds must abide by the same 25-to-1 ratio of top-to-bottom compensation. In most industries, competitors respond to opportunities similarly; that is, if there are government opportunities, all try to take them and, if there are no such arrangements, none do. Nothing changes except the uses to which taxpayer funds get deployed as compensation. The new maximum wage rule levels the playing field for all competitors.

Nor, seventh, would this proposal have any adverse effect on the market for talent. Again, all enterprises are subject to the same rules. Moreover, there’s never been any – zero, zilch, nada – evidence that top pay correlates with sustained enterprise performance. Indeed, quite the reverse. Which, again, is why Drucker, Collins and others all note that talent and performance are not correlated to income inequality-levels of executive pay. The more likely result is the opposite: the maximum wage ratio will put enterprises using taxpayer funds on a better, sounder path to performance than those who don’t use taxpayer funds!! Meaning, of course, that such enterprises will attract the talent they need – not the talent they do not need.

Eighth, this proposal can and should be enacted by all federal, state and local jurisdictions that provide taxpayer funds to enterprise. And, of course, with the appropriate inclusive definitions of ‘compensation’ (salary, wages, bonuses etc) and “person’ to avoid cheating and evasion.

Ninth, enforcement will be inexpensive. Enterprises would be required to submit just two numbers to the appropriate tax authority: the highest and lowest compensation figures. If the ratio is in excess of 25-to-1, the offending enterprise will be given a simple choice: claw back the top earner’s compensation to the appropriate level; or, within, say, 30 to 45 days, pay all of the lowest earners the required amount; or, a combination of the same steps needed to bring the enterprise in line with the maximum wage rule. (If deemed necessary, generous rewards to anonymous whistleblowers could support monitoring and compliance efforts).

Tenth, and finally, remember that we’re talking about OUR MONEY. It’s not the ‘government’s money”. It’s OUR MONEY. And we insist that enterprises wishing to be funded and/or compensated and/or insured and/or tax advantaged with OUR MONEY abide by the maximum wage in order to reduce destructive, economy killing and unhealthy income inequality. When publicly funded companies operate within the 25-to1 maximum wage band, we all benefit.

It is the free choice of free enterprise whether or not to use OUR MONEY. If you are part of an enterprise and wish to pay anyone, including yourself, more than today’s all-too typical extreme, greater than 300 times the lowest wage earner, go ahead.

But do not use OUR MONEY.

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  1. appointmetotheboard

    Here, here. There’s a campaign I can get behind.

    In fact I already have. My website is campaigning for social economic justice (do visit).

    It seems insane that we live in a word where:

    – the average salary increased by less than inflation in 2010
    – boardroom pay for US corpoates increased 23% in the same period
    – four out of ten US millionaires (cash not property) do not feel wealthy
    – Warren Buffett pays less tax than his secretary

    In the words of Huey Long (if only he were around today), “Every man a king.” And, er, woman, obviously..!

    1. justanobserver

      a nitpick

      warren buffet has a lower tax _rate_ than his secretary.

      the fact that we talk income earned through actual work less than income earned through gambling in the markets is ludicrous.

    2. justanobserver

      a nitpick

      warren buffet has a lower tax _rate_ than his secretary.

      the fact that we talk income earned through actual work more than income earned through gambling in the markets is ludicrous.

    3. justanobserver

      a nitpick

      warren buffet has a lower tax _rate_ than his secretary.

      the fact that we tax income earned through actual work more than income earned through gambling in the markets is ludicrous.

    4. James Brochey

      This is silly… it sounds GREAT in theory but you’ll NEVER be able to implement a plan like this. The corporations own the United States, why would they, the Top Earners, want to give up their salaries. The government has no power to mandate such a thing as every single politician is bought and paid for by said corporations. These people have their minds on making money only. They don’t care how it is done whether it be destroying the ecosystem, slave wages on the back of impoverished Americans (or foreigners which is the case), or depleting every known resource, including tax players dollars. These are the people who would have you pay for basic services like Police, Fire Departments, and Education. Hell, already make us pay through the ass for medical attention.

      I tell you these people can NOT be swayed. They will NOT listen. AND they DON’T care as long as it doesn’t affect their bottom line. We are coming into an age where more drastic action is called for. Diplomacy and pleading have failed and We the cattle of the United States of America, have the right to feed our masters…. or stand up to them.

  2. Yearning to Learn

    there is one difficulty with enforcement that I see. Multiple businesses within businesses.

    Would we simply start seeing “Goldman Sachs Partners” where all the traders and CEOs are, and then “Goldman Sachs Support Partners” a theoretically different company where the secretaries and other lower administrative staff are, and then of course all the cleaning staff etc would be outsourced to yet another company.

    how to control that? some of it is justifiably contracted out (for instance, my clinic system contracts out its janitorial services), and some would clearly be fraudulent (for instance if they make it so that Lord Blankfein works for a different company than his secretary)

    Not sure if this problem can be resolved… but perhaps the authors already have a solution for this

    clearly the best answer is to remove govt support from as many businesses as possible.

    1. Peter T

      That was my first thought, too: companies will start subsidiaries solely for the purpose of evading the 25:1 ratio. The proposition sounds nice but unenforceable.

      An limit in terms of multiples of the minimum wage could not be gamed so easily. The author does not discuss any disadvantages of an absolute limit.

      Any suggestions of this type would be still radical. What about a rule for contractors to “publish” the wages of the five best paid employees of the contractor AND of those companies that have a controlling interest in the contractor? It would be possible to do today.

    2. Clonal Antibody

      The Way to make it fool proof is to have it be the LOWER of two numbers – 25X lowest worker’s wage in the organization, or 50X the Federal minimum wage.

    3. James Brochey

      This is when companies just start firing people. How many employees does Walmart need to fire to meet this quota? How many jobs are going to go over seas in a financial situation like this?

      You people don’t get it, these corporate people won’t just say “OK we will stop being capitalist hogs, we will give you your fair share”. What a state of delusion you people live in.

      No matter what sanctions the government puts on these businesses try to accomplish, they are one step ahead and will tie it up in political red tape. That is even assuming our politicians would even enact such policies against their own personal financiers. The GOP is OWNED by the corporations and the Democrats aren’t to far behind, and Obama? Look at what he is doing… a whole lot of nothing. he gave up before his first year was over.

  3. Pearl

    I agree. Author and Professor Michael Hudson has written about the detriment of exponential growth of wealth of the world’s financial elite; our oligarchs.

    I think it is critical that we take the necessary steps to impede the uber-wealthy from outpacing our own economy. Financial elites have a history of destroying economies when they are allowed to outpace them by too much. There is a practical, even mathematical reason for reigning them in, and keeping them on shorter leashes. Progressive Tax codes seem to be one effective way of doing this.

    The U. S. marginal income tax rate for 1954 seems like a fair starting point.(Something in the range of a 90% marginal tax rate for the handful of uber-wealthy that we had in the U.S. at that time.) It should be re-visited.

    Incomes in 1954, inflation-adjusted to 2008, 1954 tax rate:

    $100k-$150k (inflation-adjusted 2008) $1,875,000-$2,812,500 paid 89% marginal tax rate

    $150k-$200k (inflation-adjusted 2008) $2,812,500-$3,750,000 paid 90% marginal tax rate

    $200k or more (inflation-adjusted 2008) $3,750,000 or more paid 91% marginal tax rate

    Source: Internal Revenue Code of 1954, Pub.L. 83-591, 68A Stat. 5, enacted August 16, 1954


    *The national average wage index was at $3,155 in 1954.
    *The national average wage index was at $41,344 in 2008.

    1. jabre

      I was looking at the 1954 tax rates just the other day. What struck me, in addition to the marginal rates, were the low-end rates. They’re at 20% as today. But, what I couldn’t figure out was the cut-off for a family of four. I believe today it’s about $35K/yr. So, below that point they actually pay ZERO federal income taxes. I recall as a kid in the 70’s that I paid federal taxes on my very meager wages.

      I agree we have a problem at the top with the *effective* tax rate. But, I’ll knowingly stir up a hornets nest (particularly on NC!) by proposing we have a similar problem with apathy at the bottom. To the bottom the government is simply an entitlement: defense, medical, retirement, regulatory enforcement (don’t laugh at that one), etc. As long as there is no skin in the game at the bottom they will not have incentive to address the endless subsidies to the top. It is those in the middle that continue to get squeezed to pay for both the top and bottom. We have a problem that must be addressed at both ends of the spectrum.

      1. Carla

        Gee, jabre,

        How about people who love to talk about responsibility TAKING SOME? What a concept!

        Here’s the deal I’ll offer you: AFTER the federal tax rates of 1954 are applied to the top 10% income tax bracket, AND capital gains are taxed at the same rate as regular income (again in 1954 terms) AND after corporate welfare, subsidies and other crimes are eliminated, THEN you can go after families of four making less than $35,000 a year.

        Deal, jabre?

      2. Zach Pruckowski

        “As long as there is no skin in the game at the bottom”

        There’s loads of skin in the game at the bottom. They’re paying payroll taxes to the Federal Government, as well as sales, excise, and property taxes on the state and local level.

    2. Clonal Antibody

      The Marginal tax rates should be adopted in addition to the limitations outlined in this article and the modification that I outlined in my prior post.

      1. Clonal Antibody

        This should stop rent seeking, as well as any speculative activity. The high tax rates should be supplemented with tax deductions for charity, as well as investments in risky ventures. Returns on these ventures after accounting for all losses could well have a separate tax structure – replacing the capital gains tax – of course with a very high top brackets, at the time of the sale of the assets.

        This should be supplemented with high estate duties for very large estates.

    3. James Brochey

      Out pace our economy? They have already done that. No corporation has EVER made the kind of money these people are making.

      Stop waving your fingers and do something about it. We are in the same situation as revolutionary France. The same situation as the impoverished out of work Germans right before WWII. A few people are in control of the majority of America’s wealth and they have NO intention of relinquishing that hold and are taking every step necessary to insure they acquire even more on the backs of minimum wage workers all in the name of Free Trade and capitalism.

  4. Ktrue

    Sorry, but this idea would never work. Once enacted this limitation would lead to an incredible surge of outsourcing or reorganization of employees into Sub-contractors. That would allow the top tier to cut away enough of the pyramid to keep their reward structure.

    The result would leave the newly cut loose employees in a worse situation than they started with as they would most likely loose health insurance and whatever minor amount of bonus they were ever seeing.

    Bad idea.

    1. Cahal

      I’m inclined to agree. As much as I like the idea, things like this are just screaming out for unintended consequences.

      1. ScottW

        You may be right, but are the intended consequences of the system we currently employ worth saving? Why not give it a shot and if nothing else, the psychological shock may do some good for a Country that is digging itself deeper and deeper into the land of inequality.

    2. Yves Smith Post author

      If you notice in the paragraph about enacting this at all govt levels, it specifically says that the appropriate defining of ‘person’ needs to be made to avoid evasion and cheating.

      1. Middle Seaman

        Also, no proposal of this sort will be perfect. Bumps and bruises will be addressed with time.

        It is a good start and morally it makes a clear and distinct statement that has to be made.

    3. RalphR

      This is not anywhere near as simple as you think. Subcontractors introduce another layer of costs and complexity. In any competitive bidding situation, they’d almost certainly wind up losing to an integrated firm.

      And with government guarantees, the entity needs the guarantee to do business, and those types of businesses (like banks) have oversight as to the integrity of management.

      Large swathes of those supported by the state would find it hard to escape, and you could use various other rules plus whistleblower bounties to capture a lot of the rest.

      The objective is to change behavior and break the illusion that this rent extraction by executives is warranted, necessary, or good for anyone save the top brass (and preferred “producers”). It isn’t to get perfect compliance.

  5. jefe pelota

    My ego was bruised! I am a victim!!

    Seriously, though, where did my comment go?

    I’ll try again:

    Ben and Jerrys had a policy of highest to lowest being 7X.
    Not forced by law, just common sense and good ethics.
    I think, personally, 25X is too much?
    Begs the question: how much is too much? How much is barely enough?
    $350K/year I think by nearly any measuring stick is a fairly decent wage that would allow a vast array of comforts.
    #350K / 7 = $50K annually for lowest wage earner. Not a fat hog, BUT a nominally living wage.
    25X of $50K annually? $1.25 million. Seems excessive.
    I can hear the wage board / death panel analogies revving up now.

    I do think there is merit to the concept: do we have to legislate EVERYTHING? It should be in the hearts and minds of leaders and boards of directors to do the right thing. heh heh

  6. Jim Haygood

    ‘These self-promoting haters actually prefer no wages and indentured servitude.’

    HA HA HA. What a laugh!

    Actually, there’s a totally free labor market right up the hill at the convenience store. You pay a hundred dollars and furnish lunch, and an obrero from Guatemala or El Salvador is at your service for a day.

    This works out to more than the minimum wage. And the illegal worker gets to pocket the social ‘contributions’ which he would likely never collect from Usgov, being illegal and all.

    There’s nothing hateful about fair bargains struck between consenting adults. It’s the meddling middleman of the Rooseveltian regulatory state who’s hateful. And to his (and Doug Smith’s) intense frustration, real people can just paint such useless eaters right out of the picture.

    Freedom, comrades!

    1. Just a thought...

      “There’s nothing hateful about fair bargains struck between consenting adults.”

      For starters, ‘fair’ is probably overstating the outcome of most employment bargains being struck by ‘consenting’ minimum wage employees with no bargaining power. Also, to suggest that economically disadvantaged Americans should consider illegal activities as reasonable substitutes for jobs that provide health benefits, safe working conditions and a fair wage makes you sound like a dick, to quote Mark Halperin, as well as a bit hateful.

    2. Billions for me, None for you

      Jim Haygood wrote that “There’s nothing hateful about fair bargains struck between consenting adults.”

      That may be true for workers negotiating alone against far more powerful employers, but it’s 110% untrue for unions negotiating on an even footing with employers.

      Unions and collective bargaining are a scourge and the state should step in and squash them like the insignificant insects that they are.

    3. Lockheed's Benefits

      A touch of xenophobia, how charming. Any more hate filled lies about folks who are getting away with it, a-hole?

      1. Anonymous Jones

        I find unconscionability to be one of the most, if not the most, fascinating areas of contract law.

        Posing hypotheticals to people regarding all sorts of contracts can elicit where someone falls on the spectrum of the enforcement of contracts that may or may not be unfair.

        There is rarely a consensus on all but the most outrageous of contracts, and even then, there are always a few who would enforce a contract where a rescuer finds Bill Gates in the Sahara and charges him $100 billion (net worth times two…he needs to go into debt) for one single sip of water.

        The vast gray area in the “consensus” area shows how little we agree on (or have even thought about) where the state’s role in contract enforcement really lies, and how tough questions blow apart our notions about what is fair and what we really believe about organizing human conduct and the use of leverage in everyday affairs (from mass market products to highly negotiated bilateral contracts to family life). We don’t always agree…and that’s the ultimate trick with governance, isn’t it?

        1. attempter

          How telling that when you grasp for what you consider an extreme kind of contract, it involves “overcharging” a rich pig. For almost everyone else, when we think of unconscionability we think of the powerful using that power to extort from the weak. We think of e.g. a corporation monopolizing water (which of course cannot legitimately belong to anyone) and charging extortionate rates for it.

          But I’m not surprised at your idea of what’s unconscionable.

  7. Dan Kervick

    I’m glad ideas like this are getting more traction. The challenges of enforcement and implementation are vast, but let’s get the national discussion rolling.

  8. attempter

    Enough of these untenable halfway measures which do nothing but display each reformist’s limit over which he won’t go. (What’s typical of reformists is that each has that limit; in the end each is still an elitist and supporter of parasite extractions.)

    When are we finally going to accept the simple facts:

    *that we have abundant resources produced by nature which can’t possibly be “owned” by anyone;

    *that we have an abundant good-will capacity for human labor upon those resources;

    *that we don’t need any criminal parasite middlemen – “owners”, “employers”, “politicians”, and so on – in order to effectively perform labor upon those resources;

    *that on the contrary those who actually work always maximize productivity and constructive use when they manage and distribute their own work, while these criminal parasites do nothing but destroy;

    *so that there’s only one moral, rational, and practical answer to all our problems – true democracy: political and economic.

    1. Jack

      When people act to pursue happiness at the expense of your own, it’s entirely appropriate. The idea that your free actions stop where another person’s begin is a fairly good measuring stick for making the boundaries of what is considered a right and what is a privilege or a crime.

      As just one example, felons cannot own firearms, vote, etc. and yet, most people do not have a problem with this, nor do we have problems with forcibly incarcerating them for a period of time dependent on the nature of the crime. But somehow, we cannot prevent people from acquiring resources and wealth at levels that are detrimental to the rest of the populace?

      1. attempter

        Clearly, once we allow hoarding to begin, once we allow inequality to exist, we cannot control it. History proves this.

        It also, of course, proves that Rawlsian “trickle down”, the only conceivable reason to allow wealth extraction and inequality, doesn’t work and was always a lie.

  9. Will

    Well I guess you can agree with free markets or not but to suggest that a maximum wage law somehow insures Life, LIberty, and the pursuit of happiness is turning the whole concept of the Declaration of Independence upside down on its head. The idea that restricting the Liberty of others will somehow make you happier is a very destructive concept for a free and open society.

    I think the real problem is private enterprises receiving taxpayer money. Many of the unintended consequences of the proposed Maximum Wage Law have already been pointed out. Its a bad idea that does little or nothing to address fundamental problems with our economy. Next….

    1. Jack

      When a person commits a crime that deprives someone of their rights, we forcibly incarcerate them for a period of time based on the nature and severity of that crime. Some are even deprived of additional rights, such as the ability to vote and own firearms.

      People should not be able to acquire resources and wealth to such an extent that it is detrimental to those around them, and the nation at large. It makes perfect sense to limit what someone can earn, in the same way we limit other actions that deprive others of their basic rights.

      1. seabos84

        I enjoy how property rights consistently extend to ONLY rich pigs. What about MY rights to my time & my living space?

        You want to brew gasoline and refine plutonium on your porch – FINE – pay ME for the losses I’ll suffer – like $10,000,000 – and pay the neighbors their $10,000,000 each – and you can brew & refine away!

        I think it wouldn’t be hard to PROVE that most great fortunes are dedicated to rigging the rules so that the great fortune gets to get greater – and, ooops, by the way … once in a while an Amazon or Boeing or Microsoft or a Google or Ford or Intel get funded … who then spend tooooooooo much of their time and effort trying to corner and rig markets, instead of making better mousetraps.

        I’d CAP net wealth at 100 or 1000 times median family income.

        IF you couldn’t take care of yourself and yours with $45,000,000 … um … who fucking cares? Go get another job, genius – oh

        and since you’re so fucking smart and so fucking special, you’ll just invent a NEW Westinghouse or Microsoft!


    2. RalphR

      Government contractors are subject to a whole host of rules. Parties that contract are free to set whatever rules they want, no one is requiring them to take contracts or other forms of support from the government.

      Overpaying executives, as Smith demonstrates, is inefficient and wasteful. It adds to the cost of government services. In this era of strained government budgets, ideas like this are very desirable.

      What about “welfare for the rich” don’t you understand?

    3. Mickey Marzick in Akron, Ohio


      “The idea that restricting the Liberty of others will somehow make you happier is a very destructive concept for a free and open society.”

      We do it all the time… By polluting the air and water, our liberty is jeopardized by the liberty of those responsible for the pollution. Externalities are the liberty of the porcine to pass the costs on to the rest of us – at our collective expense. Clean air and water make me happy! If that means your “liberty” to pollute has to suffer that’s too damn bad!

      Your argument is precisely that used to render private property rights absolute and inviolable under the guise of liberty. When does private property of the few threaten the liberty of the many? And when such conditions pertain should restrictions on the amount and type of private property one is allowed to accumulate be imposed?

      JS Mill’s ESSAY ON LIBERTY posited a distinction between self-regarding and other-regarding behavior. But many a libertarian shies away from this distinction because of the ramifications it has for the unlimiited accumulation of private property.

      Liberty for the greatest number for the greatest good has ALWAYS been a lie insofar as it has masked the liberty of some individuals to screw the rest of us in the name of their liberty to take more than they need from the rest of us. The growing income disparity between CEOs and the average American over the course of the past 30 years testifies to this. And to pretend that anyone is that valuable/productive to justify such a disparity has been debunked more than once by many mainstrean economists.

      I hope my liberty to respond has not made you unhappy…

      1. Lidia17

        Mickey, I gotcha. Was listening to a podcast about the extent of gov’t., and heard the usual caller complaining about losing his freedom to over-fertilize his lawn (which practice creates deadly algae blooms in a nearby major water body), and losing his freedom to use incandescent bulbs. This was on VT “progressive” radio, and no-one challenged the dude as to the fact that his freaky lawn care products ended up in the general water supply annoying everybody else, and no-one brought up the fact that we are waging extremely costly wars in the ME solely to guarantee Lawn-Boy®™s “non-negotiable” claim to his half-acre fake green expanse.

        There is a strong AUTISTIC strain in American politics, one which cannot and will not weigh outcomes other than those which accrue to the “protagonist” in dollars. Since clean water. clean air, healthy soil, etc. are without price, their value is zero in the calculus of most.

  10. Dan

    So let me get this straight you outsource all but the key people then pay them well with the taxpayer doll so you can pay yourself better? If you take government money you are a government employee and no one makes more than the general schedule.

    Also it is a bit harder, if possible, to quantify; however, just as no company can be too large to fail- no person, or small group of people, can be wealthy enough to own congress.

  11. Johnny Clamboat

    Your fourth item paints it as a business rather than a Central State decision while omitting over the fact that several choices are severely restricted.

    The last sentence of your eight item is comical. That’s what lawyers are for.

    Your ninth item starts with inexpensive enforcement. Later in the same paragraph you call for handing out generous rewards for doing The Party’s duty.

    For the last item, leaving aside the question of who’s money it is and how it was acquired, why does the State provide funds to private enterprise? Would this apply to all tax credits?

    Thank you for reminding us that we have a significant population of slavers in this country.

  12. Ceci

    While a link between the highest and lowest needs to be developed, there need to be mechanisms to prevent the highest from rigging the system to their benefit in order to bypass/sever the link.

    For instance, one could link the federal minimum wage to the inflation rate or the cost of some basket of goods. But if TPTB cherry pick the data used to calculate the inflation rate or the items in the basket of goods, then the link is for naught.

    If the connection could be maintained, price setters would find their “world” more limited (and as we all know, the world of price takers is quite limited)…raising rents, increasing top pay, etc would immediately kick in compensatory pay changes for their lowest paid employees. After a few cycles, it’s likely a different type of economy would begin to merge. But as long as they can disconnect themselves from the rest of humanity and not have to live with the negative consequences of their decisions, the increase in inequality will continue.

    I wish we were savvy enough to figure out a foolproof method to prevent the rich from perpetual tinkering with the rules to maximize their benefit. But perhaps if we did, it’d never get enacted.

    Every revolution is a heinous use of a reset button to attempt to return to a more equal society, but we always head the same direction afterward. This infinite fractal repeat is tiring to watch and live though.

  13. Andrew

    Great, but it’s too complicated in an effort to placate. It’s like Obama trying to compromise with Congress.

    Just set a maximum wage at $250/hr and be done with it. Include all compensation, not just cash, fairly valued at the time of payment.

  14. Derrick

    This is a general comment about what I feel is a trend on this site. I have visited for years now and recently have felt a dramatic shift, if not an infusion of leftist politics/slant into the economic articles.

  15. dw

    why not just restrict the amount you can deduct for any employee (total earnings) from taxes to x times the lowest employee earns (must disallow the games with organization. and to separate employees might also require that employees in separate companies have no management responsibilities for the other employee, ie can’t fire, hire, or give direction to) companies can pay more if they wish, its their choice, we just don’t have to support them doing it. they can defer the income if they wish (in fact that might be a good thing. consider how much better management might do their job if they are dependent on income that will be earned 10-15 years later. they won’t make huge mistakes like they just did.
    and considering how well management has done with the current system (that free market system. or so its claimed any way) they get paid millions but don’t seem to return that value to the company as rule. maybe because the owners of the companies (the stock holders) have no say in it. and that the stock funds that are also stock holders are representing them selves, not stock holders (since they don’t ask them)
    so is this really free market pay scales? or is just what management managed pay scales, where they get the biggest pay, because they choose to

  16. Impeach Obama

    The problem continues to be the Banksters, who are driving the spurious deficit reduction debate in the spirit of oligarchy. Every facet, seemingly, every perceived idea of stability or freedom is under attack by a relatively small but powerful, ruthless group of American son’s of bitches. If it’s not about some venal. alleged Christian-based, methods of retaliation, it’s about trying to destroy people who actually work for a living:

    “Three days after receiving $25 billion in federal bailout funds, Bank of America Corp. hosted a conference call with conservative activists and business officials to organize opposition to the U.S. labor community’s top legislative priority.”

  17. DP

    Too many loopholes like using temps and outsourcing, as others have suggested. I think it’s cleaner to address it with non-deductibility of wages above a certain level for the corporation, including the present value of stock option grants as immediately taxable income (that would make them go away), blowing up deferred compensation plans for executives and much higher marginal tax rates on higher incomes. Something like:
    $250K – $400K: 40%
    $400K – $600K: 45%
    $600K – $1 million: 50%
    $1 million – $2 million: 60%
    $2 million and up: 70% (back up to where the top individual tax rate was before the Reagan tax cuts)

  18. Lil'D

    I approve in general (though no one really cares what I think) but suspect that the way to get it has to come from structural changes in compensation oversight and transparency. There are big incentives for CEOs to extract rents from shareholders, and compensation committees have very little motive to hold the line…

    the spirit is right but implementation as is won’t work, too easy to be gamed

  19. Greg

    I have several issues with this proposal:

    First, the use of the phrase “to insure life, liberty, and the pursuit of happiness” as moral support is tenuous at best. Income inequality does not remove from a person the right to their own life or freedom of will, nor does it prevent one from PURSUING happiness. The achievement of such happiness was never a gaurantee and it is folly to deceive people that they DESERVE to be happy. Happiness is earned.

    Second, the definition of what constitutes “taxpayer funds” is intentially worded to deprive business owners and corporations of their own liberty. If congress legislates that a business carries required “insurance” are they forced to adopt the compensation rule? What if congress passes massive tax breaks for an industry? The formerly uncompetitive players will immediately take advantage of them, putting the most efficient companies at an instant disadvantage! In essence, you give the government a massive weapon to strongarm any business / industry it sees fit.

    Finally, enacting such a rule would not only cause the organizational structure changes mentioned by previous commentors, but also lead to an exodus of talent from the United States. Talent goes where the money is. Besides, why is Europe held up as the model for us to follow? Last time I checked, they lean on us more than we lean on them.

    1. attempter

      enacting such a rule would…lead to an exodus of talent from the United States. Talent goes where the money is.

      You’re joking, right? After what we’ve learned about this verminous “talent” and what it’s actually good for?

      I believe this is the perfect place for the retort: Is that a threat or a promise?

      1. Greg

        I would consider it a promise. American companies dominate the globe for reason. I propose that a big reason for that is that an ambitious individuals who work hard know there is the opportunity to get paid a ton.

        1. M.InTheCity

          Greg – I’m an American ex-pat banker in London. I recall a couple years ago when everyone whinged about “talent” leaving London to go to Zurich because of the 50% tax rate being inacted. Zurich is boring. The few who did move have been known to gripe about their decision. You seem to think that all places to live in are equal or some sort of Libertarian dream-sequence. I somehow doubt you’d have a huge decamping to Dubai (yeah, love that political situation and you need to be careful there), Monaco (uh, nothing there), Zurich (sleepy and they speak Swiss German which is very different from Hoch-Deutsch/ High German), or Tokyo (high taxes, radiation, and most Japanese really only speak Japanese). Maybe Singapore (speak English but far away from most places) or Hong Kong (do you really trust the Chinese?).

          You also forget that getting work permits are really hard. Yes, even for the most talented.

          You live in a fantasy-land of easy movement (no language, cultural, or immigration barriers) and no social responsiblity.

          1. "The Real" Greg


            All valid points and if we were discussing a tax proposal I would agree with you; however, we are discussing a maximum wage cap which is an entirely different animal. If such a policy were ever enacted, I believe it would set off alarms in the heads of many people. I know it would in mine.

        2. attempter

          It’s a promise? Good! Let ’em go, and good riddance. Let ’em go Galt, like they’re always whining but are too cowardly to actually do. They can carry out with them whatever they actually earned with real work, i.e. nothing. We’ll see how they fare once their criminal system no longer exists, and they stand naked in their infinite worthlessness.

  20. oliverks

    Wouldn’t management just respond by shifting all work overseas to low cost subsidiaries? So rather than promoting equity it would destroy it even faster?

    Likewise for organizations in the US where they need cheap labor, you could firewall the bit getting government money and use partially held subs (with small profits) for the low cost labor?

    1. RalphR

      Did you read the post? This is government support. These are largely service, not manufacturing businesses. You are applying the wrong model.

  21. Chris

    So, the problem is that corporate management is raiding the cookie jar, stealing from the stockholders and you think changing the rules a bit would make them little angels? A better answer might be to loosen the rules on hostile takeovers again. While not let a new set of owners throw out the kleptocratic management team, and take that money for themeselves. Management will start to figure out that more money needs to flow to the stockholders. Current shareholders get an immediate premium, and the new owners capture the overpayment to the previous management.

    I doubt that stockholders are any happier about overpaid managers than are the lower level employees. Let’s give them some tools to punish greedy management.

  22. F. Beard

    Just remove all government subsidies for the banks and they would rapidly become less lucrative and small enough to fail without much damage to the rest of the economy.

    I don’t get it. Government has absolutely no need for banks and the private sector uses them to loot the poor. So why do liberals and progressives still believe in banks?

    1. Greg

      The government doesn’t need banks? Are you kidding me? Do you even understand how fractional reserve banking works?

      The government absolutely needs banks to lever up the money supply so that the country can support the standard of living the populace expects and the debt level the government reached.

      1. F. Beard

        The government absolutely needs banks to lever up the money supply so that the country can support the standard of living the populace expects and the debt level the government reached. Greg

        Nope. The government absolutely does NOT need the banks; it can simply spend and tax and in that order too. It is the banks who need the government so they can get away with leveraging the government’s money supply for the benefit of some at the expense of others.

        1. Greg

          Please point me to an example in history of such a system working because I am aware of none.

          1. skippy

            That would be *Before Banks* for 20 points….Greg.

            Alas going back has already been done (history) and things have progressed to this point (finance for the sake of it, of its self, for its self).

            Skippy…can you spare some electrons for an American down on his luck[?], Boggy / Buggs Bunny skit, upgraded.

            PS. ask a finance pro whence accountancy started…lol!

          2. Greg

            “Before Banks” is not an example (especially since the roots of banking can be traced to the 2nd century BC).

            Again, can you give me a specific example of any relatively advanced economic system functioning without banks?

          3. skippy

            Greg my thrust is that both economics, I’ll dependence with the advance part first, its an abortion of the human state, we have no clue, we build and think with little regards too future consequences (can’t. don’t, have crystal ball thingy).

            Next…economics is a game we humans play at, it is a construct never before occurring in this planets history, a monkey with a twig sticking it into a termite mound is better served and so is the rest of the planet. So going back a few thousand years is, too me, a total disregard for all that has transpired on this rock, should be considered with trepidation.

            Most of what we have going on has little to do with serviceability as a species and more to do with perceptions of happiness (DNA conflict), we have a problem with understanding our selves in the first case, let alone the hole galactic enchilada.

            Skippy…sorry…but…has a species ever died or was diminished by hubris?

          4. F. Beard

            Modern banking, which is a state enforced cartel, did not get started till 1694 when the Bank Of England was established.

            But if your definition of “banking” is just lending money at interest then that is at least 3000 years old to my knowledge and probably older.

          5. "The Real" Greg

            F. Beard

            That is my definition of banking. Think about it this way: How many people do you know who bought their car in cash? How about their home?

            The government needs banks so they can continue to sell the American dream to the populace. Without them, there would be massive credit contraction and our standard of living would collapse.

            Everyone loves banks when they are handing out checks and hates them when they ask to be paid back.

      2. Cahal

        ‘Are you kidding me? Do you even understand how fractional reserve banking works?’

        I understand fractional reserve banking perfectly well, thanks.

        Of course that matters little, seeing as we don’t use that particular system.

  23. MG

    This is a terrible solution from start to finish to address a vexing problem. Way too complicated, impractical, and prone to instant gaming. More practical if we would simply just increase marginal tax rates on upper incomes and create an income windfall tax on extremely high incomes. Hell, it would be better if we would just combine all forms of wealth and tax them at generally progressive rate but we know that won’t happen any time soon.

  24. Too Much editor

    The Dodd-Frank legislation enacted last summer actually includes a provision that makes this excellent proposal from Doug Smith even more doable.

    Section 953(b) of Dodd-Frank mandates that all publicly traded firms annually disclose the pay ratio between their top executive and median employee. The SEC is now writing regulations to enforce this provision.

    Corporate America, predictably, is going bonkers. Corporate lobbyists, furious that they let Senator Menendez from NJ slip this mandate into the final bill, are pressuring the SEC to water down the mandate in the regulation-writing process, and House Republicans have already enacted a bill that repeals the mandate.

    The repeal fight has now moved to the Senate, where a number of Dems seem to be wilting under the corporate pressure. See this pushback to the corporate pressure from Menendez and three Senate allies:

  25. Doug

    This proposal is a band-aide for the real issue of over capacity of labor. Rising tide needs to lift all boats.
    Global labor competition is hitting home and with over capacity – wages will grind down.

    The loss of labor jobs in the U.S. to emerging market producers (other than it’s killing us) is due in large part to those EM producers NOT having the same costs of regulations and human/labor benefits built into their cost of production. If the EPA and OSHA, et al, were to have jurisdiction over those EM producers – they’d either be fined to death, put in jail or shut down.

    So our domestic producers bear all these costs that EM producers don’t have to bear – or at least to our degree.

    Why is it that we allow Wal-Mart, Target, Best Buy, Dell, HP, etc etc – to buy imports for re-sale that don’t match our own regulations?

    I assume most of regulations are worthwhile. Shouldn’t those reg’s apply to goods that you & I can buy everyday?

    Basically the importers are circumventing our own laws – making their importing actions illegal…in a way.

    Until this gets solved, we’ll have labor over capacity and the the lower end wages will be pressured down – as well as middle and upper wages. In effect, wage earners are footing the bill for the regulations that aren’t enforced overseas.

    1. Greg

      I think that is a very accurate description of the deteriorating jobs picture in the U.S.

    2. Dave of Maryland

      You’re externalizing the problem. Germany, with very well paid workers, has no problem staying competitive against cheap third world countries.

      1. Greg

        Fair point. I would argue that there are cultural/geographical/situational differences that differentiate us from Germany but overall it is an appropriate analogy.

  26. Dave of Maryland

    Excuse me, but wasn’t this what graduated income taxes were supposed to fix? What was that Lennon-McCartney song, Tax Man, aka the whine of the nouveau riche?

  27. ScottS

    This sounds nice, but wouldn’t the “CEOs” just become consultants, or start an S-Corp, or some other absurd shell game?

    Quite frankly, the outsourcing thing is out of control as it is. It seems absurd to encourage it more.

    On the other hand, enticing all the sociopaths out of the formal authority pyramid of all corporations has the benefit of making them easier to sever.

    I say we give it a try. Couldn’t hoit.

    1. Cedric Regula

      They say corporations are people now, so we should be able to tax and/or regulate them?

      1. ScottS

        Corporations are much better than people. They don’t get taxed or regulated. We mere humans have to sacrifice to appease the angry volcano gods since they are the “job creators.”

        As Cisco lays off 10,000 employees…

        Volcano gods are still angry. Sacrifice more virgins! I want to see the World of Warcraft servers completely empty!

    1. Tom g

      Well it took 30+ comments to state the obvious. However, I still can’t believe nobody has connected a few dots arriving at monetary policy’s role in this enormous problem.

      Let the government stop private banks from whipsawing the money supply and you’ll all be surprised how quickly this problem solves itself. No need to attack secondary and tertiary problems with foolish price controls and caps that become outdated before the ink drys.

      1. F. Beard

        Let the government stop private banks from whipsawing the money supply and you’ll all be surprised how quickly this problem solves itself. No need to attack secondary and tertiary problems with foolish price controls and caps that become outdated before the ink drys. Tom g

        Hear, hear! I am amazed at how so-called liberals and progressives are blind to the root cause – a money system based on theft of purchasing power.

    2. Northrup Heritage

      It’s exactly the Government’s business to see how much some of the most profitable US Corporations get paid. The Pentagon, not even mentioned in the stupidity of daily news, is the single most waste filled, incompetent and corrupt part of the Government. And the role here by the Gubbmint is to relentlessly ladle out huge, no bid cash wads to big Defense Corporations. So much, that it’s 60% of all discretionary spending. Conservatives can be dangerous, dumb animals. They start shrieking about efficiency and the free market while they get theirs in a totally rigged system. To them, everyone else can go to hell.

    3. Greg


      Also, how many people here realize that the original draft of the Declaration of Independence included the phrase “the pursuit of PROPERTY” instead of “the pursuit of happiness.” The phrases were intended to be equivilent by the founding fathers.

      1. Peter T

        Well, they took out “property” and put in “happiness”, instead of leaving it as it was. If you have no further indication (books, letters, pamphlets) that they saw property as happiness, you claim doesn’t hold up.

        1. Greg

          The Declaration of Independence is based on John Locke’s trinity of life, liberty and property. Property was changed to “hapiness” to downplay the role of government in protecting property. However, law that inhibits one from gaining property in the first place would be specifically against the philosophy of Locke on which this country was founded.

          Taxing that property once gained is a different debate best left for a different day.

    4. attempter

      It is NONE of the Governments business to deal with how much someone is paid

      I agree. That means we have to dismantle all big government command economy programs, like for example the artificial propertarian regime and the chartering of corporations.

      I actually want to get rid of big government.

    5. Cahal

      ‘It is NONE of the Governments business to deal with how much someone is paid!!!’

      It is if they are receiving government subsidies, implicit or explicit.

    1. Dave of Maryland

      Thanks for the reminder.

      The tax rate George was complaining about was 90%. Back in the day Her Majesty’s Government were serious about collecting it, too. That led to nouveau riche tax exiles – like the Beatles – coming to the US so they could spend money that rightly belonged to the Crown.

      All four of the Beatles came from poor working class stock. As a result they had no idea how to handle large sums of money. Consequently they were stark staring ignorant as to their responsibilities to the society that nourished them. Which is the very definition of nouveau riche. Instead, having fled the UK to avoid taxes, they were lured into contracts that stole their money, as well as investments that pretty much did the same thing. Classic rentier story: Money that didn’t go to the government as taxes ended up lining the pockets of bankers.

      If memory serves, the UK subsequently lowered its maximum tax rates expressly to repatriate tax exiles, like the Beatles. Which started the shift of taxes away from the rich, onto the working poor. But that was a long time ago.

      What to do with overpaid executives? A 95% tax on everything above $1,000,000 a year would go a long way. Chances this will happen? Is there a meaningful number less than “zero”?

      1. attempter

        Excellent example. As great as the Beatles (and many others) were as musicians, they’re somewhat less impressive as Galtian Supermen. They were of course incapable of using all that money for any constructive purpose; it was definitely going to be taken from them. It could have been constructively used by the society which made their careers possible in the first place; instead it went down shyster ratholes.

        (I don’t say that to support high tax rates; I want to abolish big structures and wealth concentrations period. But if we had to have big concentrated structures at all, at least in theory a government with such a high marginal rate could put the revenue to a constructive social purpose, while corporate extractions could never do so, even in principle.)

  28. Chris Rogers

    I very much second this call for wage rate ratios not to exceed 25X of the lowest paid worker.

    Can we please have this in the UK ASAP.

    Further, and although it sounds outrageous, up until Nixon was elected, the average wage disparity in the US between lower paid workers and very senior management was about 25-1, and further, those receiving the highest salaries had to pay tax rates of between 70-90% over and above a certain threshold.

    It is a sad indictment against society both sides of the Atlantic, when millionaires feel pauperised and fret about paying tac above 10% if we are lucky.

    Indeed, most if given the opportunity – think offshore accounts and other tax breaks only the rich can enjoy – would pay no income tax at all.

    I’m afraid to say, as William Black attests, that the rot set in to the USA in the late 1960’s and said rot was exported/imported to the UK by the mid 1980’s – neither society is better for this, apart from one section, this being the uber-elite that constitutes at best 2.5% of each nation state. An absolute disgrace!

  29. MyLessThanPrimeBeef

    I think some ‘scientist’ might want to tackle this experiment.

    Put 100 gorrillas in a cage, with some weighing 1,000,000,000 lbs, some @ 1,000,000 lbs and some at 1,000 lbs.

    What do you think will happen?

    Now, imagine a world with 100 countries, some with 1,000,000,000+ consumers, some with 5,000,000+ cusumers and some under 1,000,000.

    What do you think will happen?

    What about a village of 10,000 with a handful of millionaires and the rest making less than $30,000.

    What will happen?

    It’s less obvious what happens in a country of 300,000,000 with a few hundred billionaires and the rest making $50,000. It’s easier to be not highly visible. But you can still imagine a lot of unpleasant things. The impact, though, may not be as obvious as the size discrepancy of a few giant nations among 100 or so countries on a small planet with limited resources.

    1. skippy


      Skippy…a small planet with in a universe of a 500 billionish galaxy’s (one galaxy for every star in our own), and yet some Homo Stupendous have very big heads, only exceeded by their pockets…shezz.

    2. Crazy Horse

      Try this on for size. Put 2.75% of the world’s population into a country with a national history of militarism. Spend more than the entire rest of the world combined on imperial outposts and high tech weapons of mass death. Extract 30% of the world’s natural resources for your own use backed up by your military power. Think you will have a steady supply of enemies who hate you?

      1. skippy

        And *all* for metaphysical superiority, life destroyed, potential erased, knowledge un-gleaned.

        Skippy…a species that refuses to acknowledged its ignorance…is worse off that those that are less self aware…at least they have less blood on their hands.

  30. Larry B

    Obummer says Social Security Payments will be in jeopardy if debt limit not passed


    If there truely was a Social Security Trust Fund, and these were real marketable securities there would be no problem paying Social Security Benefits. The Obammunist could just cash some of these securities in to fund any payments until the Debt Ceiling was dealt with.


    1. Jeff

      If we can create Trillions out of thin air to enrich
      bankers, we can create Trillions out of thin air to
      save Social Security and Medicare.

      Perhaps taxpayers should adapt some sort of scheme to
      pay their income taxes with iou’s that pay interest
      to themselves? Is their an app for that?

  31. Crazy Horse

    La de dah, how many angels can dance on the head of a pin? Why waste our time blathering about the theoretical advantages of a law that can never be passed until we seize power?

    1. attempter

      Yes – and if we could attain power, we could do far better than such a meager “reform”.

      That’s my basic critique of all reformism – the only circumstances under which the reform would be possible are circumstances under which a far more complete transformation would be possible. So to advocate the reform makes no sense, on a practical or human dignity level.

  32. Greg

    The Republicans are operating under a MORAL imperative to
    destroy the working and middle class in the United States.

    They consider this the RIGHT thing to do.

    They won’t say it, but their every act implies it. Once they have destroyed the working and middle class, they will have effectively destroyed the tax base of the government. The government will effectively cease to exist, most of its functions (and assets) will have become privatized, and they will have entered their Libertarian paradise.
    I think that’s the plan. It is one of those things that is (almost) too big to be believed. But I’m coming around to believing it.

    1. "The Real" Greg

      Note that the above is a different Greg than the person who commented previously on this article

    2. TimOfEngland

      Well, It’s happening in Greece – right now, in bright daylight and right under our noses! You better believe it!

      Looks like the Italian cake is next up for looting and division between our “Rulers”!

  33. Hugh

    A maximum wage is a nice thought experiment. As commenters have noted, it would not be as simple as it seems. What is a wage? Would benefits be counted? How would they be calculated? What about deferred compensation or stock options? Who would be included in the ratio? How would one stop companies from stacking the ratio?

    My first thought was that companies would invoke 14th Amendment due process arguments to contest such a law much as they did at the beginning of the 20th century in the Lochner era.

    “Free market” goofs would also weigh in I am sure.

    But principally the reason that such a law can only be a thought experiment, as Crazy Horse notes, is because such laws will never be enacted as long as we have the current kleptocracy. Kleptocracy cannot be reformed. Reform can only come after it is taken down.

  34. John

    Great idea. Too bad it won’t happen.

    No, I think we are condemned to live through a hellish period involving environmental collapse before we’ll get wise. Even then, I have my doubts…

  35. belladog

    I do believe that Japan has a maximum wage of 10x the lowest paid, and while there has been plenty to criticize about Japanese management lately, their unemployment rate is still hanging around 5% even after 20+ years of little or very little growth. Someone please correct me if I’m wrong on that score.

  36. Jeff

    A better ratio would be this:

    “Government funds only can be given to companies
    that produce products in the United States.
    i.e. cars assembled here…

    “United States” means within the 50 states, not counting fake places like Guam and Puerto Rico etc.

    The ratio of government business shall reflect the
    company’s participation in paying federal income tax.
    That is, “Chevron who pays no income tax, cannot receive any government funds in the year following their non payment of taxes…”

  37. Anthony David Adams

    Wouldn’t this create an incentive for more 1099 or contract work? Or, simply create a separate entity to avoid the penalty. For example, I could subdivide the company into various tiers to allow for the same compensation.. Perhaps I’d just take all the $10/hour people, wrap an LLC around them, and then contract work to that LLC exclusively from the company, and then I can still pay the CEO $5M / year. I could also just outsource to other firms as well.

    This wouldn’t work for every firm, but I’d imagine many could make this work — as much of it would simply be creative paperwork, something accountants and lawyers are already very good at.

  38. DaveSW

    I like the idea, but there are 4 problems I see with this:
    1. It does not at all encourage a company to hire more workers, in fact it encourages the company to fire more people at the bottom, and increase the rest of the people’s pay. Good those few left, not so much for those who got canned.
    2. It encourages companies to get rid of all benefits for employees, and instead just raise their salary.
    3. If this were law I could see eliminating the minimum wage as a real a possibility.
    4. I could see loop holes being exploited, for instance, 2 companies working together, one pays all the lower people crap wages, or nothing at all, and the other only pays the fat cats. Of course, both companies would be owned by the same stock holders.

  39. Tom Pashkov

    I have another idea in addition to the maximum wage. How about a law that sates that a profitable public corporation cannot lay off workers. Individuals can still get fired, but there can be not cuts en masse when the corporation is making money.

Comments are closed.