Income inequality is no longer something that nice Leftists weren’t supposed to talk about, lest they be accused by the moneyed classes of “fomenting class war”. Now inequality has become a matter of concern, even in the ranks of the global oligarchs of the G7 and the Doha cliques. At present, the hogging of something like half of the entire planet’s financial and physical resources by something like 1% of the people on the planet has become a distinct threat to social structures that even the 1% depend on, not to mention the physical conditions for the human race to even survive.
For decades there have been ineffective calls for taxes on the wealthy to cut back the skewed funneling of money towards those same wealthy, but in the last few years, this demand has gained important support, with proposals for wealth taxes by Senators.. Sanders and Warren, Rep. Cortez, and even President Biden. Tax the Billionaires is also a popular political position now, with even half of Republicans believing the ultra rich should be paying more. Ian Renfrowitz (here) gives a summary and defense of Biden’s “Minimum Billionaire Income Tax”. Some more aggressive tax reform groups have recently appeared, like EWDI and OLIGARCH, but a criticism of all these plans is that their authors seem to be loath to annoy anyone outside of a microscopic class of top billionaires.
In his article, Renfrowitz reviews the destructive political activities of the top 100 billionaires, which he correctly surmises comes from their access to excessively huge amounts of money. But the issue is much larger than 100 rich sociopaths. Every level of society is riddled with mini-Mussolinis, right down to town councils and neighborhood associations, all using the same tactics: asset inflation, debt pyramiding, fee gouging, and using the proceeds for taking over local governments, self-dealing, corruption, and trying to suppress differing opinions; in other words, bush-league versions of the high-level corrupters of the ultra-billionaire class. None of these lower level predatory pipsqueaks would be in any way affected by the current billionaire-targeted tax reforms, and minimum taxes, yet all of them afflict our lives with the same combination of too much ready cash, and too little (if any) social conscience, as demonstrated by Elon, Jeff, and their fellow oligarchs.
Taxing top billionaires a bit more isn’t going to come near to fixing the criminogenic ecosystem underlying income inequality. For that we need to shift our focus from minimum taxes for billionaires to maximum income limits on everyone.
The concept of a maximum income has a long pedigree, beginning with FDR. While FDR’s original idea of a 100% marginal rate never came to pass, rates above 90% were instituted and persisted through the Eisenhower years. As taxes on the rich dropped and life for the majority deteriorated, a few economists, notably Herman Daly, have pushed for returning to maximum income limits. A recent a book by Sam Pizzigatti makes a detailed case for why a maximum income is necessary, and what effect a maximum income might have on the economy and on billionaires.
What would a maximum income limit look like? A marginal income tax of 100% on any form of income above $400,000 during a tax year, is one possible example. The $400 Grand bracket is my own idea, derived from the salary of the President of the United States, and the firm belief that there is no legitimate need for anyone to gather in more in a year than the President. It could be lower, as Daly and others have recommended in a limit to CEO pay that is a moderate multiple (say, 10-20X) of an entry-level salary.
What would a maximum income cap do that extra taxes (even hefty taxes) on billionaires wouldn’t? It would cut down the universal economic incentive to live off the labor of other people by parasitic rent-seeking (see Killing the Host by economist Michael Hudson), and by myriad forms of legal cheating. The amount of rent-seeking is growing massively within the economy, fueled by the financial clout of the rent-seekers themselves. The NeoLiberal Business Model now puts the highest priority on “shareholder value”; in other words, a clique of managerial types extracting as much money as possible from a business (and it’s regular employees) to hand out to to groups of rent-seekers (a.k.a. “investors”), and, of course, to themselves (“executive compensation”). Pizzigatti again:
In 1944, Americans of means faced a 94 percent tax rate on income over $200,000. In the two decades after World War II, that top rate continued to hover around 90 percent. With taxes on top-bracket income that high, top corporate execs had less of an incentive to behave outrageously. Why bother when most all the extra dollars execs could make squeezing workers and consumers would end up going to Uncle Sam? (emphasis mine)]
To cite a well-known class of misbehaving billionaires, fossil fuel execs are now being accused of working to get state legislators to preempt and undermine many local communities’ efforts to transition to clean energy. With a maximum income law in place and properly enforced, none of that effort and shady money those energy executives spread around would put a single extra nickle in any of their pockets. That being so, will they bother?
A lot of economic activity today that needs and deserves to be tamped down is purely monetary and comes through direct rent-seeking, bubble creation, and squeezing, as noted above. However, if you also look at virtually all the crises of social justice, racism, and culture wars, somewhere inside or underneath you find individuals of these same rent-seeking classes inflaming issues for their own benefit. Some are the well-known billionaires (Murdoch, Sinclair, Koch) we deservedly hate, but many more are of more modest but still excessive means: bankers stirring up racial strife to help them collect more from red-lining, real estate mini-tycoons buying influence to make sure they never have to compete with affordable housing, businesses whinging about ‘intrusive’ regulations that make them clean up after themselves.
A maximum income isn’t a magic broom that will sweep away all the problems caused by our current inequality. It will however lower the toxic rent-seeking incentive across a very broad spectrum of problems, by making “why bother” a more attractive economic choice.
One thing that maximum income shares with the “soak the billionaires” class of proposals that Biden, Warren, Sanders, Cortez, and EWDI and OLIGARCH are promoting is the difficulty in getting political support. However, during the last few years there has been a rather successful effort by activists to raise public consciousness about massive inequality. But even massive inequality started small, and we need to go further and debunk the falsehoods about “economic growth”, “investors” and “capitalism” that are promulgated in economics departments almost everywhere.
“Unbridled capitalism” is a phrase I often see in innumerable critiques of the modern economy. It’s an apt phrase and a maximum income tax could be that much needed bridle.