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A maximum wage: prelude to economic equality

The federal minimum wage in the United States, signed into law by President Franklin Roosevelt in 1938, has been a topic of debate ever since. Its purpose was to protect workers from being paid a wage lower than what is necessary for survival. Roosevelt has been quoted as saying, “no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”

Prove that you need the money

Today, the argument is less about whether the minimum wage should exist and more about how much to increase it — if at all. The consistency in the debate is that most of the argument focuses on those in poverty, recognizing that their survival is at stake.  At the same time, resources for these groups are always means-based, allocated to those who can provide proof of need.

For the rich – no questions asked

Interestingly, people with the highest accumulation of wealth are never held to a means test when it comes to how they acquired their wealth. It’s unlikely that the top 1% of Americans gained over 30% of the nation’s wealth in the same way those paid the minimum wage earned their money.  That 30% share  is increasing alarmingly while causing undeniable economic difficulties for the low and middle classes.

To address inequality, redesign economic incentives

Without a change in economic policy the rich are likely to gain more control over the lives of the poor. If we want to decrease inequality, we need to broaden the discussion to include a maximum wage — a de facto maximum wage, or a cap on wealth and assets– concurrently with the minimum wage.

To decrease income inequality, the first task is to create economic incentive for corporations to distribute more of their revenue to those earning overall lower wages rather than those with high salaries.

Historically, tax rates on high incomes functioned as a de facto maximum wage which provided such an incentive. Writer for Vox, Matthew Yglesias reasons,

“During the 90% top income tax rate, for a firm to put an extra $100 in the pocket of a top executive required them to pay another $1,000 in salary. Rather than send $900 to Uncle Sam to pay a CFO an extra $100, it makes more sense to give modest raises to five separate middle managers — putting more money in the pockets of your workforce and less in the pockets of the federal government.”

When the rich find ways to pay income tax at a lower rate than even the lowest wage earner, it could provide the corporation with an incentive to increase top executive pay rather than increase the pay of the lowest paid employees and those in the middle. A maximum wage that is in some way tied to a minimum wage would allow more people to share in the prosperity; without it, the disparity in income could continue to increase exponentially.  Regulation that ties top executive pay, by a designated multiple, to the lowest-paid employee in the corporation would likely result in higher wages for the lowest paid workers first, and less of the corporation’s revenue would be lost to taxation.

Would high-income earners work less hard if tax rates were higher?

It is often argued that a higher income tax rate (or maximum wage) will reduce the incentive for high-income earners to continue to perform at the same level, resulting in a reduction of gross domestic product (GDP).

This argument is not supported by history. The US has historically had income tax rates that effectively acted as a de facto maximum wage. The highest individual income tax bracket in US history was 94% in 1944 and 1945.

High top-bracket taxes in the 1950s correlate with high GDP growth

In the 109 years since the income tax was instituted, forty-nine of those years have had a tax rate of over 70%. Thirteen of the fifteen years that the tax rate was over 90% were consecutive years. From 1951 through 1963, the highest-taxed individuals were taxed at either 91 or 92%.

As of 1951, four of the prior six years showed a decline in gross domestic product, correlating with a reduction of over 11% in the highest income tax bracket at its largest difference. Yet when the tax rate returned to over 90%, the nation saw nearly twenty years of consistent growth in GDP.

This indicates that a higher tax rate would have little to no probability of reducing production within corporations in the US. A maximum wage, or a return to a tax bracket over 90%, could pave the way to return a more economically equal society.

Government money supports vast salaries for contractors

It may seem difficult to imagine regulations such as a maximum wage imposed on the rich, especially since large corporations with highly paid executives often benefit from government contracts. In 2018, government contracts made up nearly 70% of Lockheed Martin’s revenue but the Executive Chairman of the Board was compensated nearly thirty-one million dollars (Marillyn).

It may seem that efforts to regulate the income of the super-rich are a lost cause, but there is precedent for such regulation. Currently, there are laws in the US that prevent companies that discriminate against women and minorities from gaining government contracts.

Setting a standard for companies that rely on the government

Sam Pizzigati, an Associate Fellow at the Institute for Policy Studies, responded to these laws by asking, “why should we let our tax dollars subsidize companies that increase economic inequality – by compensating top executives at levels that dwarf the pay that goes to average workers?” Restricting government contracts to companies that pay upper executives a rate that is no greater than a determined multiple of the rate of their lowest-paid workers is one way to begin increasing economic equality.

An inalienable right to life, liberty and the pursuit of happiness

It is not beneficial to value only those who can thrive financially in a capitalist society. For some people, happiness is not about financial gain, but without financial stability, the pursuit of happiness in other forms becomes more difficult.  Yet financial stability is becoming less attainable for much of the working class.

A maximum wage tied by ratio to the minimum wage is a step toward greater income equality by recognizing that the super-rich do not deserve all the wealth they control, just as the working poor do not deserve the poverty they are subjected to.

A tax system that favors the wealthy has failed us

Our poverty rate today hovers around 10%. A tax system that favors the wealthy has not proven to eradicate poverty.  Focusing only on the poor and those with less ability to stand on their own has not solved income inequality. A refusal to acknowledge the importance of regulating the top as well as the bottom will continue to delay any solution.

Through implementing a maximum wage, the people of the US will continue to achieve economic growth, expand incentives to increase the pay to lower-wage workers, and move towards the type of income equality that ensures that a minority of wealthy individuals won’t have financial control over our leaders and representatives. A de facto maximum wage through a return to higher taxes will pave the way for more income equality and allow more Americans to pursue their own versions of happiness.

Adora River Rose is studying at SPSCC to become a teacher. She is an Eagle Scout, a performance artist, and an advocate for transgender rights and equality.

Works Cited

“Marillyn Hewson.” AFL, AFL-CIO, 2021, aflcio.org/paywatch/LMT.

Pizzigati, Sam. Have the Rich Won? Maybe Not.  Somerville: Economic Affairs Bureau, 2009.

Yglesias, M. “The case for a maximum wage.”  www.vox.com/2014/8/6/5964369/maximum-wage. 6 Aug 2014. Accessed 18 Nov. 2020.

 

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