To subdue the enemy without fighting is the supreme excellence. - Sun Tzu

Wednesday, July 28, 2004

Business as Usual: Manifesto

I only have one thing to say, and I'm tired of saying it over and over again, so here it is all at once:

The best thing that we (citizens of the United States) can do in the interest of improving society
is
to impose an upper wage-limit (wage cap).

 
This is the concept:  an example CEO is given $10 million/year (in wages, stock options, corporate gifts, etc).  A new wage limit is imposed at $4 million/year.  Now the CEO is only making that much.  The other $6 million/year is freed up for use by the company again.  The Company can do one of three things with it:  1) Charge less for their product, 2) Pay other employees more (or hire more employees), or 3) Invest the money in expanding the business.

In the first two cases, the money is given back directly to the people, improving their standard of living.  In the third case, the business becomes more profitable and more productive, also improving everyone's standard of living.

 
Some skeptics have brought up problems with this idea.
First, they say, arbitrarily limiting a person's income is unfair to them.
To that, I reply:  $4 million/year is still an astronomical amount of money.  That $6 million means much, much more to people that have nothing than to people who are already rich.  What creates more happiness:  Giving $10 to someone with $1 million, or giving $10 to a starving person?

Second, they say that standards of living would not increase meaningfully since the extravagantly wealthy make up such a small percent of the population.
Even if the median person gets only 3% more per year, that is in fact a significant sum, since it is effectively free.  For someone making $30,000/year, that's $900/year.  Bush's one-time tax cuts gave most people much less than that.

Third, the impact to the economy would be massive.
Yes, but in a good way.  The very wealthy would not be able to buy *as many* yachts and mansions and jewelry, so those "industries" would be hit.  They would have to make cuts, and fire people. 
But at the same time, demand for less expensive consumer goods, like personal electronics, cars, and family houses would increase substantially.  Inflation would come as the "rich toys" industries are firing.  Economic chaos.
The solution is simple, though:  The newly-fired go to work making cars, houses, and personal electronics.  Not at once, of course, but within a few years (and certainly by the next generation).  With more goods being produced, prices will drop back to better levels.

Fourth, it will be extremely hard to track.
This is valid.  The very wealthy are skilled at avoiding taxes, so the government will have to vigilantly plug all loopholes as they are identified. 

4 Comments:

Blogger Nick said...

You don't seem so sure.

4:41 PM, May 28, 2004

 
Blogger Mike Church said...

I'm likely to start a business one day, but I agree with what you're saying.

Yes, but in a good way. The very wealthy would not be able to buy *as many* yachts and mansions and jewelry, so those "industries" would be hit. They would have to make cuts, and fire people.
But at the same time, demand for less expensive consumer goods, like personal electronics, cars, and family houses would increase substantially. Inflation would come as the "rich toys" industries are firing. Economic chaos.
Quite likely you already know this, but the prices of goods bought by the upper-class almost never have anything to do with the actual cost of production-- rather, demand (and scarcity). For example, fine wines, real estate in posh locations, jewelry (diamonds are not rare... and can be man-made for ~$150).

Unlike "common people" goods bought in grocery stores and Wal-Mart, whose prices are driven by costs of production plus small margin (~5%) the prices of these goods are driven by the competition among a few very wealthy individuals, i.e. that glut of wealth sitting in our society. Your income cap would reduce prices of those goods, not bankrupt the industries.

Also, many people in the luxury industries actually want out; for example, the jewelry industry is quite dangerous.

I agree with the theory of your idea. I think income past $500k should be taxed ~90%. At that point, the "incentive to work hard" argument doesn't really work because most people at that level didn't get it by hard work, but by inheritance or social connections.

There is one worry: Your fourth point. If taxes were raised on the upper-class, the wealthy would withdraw their money and invest elsewhere. That's why the U.S. tax rates are so ridiculously low at the top level; we want that investment.

-Mike Church
http://mikechurch.blogspot.com/
http://www.pagat.com/invented/ambition.html (card game I developed)

6:38 PM, July 28, 2004

 
Blogger Karlo said...

I completely agree with this idea. I believe the Green Party has come up with just such a proposal. If I remember right, the idea is that we set the top bracket at a certain multiple of the minimum wage (I think the Greens had it as a multiple of seven) and everything one makes above that amount is taxed at 100%. Such proposals are frequently criticized by those on the right as a "redistribution of wealth." I like to look at them more as a "distribution of wealth," but a distribution to those who actually do the lion's share of the work. Right now, in companies across America, two people get up every morning and do their part to make a company prosper. One cleans the bathrooms while the other sits in front of a board of directors and points to Plan A or Plan B. Yet the latter has such wealth he has a hard time spending it while the other can't afford basic health care for his/her kids. It's ridiculous and DOESN'T reflect what each person's labor is really worth. We need to stop welfare for the wealthy.

9:18 AM, September 28, 2004

 
Blogger The Mad Tech said...

Interesting Theory.

12:36 AM, October 07, 2004

 

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