Show caption ‘The outrageously high rewards that corporate executives can pocket give these executives, in turn, an incentive to behave outrageously, to hike their share price and stuff their own pockets.’ Illustration: Sébastien Thibault Ideas for America Minimum wage? It's time to talk about a maximum wage Sam Pizzigati Conservatives try to laugh off the idea of capping executive pay – but it’s an idea with a distinguished history

Sat 30 Jun 2018 11.00 BST Share on Facebook

Share on Twitter

Share via Email 2 years old

Most of our mainstream political discourse on “fighting inequality” has revolved – for years now – around the more narrow goal of eliminating extreme poverty. Few of our elected leaders ever dare suggest that maybe we ought to think about eliminating extreme wealth as well. Even the mere idea seems a laughing matter.

Congressman Keith Ellison, a Minnesota Democrat, knows all this from personal experience. Earlier this year, in a talk to the Congressional Progressive Caucus, Ellison suggested that the time has come to start contemplating the notion of a “maximum wage”.

A reporter who heard those comments later asked Ellison about this maximum wage “joke” he had made. “I wasn’t joking,” Ellison replied. We need to get past the idea, he added, that we can leave some people in poverty while we let others “stack up dead presidents like nobody’s business”.

America’s rightwing media promptly swung into mockery mode. “You won’t believe what the progressives want to do next,” the Weekly Standard mocked above a story that described Ellison’s maximum wage comments as “jaw-dropping”.

“We think,” conservative pundit Laura Ingraham opined, “there should be a maximum term in office for people with ideas as stupid as this one.”

Someone ought to tell Ingraham that the idea of capping income has a long and distinguished history in America. In 1880, Felix Adler, the philosopher who would later lead America’s first national campaign against child labor, proposed a 100% tax rate on income above the point “when a certain high and abundant sum has been reached, amply sufficient for all the comforts and true refinements of life”.

Such a levy, said Adler, would tax away “pomp and pride and power”.

In 2017, the McDonald’s CEO, Stephen Easterbrook, earned $21.8m – 3,101 times more than the typical McDonald’s employee worldwide

Progressive lawmakers in Congress would later pick up Adler’s proposal. They had a big ally in Franklin D Roosevelt. In 1942, shortly after Pearl Harbor, FDR asked Congress for a 100% top tax rate that would leave no individuals with more than $25,000 of annual income – about $375,000 today – after taxes.

America’s top unions backed FDR’s plan – and so, Gallup pollsters reported, did a clear plurality of Americans. Congress felt the heat. By 1944, America’s richest faced a 94% tax rate on income over $200,000. Our top tax rate hovered around 90% for the next two decades, a span of time that saw the United States give birth to the world’s first mass middle class.

America in those years became significantly more equal. By 1970, the 1%’s share had sunk to a tenth of the nation’s income, versus a quarter in 1928. The bottom 90%’s share had jumped to two-thirds.

Today, about a half-century later, all that economic progress has come undone. With tax rates on high incomes way down, our top 1% have doubled their income share. Real take-home pay for the vast majority of Americans, on the other hand, has stagnated since 1970.

To narrow the resulting inequality, many economic justice advocates argue, we need to battle for more than redistributive measures that just try to clean up the messes inequality creates. We need to battle for a pre-distributive economy that generates less inequality in the first place.

And that means confronting the giant corporations that dominate our economy – and especially the executives who lead them. About two-thirds of America’s top 1% households, the Economic Policy Institute calculates, owe their fortunes to corporate executive pay.

Researchers at the Stanford Business School two years ago asked Americans to estimate the “maximum amount” a CEO should make at a company where average workers were making $50,000 a year. The answers averaged $882,054, about 18 times average worker pay.

How much do CEOs actually make? In 2017, the McDonald’s CEO, Stephen Easterbrook, took home $21.8m. That’s 3,101 times more than the typical McDonald’s employee worldwide. The typical McDonald’s worker would have to labor more than three millennia to make as much as the McDonald’s CEO made last year.

McDonald’s is an outlier, but even more average figures are astounding. At most major corporations, typical workers still have to labor over three centuries to make as much as their CEO makes in a year.

The outrageously high rewards that corporate executives can pocket give these executives, in turn, an incentive to behave outrageously, to do whatever it takes – from downsizing workforces to cutting pensions – to hike their share price and stuff their own pockets.

What can we do about all this? To start, we can stop rewarding corporations that use our tax dollars to increase extreme inequality.

Some 22% of working Americans, one Senate report noted last year, labor for companies with federal government contracts. Lockheed Martin alone took in $35.2bn last year from taxpayers. Lockheed’s CEO pocketed $22,866,843 for the year, 186 times the take-home of the typical Lockheed employee.

Many more millions of Americans work for companies with state and local government contracts. In Rhode Island, lawmakers are considering legislation that would give companies with modest CEO-worker pay ratios a leg up in the government contract procurement process. In the UK, the Labour party would like to deny contracts to companies with ratios over 20 to one.

We must stop rewarding corporations that use our tax dollars to increase extreme inequality

In Oregon, meanwhile, the city of Portland is now levying extra business surtaxes on companies that pay their top executives over 100 and 250 times what their typical workers are making. A half-dozen states are contemplating similar bills, and federal legislation along that line is also pending.

Other lawmakers are looking at corporate welfare, the billions in subsidies that go annually to big businesses. According to Good Jobs First, two-thirds of the federal government’s $68bn in business grants and special tax credits from 2001–2015 went to large corporations. In 2015, Representative Mick Mulvaney – a South Carolina Republican who now serves as the director of Trump’s Office of Management and Budget – proposed a ban on import and export subsidies to any US companies with CEOs making over 100 times their median worker pay.

The maximum wage is an idea whose time has come. I think most Americans would agree that no enterprise where workers would have to labor over a century to make what their CEOs can make in a year should get a single one of our tax dollars.

About that, Corporate America, we’re not joking!