Democrats’ Next Great Idea? A Maximum Wage

Democrats minimum wage push has largely been dashed against the rocks of economic reality. To no one’s surprise, mandatory hikes to the minimum wage—such as those attempted in Seattle—boost pay in low-wage jobs, but at the expense of substantial reductions in hours worked. The result is a net loss of income for low-wage workers and significantly fewer low-wage jobs created.

“The goal of this policy was to deliver higher incomes to people who were struggling to make ends meet in the city,” Jacob Vigdor, a University of Washington economist, said of Seattle’s minimum wage law. “You’ve got to watch out because at some point you run the risk of harming the people you set out to help.”

As it turns out, the best thing for raising wages is not some artificial government mandate, it’s passing policies that promote economic growth. Following Republicans’ tax reform legislation numerous companies announced that they would either be giving out significant bonuses or raising wages for employees. For instance, Charter Communications, CVS, Fifth Third Bancorp, JPMorgan Chase, Lowe’s, MetLife, Starbucks, Walmart, Wells Fargo, and countless others announced substantial raises to their company’s minimum wage as a result of tax reform.

Undeterred, Democrats are now attempting to make a splash with their next big (terrible) idea: A maximum wage.

The idea is simple. Right now, every dollar that an American earns above $470,001 (assuming they are married and file jointly) is taxed at a rate of 39.6 percent. In other words for every dollar that worker earns, around 40 cents of it goes to the federal government in taxes. A maximum income would create a marginal tax rate of 100 percent, such that every dollar earned above the given threshold would go straight to the government.

The idea isn’t new. Indeed, in the early 1990s, then-obscure senator Bernie Sanders submitted an op-ed by Sam Pizzigati to the Congressional Record about the idea.

“An impossible pipe dream?,” Pizzigati asks. “The minimum wage must have once seemed equally fantastic. Yet today we take the concept for granted. Decency demands, we believe, a floor on income. Why not a ceiling? Why not a maximum wage?”

Democrats, led by DNC’s Deputy Chair Rep. Keith Ellison, are beginning to ask the same question. Earlier this month the Congressional Progressive Caucus met in Baltimore for their Strategy Summit in order to “connect the progressive movement, its ideas and Congress.”

During the conference, journalist Sarah Jaffe interviewed Ellison and mentioned that he “made a joke about a maximum wage.”

“No, I did not make a joke about maximum wage, I made a statement about maximum wage . . . If you were to say, look, if you make more than twenty times more than the people who actually make the products and do the services of your company, then we’re going to tax you more—we’re going to tax you at all,” Ellison said.

He continued:

“I wasn’t joking about having a maximum wage. Why shouldn’t there be a maximum wage? I remember when Ford, GM, and Chrysler came for $25 billion to rescue the American auto industry. Okay, well how much does the guy who runs Toyota make? $28 million a year.

OK stop right there. Where did you get that greedy? And how did you create a philosophy that says [it’s right] to protect your greed, so that if I say you shouldn’t be that greedy, you get to call me a name? Because they do . . . If we say your incalculable greed is not acceptable, we get called communists. Why not call them what they are, which is avaricious and greedy?”

Ellison may not have been joking, but the idea is a joke. Corporate leadership doesn’t get paid millions of dollars because they work for generous Boards of Directors. Nor are stockholders interested in abiding above-market salaries just because they are feeling generous. No, businesses and their investors are in the business of making money, not finding creative ways to waste it. 

Clearly, there are very public exceptions. There are CEOs who go down in flames and who prove to be unworthy of even a fraction of what they are paid. They typically don’t last long. But for the ones who are worth it, the ones who bring tremendous value to their companies, are we truly willing to push them out of the United States by imposing a 100 percent tax on their income? Inevitably, they will find someplace that values their talents at their asking price, and the United States will suffer the largest brain drain in its history as a result.

Are we willing to push away an entire generation of leaders? Are we willing to serve as a breeding ground for corporate leadership, only to see that investment be cashed in elsewhere? Who do we believe benefits from those changes? Surely not workers who will be employed by  less productive, less well managed companies. Or perhaps this is just a circuitous attempt to make the minimum wage look less economically foolish by comparison.

No matter the answer to any of those questions if Democrats want to travel down this reckless path, let them do it alone.