Maximum wage
A maximum wage, also often called a wage ceiling, is a legal limit on how much income an individual can earn.[1] It is a prescribed limitation which can be used to effect change in an economic structure, but its effects are unrelated to those of minimum wage laws used currently by some states to enforce minimum earnings.[2]
Implementation
No major economy has a direct earnings limit, though some economies do incorporate the policy of highly progressive tax structures in the form of scaled taxation.
A vote to implement a maximum wage law in Switzerland failed with only a 34.7% vote for approval.[3]
Maximum liquid wealth
A maximum liquid wealth policy restricts the amount of liquid wealth an individual is permitted to maintain, while giving them unrestricted access to non-liquid assets. That is to say, an individual may earn as much as they like during a given time period, but all earnings must be re-invested (spent) within an equivalent time period; all earnings not re-invested within this time period would be seized.
This policy is only arguably a valid maximum wage implementation, as it does not actually restrict the wages a person is allowed to maintain, but only restricts the amount of actual currency they are allowed to hold at any given time. Proponents of the policy argue that it enforces the ideals of a maximum wage without restricting actual capital growth or economic incentive.
Proponents believe wealth that is not re-invested in the
When this policy is imposed, individual savings can only be held as solid assets like stocks, bonds, business, and property. Opponents argue that since a maximum liquid wealth policy makes no allowance for individual savings, it therefore assumes the non-importance of a bank and the loans that banks provide. Loans being essential to the economy, opponents argue, banks are an essential economic institution. Proponents of the maximum liquid wealth policy respond that government could be directly responsible for supplying loans to individuals; they also add that such an arrangement could result in vastly lower interest rates.
Relative earnings limit
A relative earnings limit is a limit imposed upon a
A weakness in this method is that a company can simply hire outside firms to keep low wage employees off their payroll, while only having the top earning employees on the company's payroll, effectively bypassing the limits. However, the hiring of external employees will come at a higher total cost and will reduce company profits, something against which executives are often measured and compensated.
To moderate self-employed individuals, the maximum could be based on the average compensation of the nation's employed (
Direct earnings limit
A direct earnings limit is a limit placed directly, usually as a number in terms of currency, upon the amount of compensation any individual is allowed to earn in a given time period.
Scaled taxation
Scaled taxation is a method of progressive taxation that raises the rate at which the principal sum is taxed, directly relative to the amount of the principal. This type of taxation is normally applied to income taxes, although other types of taxation can be scaled.
In the case of a maximum wage, a scaled tax would be applied so that the top earners in a society would be taxed extremely large percentages of their income. Modern income tax systems, allowing salary raises to be reflected by a raise in after tax income, tax each individual note of currency[clarification needed] in each particular bracket at the same rate.[4] An example follows.
Tax bracket | Width of bracket | Marginal tax rate |
Tax paid on bracket |
Accumulated after-tax income |
Effective tax rate (rounded) |
---|---|---|---|---|---|
Nil – $40,000 | $40,000 | 15.00% | $6,000 | $34,000 | 15.00% |
$40,000 – $100,000 | $60,000 | 35.00% | $21,000 | $73,000 | 27.00% |
$100,000 – $175,000 | $75,000 | 50.00% | $37,500 | $110,500 | 36.86% |
$175,000 – $250,000 | $75,000 | 60.00% | $45,000 | $140,500 | 43.80% |
$250,000 – $500,000 | $250,000 | 75.00% | $187,500 | $203,000 | 59.40% |
Above $500,000 | — | 90.00% | — | — | Over 59.40% |
History
In 1350, positions in the church were in high demand due to deaths from the Black Plague eradicating the clergy. The Archbishop of Canterbury at the time, Simon Islip, issued a letter condemning "priests [that] care more for money than for the safety of their soul",[5] stating that priests were forgoing their duty to the poor in order to serve the rich in private chapels. Islip instituted a maximum annual wage for priests as well as a fine for the 'giver' and 'receiver' of those caught offering private tithes above the maximum.[6]
In England, the
To counteract the increase in prevailing wages due to scarcity of labor, American colonies in the 17th century created a ceiling wage and minimum hours of employment.[7]
In the early Soviet Union, in the period 1920–1932, Communist Party members were subject to a maximum wage, the partmaximum. Its demise is seen as the onset of the rise of the nomenklatura class of Soviet apparatchiks. The idea that any individual could earn money by their labor, instead of earning for the community, undermined the initial principles of communism.[original research?]
In 1933, Washington State Representative Wesley Lloyd proposed an amendment to the U.S. Constitution that would have limited annual incomes to $1 million.[8] His contemporary colleague John Snyder introduced a companion amendment that would have limited personal wealth to $1 million. Neither proposed amendment, however, received enough votes to begin the ratification process.[9]
In 1942, during World War II, US President Franklin D. Roosevelt proposed a maximum income of $25,000 ($466,191 in 2023 dollars[10]) during the war:[11][12]
At the same time, while the number of individual Americans affected is small, discrepancies between low personal incomes and very high personal incomes should be lessened; and I therefore believe that in time of this grave national danger, when all excess income should go to win the war, no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year. It is indefensible that those who enjoy large incomes from State and local securities should be immune from taxation while we are at war. Interest on such securities should be subject at least to surtaxes.
— Message to Congress on an Economic Stabilization Program, April 27, 1942
This was proposed to be implemented by a 100% marginal tax on all income over $40,000 (after-tax income of $25,000). While this was not implemented, the Revenue Act of 1942 implemented an 88% marginal tax rate on income over $200,000, together with a 5% "Victory Tax" with post-war credits, hence temporarily yielding a 93% top tax rate (though 5% was subsequently returned in credits).[11]
After decades of
Since the 1990s, the chief proponent of a maximum wage in the United States has been Sam Pizzigati;[13] see References, particularly (Pizzigati 2004).
In his 2000 run for the
In his campaign for the French presidency in 2012, Jean-Luc Mélenchon argued in favour of a tax rate of 100% on incomes over €360,000.[14]
Association football
In the United Kingdom until 1901, individual clubs had set their own wage policies. That year, the
By the summer of 1928, players could earn a weekly maximum of £8 (equivalent to £513 in 2021[15]), although clubs routinely found ways to increase this.[16] Arsenal player Eddie Hapgood supplemented his income by fashion modelling and advertising chocolate.[17]
See also
References
- ^ Dietl, H.; Duschl, T.; Lang, M. (2010). "Executive Salary Caps: What Politicians, Regulators and Managers Can Learn from Major Sports Leagues" (PDF). University of Zurich, ISU Working Paper Series (129).
- JSTOR 1117231.
- ^ Hooper, John (24 November 2013). "Switzerland votes against cap on executive pay". The Guardian.
- ^ "TaxAlmanac".
- ISBN 978-1-349-73422-1.
- JSTOR 1836696.
- ^ Morris, Richard B. (1976). "Chapter 1: The Emergence of American Labor". Bicentennial History of The American Worker. U.S. Department of Labor.
- ^ Bomboy, Scott (23 February 2018). "Five 'unusual' amendments that never made it into the Constitution". National Constitution Center. Retrieved 28 October 2019.
- ^ Pumphrey, Clint (26 August 2016). "10 Weirdest Failed Constitutional Amendments". How Stuff Works. Retrieved 27 October 2019.
- ^ 1634–1699: McCusker, J. J. (1997). How Much Is That in Real Money? A Historical Price Index for Use as a Deflator of Money Values in the Economy of the United States: Addenda et Corrigenda (PDF). American Antiquarian Society. 1700–1799: McCusker, J. J. (1992). How Much Is That in Real Money? A Historical Price Index for Use as a Deflator of Money Values in the Economy of the United States (PDF). American Antiquarian Society. 1800–present: Federal Reserve Bank of Minneapolis. "Consumer Price Index (estimate) 1800–". Retrieved February 29, 2024.
- ^ a b
Pizzigati, Sam (2004). "Historic Struggles" (PDF). Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives. Apex Press. pp. 440–441. ISBN 978-1-891843-25-9. Archived from the original(PDF) on 2008-09-10.
- ^ Pizzigati, Sam (1992-04-08). "How About a Maximum Wage? : Taxation: F.D.R. wanted to cap incomes of the wealthy--an idea whose time may have come again". Los Angeles Times.
- ^ Greenhouse, Steven (1996-06-16). "Corporate Greed, Meet The Maximum Wage". The New York Times.
- ^ "French give thumbs up to Mélenchon's plan to boost minimum wage". Revolting Europe. 12 April 2012.
- ^ a b UK Retail Price Index inflation figures are based on data from Clark, Gregory (2017). "The Annual RPI and Average Earnings for Britain, 1209 to Present (New Series)". MeasuringWorth. Retrieved June 11, 2022.
- Oxford Dictionary of National Biography, Oxford University Press, 2004; online edn, Jan 2010
- ^ Jeffrey Hill, ‘Hapgood, Edris Albert [Eddie] (1908–1973)’, Oxford Dictionary of National Biography, Oxford University Press, 2004[ISBN missing]
External links
- TaxAlmanac – a wiki created by tax professionals with detailed information on US IRS Tax Law and the only known free up to date copy of the US Internal Revenue Code
- A simple microeconomic explanation of wages, skill, and utility
- Would a maximum wage make life better? at the Wayback Machine (archived March 31, 2009) - an editorial exploring the pros and cons of a maximum wage