Attacking Income Inequality by Limiting Wealth

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In his new book, The Case for a Maximum Wage, author Sam Pizzigati argues for limiting the income of the wealthy while raising the minimum wage. In fact, Pizzigati believes that narrowing the income gap is not possible without a limit on the highest incomes. In this interview, Pizzigati discusses the idea that the rich need financial boundaries.

Mark Karlin: We’re all used to hearing debates about the “redistribution” of wealth. You talk in your book about wealth’s “predistribution” — what do you mean by that?

Sam Pizzigati: Progressives have traditionally responded to wide gaps between rich and poor by calling for a redistribution of income and wealth — and taxes have usually been how we try to redistribute. We typically push for high tax rates on high incomes, then use the revenues these taxes raise from the wealthy to create opportunities for those without much wealth at all.

Back in the middle of the 20th century, this redistributive approach helped the United States become substantially more equal. [Because of these policies,] we went from a nation where the richest tenth of the top 1 percent took home nearly 900 times what the bottom 90 percent [of] Americans were averaging, to a nation where our richest few were only making 114 times the bottom average.

This redistributive approach assumed that high taxes on high incomes would always “fix” whatever inequality our economy generated. But the rich, in real life, refuse to cooperate with the fixing. In the last third of the 20th century, they pounded back against high tax rates. They used their wealth and power to carve loopholes in the tax code and eventually won huge cuts to America’s high tax rates on high incomes.

The result? We’ve become much more unequal as a nation. Our top 0.1 percent is once again averaging 900 times more in income than our bottom 90 percent.

What lesson should we take from all this? Redistribution alone can never be enough. We need to battle for an economy that generates less inequality in the first place. And that means working to identify the institutions and policies that funnel — that “predistribute” — excessive rewards to the already wealthy.

The wage and salary portion of our national income has been decreasing. What does this indicate about economic inequality in the United States today?

This declining labor share of national income — American workers essentially lost half a trillion dollars in paycheck income between 2000 and 2015 — reflects the power of the rich who control our corporations. These rich have no significant limits on how much they can grab.

Before 1980, big-time corporate CEOs averaged no more than two or three dozen times what their workers took home. Today’s top corporate execs routinely “earn” several hundred times what their workers make. They can make more in a morning than workers can make in a year.

Outrageously lush rewards like these give executives an incentive to behave outrageously, to do whatever they feel they must to hit the corporate jackpot. They’ll downsize. They’ll outsource. They’ll cheat consumers. They’ll even jeopardize lives — by unconscionably raising prices on prescription drugs people need to survive.

That incentive structure needs changing.

So how would setting a “maximum wage” fit in with this attempt to impact our existing “predistribution of wealth”?

In the United States, major corporate enterprises have become the engines of our inequality. The decisions that execs who run these enterprises make maximize their own personal rewards and leave most everyone else getting nowhere fast.

But imagine if we capped how much top execs could grab — and linked that cap to how much workers earn. Imagine a “maximum wage” that limited a company’s top execs to a modest multiple of what that company’s workers are making.

With this multiple-based maximum in place, top executives would only be able to make more if their workers made more first. These top execs, in effect, would have a vested personal interest in caring about the well-being of those they employ, not just themselves.

Explain how this notion of limiting the ratio between the highest- and lowest-paid earners in a company could work in actual practice.

This pay-ratio approach is already working in actual practice, and the best example may be in Spain, where the Mondragon network of cooperative enterprises — a significant contributor to the Spanish economy — has an internal compensation policy that limits top executive pay within an individual Mondragon enterprise to no more than six times worker pay.

Now we shouldn’t, of course, hold our breath waiting for corporate America to adopt a Mondragon-like standard. But we do have points of leverage over corporate pay policies, most notably the billions upon billions of our tax dollars that currently flow, year in and year out, to our biggest corporations.

These dollars come via different channels, most often through contracts to provide goods and services to government, or as tax breaks and subsidies for “economic development.” If we tied these tax dollars to corporate CEO-worker pay ratios — and denied these dollars to companies that pay their execs excessively more than their workers — firms that maintain reasonably small pay gaps between executives and workers would gain a competitive advantage.

Corporations with employment practices that discriminate by race or gender currently can’t get government contracts. As a society, we believe that enterprises that increase race and gender inequality should not get our tax dollars. Why should we let enterprises that increase our economic inequality get these tax dollars?

In The Case for a Maximum Wage, your final chapter details examples of hopeful efforts that are moving us toward a maximum wage. What makes you optimistic?

We now have a politically plausible path to a maximum wage. This year, for the first time ever, publicly traded US corporations must disclose the ratio between their CEO and median worker pay. This disclosure mandate comes from a provision in the Dodd-Frank Wall Street Reform Act.

Corporate lobbyists fiercely opposed this provision and delayed its implementation. But now we have it, and the initial disclosures have been making headlines. One particularly striking number: Walmart’s CEO last year made 1,188 times the pay of Walmart’s most typical workers.

Numbers like that are getting people’s attention — and building support for the next step: placing consequences on these ratios. About a half-dozen states now have bills pending that would tax companies with modest gaps between CEO and worker pay at lower rates and give these fair-pay companies preferential treatment in the bidding for government contracts.

And we already have the first victory of our emerging new era of “pay-ratio politics.” In Oregon, the city of Portland is now taxing firms with CEOs making more than 100 and 250 times their median workers at a higher rate than corporations with more narrow ratios.

Apologists for our current unequal economic order like to argue that the richer our rich become, the more they “give back” in so-called philanthropy. What kind of philanthropy do the rich tend to favor?

A huge chunk of that philanthropy goes to the alma maters of the rich, the private universities that cater to America’s elites. Other billions go into vanity projects — like new wings in art museums. In Los Angeles, for instance, we now have new private museums popping up all over while the city’s public schools can’t afford to pay music and art teachers.

Still other philanthropic dollars from the rich distort the democratic process. The think tanks the rich underwrite define the bounds of our political discourse. The “solutions” to social problems they trumpet conveniently leave our core concentration of income and wealth intact and untouched.

The super-rich, in the end, have no redeeming social value. We could survive without them. We could thrive without them. Social decency, most all Americans agree, requires a floor under income, a minimum wage. Social decency demands a ceiling, too.