Can a Cap Be Placed on the Incomes of the Super-Rich?

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Economists and epidemiologists, psychologists and political scientists: Researchers from multiple disciplines have detailed the high price we pay when we tolerate intense maldistributions of income and wealth. If we want a world more welcoming to the best humanity can be, the social science consensus holds, we need to narrow the gaps that divide us.

But how? Here we have no clear consensus. We do have options. Societies can narrow the gaps in income that distance our most and least affluent in three basic ways. We can level up incomes at the bottom of our economic order. We can level down incomes at the top. Or we can do both.

Those who sit atop our economic order — and those who seek their favor — typically do their best to confine us to the first of these options. To narrow our economic divides, friends of grand fortune advise, we need to work at lifting up the bottom. Fighting inequality, they maintain, need only involve attacking poverty, nothing more.

Raising a society’s bottom-most incomes can certainly narrow a gap between rich and poor. But that gap can also widen — if incomes at the top rise more rapidly than incomes at the bottom. China has witnessed this exact phenomenon over recent decades. Between 1978 and 2015, incomes for China’s poorest 50 percent saw a real increase of 401 percent. Incomes for China’s top 1 percent, in those same years, soared over four times faster, by 1,898 percent. China has become considerably more unequal.

Still, tens of millions of Chinese families have gained greater economic security over the past four decades, and those who see inequality as purely a poverty problem find China’s experience encouraging. We need not fret about how well the rich may be doing, they argue, if the poor are doing better, too.

Some take this stance a step further. Worrying about the rich, they maintain, only serves to distract us from the far more important task of lifting up the poor. Why obsess over the luxury in our penthouses, as former Bill Clinton aide Laura D’Andrea Tyson once asked, when people are living in rat-infested basements?

We should be focusing on helping society’s poorest, not hammering on the richest, adds Princeton economist Alan Blinder, a frequent adviser to Democratic Party presidential hopefuls. For the poor, Blinder believes, “the fantastic earnings of people that make $100 million a year are completely irrelevant.”

The UK Labour Party’s Tony Blair wing, back during its 1990s heyday, held that increases in the grand fortunes of the rich can even speed the demise of dire poverty. The richer the rich become, the argument went, the more they can shell out at tax time to fund social programs for the poor. We are “intensely relaxed about people getting filthy rich,” as Blair cabinet heavyweight Peter Mandelson famously put the matter in 1998, “as long as they pay their taxes.”

But years later, in an interview with the BBC, Mandelson would somewhat change his tune.

“I don’t think I would say that now,” he acknowledged.

Mandelson’s second thoughts shouldn’t surprise us. Societies that “relax” on the rich don’t get, in return, economies that benefit everyone. They get economies that benefit the rich — at everyone else’s expense.

This dynamic has played out most dramatically in the United States. America’s political elites, Republicans and Democrats alike, have been intensely relaxing on the rich ever since the late 1970s. They have reduced the taxes the rich pay and deregulated the businesses the rich run. The result? Since 1978, the poorest 50 percent of Americans have actually seen their real incomes shrink, by 1 percent. America’s most affluent 1 percent, over that same span, have seen their real incomes nearly triple.

A recent World Bank report finds similar trends on the international front. Stagnation below, windfalls above. “Without significant shifts in within-country inequalities, the report concludes, the World Bank’s current core goal — the elimination of extreme poverty by 2030 — “cannot be achieved.”

In China, meanwhile, the days of rapidly rising incomes — at the economic base — have come and gone. Over the last decade, real wages in the pace-setting city of Hong Kong have increased a grand total of 3 percent. The poorest of Hong Kong’s poor are now living in wire-mesh boxes stacked on top of apartment-house roofs. The boxes typically run six feet long and three feet wide. Locals call their occupants “caged dogs.”

China has not conquered poverty. No nation has. But some nations have dealt poverty much more than glancing blows. These more successful societies all value a more equitable distribution of the wealth their people create. They tax their rich. They regulate their economies. They underwrite public services that all their people can access. They endeavor to both level up and level down. They understand that any offensive against inequality that winks at grand fortune will sputter and stall long before society’s poorest realize any lasting relief.

Any offensive against inequality that only focuses on the rich will, to be sure, will also come up short. No decent society can tolerate destitution. But decency comes easiest when societies do their best to limit grand concentrations of private wealth. The more wealth the wealthy amass, the more political power the wealthy gain. The greater their power, the more their concerns — and their concerns alone — drive what government does and does not do.

Governments the rich dominate do good by the rich. They cut their taxes. They address their aggravations. They help them become richer. The needs of middle-income households, amid this do-gooding for the rich, go ignored. Middle-class people look above their economic station and see the rich and their tax avoidance. They look below and see the poor and their “handouts.” They start seething. Any empathy they may feel for those less fortunate drains away, as does their support for the programs that bring decency to those of modest or no means at all.

Peter Edelman, a former U.S. Department of Health and Human Services assistant secretary and one of America’s most respected poverty-fighters, has watched this process play out.

“I used to believe,” Edelman reflects, “that the debate over wealth distribution should be conducted separately from the poverty debate, in order to minimize the attacks on antipoverty advocates for engaging in ‘class warfare.’ But now we literally cannot afford to separate the two issues.”

The “economic and political power of those at the top,” Edelman continues, is “making it virtually impossible to find the resources to do more at the bottom.”

Campaigners for social justice over a century ago, during our modern world’s first Gilded Age, came to the same conclusion. Level up and level down, they urged. Social reformer Joseph Pulitzer, the foremost newspaper publisher of his day, exhorted America in 1907 to “always oppose privileged classes” and “never be afraid to attack wrong, whether by predatory plutocracy or predatory poverty.”

How should we go about attacking these twin predators? We have wide global agreement on the “predatory poverty” side. Decency demands, most nations now understand, a minimum wage, an income floor that guarantees everyone who works — at least in theory — enough income to escape poverty and enjoy a modicum of economic security and dignity. In practice, contemporary minimum wages almost everywhere fall short of that noble goal. Many millions of people worldwide work full-time — and more — at minimum-wage jobs and still live in poverty.

But what if we applied a “maximum wage’’ to our staggeringly unequal economic orders? What if each of our societies set a ceiling on the annual income any one individual could pocket — and linked this maximum to an existing wage minimum? Could this coupling set us on a more effective and lasting egalitarian course?

These pages will argue that linking minimums to newly created maximums would offer us our best hope yet at creating societies that work for all who live within them. In a world of only minimums, the pressure — from the powerful — to keep those minimums low and inadequate will always be unrelenting. The lower the minimum wage, the higher the potential reward for those who employ minimum wage workers.

In a world of minimums and maximums, this powerful incentive to exploit society’s weakest and most vulnerable would erode and eventually evaporate. In any nation that linked minimum to maximum, society’s richest would be able to increase their own personal income only if the incomes of society’s poorest increased first. In such a society, the rich would have a vested personal interest in enhancing the well-being of the poor. The exploiters would have cause to appreciate the value of social solidarity.