As the debate continues to rage about the best way to reduce the federal deficit, I would like to put forward a proposal which will provide a new source of revenue for the federal government. This new source of revenue will not only begin to reduce the size of the federal deficit, but it will address one of the long term systemic causes of our current economic situation, which will improve the economy in the long term as well.
According to a paper by Gareth D. Myles of the University of Exeter and Institute for Fiscal Studies, published by the Organisation for Economic Co-operation and Development, http://www.olis.oecd.org/... income inequality may increase capital accumulation, but also tends to reduce growth. According to Myles, “Inequality can lead to social insecurity and instability, providing an uncertain environment for investment.”
A study by Arloc Sherman, based upon Congressional Budget Office data between 1979 and 2006, http://www.cbpp.org/... states that the income gap between rich and poor reached record levels in 2006 and tripled between 1979 and 2006. Statistics from The Economist cited as part of the PBS program NOW with Bill Moyers, http://www.pbs.org/... show that executive take home pay in the United States is 475 times that of the factory floor worker.
A study by Atkinson, Piketty and Saez at http://emlab.berkeley.edu/... shows how the share of income of the top 10% had risen to nearly 50% by 2007, with the share of the top 1% amounting to 23.5% of the share of national income, and the top 0.1% rising to 12.3% of the share of national income. Atkinson, Piketty and Saez state that this is the greatest concentration of wealth since right before the Great Depression.
These studies indicate that the systemic concentration of wealth was, at the very least, a contributory factor in the severity of the economic crisis we have been undergoing over the past six years. The American people are increasingly aware of this, as they worry about whether they will be able to keep their jobs and homes while their tax money is bailing out major corporations, who then pay top executives outrageous salaries and bonuses for nearly bankrupting their businesses. Although taxpayers are outraged by this situation, many are also leery of the federal government having the power to set these salaries and bonuses, as they feel that this gives the government too much power over what has traditionally been determined by market forces.
I'd like to put forward a proposal which will begin to address the systemic inequities that have been built into our economic system over the past thirty years, and which will bring in additional revenue, part of which can be used to finance programs to bring us out of the recession, and part of which can be used to reduce the deficit itself. This proposal is fairly simple to explain and understand. It should also be popular with the majority of Americans whose hard earned tax money has paid to bail out these companies and who have been outraged to see much of it used to further the greed of those who are in charge of businesses with their continuing high incomes and bonuses.
What I propose is that businesses state what the annual income of the lowest paid, full time employee is of that company, then determine a threshold that is 25 to 35 times (the amount to be determined as part of the legislation enacting this proposal) of what that amount would be. Anything earned above that threshold figure would then be subject to a special surtax of 75% to 90% (also to be determined by the legislation) of the amount above the threshold income of the lowest paid worker. Income below that threshold would still be taxable at current rates. If a company were to increase the pay of the lowest paid workers, the threshold amount which would be subject to the special surtax would also increase, thereby increasing the incentives to raise the pay of the lowest paid employees.
This surtax will not only raise desperately needed revenue for the federal government, part of which could be used to reduce the federal deficit and part to be used for programs which will create jobs and benefit those who have been left behind by the policies whose primary beneficiaries have been the well to do, but will also begin to address the inequities in our economic system which have angered so many Americans. I feel that if this proposal is properly explained to the taxpaying public, that it would also be very popular with taxpayers, many of whom have felt that the government has abandoned their interests in favor of those of the most wealthy in our society.
Very little has been done since the onset of the economic crash to actually address the root causes of the crisis. Enacting this program will finally begin to address one of the the root causes of the collapse and will lead to a much healthier economy in the future, both in the short term and in long run as well.