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A tax-policy proposal.

Tuesday, 1 December, 2009

I propose an effective maximum-wage law based on Federal tax policy.

This maximum wage shall be called a “150-to-1 policy”. The maximum wage shall be tied directly to the Federal minimum wage, and calculated as follows:

([Federal hourly minimum wage] times [the predominant number of hours worked per week as defined by the Bureau of Labor Statistics, and subject to annual or bi-annual review]) times [52 weeks times the admittedly arbitrary 150 multiple].

Keep in mind, 7800=52 weeks times 150.

Today (2009) that would work out to:

($7.25 x 38.5) x 7800 = $2,177,175

Assuming the top federal tax rate of 35% today, Social Security and Medicare deductions of 7.65% and one would go home with $1,248,610 or $24,011.73 per week.

This does not take into consideration state tax issues. The highest state-payroll taxes are commanded by Hawai’i at 11%. The taxable income in Hawai’i (deducting Federal taxes, and deferred-tax investment plans but not SS or Medicare) comes to $1,415,164. This leaves the repressed and impoverished Hawai’ians with a meager $1,092,942, or $21,018.11 per week.

Could you scrape by on 21 grand each week?

This does not consider 401(k) and similar deductions which would continue their delayed-tax status or equity given in lieu of direct compensation. However this would include, as regular, taxable, wage-like income any distributions not rolled over.

All income over this year’s magic number of $2,177,175 would be taxed federally at 84%. Leaving Hawai’ians with a mere 5% of income over and above the magic number. Your state may vary. In Texas, Tennessee, Washington, South Dakota and such places you would be left with 16% of that income.

What, you may ask, does this achieve?

Abusive bonus structures are taking their toll on the companies which comprise the majority of the American economy. The most abusive of these are policies within corporate structures which permit Boards of Directors to, for all points and purposes, write their own salaries without regard to the success or failure of the policies they promote, and the success or failure of the firm as a whole. Money awarded to the Board is money which would be better put to use in research, marketing and product development, or possibly even raising salaries among the meager proles or lowering wholesale and retail prices. Any of those options keeps money circulating within the real economy as opposed to the casino-like economy of “the markets” as we find them today.

The objective of this plan is not to increase revenues to the Internal Revenue Service. It would do so, but in the roundabout way Reaganomics was long alleged to do. That is, the policy would increase overall economic activity to the degree that revenues would increase, but not as a direct result of this policy.

Without interjecting civic policy into the private affairs of private enterprise, this proposal removes the incentive for the board to merely divvy up whatever income might be rounded up among themselves and a select few managerial employees to the cost of the firm over all.

The argument against such a policy usually discusses how a company could not attract something called “top talent” in the event the coffers would not be completely open to the board. If you look at the recent performance of, say, General Motors or the bank of your choice the fallacy of that argument becomes obvious.

The true objective is to keep money in the general economy, the “real economy” if you will, by removing incentives to dispense with it in other ways. The real action in the American economy is all of those people consuming motor fuel, groceries, consumer goods, buying homes, and all that mundane stuff which amounts to more than anything financiers would ever dream of. Encouraging this kind of spending, by spreading money around as opposed to tying it up in obscure financial instruments, will encourage the overall economy, and eventually the markets as well.

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