THE progressive reformer and eminent jurist Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”
Brandeis understood that at some point the concentration of economic power could undermine the democratic requisite of dispersed political power. This concern looms large in today’s America, where billionaires are allowed to spend unlimited amounts of money on their own campaigns or expressly advocating the election of others.
We believe that we have reached the Brandeis tipping point. It would be bad for our democracy if 1-percenters started making 40 or 50 times as much as the median American.
Enough is enough. Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners — a tax that would limit the after-tax incomes of this club to 36 times the median household income.
Importantly, our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.
The authors go on to mention that they're both 1%-ers (presumably 1%-ers by income, not by wealth, though they use terms interchangeably in a way that seems very odd for people with any training in economics. Further, I am surprised they are as innumerate as their "solution" would suggest.
Their proposal is that each year the IRS would do some calculations based on "the average 1%er:"
Here’s how the tax would work. Once a year, the Internal Revenue Service would calculate the Brandeis ratio of the previous year. If the average 1-percenter made more than 36 times the income of the median American household, then the I.R.S. would create a new tax bracket for the highest 1 percent of income and calculate a marginal income tax rate for that bracket sufficient to reduce the after-tax Brandeis ratio to 36.
This new tax, if triggered, would apply only to income in excess of the poorest 1-percenter — currently about $330,000 per year. Our Brandeis tax is conservative in that it doesn’t attempt to reverse the gains of the wealthy in the last 30 years. It is not a “claw back” tax. It merely assures that things don’t get worse.
What this doesn't account for is the wide range of incomes within the top 1%. Should the folks in the bottom half of the top 1% be penalized indiscriminately for what the folks in the top half are "earning?" Why? Whose activity are we attempting to penalize? When a Bill Gates, or big deal football player,* or a so-called "small businessman" selling his company to a roll-up receives a huge windfall, should the $250,000 per year doctor be taxed? Why should the latter be in the same bracket with the windfall folks? And the fellow selling his company gets taxed at the 15% "capital" gains rate, well below what working people get hit with.
*Why is the football player on this list? Well, in part because I see that I am paying $100 per year to the NFL via my cable TV bill. I am thus taxed to provide him his windfall. My tax doesn't go through any government entity, but is in my cable bill.
I don't think Justice Brandeis would think Ayres and Edlin have proposed a good solution to the problem. They're nibbling at the leaves, not hacking at the root.
The article sent me off to read some of Brandeis's work, including "Other People's Money, and How the Bankers Use It," (published as a series of 10 articles in Harpers Weekly in 1913 and as a book in 1914). Here is the table of contents for the book:
I Our Financial Oligarchy 1
II How the Combiners Combine 28
III Interlocking Directorates 51
IV Serve One Master Only! 69
V What Publicity Can Do 92
VI Where the Banker is Superfluous 109
VII Big Men and Little Business 135
VIII A Curse of Bigness 162
IX The Failure of Banker-management 189
X The Inefficiency of the Oligarchs 201
The letters to the editor published today don't speak to the issue either. For instance,
Ian Ayres and Aaron S. Edlin write, “It would be bad for our democracy if 1 percenters started making 40 or 50 times as much as the median American.”
Are Bill and Melinda Gates a great threat to democracy? Jeff Bezos? Oprah Winfrey? Mayor Michael R. Bloomberg? I fail to see how those who have amassed great fortunes in America threaten American democracy.
They do not plot coups or finance fascist militias. They do, however, give lots of money to wonderful charitable and educational organizations.
He's chosen some people who have built up monopolies, and have helped to drive other businesses into the ground, and in at least one case, used a great fortune to influence elections; and it might be worth mentioning what people like the Koch Brothers have done, and others will do, now that "corporations are people" and have free speech rights. Bloomberg managed to derail the term limits laws in his city.
Wouldn't we be better off examining privilege, and eliminating it, than indiscriminately taxing productive activity? Forcing the internalization of externalities. Playing around with income tax brackets doesn't fix the problem, and it deflects us from going to the source of the problem.
Shouldn't our incentives be set up to encourage our best and brightest to devote themselves to serving others instead of enriching themselves at the expense of others?