Maximum Wage – A Thought Experiment

I had a crazy idea this morning. With all the talk about deficit spending and growing national debt, I thought maybe we should simply introduce an upper bound on the annual income any individual is allowed to be paid. Instead of a law forbidding any employer from paying above a certain amount, I think it makes more sense to say employers can pay anything they want to their employees, but every dollar above a threshold is taxed at 100%. Here’s a thought experiment.

According to Mother Jones, the top 0.01% of household income is about $27.3M. If there are roughly 140M tax payers, that means there are about 14k people earning over $25M/yr. If all of those people paid 100% tax on every dollar above $5M, that works out to $280B annually. That’s a staggering number.

Let’s compare that to the amount of tax revenue we would gain by eliminating the cap on income that is taxed for social security. For 2011, the cap is $106,800, which is less than the average income for the top 1-10%. If we eliminate the cap, we would collect an additional $39B from the top 0.01% alone, $157B from the top 1%, and $210B from the top 10%. That’s $406B in total.

Combining both figures, it stands to reason we would have an additional $686B in the annual budget with two very simple changes to the tax code.

Sure, folks are going to complain that they’re being treated unfairly and that such a policy would stifle growth by eliminating the natural incentive to acquire more wealth. The way I see it, those people are greedy, selfish assholes. No one person could hope to spend $425k/mo on living expenses. Instead, they buy solid gold toilets, million-dollar cars to gather dust in a garage, and myriad other frivolous things. Meanwhile, 90% of the population is struggling to pay the mortgage on their modest house, feed their families, and live sustainably. I know this is America, land of the fat and greedy, but at some point, even the super rich must feel bad about wasting money on luxury while others starve to death.