How About a <i> Maximum</i> Wage? : Taxation: F.D.R. wanted to cap incomes of the wealthy--an idea whose time may have come again.
Tax-the-rich rhetoric is back in style--for good reason. The average after-tax income of America’s richest 1% has soared 136% for the past 15 years, after adjusting for inflation. In 1990, the chief executive officers of America’s 200 largest companies averaged $2.8 million in compensation.
Average Americans are angry, and politicians are responding. Congressional leaders are even pushing for surtaxes on millionaires.
But rhetoric can be deceiving. Even if President Bush signed, instead of vetoed, the tax-the-rich package Congress enacted in March, America’s wealthiest 1% would still be paying less of their income in taxes than they did 15 years ago.
At times like these, we need to remember that America’s political leaders weren’t always so timid about taxing the very wealthy. In fact, 50 years ago this month, a President proposed the ultimate antidote to overcompensation: a maximum wage.
On April 27, 1942, President Franklin D. Roosevelt asked Congress to cap the income that any one American could claim and keep. With the United States in “grave national danger,” said Roosevelt, “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year.” That would be the equivalent of an income a bit above $200,000 today.
The Treasury Department subsequently fleshed out F.D.R.'s proposal in testimony before Congress. If his “100% war supertax” was enacted, Treasury officials testified, single persons whose before-tax income was $40,000 would be left with $25,000 after the standard tax rates had been applied. Any dollar of income above the $40,000 would be taxed away. For married couples, Roosevelt’s 100% supertax would have kicked in on all income of more than $110,000.
General public reaction to Roosevelt’s proposal was positive. Average Americans seemed delighted. Quipped actress Ann Sheridan, then earning considerably more than $100,000, the equivalent of more than $800,000 today: “I regret that I have only one salary to give to my country.”
In the end, Roosevelt’s maximum-wage proposal proved too radical for Congress to swallow. But Roosevelt’s 100% supertax proposal did have a powerful impact on congressional debate.
By the end of the war, Congress had raised the tax rate to a record 94% on all income of more than $200,000. In 1943, Internal Revenue Service statistics show, millionaire taxpayers paid 78% of their total incomes in federal taxes. Today, by comparison, the top federal income-tax rate on the wealthy is only 31%.
Could a maximum-wage proposal ever get a hearing today? Stranger things have happened. Between 1894 and 1917, for instance, the top federal tax rate on the income of the wealthy rose from 2% to 88%. If the nation’s top marginal tax rate could jump by that much, why not a jump from 31%, the current top rate, to the 100% necessary to create a maximum wage?
An impossible pipe dream? The minimum wage must have once seemed equally fantastic. Yet today we take the concept for granted. Decency demands, we believe, a floor on income. Why not a ceiling? Why not a maximum wage?