Verist Paper No. 3Reining in the CEOs, Plutocrats & Robber Barons
The Second Time Around
By Sam Pizzigati
On April 27, 1942, Franklin D. Roosevelt went on national radio and pronounced that “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year.” FDR’s proposed $25,000 limit would be worth today, after adjusting for inflation, about $300,000.
How did Americans, you might wonder, react to Roosevelt’s proposal? Did members of Congress charge that the President had gone out of his mind? Did business leaders predict the end of civilization as we know it? Did pollsters report a tidal wave of public revulsion?
Nothing of the sort. George Gallup report that 49 percent of Americans supported FDR’s idea of an income cap, 37 percent opposed it, with the rest undecided.
And what about members of Congress? They didn’t, in the end, adopt FDR’s 100 percent top tax rate. But they did enact, halfway through World War II, a top tax rate of 94 percent on all income over $200,000.
Overall, in 1943, the richest 2,500 Americans, after exploiting every loophole they could find, paid 78 percent of their total incomes in federal income tax.
How does that compare to today? Last year, our richest Americans, after exploiting every loophole they could find, paid 17.5 percent of their total incomes in federal tax.
Back in FDR’s time and before, Americans saw great concentrations of private wealth as a threat to our republic. Those Americans feared concentrated wealth.
Louis Brandeis, one of greatest Supreme Court justices, put the matter simply. "We can either have a democracy in this country,” Brandeis said about a hundred years ago, “or we can have great wealth concentrated in the hands of a few, but we can’t have both.”
Brandeis faced an America where great wealth did rest in the hands of a few.
In 1915 average Americans made less than $10 a week. America’s richest families then averaged, on a weekly basis, over $20,000. That would be the equivalent today of $370,000 a week.
America a century ago, declared Justice Louis Brandeis, had become a plutocracy. The rich ruled. They bought politicians. They squeezed workers. They built giant mansions. They totally dominated America’s political and economic life. Sounds familiar?
But average Americans, back a century ago, fought fight back. They battled to cut the rich down to democratic size. They wrote into law a steeply progressive income tax. They enacted an estate tax to prevent the inheritance of vast dynastic fortunes. They passed antitrust legislation. They gave trade unions the right to organize and challenge corporate power.
By 1950, America’s plutocracy would be no more. By 1950 America’s most opulent mansions had become museums and libraries and hospitals and schools. The American people had triumphed over America’s plutocrats, and that triumph made them incredibly proud.
Frederick Lewis Allen, then America’s most popular and widely read historian, captured that pride in his last book, a 1952 history of the first half of the twentieth century. Allen titled his book The Big Change.
And what was that big change? Americans, Allen proclaimed, had brought about a massive “redistribution in income from well-to-do to the less well-to-do.” The United States, to its great and undying credit, had become a significantly more equal place.
Modern America, Frederick Lewis Allen and his readers believed, would forever more be a middle class nation. The plutocrats had been routed. They would never be back.
The nation’s most respected economists sent the same message. In 1955, Simon Kuznets, a future Nobel Prize winner, delivered his presidential address to the American Economic Association. His thesis: The more industrial societies like the United States mature, the more equal they become.
Who could argue with that? In the 1950s and 1960s, the United States was becoming more equal. The share of the nation’s wealth belonging to average Americans was rapidly increasing, the share belonging to the rich just as rapidly decreasing.
In the quarter century after World War II, the incomes of average Americans, after taking inflation into account, doubled.
And then, in the early 1970s, everything started changing. America stopped becoming more equal. Real wages for average Americans started stagnating. America’s biggest fortunes, meanwhile, started multiplying, slowly at first, but then, after 1980, at breakneck speed.
Between 1973 and 2000, the average income of the bottom 90 percent of the American people, after adjusting for inflation, actually dropped by 7 percent.
Over that same time period, the incomes of our top 1 percent, the folks who took home at least $337,000 last year, rose by 148 percent. And the richest of the rich, the top tenth of the top 1 percent, saw their incomes rise 343 percent.
The plutocrats were back.
In 1975, the most widely acclaimed CEO in the United States was Reginald Jones, the chief executive at General Electric. Reginald Jones took home $500,000 in 1975, a sum that equaled 36 times the income of that year’s typical American family.
In 2000, the most widely acclaimed CEO in the United States was Jack Welch, who also happened to be the chief executive at General Electric. Welsh took home $144.5 million in the year 2000, a sum that equaled 3,500 times the income of that year’s typical American family.
In 1982, in its first annual census of America’s four hundred richest individuals, Forbes magazine counted 13 billionaires. In 2000, Forbes counted 267.
The plutocrats were most definitely back.
In just twenty-five years, the United States had, in fact, witnessed the most colossal redistribution of wealth in modern world history.
But here’s the amazing part. This enormous redistribution of wealth today sits nowhere on our political radar screen.
Our nation’s top political leaders, Republicans and Democrats alike, have essentially concluded that colossal concentrations of wealth, in the grand scheme of things, need not be cause for concern. And too many of the rest of us haven't challenged that conclusion.
Oh sure, we Americans today certainly do bellyache about CEO pay excesses. And we’re not happy with tax giveaways to the rich. We may even lament, with John Edwards, that “we live in a country where there are two different Americas.’’ But our hearts and minds remain overwhelmingly focused on the absence of wealth, not its concentration.
Even discussing concentrations of wealth seems like a waste of time. Listen to Howard Dean.
“I think it’s less productive to worry about how much rich people have than to worry about how much middle-class and working people have,” Dean noted last year. “The thing to do is concentrate on the 90 percent of people who don’t have what they need and make sure they have it, and not worry about the people who make $500,000 a year. Of course, it’s obscene, but so what?”
Is Howard Dean right? Is worrying about concentrated wealth just a distraction from the more important work we need to do to build a better America? Was Louis Brandeis wrong to fear concentrated wealth?
Not so! Louis Brandeis was not wrong. Howard Dean is.
If all men and women are indeed created equal, then any society that winks at the monstrously large fortunes that make some people decidedly more equal than others is asking for trouble.
Brandeis and his fellow crusaders a century ago saw that trouble in mostly political terms. They feared that no real democracy could survive in any society where great wealth gave some Americans much more power than everybody else.
But we today have even more reason to fear inequality.
We have more reason to fear because, over recent years, a small army of researchers has been studying what happens to societies as they become more unequal. These researchers include economists and psychologists, sociologists and political scientists, environmentalists and epidemiologists.
Their work has documented what ought to be the central truth of our time: The greater the gap between the rich and everyone else, the greater the greed, the greater the strain on the bonds that make societies good, communities human.
That some people have too much is not just a problem. It is the problem, a social cancer that coarsens our culture, erodes our economic stability, and even limits how long we live.
Yes, that’s right, inequality even limits our lifespans.
We today in the United States spend over twice as much on health care, per person, than the developed world national average. Yet among the world’s developed nations, we rank dead last in lifespan.
We are also, among the world’s developed nations, the most unequal.
And who ranks number one and number two in lifespan? Japan and Sweden, the two nations with the developed world’s most even distributions of income and wealth.
Epidemiologists — these are the scientists who study the health of populations — have compared death rates among nations, among states within the United States, and among metropolitan areas within the United States.
And every comparison they have made has returned the same finding: The societies with the shortest lifespans, the worst health, are not the societies with the most poor people. The societies with the shortest lifespans, the worst health, are those with the greatest gap between the affluent and everybody else.
On every measure of basic social decency in the world today, not just on health, this gap is what’s driving which societies are moving forward and which societies are not.
Consider child poverty. The developed nation with the world’s highest rate of child poverty is the United States. We also happen to be the developed world’s most unequal nation.
Consider hours of work. The average families with the least leisure time in the developed world are American families. American families also just happen to live in the world’s most unequal developed society.
Consider happiness. Social scientists today subject happiness — they call it “subjective well-being” — to very serious study. In the 1980s and 1990s, they have found, the level of subjective well-being, or happiness, in the United States dropped substantially. In the 1980s and 1990s, we also know, the United States became substantially more unequal.
But maybe this is only a coincidence. Maybe the hectic pace of modern life simply disposes modern people to be less happy.
An interesting conjecture. But if modern life were making people less happy, scientists would be finding lower levels of happiness in all modern nations. They are not. Researchers have found, Yale’s Robert Lane notes, that “the decline in happiness is largely an American phenomenon.”
“Something has gone wrong,” Robert Lane concludes. The United States is simply “not as happy as it is rich.”
So what do we do? I make the case in my book, Greed and Good, for radical surgery. I make the case for a maximum wage. I take my inspiration from Franklin D. Roosevelt. He called, as we have seen, for a cap on income at what would now be about $300,000.
But I’m also not crazy. I realize that we are not going to see a maximum wage America in my lifetime.
Still, I believe that we can move in a maximum wage direction, can move in a direction that gives our most powerful a reason to care about our most weak.
For instance: Under current law, corporations can essentially deduct off their taxes all those tens of millions they lavish on their CEOs. The more corporations overpay their CEOs, the less they pay in taxes.
Congressman Martin Sabo from Minnesota has a better idea. He has a bill now pending in Congress, the Income Equity Act (H.R. 2888), that would prevent any corporate tax deductions on executive pay that total more than twenty-five times the pay of a company’s lowest-paid worker. Capital idea! Contact your Congressperson and ask him or her to prompt the House Committee of Ways and Means, where this bill has been languishing since July 24, 2003.
Here’s another superb idea that came before the Connecticut lawmakers just a few years ago. This idea, presented in legislation that was backed by Connecticut unions and public interest groups, would have denied all state government contracts and subsidies to corporations that pay their executives over twenty-five times what their workers receive.
We need to promote this approach on the national scale. We have already, after all, reached a consensus, as a society, about companies that practice racial or gender discrimination. We do not allow these companies that nurture racial or gender inequality to get our tax dollars. Why then should let our tax dollars go to companies that make our country more economically unequal?
Wealth, the eminent Sir Francis Bacon said centuries ago, is like manure. It only does good when you spread it around. We Americans, one way or another, need to start spreading.
Across the United States today, a wide variety of groups are working to narrow the gap that divides America's wealthy from everyone else. But no group may be more central to the battle than the Boston-based United for a Fair Economy.
Labor journalist Sam Pizzigati is the author of "Greed and Good: Understanding and Overcoming the Inequality That Limits Our Lives," www.greedandgood.org. He lives in Kensington, MD.
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