Invoking an iconic figure in American jurisprudence, Yale Law professor Ian Ayres and Berkeley law professor Aaron Edlin make the case in a NYT op-ed today for a tax on high incomes triggered when inequality reaches a "tipping point," which they define as 36 times the median household income:
What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1 percent to the median household income — has skyrocketed since Ronald Reagan took office. In 1980 the average 1-percenter made 12.5 times the median income, but in 2006 (the latest year for which data is available) the average income of our richest 1 percent was a whopping 36 times greater than that of the median household.
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.
Meanwhile, Michigan Court of Appeals judge William Whitbeck invokes Kafka in a critique in the Detroit Legal News of the President's recent Kansas speech on the economy:
[T]he underlying focus of the President's speech was "inequality." Not racial inequality or class inequality but income inequality. He pointed out that the typical American CEO earns about 110 times more than his or her workers. In a word, this kind of inequality is to him not "fair."
Really? I can't see why. Setting simple, old-fashioned envy aside, I suspect that what matters to most working Americans is not what CEOs make -- or, for that matter, what rock stars, professional athletes, movie celebrities, and hedge-fund managers make -- but what they make. Income inequality may not be "fair" in the sense that the President uses the word. It certainly would not exist under an imagined perfect system in which, like the young in Lake Wobegone, everyone is well above average in education, talent, effort . . . and luck.
The truth is, of course, that Lake Wobegone is a town that never existed and never will exist. The truth is that income inequality in this country does not result from the federal tax code nor will it be remedied by raising the federal tax rates of the wealthy, the concept the President is hawking. The truth is that "tax the rich" is a mindless bumper sticker slogan, not a serious fiscal policy. The truth is that if, in the pungent phraseology of Alexander Dumas, we cut the fat ones down to size, there is no guarantee that anyone other than governments and their employees will benefit.
Thus, a European style cradle-to-grave welfare scheme may appear fair to some. But to others, particularly those across the income spectrum who work to pay for it, it is neither perfect nor even fair. Rather it is a utopian redistributionist system gone bad, grindingly grey in appearance and Kafkaesque in operation. This may describe President Obama's Washington D.C., but is it really the American dream?
