Easy. I would just set up invisible employees on a desert island, and pay each one the maximum wage.
Welp, the easiest answer of all is - there would be no incentive to keep working after the $5 million was made. Alex Rodriguez would stop showing up to games in early May. 
Chumpsky’s statement
is exemplary of a basic fallacy - that value is objective. Of course people at the top earn the marginal amounts that they receive - because others are of the opinion that their contribution is worth that much.
I’m a lawyer, and I make a decent amount of change. But that is only because the people to whom I provide my services think that my services are worth that amount. Next week, the market may decide that legal services are only worth $5.00/hour, and there would be nothing I could do about it.
So, people who make $50 million a year make that much because people think that is what their services are worth. And those people ain’t wrong - the only definition of the value of those services are what people think the value is.
So, we think that Ms. X’s services are worth $50 million, because that’s what we pay her. If we were to tell Ms. X that we are going to take everything over $5 million from her, her rational response would be to stop working once she’s made the 5 mil. And the people who thought she was worth $50 million would be deprived of the $45 million worth of services they hoped she would provide.
Sua
Ever read Vonnegut’s short story “Harrison Bergeron?” It’s a lesson in what happens when everyone is forced to be equal.
Link: http://instruct.westvalley.edu/lafave/hb.html
Creating a market distortion such as a supertax will encourage companies to compensate their executives in other, less taxable ways. While the CEO of a company may only have a book salary of, say, $250k, he may be treated to a $10 million unsecured company credit line. In my experience with large companies that compensate their executives in this manner, I have found that they rarely repay these loans unless they are forced to.
Simply increasing the rate of taxation on high marginal income would probably decrease corporate accountability and decrease the quality of corporate stewardship, since it seems unlikely that executives would suddenly decide that they just don’t need that much money anymore. A new tax scheme would encourage them to seek compensation in less transparent ways than a straight salary.
I suspect this debate is about to become a Teach Yourself Financial Irregularities course. Is taxation itself not a market distortion?
I think the OP was more along the lines of “Wouldn’t it be more fair if…” rather than “How might such a tax be avoided or rendered infeasible?”. The nature of such a tax would almost certainly require some “goodwill” on behalf of its target sector. I don’t think the ultra-rich are on the whole quite so unreasonable and unethical as they are painted by some, but nevertheless I think their acceptance of such a supertax is a long way off.
These things have been tried and did not work. As someone mentioned it was tried in England and the result was all their rich people moved to Monaco and the government missed out on the tax money they had previously collected from these people. Also during the 1930’s the top tax rates were hiked several times up to about 75% and the effect on the economy was disastrous. Also, relatively recently the tax laws were changed to make executives salaries taxable at a different rate above a certain amount and the result was that companies starting giving executives stock options which has not lead to more equality but to executives being overly concerned with stock prices.
The idea of a company not paying its highest paid employee more than a certain multiple of its lowest paid employee was tried by Ben&Jerry’s ice cream company. Its multiple was 15 IIRC. They had to scrap this policy after a time because it was impossible to find the quality management it needed and the poor management of the company eventually led to it being sold to foreigners.
Of course. But there are bad distortions and worse distortions. The question, of course, is whether you can wring a good result out of a distortion.
No, that is not what he said.
The OP enjoins us to evaluate the utility of his proposal by it’s outcome. I am arguing that his suggested tax will not have the desired outcome, so instituting it is a bad idea.
You’re right, of course.
We had already shown that the utility of such a tax would have serious shortcomings. I was merely daydreaming about a world where the creative accountants didn’t win. Furthermore, I don’t think I’d really like to live in a completely undistorted marketplace.
Yes but a necessary one…assuming we enjoy having police and roads and such.
Someone thinks so.
Anyhow, it’s a fantasy to think that it is more “democratic” to have the government hold on to all that money instead of private citizens. It still doesn’t help the poor at all unless that money has some way to reach them. So in other words, unless your objective is to create a welfare state, massive taxation of the rich won’t help.
Given corporate structure, it is also possible to break the company up in to several collateral efforts, making a sort of pyramid where no one earns over the limit, but when the process is viewed as a whole, people surely do. This is also not a very efficient market as splits are not made to increase specialization (usually a good thing) but to stabilize income (or actually increase it—not a good thing).
Completely wrong.
People are remunerated in the capitalist system according to what the market will bear. What “people think their services are worth” has nothing to do with it.
Just think about it for a second. Do you think that “people” are making a calculation saying that Shaq’s services are worth 1,000 times more than the services of a teacher? I do not think that people are that evil. Rather, in the capitalist system, Shaq can make 1,000 times more on the market than a teacher can. It has nothing to do with the perceived worthiness of the labor, but rather market forces.
And this is not even addressing the absurd system of cronyism that people like lawyers benefit from. In the actual world, people with power manipulate the system so that they are rewarded just due to their position in society, regardless of what they contribute to society. So, for example, a lawyer, who contributes nothing to society, who produces nothing, can make bucketloads of cash, whereas miners and teachers have to struggle to survive.
Um, that is the definition of what “people think their services are worth.” You see, if you aren’t interested in watching Shaq, you don’t pay for tickets, or his advertising doesn’t affect your purchasing. A business which doesn’t follow this model will either be spending too much on employees, or will lose employees to higher paying competitors.
(Now, I realize this breaks down in monopoly or oligopoly markets. But that’s what good antitrust law–and enforcing it–is for.
Um, don’t the Lakers pay Shaq’s salary? They (the Laker’s corp entity, comprised of people who own it) think he’s worth it. So, yes, “people” think his services are worth $50 million. They think that because they believe ticket buyers, advertisers, TV networks, etc are willing to pay them money to watch the Lakers play if Shaq is on the team.
Sometimes the team owners screw up and pay someone way too much money. Look at the Florida Marlins after they won the world series. They obviously were paying more for the players than the market would bear, and lost money on the deal.
Market forces determine worth. I realize that you’ll object to this, but no other system has managed to be successful in any objective measure when you seperate those two.
I agree that lawyers do not offer a tangible, divisible, consumer product. I do not agree, or can even imagine an argument being put forward that said, that lawyers contribute nothing to society.
Please, by all means, explain this one for me. If it takes its own thread, then start it. You know your reasoning better than I.
It’s not an argument. It’s an observation. Lawyers do not contribute anything to society, as lawyers. True, some lawyers do other things that may actually contribute something, but working in the field of law is not a contribution to society.
Do I really need an argument for that? I mean, just look at the situation and observe for yourself. Maybe you could point out exactly what contribution lawyers make, but I haven’t been able to see one.
True, if you want to define worth by how much people are paid for their services, then it follows as a tautology that people are paid what they are worth.
I was using the terms “worth” and “value” though, in the way it is used in the English language.
I think Oscar Wilde put it best when he said, “We in the 20th century know the price of everything and the value of nothing.”
**
You do realize that the market is made up of human beings who make decisions and not robots, right?
Marc
Well, I realize this isn’t the Pit, but can I just give you a hearty fuck you?
Are you really telling me that I don’t contribute anything to society? Or Sua? minty? Billdo? Or any of the other lawyer posters here?
I provide advice and services for those engaged in commercial transactions. Don’t think I provide value? Try doing a deal without someone like me. And don’t come crying to me later when it all falls apart five years down the road.
Others, like Sua and minty, are litigators. They (and the system they work in) provide a dispute resolution mechanism. Don’t think they provide value? Would you prefer a system where disputes are resolved at the point of a gun?
I make what I make (at least until the end of the year – guess I wasn’t manipulating the crony system as hard as I should have been :rolleyes: ) – because that’s what the market bears for legal services. There’s no manipulation involved. A company can choose to hire us and pay our rates, or they can (and frequently do, for smaller transactions) go to other firms that charge less.
Seriously, Chumpsky, if we lawyers don’t contribute anything, why are people willing to pay our rates? If we don’t offer a service of value, why would your hated capitalists pay our fees?
Lawyers contribute in the same way doctors contribute. They offer a service. In the case of lawyers, that service is understanding society’s law so you can go on making a living without having to concern yourself with every nuance of it.
Because lawyers have created a society where fear of litigation requires legal advice every time a person wants to take a piss.