The Guaranteed Minimum Income and the Maximum Income
by Howie Hawkins, Syracuse Green Party
In August 1995, the US Senate voted 87 to 12 to end the federal government's 60-year commitment to provide cash assistance to indigent single mothers and their children. Known as "Aid to Families with Dependent Children" (AFDC), this program cost the federal government $18 billion in 1995, or about 1% of the federal budget. Clinton indicated he would sign the bill if some of the House Republicans' "harsher" measures were not included in the final bill. This bill to end welfare is such an extreme right-wing measure that Ronald Reagan never even dared to propose it. But in today's political climate, 35 of 46 Democratic US Senators vote for the bill.
Meanwhile, Congress has refused to cut some $125 billion in corporate welfare in the form of subsidies and tax breaks to large corporations. Congress is adding $7 billion more to the military budget than the Pentagon requested. And proposals to replace the nominally progressive income tax with a flat income tax or a national sales tax are under serious consideration.
The inequality of wealth and income in the US is greater than at any time since the 1920s.
As Congress enacts public policy to cut taxes and raise welfare for the rich while it raises taxes and cuts welfare for the working class, the inequality in wealth and income in the United States is the greatest of any industrialized country. The income of the bottom 60% has declined for 20 years. Only the top 20% has seen their income and wealth grow in the last two decades, but most of this has been taken by the top 1%, whose after-tax incomes more than doubled in the 1980s. The US used to be first in wage levels. Today it is 13th.
Why Is Inequality Growing?
The inequality of wealth and income in the US is greater than at any time since the 1920s. While the before-tax income of the top 1% of income earners increased 78% from 1977 to 1989, their after-tax income increased 102%. This transfer of income from workers to the super-rich through the tax system was accomplished by cuts in income tax rates for high income earners, cuts in tax rates for unearned income from investments, increases in workers' payroll taxes for Social Security and Medicare, and cuts in federal revenue-sharing out of progressive income taxes coupled to increases in regressive local property, sales, and sin taxes. Though many of these changes were legislated during the Republican Reagan administration, it was the Democratic Congress that voted for them.
Though many of these changes were legislated during the Republican Reagan administration, it was the Democratic Congress that voted for them.
The decreased bargaining power of the working class is often said to be due to the globalization of the economy, which has increased international competition and forced capital to move to regions with cheap labor, low taxes, and minimal regulation. But I think the causation is more the other way. Corporations have used blackmail, the threat of moving, to force concessions from labor and the government. The fact is that the economy is still 80% domestic. Globalization can be overblown. The capitalist market has been global since the slave trade. And countries with much higher dependence on trade, such as Sweden, Germany, and Holland, pay much higher wages and maintain much higher levels of social services, such as free medical care, than the US.
The real story is not so much globalization of the economy as the political defeat of labor and social movements since the 1960s. With no pressure from below, the Democrats have become an echo of the Republican Party as government enacts the corporate agenda of lowering the social wage of the working class in order to restore higher profitability. In 1960, CEOs made 41 times what the average factory worker did. In 1993, CEOs made 149 times what the average factory worker did.
By contrast, in the Mondragon cooperative network in the Basque region of Spain, where industrial co-ops in the 1970s and 1980s had productivity increases far surpassing American industrial companies, the highest paid manager received no more than three times more than the lowest paid worker on the shop floor. Anticipating the federal government's destruction of welfare and alarmed by the rising income and wealth inequality in the US, the 1995 congress of The Greens/Green Party USA adopted into its national platform planks calling for a Guaranteed Minimum Income and a Maximum Income.
Guaranteed Minimum Income
The Green Program calls for a guaranteed minimum income structured into a progressive federal income tax as a negative income tax for those below the poverty line. The guaranteed minimum income should be sufficient to lift every American above a realistic poverty line, which would be 50-70% higher than today if it was readjusted to the real cost of living. This yields a guaranteed minimum income of $20,000 for a family of four in 1995 (with $2500 adjustments for more or fewer family members). Two-thirds of those who lost their right to assistance are children and most of the rest are their mothers. In calling for a Guaranteed Minimum Income, the Greens are calling for the restoration of the right of poor people to income assistance. But the Greens are not calling for a restoration of the old welfare system, which was intrusive, punitive, and stingy, never providing sufficient income to lift families from poverty.
Middle income workers were made to feel by the capitalist parties' propaganda (despite the fact that corporate welfare costs us six times more than people's welfare) that they were being squeezed economically by programs for the poor. The rich mobilized a backlash of the middle against the poor. The problem with universal programs like a universal basic income grant to all citizens is fiscal. If it is given to all citizens whether they need it or not, it is also high enough to drive the government into bankruptcy. The way out of this problem of benefit universalism is tax universalism—build a guaranteed minimum income into a progressive income tax. Everyone would get a basic income grant, received in monthly installments like social security. But the income benefits for those who don't need them would be recaptured for the public treasury through progressive taxation. This would recapture the political support of the middle-income working class for welfare and other social programs such as socialized health insurance.
This yields a guaranteed minimum income of $20,000 for a family of four in 1995.
Maximum Income
The Green Program calls for a "Maximum Income" of ten times the minimum wage, incorporated into a progressive federal income tax. With this "Ten Times Rule" in effect under today's extremely unequal distribution of income in the US, a 100% tax on income above ten times the minimum wage would allow income tax reductions for the bottom 99% and yet generate enough revenues to balance the federal budget without cutting spending. A progressive tax system should not only provide a guaranteed minimum income, but also a maximum cap on income. French Green Party activist and economist, Alain Lipietz, cites European studies to suggest that the minimum wage should be about 50% more than the minimum income to provide adequate incentive to work. That would make the minimum wage $30,000 a year (or $14.42 for a 40 hour week, or $19.23 for a 30 hour week). The maximum income would then be $300,000 a year. The Ten Times Rule still allows plenty of room for market incentives (wouldn't you prefer to make $300,000 a year instead of $30,000?), but it restrains winner-take-all markets where the winners get extraordinary levels of income not because of the value they contribute but simply because of the shear power they exert in the market.
Can we afford the Maximum Wage? Sam Pizzagatti's The Maximum Wage calculates what would have happened in 1990 if the Ten Times Rule had been in effect. Even though taxes would have been reduced for the bottom 99%, federal revenues would have been $175 billion higher. That $175 billion would have erased most of the federal deficit in that recession year—or could have been spent to help balance America's more dangerously growing social deficit, the erosion of our schools, roads, rails, water systems, and environment.
A 100% tax on income above ten times the minimum wage would allow income tax reductions for the bottom 99% and yet generate enough revenues to balance the federal budget without cutting spending.
Ownership of productive assets would also transfer under the Ten Times Rule. After a certain level of wealth, there is no economic incentive to accumulate more wealth under the Ten Times Rule. As fortunes splintered, ownership of companies would fall into more hands, opening up the possibilities of economic democracy at the firm level, through municipal and other public agencies, and through cooperatives. Greater productivity and innovation is another probable outcome of the Maximum Income. With income incentives not so strong in encouraging corporate hierarchies that stifle the free flow of information and undermine talented innovators who are competitors in the corporate hierarchy, some of the strongest barriers to innovation would fall. If you don't want to take the word of a radical libertarian-socialist Green about this, let me just note that Peter Drucker, corporate America's favorite business commentator, says the same thing in The Changing World of the Executive (New York: Times Books, 1982, pp. 23-24).
Another salutary effect on the economy of the Maximum Income would be a dramatic shift in the structure of demand. The low income sectors of our population who have demands, but not the money to express their demand in the market, would now have money to demand many basic goods and services, stimulating economic activity to supply the demand. Instead of a relative few rich people buying a relative few luxurious mansions, Rolls-Royces, and ski trips to the Swiss Alps, money would be spent by the many on many family homes, Fords, and evenings out in the local community.
So why would a radical libertarian-socialist Green be so enthusiastic about demands that would make the market economy work better? I'm enthusiastic about the Guaranteed Minimum and Maximum Income not because they make the market work better, but because they unite the many in the working (and wanna-be-working) classes against the rich few. The Guaranteed Minimum and Maximum Income are not in themselves make a rational, democratic society; but fighting for them and winning them can be steps toward that goal.
Further Reading:
Sam Pizzagatti, The Maximum Wage: A Common-Sense Prescription for Revitalizing American-by Taxing the Very Rich (New York: Apex Press, 1992). $15 from Apex Press, 777 United Nations Plaza, New York NY 10017 (212-953-6920). Very readable, persuasive case for the maximum wage. Calculates the impact on tax rates and government revenues. Includes history of the income tax rates: today's rates on the rich are the lowest in US history.
Lawrence Mishel and Jared Bernstein, The State of Working America, 1994-95, Armonk, New York: M.E. Sharpe, 1994. Comprehensive source of statistics and analysis of growing income and wealth inequality.
Too Much, "A Quarterly Commentary on Capping Excessive Income and Wealth," $15 a year from Council on International and Public Affairs, 777 United Nations Plaza, New York NY 10017 (or $25 for two years plus a copy of The Maximum Wage.
Edward N. Wolff, Top Heavy: A Study of the Increasing Inequality of Wealth in America, New York: Twentieth Century Fund, 1995. $9.95. The latest comprehensive study of wealth distribution in America.
Phillippe Van Parijs (ed.), Arguing for Basic Income: Ethical Foundations for a Radical Reform, New York: Verso, 1992. Essays from Europe where the guaranteed income is topic of lively debate.
Daniel Patrick Moynihan, The Politics of a Guaranteed Income: The Nixon Administration and the Family Assistance Plan, New York: Random House, 1971. History of the last time a guaranteed income was proposed in the US.
Alain Lipietz, Towards a New Economic Order: Postfordism, Ecology, and Democracy, New York: Oxford University Press, 1992. French Green Party activist and economist puts discusses the guaranteed income in the context of a comprehensive Green economic analysis and program.
Erik Olin Wright, "Why Something Like Socialism Is Necessary for the Transition to Something Like Communism," Theory and Society 15 (1986), pp. 657-672. Discussion of the guaranteed income as a transitional demand.