As public outrage grows over the multi-million dollar bonuses paid to AIG employees in the wake of the multi-billion dollar bailout, it's useful to recognize this fact: the very rich live in a different world from the rest of us. While giving someone a seven-million-dollar bonus for destroying a company seems insane to most, it's business as usual on Wall Street. "This is how we do things" says AIG, and it's important to note that AIG does not exist in a vacuum. It's entirely common for people in the financial industry to "earn" annual bonuses that exceed the expected lifetime earnings of a working-class family.
But is it right?
NPR just reported this morning that Bernie Madoff's wife will be forced to surrender $2.5 million worth of jewelry given to her by her husband. These baubles are worth the equivalent of 40 years income for the typical American family of four. Is there any rational reason for anyone to have that kind of disposable weath?
In the late 19th century populists turned against the excesses of "robber barons," ultimately giving rise to a political movement that led to massive regulation of business, new social programs, and perhaps most importantly of all, the federal income tax. The examples of AIG and Madoff, though obviously extremes, demonstrate a reality that most Americans simply ignore: the very rich exist in a world of their own, where the rules that apply to the rest of us are scoffed at daily, and rewards come from being part of the club, not for doing good or even for doing well.
It's time for another populist revolt. At the very least the top income tax bracket should be moved back to 75% (it was over 90% for much of the 20th century). There is no defensible reason for anyone to receive more income in a year than an average family of four can expect over a working lifetime. If that makes me a socialist, so be it. Let them keep, say, ten times the median annual income (that would be $500,000) then raise the marginal tax rate to 90% beyond that.
We've been trying 1920s-style trickle down economics since 1981 and it has failed utterly. It's time to try something else. The tax system of the 1930s/1940s couldn't possibly be worse than what we have now, and it would certainly be more fair. "Soak the rich" they called it in 1935. I prefer to call it "screw the irresponsible, unworthy, and immoral" because anyone who's not would most likely be quite happy with $500K per year plus 10% of everything after that-- just like they got in the 1940s.
-Dr. DRL
