FDR Caps Income At $25,000

In 1942 FDR proposed what amounted to an income cap, by bringing in a 100% tax over the $25,000 mark (roughly 300,000 dollars today).

Let's say it passes, essentially making the idea of a maximum income acceptable in American politics. Does anybody do anything with that?

I can think of two ways to approach the issue after WWII and (presumably) the ending of the tax. The first is to bring it back in at some point. The other, more interesting, approach would be to combine a non-100% tax with a multiplier—i.e. The top income possible is either minimum wage times 25 or (if you're part of a corporation) 25 times higher than the lowest paid employee.


Thoughts on how this might develop?
 

Thande

Donor
I can't imagine this being accepted once the war's over. I think even the most statist continental European countries nowadays would balk at something like this. Besides, the very rich would simply uproot and go and live in other countries or tax havens, ultimately damaging the American economy.
 
I can't imagine this being accepted once the war's over. I think even the most statist continental European countries nowadays would balk at something like this. Besides, the very rich would simply uproot and go and live in other countries or tax havens, ultimately damaging the American economy.

The banking system post WWII is pretty much entirely controlled by the USA. It's a simple matter to tell anyone who wants to leave that if they do so, they leave their money behind.


The larger point I'm going for is not that I think a 100% tax will continue (it won't, but even in the '60s IOTL it was 90%+) but that it makes the idea of capping income or limiting income in some way acceptable.

For example, the executive at GM making x dollars would now be dependent on his lowest paid worker for his own pay raise. I consider that a very interesting dynamic to explore.
 
I think that when the cold war starts people will start to view such a tax as, well communist. It could end up back firing and damaging the democrats/ FDr's image.
 
The banking system post WWII is pretty much entirely controlled by the USA. It's a simple matter to tell anyone who wants to leave that if they do so, they leave their money behind.


The larger point I'm going for is not that I think a 100% tax will continue (it won't, but even in the '60s IOTL it was 90%+) but that it makes the idea of capping income or limiting income in some way acceptable.

For example, the executive at GM making x dollars would now be dependent on his lowest paid worker for his own pay raise. I consider that a very interesting dynamic to explore.

That's not really true. The U.S. banking system would not retain dominance if the government does something so stupid. And there is no such thing as leaving their money behind. Once the rich are in another country, any income they earn would not be taxeable by the U.S. Sure, you can tax capital gains and dividends from their money in the U.S., but just taking that money would be illegal and unconstitutional.

Of course, that brings up the fact that any sort of 100% tax would be confiscation and thus violation of the right to property, which is why no such proposal could ever pass.
 
Of course, that brings up the fact that any sort of 100% tax would be confiscation and thus violation of the right to property, which is why no such proposal could ever pass.

Did you read the linked article? No one really had a problem with the 100% tax (and of course it's not confiscation or violation of the right to own property because it only applies over 25,000 dollars).
 
Did you read the linked article? No one really had a problem with the 100% tax (and of course it's not confiscation or violation of the right to own property because it only applies over 25,000 dollars).

I read it. It's just that it gave no evidence that there truly was little opposition to the proposal. For that matter, it's possible that FDR's lawyers told him just how illegal the proposal was, which is why it got dropped. And only taking your house when you also have a car is still confiscation. It doesn't stop being confiscation if you don't take everything.
 
It would be interesting to see.
A couple of flaws.
First, it would seen to provide no incentives for growth. If you could never earn more than X dollars, why make a big effort.

It would seem to negatively impact invention & production. If the purchasing power remained consistant, would their be incentives for new developments that might have high initial costs (like PC's for example)

Does this 25K cap include stock market earnings? If so, then there would be zero reason to invest. If you did earn money, you would just lose it so why bother.
What about earnings from the sale of personnel possessions or property?
How would this impact the 25K cap?

Would be be limited to showing 25K of income from all sources?
 
A high rate of taxation is agreeable during a national emergency, like war time. However, that is compensated in the near total lack of consumer goods and rationing that allows one to live so little. To continue such a feat during peace time is a horrible idea since it penalizes those that strive to do better and work harder. Why should one apply oneself to any great degree if one is not rewarded for ones effort. Talk about providing a reason for a brain drain.
 
The banking system post WWII is pretty much entirely controlled by the USA. It's a simple matter to tell anyone who wants to leave that if they do so, they leave their money behind.


The larger point I'm going for is not that I think a 100% tax will continue (it won't, but even in the '60s IOTL it was 90%+) but that it makes the idea of capping income or limiting income in some way acceptable.

For example, the executive at GM making x dollars would now be dependent on his lowest paid worker for his own pay raise. I consider that a very interesting dynamic to explore.

[Enters COMMIE mode] Me too.
 
I think during the war the differences would be negligible it could even be presented as a measure to remove the incentive for people to try engaging in war-profiteering thus it’s presented as being a patriotic measure. However after the war anyone who supports trying to keep it at 100% is likely committing political suicide and gets branded a communist.

FDR’s reputation would also likely take a hit since it was his idea in the first place. Nevertheless since he did die while the war was still going on his supporters will say he always intended it solely as a war measure and never meant it to continue into peace time thus protecting him from the brunt of the criticism I imagine.
 
The UK had a 98% maximum tax rate for some investment income in the 1960's, so I can see it being conceivable that the USA could have had something similar (perhaps not 100% though).

Also immediately after WW2 the USA did have such a control on the international banking system that it would have been possible for this to have occurred. It would be relatively easy to stop US citizens moving overseas (to escape the tax rates) from emptying their bank accounts and taking the money with them. In fact exchange controls such as this were a common feature of all Western economies until the breakdown of the Bretton Woods system in the early 1970's. There was a plan by the UK Wilson government called Operation Brutus (which never got implemented) in the late 1960's which planned to solve the balance of payments crises that afflicted the UK at the time by implementing an effective ban on unauthorised currency outflows from the UK. If the UK believed they could implement this at a time when they no longer controlled international banking then I am sure the USA could have.

Not that any of this would IMHO be desirable, but I think it would be possible.
 
The multiplier idea was played with briefly in In His Own Right but the idea was sold off for political capital. That's certainly the most likely scenario, depending on when it gets scrapped.

One effect I think people might underestimate is in the phrasing of the debate. Americans tend not to rise in exodus or open arms if something is passed through the accepted channels of governance. They moan, but they get on with it (current example: as we speak there's no Manhattan-on-the-St.-Lawrence refugee camp.)

What this will do is rephrase the debate, making Taft/Goldwater conservatives look more extreme.
They'll probably get it repealed before too long, but they'll expend political capital doing it. If they can gain power on the backs of anti-communists or something like that, then maybe this falls incidentally as well, but it'll still be a battle, and it still means a longer push back to the center.

If the Democrats can make the argument that this is the savior of blue collar workers, that will translate to votes and make the fight even harder.

But what my thoughts keep coming back to is what happened to industry IOTL. Why would executives up and move when they can just ship the jobs across the border? I doubt the law is phrased in such a way to account for foreign workers.
Maybe this kicks off NAFTA or something similar much sooner?
Maybe Democrats get locked into protectionism?
 
I'd think the immediate affect of an income cap is that suddenly, no one would be making more than 25,000/year. Why bother?
 
I'd think the immediate affect of an income cap is that suddenly, no one would be making more than 25,000/year. Why bother?

Why bother? It's 1942! They have a sacred duty to provide material for conservative analogy-makers for the next 60 years. Sacrifices must be made!
:p

As for the election of '44 I think Thande is at least right in saying that FDR is safe as long as the war goes on (though I disagree anybody leaves the country off of this) and since this isn't likely to butterfly away a whole year of the war, that means FDR wins in '44 too.
I suppose his health was delicate enough that any change brings butterflies in that, but who can say?
 
An absolute income cap creates a black market of perks and corruption. After all, that is how it worked in the USSR before 1992.

For the US, you would see an income cap in the 90%-98% range at certain levels, more like the UK system. The end result might be very much the same as the proposed $25,000 cap in the thirties. The national debt stays small, as current wealth gets cycled into the public sector.

WWII will require a tighter level of sacrifice. But once the war is over, you allow wealth to accumulate, however high the tax rate (always less than 100%).

One consequence: Large state lotteries are gone. There will be no games if income above $500,000 is sent back to the state at 99%.
 
If this happens...

Bye bye capitalism. Why bother to push yourself if the glass ceiling is unbreakable? This is a ridiculous cap that not only ruins the system but stunts American growth. Now if you said that CEOs could only make 10 to 25 times the lowest pay rate of their employees, then I would agree. This would help to improve the pa6y rate of the co0mmon man. But to cut absolute salary and not reward merit is absolutely insane. That is what killed the USSR and all other communist countries. Why work hard if the laziest guy next to you gets paid just as well?
 
So, the general consensus is if this happened, nobody would bother working and the entire economy would have collapsed?

Interesting.

Laugh if you will, but... surely there are motivations other than money to do a good job?
 
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