When Jamie Dimon, CEO of JPMorgan Chase. says a higher bracket for the ultra-rich makes sense, Washington needs to take notice. “Have a higher tax rate,” Dimon said. “If you said there’d be a certain percent rate for people making over a million dollars, and a higher percent rate for people making over $10 million, no problem with me. I don’t think people should be able to pass unlimited amounts to their kids.”
It’s always been absurd to lump together the dentist or real estate agent who makes $300,000 with the CEO who earns $30 million or the hedge fund king who earns $300 million. Yes, they’re all in the 1 percent, but what I call the “lower upper class” and the ultra-rich are obviously worlds apart.
One factor that separates these folks is that the ultra-rich are earning what economists call “rents.”
“Rents” refer to the difference between what a person is paid and what she would need to be paid to remain in her job. Say a football star is paid $100,000 a week to play for his team when he’d be willing to do it for $20,000. The excess $80,000 is “rent.” Since reducing rents doesn’t affect what people actually choose to do, economists say they can be taxed without hurting the real economy.
“These CEOs would do exactly what they did if they were paid half of what they’re paid,” one Harvard economist who prefers to remain nameless once told me. “The deals in Wall Street would go through if the investment bankers earned half. So these are classic rents and we can tax them to take the edge off of today’s growing inequality.”
If we applied a 50 percent marginal rate to earnings above $10 million (this is my idea – Dimon didn’t suggest a new top rate in that interview, and I couldn’t reach him by deadline), it would affect about 8,000 families and raise roughly $40 billion a year.
When conservatives scoff that this kind of “chump change” won’t “solve” our trillion-dollar deficits, the proper response is: So what? Since when does an idea’s failure to fully solve a problem mean it can’t be a part of a broader set of solutions? And there are other solutions that we should also apply. The Dimon Rule would bring in 40 Billion a year. The Buffett Rule, which would bring in between 2-5 Billion a year, is chump change in comparison.
Dimon has done a public service by putting this on the table. His peers should realize it’s in their long-term self-interest to agree. The White House should get the Dimon Rule into the president’s speeches pronto. And Senate Democrats should invite Dimon to testify on how a little enlightened thinking at the top can help American-style capitalism retain its legitimacy.