What would the economic implications of salary capping be?

[Whirliwig72]

Just musing as I dole out fish fingers and smiley faces to my son... If a law were to be brought in making it impossible to earn more than a set amount (say £80k pa) and illegal to sell an asset for more than 4 x times this amount what would the implications be on society? Would it create more or less employment? ... Would people be less motivated to work hard?... Would it make people happier?... Create a more utopian society? Please give me your thoughts....

Would this hypothetical law be worldwide or just in the UK?

Erm isn't this just communism all over again? That works well doesn't it?

Less motivated to work hard or start businesses.

Assets are worth more than this, so trade would go abroad in art sales/antiques etc as they couldn't be sold here, with the concomitant loss of revenue.

Were you planning to wave a wand and make people's debt disappear? If £80k were to be top whack, where would that put minimum wage?

Your idea seems to me to be pie in the sky.

There would be people for whom it would suddenly not be viable to work (if coming up for retirement on e.g. a final salary pension) or who would suddenly have to work (SAHM who can't afford to be at home any more).

Asset values would crash massively e.g. house prices because if the max you could pay for a house would be 320k, that would cover those currently selling at 1m plus, for your average house, you'd be looking more at selling it for 50-100k but you would still be liable for all the difference between the mortgage you took out and eventual sale value but with less salary to pay for it.

It would make the current toxic assets held by banks look triple A rated (although they were of course, but that is another story) so the banks would crash so it would be impossible to borrow money which means that many businesses would fail. There would also be a substantial and ever increasing black market for tradesmen/food supplies etc which would operate outside the law and be undeclared.

I think there are valid arguments for encouraging house prices to slowly settle and to limit pay to 10x the pay of the lowest ft worker in a company but I would prefer not to see the complete meltdown of society.

i didn't think communism did work - or were you being sarcastic hermione? i think a lot of higher earners would go PT and this might mean shortages in certain professions. i think people with assets worth a lot would look at fiddling the system - isn't there lots of fiddling going on with communism whereby the common man gets poor standard of living whilst the bosses get loads of treats?

The Premier League would be a strangely silent place, that's for sure.... Last time we made it too difficult to be wealthy in the UK with 90%+ tax rates, they relocated overseas. Professionals are already leaving the UK in higher numbers than in the past. Making rich people poorer doesn't make poor people richer.

Thanks for your responses - sorry not to reply sooner or more fully... a massive migraine has escended... knew I hadn't used my brain properly for a while but this is ridiculous. This is what I get for thinking!

Making rich people poorer doesn't make poor people richer.

Ooooh beautifully summed up.

Cogito-

Last time we made it too difficult to be wealthy in the UK with 90%+ tax rates, they relocated overseas.

Really? When would that be? Would that be during the 1970s, when income inequality was at its lowest, and people had a great deal more disposable income than they do now?

Professionals are already leaving the UK in higher numbers than in the past.

And what evidence do you have of this? Did you just make it up?

Seeing as this government is cutting corporate taxes, reducing funding for 'HMRC', and is ideologically bent of privatising all public services, I don't think the UK is any more 'business unfriendly' than it has been in the past (financial crisis and banks unwilling to lend excepting). In fact, the opposite is probably the case. Structurally, the government continues to seem to want to kiss the arses of big business and the rich at the expense of the public.

Making rich people poorer doesn't make poor people richer

Actually, it can do exactly that. All the money which is rewarded to the very top earners in the form of bonuses which are rewarded to them regardless of performance (and this practice is widespread), detracts from the corporate budget which could otherwise be spent on those at the bottom end of the payscale.

All the money which is collected from the millionaires in the form of taxes increases state revenue, which can be used to provide tax relief to those at the bottom of the pay scale.

Erm isn't this just communism all over again? That works well doesn't it?

No. It's nothing like communism.

I think dreamingofsun has given an excellent synopsis of what communism is everything like

'isn't there lots of fiddling going on with communism whereby the common man gets poor standard of living whilst the bosses get loads of treats?'

So you'd like to impose a 50% pay cut on people such as top surgeons? It's a highly portable skill, and British trained doctors are much in demand internationally. Who would fill the gaps? And are they the people you want operating on the sickest and most vulnerable?

OK, it's an emotive example, but I hope you see the point. And as well as the potential for the best to leave (and there don't have to be that many departing to really hit services badly), what would happen to anyone who owns a small business - can they not take the profit they make? What about successful authors? Who should get the proceeds of eg Harry Potter books, if not the author? Who gets the excess? The Government? What sort tax rate is that (boggles at the thought of trying to work that one one!).

Would it 'Create a more utopian society?'

Only if you think that utopia is a socialism that limits freedom, where Big Brother Loves You and decides what is best for you

I think dreamingofsun has given an excellent synopsis of what communism is everything like

'isn't there lots of fiddling going on with communism whereby the common man gets poor standard of living whilst the bosses get loads of treats?'

You're confusing communism with capitalism.

there used to be salary capping in the football leagues...it meant that many were only semi-professionals, and some would leave to do better paid work!

the theoretical purpose of a salary is that it should be high enough to attract an appropriate candidate... fact of life is that some jobs need a higher offer price than others 'peanuts and monkeys' comes to mind..

'isn't there lots of fiddling going on with communism whereby the common man gets poor standard of living whilst the bosses get loads of treats?'

You're confusing communism with capitalism.

the reality of wannabe communist states was just like that though...or more extreme...communist party members having enough to eat, and their neighbours starving...

to be fair those weren't truly communist countries, but then the UK isn't truly capitalist either.

'> 'isn't there lots of fiddling going on with communism whereby the common man gets poor standard of living whilst the bosses get loads of treats?'

You're confusing communism with capitalism.'

Then why don't the public vote for communism? They always choose capitalism en masse because it provides freedom, growth and prosperity, The band of communists can never win a free election, which is why they are often revolutionaries who believe in force.

If top salaries were limited in that way some high paid people would leave the UK and some would go part time to keep below the £80k limit. The employers who need high paid staff would get round the problem by employ 2, 3 or more people doing bits of the job but the same total amount of work and end up paying the same as before.

What I would like to see is people at the top of the civil servicee being paid properly for the work they do and Govt not just handing over whatever someone demands for the job. I also want shareholders to be given real power to vote down executive pay packages in the private sector.

Other than that we don't need wage controls. It didn't work the last time we tried it in the UK.

There shoudl be no limit on asset prices but a limit on what people are allowed to borrow against their salaries to buy houses. It was ludicrously unsustainable to allow people to borrow 6 x salary. There are countries with hard limits on allowable lending multiples and it prevented house price bubbles as a result.

It was ludicrously unsustainable to allow people to borrow 6 x salary

i have been paying a mortgage of 13* my salary for the last 3 years. (assisted by various income supplementations from the govt)

why is this ludicrously unsustainable?

What if they changed the income supplementation or you had to take a lower paying job or interest rates went up?

a lower paying job :) my job is pretty low paid already!

you can always ask 'what ifs' - fact is telling people that the old 3* salary standard is in some way 'right' is daft. that was the standard that told many people they couldn't afford mortgage where the repayments would be less than their current rent...

but i digress.

..and the thing that would prevent stupid house prices would be sensible planning laws to allow enough houses to get built to meet supply.

i digress again.

claig-

You're confusing communism with capitalism.

Then why don't the public vote for communism? They always choose capitalism en masse because it provides freedom, growth and prosperity,

It doesn't matter who the public vote for, they'll still get neo-liberal Capitalism, as elections have shown. There is no accountability in government. 50% of Tory party funding comes from the City - which is less than .1% of the population as a whole. Parties don't even feel obliged to follow their manifesto anymore - just as we've seen the tripling of tuition fees and a radical shake up of the NHS. Politicians made 'cast-iron guarantees' against these things when they ran for office.

The band of communists can never win a free election, which is why they are often revolutionaries who believe in force.

Anyone who wants to change the economic system so that it benefits the majority rather than a tiny minority will be strongly fought against by the ruling class: in the media, through funding, through smears, through lies, though dirty tricks, and even sometimes through violence.

When the large swathes of former middle-class people find themselves so shafted that they can't even afford their mortgage, the bills, or to pay for food for their family, then the public themselves will rise up in violence against the state.

We've seen plenty of civil disobedience already, as the crises and contradictions of Capitalism get worse and worse. Expect much more of this in the future.

the reality of wannabe communist states was just like that though...or more extreme...communist party members having enough to eat, and their neighbours starving...

to be fair those weren't truly communist countries, but then the UK isn't truly capitalist either.

I'm sure by 'Communist' you're referring to North Korea and Stalinist USSR.

The anti-Capitalist, pro-democracy world-wide movement we're seeing today is not just democratic, but anti-authoritarian to a fault.

The movement aims to create true democracy, in both the political and economic sphere. Its aims are the opposite of authoritarianism. You have nothing to fear from them.

Besides, you talk about communist states being just like that: common man gets poor standard of living whilst the bosses get loads of treats?

Really, isn't that exactly what happens under Capitalism? Wealth inequality has never been greater, and most of the world lives in poverty. The former middle-classes are now under attack from neo-liberalism, putting them into perilous economic situation of stagnating wages and job insecurity. The 1% own about 1/3 of the world's wealth. The next 20% own about 50%.

So how is that statement NOT like Capitalism? It describes it perfectly.

^">Making rich people poorer doesn't make poor people richer

Actually, it can do exactly that. All the money which is rewarded to the very top earners in the form of bonuses which are rewarded to them regardless of performance (and this practice is widespread), detracts from the corporate budget which could otherwise be spent on those at the bottom end of the payscale."^

Or, alternatively, capping peoples wages will result in a higher dividend to the shareholders. Anyone with an ounce of common sense (and a decent accountant) will take most of their remuneration through share dividends and the world will carry on spinning just as it always has done.

The left have consistently failed to realise that low skilled people will only ever be paid what low skilled people are worth whilst the higher skilled people, who are on a better income anyway, are the ones who can afford the accountants.

Making life too difficult for the rich means they upsticks and leave - just like they did in the 1970's. To make up for the disproportionate rates of tax that they pay pushes the tax bill up for everyone else. The original point stands, "Making rich people poorer doesn't make poor people richer".