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Comment by hliyan | Hacker News Reader

I've been thinking a lot about the merits of the (highest income / median income) ratio in creating a society that is a little more resistant to eventual inequality. Rather than setting absolute tax brackets, what if we define tax brackets by this ratio? That way, it will be in the interest of the highest income earners to raise the median income.

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Ben & Jerry's originally capped the pay ratio of their highest salaried executive and lowest-earning-worker to 5:1 ($150,000/year and $12/hour in 1995), but over the years they raised the ratio to 7:1, 17:1, and then stopped sharing a ratio after Unilever acquired them in 2000.

http://abcnews.go.com/Business/companies-follow-ben-jerrys-l...

Fascinating.

A hard ratio seems fair minded, but seemed to have failed here because I think there was a misunderstanding around compensation. Compensation is a product of many variables including value created for the company and supply/demand for skillset/talent. As a business climbs the value chain or seeks to hire and compensate those that create greater amounts of value, and it maintains a compensation ratio, it must seek to increase the value produced by the lowest earners (or lose business to competition).

That sounds interesting but would probably be a paradise for tax lawyers. You just create a network of companies, one for each income band. That way, an employee never makes more than the average. Of course only large corperations can afford that so that smaller companies will have a harder time hiring talent.

> That sounds interesting but would probably be a paradise for tax lawyers. You just create a network of companies, one for each income band. That way, an employee never makes more than the average. Of course only large corperations can afford that so that smaller companies will have a harder time hiring talent.

You could probably define company, for the purposes of such a law, that excluded those kinds of structural shenanigans. Basically, define it in terms of its qualities rather than in terms of legal instruments.

I'd also guess that the IRS has already authored those definitions, or it at least a good distance of the way there.

This way you are adding more complexity which in turn adds more loopholes. A good tax framework should be as simple as possible to avoid this type of shenanigans.

> This way you are adding more complexity which in turn adds more loopholes.

I don't agree. Simple but dumb rules lead to easy to exploit loopholes. Saying they shouldn't be fixed in the name of "simplicity" is like saying a particular unhanded-case bug shouldn't be fixed because the extra case adds "complexity."

> A good tax framework should be as simple as possible to avoid this type of shenanigans.

The idea we're discussing is one where the tax framework is used as an instrument of regulation. If a behavior is found to be detrimental to society, I think society should rise to the task of regulating it rather than shirk that responsibility because of a fear of "complexity."

In most jurisdictions a limit a limited company has to have a board and a CEO. You can outsource middle management- this is what McKinsey, Bain, BSG etc essentially do, but you can't legally outsource the guys at the very top.

So what? They would just be the department heads of the previously monolith company (e.g. instead of having a sales department with a VP of sales and a few top managers, you just have a Sales Company subsidiary with a CEO and a few board members).

You already have that at large companies, the CEO is also head of a lot of subsidiaries. You can then compensate at that company as it best fits and channel the main compensation through another company.

Again, I'm thinking about applying this to all individual (and human) adult citizens of a country, which will probably obviate the need to repeat the process at smaller scales like companies, where the problem is compounded by artificial constructs such as corporate personhood.

It's easily gamed by contracting out for lower paid workers. What if Facebook came in at highest median pay because it relies more on contractors than other companies?

The data would be a bit more useful if they reported the job title of the median worker.

I was thinking more about this applying to all adult citizens of a country and not any particular corporation...

> It's easily gamed by contracting out for lower paid workers. What if Facebook came in at highest median pay because it relies more on contractors than other companies?

Easy gaming like that is easy to anticipate and account for. You just have to define "workers for the company" in a way that includes contractors and controlled entities, etc.

> I've been thinking a lot about the merits of the (highest income / median income) ratio in creating a society that is a little more resistant to eventual inequality.

That metric is very sensitive to outliers. If you have even one individual with enormous income, that ratio will be enormous. Now you might say "that's precisely the point", but I would argue that having how we design a society hinge on what one individual earns, is not statistically sound.

A more appropriate metric along the same line of thought would be something like top 10-percent excluding outliers divided by median income, where "excluding outliers" could be calculated in an admitedly somewhat arbitrary, but common way like e.g. https://en.wikipedia.org/wiki/Interquartile_range#Outliers.

Or just use something that already exists instead of re-inventing the wheel https://en.wikipedia.org/wiki/Gini_index

Never heard of that but it sounds like a good idea intuitively! I’ve always thought median was meaningless, and an average without the standard deviation was as well.

1. The current explosion in employee perks (free medical, gym, lunch, etc.) is almost certainly driven my the tax system. Your suggestion would take it to the next level (along the lines of college athletes).

2. People can move. Labor is more geographically sticky than capital, but it is not infinitely so. I doubt you'd ever succeed in getting Singapore to stop being the capitalist's paradise through foreign policy.

Probably closest you can come to this in real world is Switzerland (maybe some nordic countries too). Very strong middle class (although there is no minimum wage codified in law), salaries disparities ie in IT vs normal people is much much smaller (meaning even a guy filling shelves in supermarket gets decent wage, if you get 3x his wage you are probably in top 1% earners). There is even a law enacted recently that highest earner in company (ie CEO) can't have salary more than 20x the lowest one (at least that's how I remember it).

It has far-reaching consequences where whole population has high standards of living which transpills into high overall happiness, low criminality, and there is no predatory mentality to screw other people over just for one's own benefit (that I can see massively in eastern europe where I come from, and many other developing countries all around the world).

Really, Suisse could be model in many things for rest of the world, if only their mentality would be more 'transferable'.

There is even a law enacted recently that highest earner in company (ie CEO) can't have salary more than 20x the lowest one (at least that's how I remember it).

There was a referendum to implement that cap (and at only 12x!) but it was rejected by voters.

> if only their mentality would be more 'transferable'

There's a reason why there is only one Scandinavia and it's so tiny population wise. It's strictly cultural, ingrained over hundreds or thousands of years, and can't be replicated across a massive population base. That it's cultural is also the reason why Scandinavians have historically done even better in the US than they do in Scandinavia (a system with superior economic potential, combined with a culture that produces superior outcomes).

The closest a large nation has gotten to what Scandinavia accomplished, is probably Japan. However Japan has never sustained a standard of living at the median anywhere near what Denmark or Sweden reached (the Japanese are also over-worked to accomplish their lower economic output, which is a bit of a cheat if you're contrasting it with the economic output of Scandinavia).

When it comes to Switzerland, you can't replicate what they've done because there isn't enough banking to go around. That isn't a dig on Switzerland, it's the same reason most countries could never replicate Norway (oil).

Switzerland has a dozen banks that together are worth around $200-$250 billion, with just a population of eight million people. That'd be like if the top dozen banks in the US were worth $8 trillion. The total Swiss banking system has something like $7 to $10 trillion in assets under management; which would be like the US banking system having ~$350 trillion under management, a laughable sum.

It’s (basically) called utilitarianism

I’m sure I’ll get downvoted for saying this, but lazy people will take advantage of the system and it will fall apart

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