Forget Buffett—it's time for the Dimon Rule
The Washington Post, February 15, 2012
Everyone's heard of the "Buffett Rule" on taxes, and the president's new budget includes it. But I say it's time for the far more consequential "Dimon Rule"—as in Jamie Dimon, CEO of JPMorgan Chase.
Until the other day I'll confess I assumed Dimon was on the wrong side of the debate on economic fairness. That's because he's made news recently for whining that bankers were still being bashed too much, saying it was time for people to move on.
That reminded me of Republicans who kept telling Democrats to just "get over" Bush v. Gore. Well, no. People shouldn't have gotten over that; when the Supreme Court goes out of its way to tip a presidential election, lingering anger is a sign of sanity, not dysfunction. Ditto with Wall Street. If we just "get over" the greed and reckless judgment that helped bring us the financial meltdown, we're sure to see a sequel.
But Dimon has always been more interesting and aspirational than this caricature. His prudent management left JPMorgan Chase in better shape than other companies that literally bet the bank in the mortgage frenzy. He's widely seen as the best financial executive of his generation. His chairman's letters in the firm's annual reports read more like State of the Union addresses than standard shareholder updates. Dimon plainly understands that business leaders need to engage on issues facing our broader society.
Which is why his statement on taxes last week was so publicly important. As part of a New York magazine
story on Wall Street's chastening, Dimon was asked at one point about taxes. "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."
Now, I've long argued that we should add a higher tax bracket for the super-rich. Not as some "punishment for success"—that's always been a bogus argument—but by way of recognizing that's today's extreme inequality is corrosive for our society and asking the luckiest among us to kick in something more for the common good. But I'm not a bank CEO who's made $20 million or $30 million a year. When Jamie Dimon says a higher bracket for the ultra-rich makes sense, Washington needs to take notice.
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 big difference is that, thanks partly to clubby, rigged schemes of compensation as well as to broader forces at work in the modern economy, the ultra-rich are earning what economists call "rents."
"Rents" refer to the difference between what a factor of production is paid and what it would need to be paid to remain in its current use. Rents are present in situations where some form of market power is exercised—as in monopoly power, political power, even "star power." 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? I'd actually like to see the Dimon Rule fund an initiative to recruit and retain a new generation of top teaching talent for poor children, the kids we systematically doom today by assigning them the worst teachers in the country. Society's best off would help give its least fortunate a shot at upward mobility via great teachers. Kinda nice.
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.