This single mechanism replaces the complex and broken structures we have today. It creates powerful, self-adjusting incentives that reward companies for raising wages at the bottom while preserving strong motivation for performance and innovation at every level.
How it works
Every company determines the total compensation of its lowest-paid employee. This calculation applies regardless of whether the employee works full-time or part-time. Part-time workers are converted to their full-time equivalent compensation for purposes of establishing the baseline. That lowest full-time equivalent compensation level becomes the foundation for the entire system.
The Individual Disparity Ratio for every individual in the company is then set directly equal to the ratio between their own total compensation and this lowest full-time equivalent baseline. In simple terms, your tax rate equals how many times more you earn compared to the lowest-paid employee.
For the lowest-paid employee, the personal income tax rate is 1 percent. Someone earning exactly twice the lowest full-time equivalent compensation pays a 2 percent tax rate. A manager earning ten times the baseline pays a 10 percent tax rate. An executive earning 50 times the baseline pays a 50 percent tax rate.
The mathematical equilibrium
Because the tax rate equals the disparity ratio, extremely high multiples become financially unsustainable. Executives and boards will naturally adjust compensation packages until the after-tax benefit of higher pay no longer justifies the extreme ratio.
L = lowest full-time equivalent compensation
C = an individual’s total compensation
Ratio R = C / L
Personal tax rate T = R (as a percent)
After-tax income = C × (1 − C / (100 × L))
After-tax income rises with higher compensation up to a point, then declines sharply as the ratio grows large. There is a mathematical sweet spot where after-tax take-home pay is maximized. In practice, this equilibrium tends to settle at ratios that produce top personal tax rates in the 50 to 70 percent range, similar to periods of strong American economic growth in the mid-20th century.
Most people will not see a tax increase
Most Americans will not see a tax increase. In fact, many will pay less than they do under the current system.
Most individuals will only face a higher tax rate if they currently earn more than 37 times what the lowest-paid full-time equivalent employee in their business chain makes. That 37 times threshold exists because the highest federal marginal income tax bracket today is 37 percent. Under the new system, earning exactly 37 times the lowest full-time equivalent compensation results in exactly a 37 percent tax rate.
- Anyone earning less than 37 times the lowest earner will pay less than 37 percent.
- Only those earning well above 37 times the lowest earner will pay more than 37 percent.
Because the vast majority of workers, managers, and professionals earn far below this 37 times multiple relative to the lowest-paid employee in their organization, they will either see a tax decrease or very little change. The plan is designed to focus the impact on extreme disparities at the highest levels while protecting the broad middle class.
37 times that amount equals $1,110,000. Anyone earning below $1,110,000 per year would pay less than 37 percent. That includes the vast majority of employees, even many well-compensated managers and professionals.
At the extreme end: if leadership tries to keep CEO pay at $9,000,000 against a $30,000 floor, the 300-to-1 ratio would trigger a 300 percent personal tax rate. Instead, the company is incentivized to raise the lowest salary and set more reasonable CEO pay. That brings the ratio down and lowers taxes for everyone at the top.
Try the Individual Disparity Ratio
Same math as the book. Teaching tool, not a filing calculator. Use full-time equivalent figures.
Practical advantages
First, it is self-adjusting and transparent. Second, it preserves capitalism’s core incentives. High performance still brings high rewards, but extreme extraction becomes financially irrational. Third, it encourages genuine career progression. Workers see a clearer path because companies have strong reasons to invest in training, promotion, and better pay.
The Maximum Disparity Income Tax also works naturally with artificial intelligence and automation by making it rational to share productivity gains with workers.
Combined with the clean slate from Step 1, this is a tax system that is simple, transparent, and effective.