EITC vs MJ.ABW: Neo-Liberal Acronymic War
Cryptic enough? Well let me do some unpacking and straight out asserting and then turn this over to AB readers and commenters.
EITC is the Earned Income Tax Credit. Its open premise is that work should be rewarded. Its more hidden premise is that this reward should come as a premium over actual marginal labor productivity and so not come directly in the form of wages paid by the employer. Instead it becomes the obligation of society, or rather taxpayers as a whole. That is the promoters of EITC insist that the market works perfectly when assigning wages as a product of actual productivity but allow that the result is not socially equitable. I mean we can’t actually STARVE people even if the books suggest we should Amirite? After all we are good hearted Neo-Liberals.
EITC is often explicitly promoted as an alternative to increases in Minimum Wage. Which might provide the same or more reward or equity as EITC but are regarded as an economic distortion of actual market wages themselves set by some version of actual labor productivity. The problem here is two-fold. First it just concedes the underlying economic argument to the neo-liberal and classical liberals: that the Invisible Hand works when it comes to wage levels. The second problem is more pernicious. It comes into play when you realize that there is a lot of overlap between the ‘big-hearted’ economic liberals who allow that work should be rewarded even if those rewards are not specifically justified by the economics of the labor exchange and those who believe that taxation on corporations is both inefficient and inequitable. And who would make similar arguments about tax on capital in general. With results as seen in say the respective tax plans of Paul Ryan and Marco Rubio. The end result of this is that employers and capital in general propose to provide big ‘E’ Equity via EITC while shifting all responsibilities for its funding right onto labor share. Much as they propose to do with parallel proposals to shift taxes away from income to consumption. From this perspective all of EITC, and VAT, and FAIR Tax and Flat tax become a combined Acronymic War on labor by the controllers of capital.
In direct contrast to this jumble is the opposing acronym: MJ.ABW. More Jobs. At Better Wages. It too argues that work should be promoted and rewarded. But in the form of pre-tax wages rather than post-tax credits. And to those that would argue that this is just distortionary would simply reject the basic neo-liberal/classical assumption that wages are in practice set by some actual calculation of marginal labor productivity but instead recognize that they are and always have been by some combination of pure pricing power by employers mitigated only by residual wage market clearing power retained by workers. That is given any sort of labor market at all wages have to clear at or above subsistence, else people will just walk away. WHERE it clears above subsistence is some combination of actual labor supply and collective ability to demand higher wages. That is ultimately more of a purely political than economic calculation.
As such I consider most proposals to address inequity via EITC or UBI or tax credits to be potential Trojan Horses. Because in the end the actual equity depends on the actual incidence of the taxes that fund those benefits, income guarantees and credits. And all too often the promoters of such things as EITC propose to couple that with a shift away from taxes on profits and capital gains paid by the 1% to wage and consumption taxes paid by the 90%. With the 91-99% alternately rewarded and screwed as serves the interest of the real bosses.
Just to show that I haven’t gone too far from my roots: more acronymic fun.
There is no FICA charged on EITC. But there would be on MJ.ABW. Add it up? SocSec funding flows from BW. QED.
MJ.ABW isn’t a policy, it’s a goal. Everyone would like MJ.ABW, but just saying you want it isn’t the same as getting it. Whereas EITC is a specific policy.
Fair enough. But EITC was a goal before it became a policy. And Minimum Wage is a policy that can well be considered an essential part of a series of new policy proposals that together would amount to MJ.ABW.
Substitute “Five Year $1.5 Trillion Infrastructure Funding at ‘Prevailing wages’ ” for MJ.ABW and you have a ‘policy’. And just as much a ‘policy’ as any proposal to expand EITC.
Backing up a bit any conscious decision to establish a policy regime based on direct wage and employment increases rather than relying on tax incentives for employers and employees would be a significant transformation. One that would parallel recent attempts by the Fed to actually take the full employment piece of its dual mandate seriously.
I am just saying that Real Wage Stagnation is not just some passive result of a free market economy but instead a predictable and to large degree directed result of a particular set of policies put in place over the last 35 years based on a particular ideology that fetishized so-called free markets.
IF the US did some nation building in Detroit rather than Ramadi!
Or concerned itself with employment rate among bridge building trades rather than in the F-35 plant in Ft Worth.
If there is one thing that we have proven beyond a doubt over the last thirty five years it is that the economic policies of the nation go a long way to determining the split of the nation’s income between wages and profits, between rewarding capital and rewarding labor. And that the split can be changed by changes in policy without blowing up the economy. All that we need is to start rolling back the neoliberal policies that starting shifting income to profits thirty five years ago.
It is normally those ripe with the free market fetish, thank you Mr. Webb for that phrase, who rush to remind us that we get more of anything that the government subsidizes. If the government subsidizes low wages we will expect get more low wage jobs.
Also, as we well know, any government aid for individuals will eventually be demonized. Witness what has recently happened to food stamps, the SNAP program. Feeding children apparently destroys their incentive to work.
Exactly , Bruce. The goal is to flatten the 0-90% distribution while leaving the top alone. Bring down those 90/10 , 90/50 , and 50/10 ratios and you’ll please the vast majority of inequality researchers , who mistakenly focus on those metrics instead of looking to the flow of income to the top 1% , where all the action is.
Then you periodically re-jigger inflation and gdp stats to show that real wages are rising nicely for that 0-90% majority , all while repeatedly reminding people that just because the Koch Bros earn a $trillion in some years doesn’t mean that others get less. It’s a win-win economy , you know ?
And because the concern is with the 0-90% majority , we’ll invent a new Gini index that only covers that group , and follow it very closely , so this pesky inequality problem never rears its ugly head again.
Bruce,
I think what you are trying to say is that not noticing that labor’s price is a price within a price is the missing link in understanding outcomes of so called “perfect competition.” IOW, suppose every business was a cooperative (worker owned), then, product prices would reflect worker bargaining power — could be very different prices (maybe not so much, labor being 7% of Walmart costs for instance).
Perfect competition or not, ipso facto (trying to keep up with Bruce here on the nomenclature) if you shift more money to the top, then — unless top earners have a propensity to spend like William Randolf Hearst, aggregate demand is going to drop off. Also, ipso facto, if you shift more money to bottom earners (regardless of how or why), then, they are going to be better educated, healthier, more positive in their lives and ECONOMICALLY MORE PRODCUTIVE. Ipso facto.
These perfect competition types — or money supply is everything types, etc. — kill me. They take a super complicated organism and think they can measure or control the whole thing by one simple factor. In business speak they could be accused of not doing due diligence: they do not (they never) carefully pick apart every specific situation, piece by piece.
However practical EITC sounds in theory and good intention, at present it shifts $64 billion out of a $17.7 billion economy — or one-third of one percent. When the 45 percentile wage is $15 — what the minimum wage should minimally be — there is obviously a super gap between concept and needed performance.
Well I was not trying to say any of that. Which doesn’t mean I disagree.
You make some great points in paragraph 4 and your “$64 billion out of a $17.7” TRILLION reinforces (if not restates) my overall point. EITC is a bandaid designed to cover a gaping wound not only in the real economy but in the theoretical models used to justify modern capitalist rent extraction levels.
I suppose you could argue that the EITC should be large enough to scrape by on whether one receives wage income or not. There is no real competition when workers need to eat, sleep and son, but might not have the money to do so. I think it was Locke who argued that employment under those terms was coercive. A large enough EITC would level the playing field and allow workers to withhold work indefinitely until wages were high enough.
Kaleberg what you are talking about is usually ‘acronymed’ as ‘UBI’ or Universal Basic Income as opposed to EITC or EARNED Income Tax Credit.
The difference is a lot more than just level of support, there are huge differences in economic and social impact and philosophical and political approach.
That said I am in principle more in favor of a UBI coupled with a true Living Wage level Minimum Wage. But there is no doubt that the former would be seen by most people as simple Welfare Socialism or in other words what some people think is happening now (Welfare Cadillacs, Crab Legs and Lobster).
I think a country as wealthy as this one could strike the right balance between a UBI that was “large enough to scrape by one” and compensated work that would lift you to some degree of comfort, even if that just meant being able to take your kids on a car vacation for a week once a year. But getting to that balance means moving a hell of a long way off the current federal minimum wage. As a start.
well, i agree with Bruce and am glad that Anon forced him to identify a “policy.” Because that is the first step and sine qua non.
the “market wage” is a tautology. change the policies and the market will change the wage.
but, once again, you will always have with you those who cannot “earn” a “market” wage sufficient to support a minimally decent life. so you will continue to need something like welfare, though it is to be hoped that such welfare could be structured better than what we have come up with so far.
maybe calling it “insurance” (your “market” wage could change tomorrow) and paying for it out of those higher wages and better jobs?
so far all i see is on the right pfree markets controlled by those with political power (big money) and on the left a complete inability to think beyond “welfare for all paid by taxing the rich.”
at least a higher min wage recognizes the power imbalance that leads to wages being too low and reasonably forces “market” adjustments by capital toward greater efficiency and, just maybe, lower “market” prices to upper management and stock holders.
might also help if workers could feel secure enough to take part of their “higher wage” in the form of more time for the best things in life.
because what we have now is the miserably poor and the miserably “successful” whose know they are unhappy but think the answer is “more.”
as for the genuinely miserable rich… the nature of that beast is that nothing will stop them except countervailing power…. which we have not got. and don’t gain by “demanding” it.
“nothing will stop them except countervailing power…. which we have not got. and don’t gain by “demanding” it. ”
Well some soft-headed folks like me think we actually have (for now) a “countervailing power” which can be gained by a surrogate for “demanding it”
I just made up some terms for this. Just for kicks I have assigned a long-forgotten term for “countervailing power” which I call “democracy”. And to double the fun I have substituted for “demanding it” a nonsense word called of all things “voting”.
“Democracy” and “Voting”. Ah who am I kidding these kind of newfangled concepts and vocabulary will never catch on.
well, Bruce, oddly enough
i was thinking about “voting” and “democracy” when i was thinking about countervailing power.
you haven’t got it, and you won’t get it by “demanding” it.
How about “exercising” it.
Dear Bruce
how do you plan to exercise it?
it seems to me you need an actual policy proposal, and then you need to do what politicians do to get their policy proposals enacted: create a constituency.
“demanding” that someone else do some undefined thing is not going to get you anywhere.
Saw an interesting proposition today. Sanders vs. Webb in a debate which would probably highlight non-neoliberal policy positions. Likely a pretty big contrast from the front runner’s Wall Street positions.
I meant Jim Webb, not Bruce Webb!
Little John all us Scotch-Irish Webbs look alike.
Plus I would not have a lot to debate Bernie about.
As to Cousin Jim, well I am not quite sure how that debate would shake out. My take on Jim Webb is that he is all for a strong defense but as an ex combat infantry commander hates the idea of just sending kids into the meat grinder for nothing. On economics I have less clue.