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.