How should underpayment of employees affect tax policy?
by Linda Beale
How should underpayment of employees affect tax policy?
In a pre-Labor Day blogposting, Robert Reich wrote about the brute capitalism results for many employees today–a full-time job that doesn’t play a living wage. Walmart was his example–“America’s biggest employer” where a “typical employee is still paid less than $9 an hour.” See Reich, Wal-Mart’s typical employee is paid less than $9 an hour, Salon.com (Aug. 30, 2013) (posted originally on Reich’s blog).
Wal-Mart has used its market clout to shut out labor unions and bring the retailing sector down to its self-defined low. I’ve written before about my own personal experiences in talking to Wal-Mart employees about unions and encountering abject fear that the employee would lose his or her job if any Wal-Mart supervisor were to be aware of the discussion, being told that Wal-Mart supervisors routinely enter employee rest areas and tear down any materials discussing advantages of unionization, and seeing the evidence of anti-Union and pro-owner sentiment in the way huge profits are channeled to managers/owners while workers are paid a mere pittance of what would be a decent wage. Wal-Mart documents revealed several years ago that it was intentionally refusing to provide health coverage becuase it was cheaper for the “company” (managers and owners) to push employees off to Medicaid and other government assistance.
That is brute capitalism at work–ensuring that the few at the top receive all the benefits of profit-making and productivity gains, while the average workforce is paid too little to provide a decent living for a single person, much less a family.
So what does this have to do with tax policy, you say? Reich is making an argument for an increase in the minimum wage to $15 an hour and greater recognition of workers’ rights. Those are worthy objectives, and I fully support them. You could add better enforcement of anti-trust laws. In general, we should be asking ourselves why we allow one retailing giant to become so huge that it encompases distribution networks, warehousing, sales and manufacturing contracts around the globe that ensure that workers in China or Bangladesh manufacturing clothing for the company are making it on very little money and that workers in the US who sell that same clothing (or otherwise work in stores) are similarly poorly situated.
But the question I am raising is the connection between such company policies and tax policy. I think there is a strong argument that we should consider at least the following principles, coupled with a stronger (more progressive and higher rates) corporate tax to ensure the rules have some bite:
1) our tax rules should discourage companies from ripping off workers to overreward managers and owners.
2) our tax rules should work to ensure that people in the lowest income brackets don’t have to carry the burden of paying taxes on their meager incomes
and
3) our tax rules should shift the incidence of tax to those at the top who control their own salaries and away from those at the bottom who have practially no say on what they work for.
We could go part way towards accomplishing the first with a strict limitation on deductible compensation. That might perhaps deny a deduction to executive pay that is more than 30 times the pay of the average worker as well as impose a cap above which no pay is deductible in computing the company’s taxes.
We could make our rules work better to accomplish the second point by extending the personal exemption and standard deduction to ensure that some measure (2X?) the federal poverty amount is entirely exempt from federal income or payroll taxation.
Finally, we could accomplish the third point by creating a more progressive income tax structure that identifies several additional brackets at the high end (distinguishing between those who earn not quite a million and those who earn multi-millions and those who earn billions) and a more progressive estate tax structure that exempts a core amount (smaller than the high exemption recently made permanent) and then imposes a graduated tax on the excess.
If we don’t begin to address the issue of hardworking Americans who cannot get by on a single job by amending our policies (including tax) to make the existence of a highly privileged upper class and a highly disadvantaged underclass the most important topic for government to address, I fear this country is in for a rude shock. Infrastructure expenditures will continue to dwindle especially in poorer areas, Education will continue to be moved to easily quantifiable but not so likely to be enduringly useful online instruction under the pressure from the “accountability gurus” (who want to evaluate out of existence public teacher unions, without knowing what makes a good educator) and the likes of the (also non-educator) Bill Gates and his ilk. The wealthy will continue to live in more and more secluded and luxurious gated communities separate from the hoi-poloi of the middle and lower classes. Generally speaking, brute capitalism and bogus “free market” theories of economics and tax will continue to leave more and more of our citizens underprivileged, hungry, lacking in education, and turning to whatever avenue for changing their lives remains open (including crime).
Megan McArdle (one of those Bloomberg economists who tends to write in support of right-wing economic ideas) recently argued that Wal-Mart can’t pay the good wages that Trader Joe’s or Costco pays because (i) it is simply too big, with too much merchandies, to make the kinds of profit it expects doing so, and (ii) it has a low-income customer base who can’t afford to buy anything except the cheap stuff it provides [produced in unsafe conditions by a non-unionized labor force]. See Megan McCardle, Why Wal-Mart Will Never Pay like Costco, Bloomberg.com (Aug. 27, 2013).
Megan thus supports my argument that we should never allow one retailer to grow to such huge consolidated form (antitrust needs to be reinvigorated to battle giants like WalMart). But Megan misses Henry Ford’s key insight–if you want your workers to buy your good product, you pay your workers well, and their business will further your business. Wal-Mart has done exactly the opposite–it has driven out stores that paid workers better (and added to localities’ environmental problems in spades), in order to drain off huge profits for its owners and top managers while using every technigue in the book to block workers’ unions and prevent workers from getting paid decent wages for what they do, forcing workers to only be able to buy from the Wal-Mart type distribution network (Wal-Mart and “dollar store” or other cheap merchandisers who pay their staff very little).
Whether we think about this in terms of the growing inequality in this country that stifles economic growth for all in the long run, or the class warfare that the right has been engaging in for at least the decades since Reagan was elected President, or the corporatism (derived in large part from the “free market” rhetoric) that has taken over most American institutions, we should recognize that Wal-Mart and other big companies like McDonald’s and the other fast-food chains have built a business model that is detrimental to ordinary Americans for the benefit of the few (“the 1%” of the Occupy Wall Street rhetoric). And we should start considering ways to counter the these harmful developments. In particular, we should ensure that companies pay their workers a living wage and we should protect those workers at the bottom of the income scale from having to give up any of that wage in payroll or income taxes.
Cross posted with ataxingmatter
Linda Beale: “And we should start considering ways to counter the these harmful developments. ”
I think the problem is a lot easier to describe than the “ways to counter”. I know I have no idea how to counter what rises from the sea with endless power. (or seemingly).
Do you have any ideas to start us off with as how the harmful developments can be countered?
linda
there you go again
probably i would support much of what you say and propose here, but you sneak in:
“ensure that some measure (2X?) the federal poverty amount is entirely exempt from federal income or payroll taxation.”
note “payroll tax..”. the payroll tax is Social Security, a program that prevents poverty exactly by not being welfare…. because the workers pay for it themselves. SS protects the workers “savings” from inflation and market losses, and the workers insure each other against a lifetime of low wages that prevent them from saving enough for retirement. It does not tax the rich to provide workers with that retirement. Your proposal would destroy Social Security by turning it into “the rich pay for it” welfare.
if i didn’t understand the thought distortions that make a true believer, i would suspect you are working for the Petersons. turning Social Security into welfare has been the goal of Republicans for seventy years… so it will be easier for them to kill it.
you identify several pathways for correcting what is an intolerable situation (working for wages too low to support a decent life), including better protection for unions.
why not work on those and give up trying to kill Social Security through the back door?
“Do you have any ideas to start us off with as how the harmful developments can be countered?”
The answer ain’t “blowin’ in the wind.” The answer is striclty political. Unfortunately intelligent political action which would result in intelligent voting behavior is, and has been for several decades now, what is blowing in the wind. And when I say intelligent I am not making any reference to a voter’s IQ score, but rather their ability to recognize their own economic self interest and how to keep that in front of their own sense of social prejudice and bigotry. It only sounds a bit complicated, but it really is a simple process. When you’re watching a Tea Party assembly you’re seeing a group of deluded citizens who have identified with a mythical historical perspective or, worse yet, have come to believe what ever appears in the media.
Remember that it is the public that must be educated, but the media is a propagandist’s playground. Joseph Goebbels was one of Hitler’s closest associates because it was he that best understood the power of the media on the thinking of the public. We don’t have a Minister of Propaganda, but we do have a media under the total control of a small number of corpotatists. That media is buttressed by the web of interlocking stink tanks that label their bought and paid for liars as “scholars.” The media has become an echo chamber of deceit and deception. Lies told repeatedly take on the appearence of the truth. We even joke about it as in Steve Colbert’s concept of “truthiness,” something that is said to be true by repetition, but isn’t.
The result is self perpetuating as the liars take control of the government through their “elected” representatives. Those people, like Scott Walker, Steve King, Eric Cantor et al, are no less employed managers than are the executives of Walmart Inc. Until those elected to government begin to represent the best economic interests of all the voters there will be no effective change in our business community. Greed has been good for the greedy, if not for the country. So good in fact that they have accumulated enough wealth and continuing income to have taken effective control of our political class and subsequently our government.
When will the people be educated? Likely never.
It is not greed. It is selfishness. Selfishness is the personality trait, the character that has created what we have currently. Greed is simply one form of expression of selfishness. If we continue to only consider greed, then we are allowing all the rest of the expressions of a selfish person to be socially acceptable.
Only referring to what our society has become as the results of greed suggests that the solution is as simple as not being greedy. Just educate the child to share appears to be what we are saying when we only focue on greed. It allows the sickness that is present in our society that is selfishness.
Selfishness is the root of all the ideas that drives current policy. All of it.
Daniel
I agree with you, so don’t take it too amiss if I disagree with you about some words.
Greed is a disease of a normal human desire to acquire pleasant and useful things. I don’t think we can cure the disease by outlawing normal acquisitiveness.
Selfishness… I think… may also be a disease of a normal human condition: we see the world out of our own eyes. Most of us learn to at least attempt the pleasures of seeing what the other guy sees, and even to sometimes “give” him what he wants at our own expense. But again, you aren’t going to cure selfishness… quite as common among the poor as the rich… by forcing “them” to share with you, or your favorite underprivileged group.
I would agree that “current policy” seems to be guided by a remarkable lack of insight, but that is nothing new in the world.
Jack,
I also agree with you, but feel a need to point out that “economic self interest” may not be what “the people” want. They are, as you say, victims of propaganda, but the propaganda is working on their quite legitimate fears and perception of their own non-economic best interest. You are not going to win their hearts and minds by offering them more money.
Mitt Romney lost votes (perhaps) by talking about the 47% who view themselves as victims and won’t take responsibility for themselves. It is always entertaining to watch people get mad and deny the truth about themselves. I don’t think that 47% of the voters suffer from the moral failure that Romney described, but I do think there are liberal voices near at hand who exactly WANT the poor to see themselves as victims and not feel any need to take responsibility for themselves.
Me, I think there is plenty of room for a decent economic (political) policy that protects the poor from the rapaciousness of those who hope to (and do) become rich by abusing the poor. And plenty of room for the government to take an interest in improving the quality of life of “the least of those among us” without invoking a “tax the rich for all reasons” and give the poor more money for cheap plastic toys.
Don’t know if that makes me a liberal or a conservative, but I do despair of anything honest or even sane coming from either branch of the two party system.
Mostly, the government could do more in the protection of individual worker rights on the job and in the market place. This is not a discussion of the impact of globalization on Labor, it is a changing of the momentum away from large companies which have the money and the political strength to influence Congress. Look to United Citizen, Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. decision, Financial Services Modernization Act of 1999, Bankruptcy Abuse Prevention and Consumer Protection Act and the impact on Labor/people. Each one of these acts (by far not the only ones) strips away protection for individuals (used the same as Labor) a little bit at a time. Each one of these were passed to enhance the power of commercial interests over that of citizens. We have a Congress, SCOTUS, and Executive branch acting on behalf of Commericial interests as opposed to citizens and the attack continues.
Strengthening worker rights on the job, strengthen Union rights, eliminating federal taxes on those making < $24,000 (individuals) and 48,000 (family of 4), reversing some of the recent acts and court decisions (legislation), increasing minimum pay, improving the PPACA, changing tax laws on capital gains, etc would go a long way towards bringing an equality between commercial and provate interests.
Linda is being somewhat naïve in this piece, as is Jack to a lesser extent. The US had a good system of taxation until Jack Kennedy started dismantling it with his cut on top income from 91% on income over $1.1m to 66%. Then Reagan doubled down on Kennedy’s cuts to reduce the top rates to 39%. What those cuts accomplished was deregulating greed. Think about it – if you were a top earner in the Eisenhower era, you knew that there was extreme diminishing marginal return on increasing your income. After Kennedy and Reagan the opposite – greed was deregulated, simple as that.
Now, how do we get greed re-regulated? Not easy, it’s slogging work that requires that the poor be registered to vote, and then get them to the polls. Why? because “educating” the middle class doesn’t work, they’re the wrong class to expect change from. Yes, it’s a class war, but the middle class wants nothing to do with it by convincing numbers in every poll I’ve seen. Class war deniers. Here’s an example from a congressional race in NJ last year of what can be accomplished with voter registration:
“…thrust into a district where just over half of voters were represented by Rothman — making him the underdog, Pascrell registered thousands of new voters in Passaic County and ran up his margin so high there Rothman could not overcome it in his native Bergen County. Pascrell had 61.3 percent of the vote with 99 percent of the precincts reporting.” http://www.nj.com/news/index.ssf/2012/06/bill_pascrell_donald_payne_
Do you remember when Jesse Jackson used the Rainbow Collation to register 11m new voters in the South? He didn’t win the Presidential nomination, but those new voters delivered to the US Senate from the”solid south” 7 new D senators giving D’s control of the senate.
The pressing question is who is going to the slogging work of registering the poor and the unregistered minorities. Unions could do it but they won’t. They are betrayed by their leadership who have a comfortable relationship with the D leadership. Occupy was completely a middle class movement, best I could tell, so they failed to organize in any meaningful way – it was a promising moment, but they too were naïve, and had no idea how to proceed to accomplish anything resembling reform. Can another Rainbow Coalition be ginned up? That’s what we need. Where is there any leadership for that?
Run
the sound of me tearing out my hair.
i agree with everything you say, then you sneak in… just like linda… the clever idea of not letting “the poor” pay taxes… and i am assuming you mean the payroll tax as well.
How about we just work on protecting them from the reign of greed by encouraging real unions, and otherwise raising their wages, and let them pay for their own retirement through the payroll tax, and even pay a reasonable amount for the government that is protecting them through the income tax.
at just about the point i think someone understands the need, they spoil it by going all middle-class greed, which isn’t much different from upper class greed or even lower class greed.
Corection to the interpretations of what I last said by those who followed and commented on what I said. At no time when I talk about economic self interest am I refering to the poor. At no time when I refer to the lack of political good judgement am I refering to the poor. These failures are characteristics of the working middle class. What used to be the back bone of America and has become the coccyx at best.
Legitimate fears? What are they? Arabs? Homosexuals? African-Americans? Immigrant workers? Women with unwanted pregnancies? Those are not legitimate fears. Those are concepts resulting from prejudice and bigotry supplemented in some cases by religious fanaticism.
And Daniel, I wouldn’t split hairs over the two words which are oin fact listed as synonyms for one another. If there is a difference then look at it like this. Greed is a rapacious desire, especially for wealth or possessions. Selfishness adds the me first dimension to one’s character with a focus on self ahead of others or even at the exclusion of others. When the sealot says no one can have access to abortion they are putting their beliefs ahead of all others and assuming that their morality is of a higher quality than all others. Certainly they are selfish, but they are expressing a form of greed just as well. Their rules must be followed by all. Their judgement is better than all. Their god is better than none at all.
It is no different than my needs are more important than all others.
jack
this is not getting me anywhere except to be categorized among those you regard as religious fanatics.
i would say the legitimate fears of those who do not share your faith in the government are for family, physical safety, employment security. You actually agree with them about some of that. But you take the bait and lump all of their beliefs … as they do themselves… in with the Rush Limbaugh ilk, who are only good at attaching the bigotry and and hate and intolerance to the real needs and fears and exploiting that for political gain.
It would be hard for you to change this… the Rush’s won’t let you… but it would be good if you could begin by not jumping on the hate bandwagon yourself.