Even Better Than a Tax Cut
By LAWRENCE MISHEL
FEB. 23, 2015 - New York Times
WASHINGTON — WITH the early stages
of the 2016 presidential campaign underway and millions of Americans still
hurting financially, both parties are looking for ways to address wage
stagnation. That’s the good news. The bad news is that both parties are offering
tax cuts as a solution. What has hurt workers’ paychecks is not what the
government takes out, but what their employers no longer put in — a dynamic that
tax cuts cannot eliminate.
Wage stagnation is a decades-long
phenomenon. Between 1979 and 2014, while the gross domestic product grew 150
percent and productivity grew 75 percent, the inflation-adjusted hourly wage of
the median worker rose just 5.6 percent — less than 0.2 percent a year. And
since 2002, the bottom 80 percent of wage earners, including both male and
female college graduates, have actually seen their wages stagnate or
fall.
At the same time, taxation does
not explain why middle-income families are having a harder time making ends
meet, even as they increase their education and become ever more productive.
According to the latest Congressional Budget Office data, the middle 60 percent
of families paid just 3.2 percent of their income in federal income taxes in
2011, less than half what they paid in 1979.
Yes, a one-time reduction in taxes
through, say, expanded child care credits or a secondary earner tax break, as
Democrats propose, could help families. But as wages continue to stagnate, it is
impossible to continuously cut taxes and still pay for things like education and
social programs for the growing population of older Americans.
Republican tax proposals, like the
reforms put forward by Representative Paul D. Ryan of Wisconsin, focus on
lowering individual and corporate tax rates alongside revenue-saving efforts to
simplify the tax code. But this same approach has been tried for decades — the
same decades in which wages have continued to stagnate. Instead, these cuts have
helped corporations, shareholders and the top 1 percent capture a larger share
of economic growth.
Similarly, President George W.
Bush’s 2001 and 2003 tax cuts, which likewise promised to increase middle-class
income, were followed by slower productivity and wage stagnation. The latest
proposed Republican cuts won’t even provide much short-term relief, as they tend
to be targeted at the highest-income households. For example, under a
much-touted proposal
by Representative Dave Camp of Michigan, the middle fifth would gain just $279
in tax relief a year, according to the Tax Policy Center, while the top 0.1
percent would garner the largest rate cut, valued at $248,000.
Obtaining better economic growth,
another goal of these cuts, is certainly worthwhile, but it establishes only the
potential for broad-based wage growth — it’s no guarantee. Again, we have seen
plenty of growth since 1979, but this expansion has not “trickled down” to
middle-wage workers.
The challenge is to ensure that a
typical worker’s wages grow along with profits and productivity. There is no
silver bullet, but the key is to make raising wages the central focus of
economic policy making and to reverse decades of decisions that have undercut
wage growth.
We need to start with monetary
policy. In the next few years, the most important decisions being made about
wages are those of the Federal Reserve Board as it determines the scale and pace
at which it raises interest rates — and thereby slows job growth. Before raising
rates, it is essential we achieve a robust recovery, with roughly 3.5 to 4
percent annual wage growth. This will ensure that wage growth matches
productivity growth and that everyone can benefit from the rebounding
economy.
Another short- to medium-term
policy decision affecting wage growth is to avoid trade deals, such as the
proposed Trans-Pacific Partnership, that would further erode Americans’ wages
and send jobs overseas.
And there are several things we
can do to bolster the labor standards and institutions that support wage growth.
Raising the minimum wage to $12.50 an hour by 2020 would ensure that the minimum
wage equals more than half the average wage, as it did in the late 1960s. And it
has been too long since we have raised the salary threshold for overtime pay;
raising it to $50,000, so that anyone making below that would get overtime,
would move us closer to what prevailed in the 1970s, when about two-thirds of
salaried workers received overtime pay.
Protecting and expanding workers’
right to unionize and bargain collectively is also essential; the erosion of
collective bargaining is the single largest factor suppressing wage growth for
middle-wage workers over the last few decades. And we need to modernize our New
Deal-era labor standards to include earned sick leave and paid family leave so
workers can balance work and family.
Finally, stronger laws and
enforcement to deter and remedy wage theft and the illegal treatment of
employees as independent contractors could put tens of billions of dollars into
workers’ pockets.
Contrary to conventional wisdom,
wage stagnation is not a result of forces beyond our control. It is a result of
a policy regime that has undercut the individual and collective bargaining power
of most workers. Because wage stagnation was caused by policy, it can be
reversed by policy, too.
Lawrence Mishel is
the president of the Economic Policy Institute and co-chairman of Americans for
Tax Fairness.