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“Raising The Minimum Is The Bare Minimum”: What America Needs Is To Shift Income From Capital To Labor

In 1995, when John Sweeney ran the first and as-yet-only insurgent campaign for the presidency of the AFL-CIO, his platform took the form of a book entitled America Needs a Raise. If that title rang true in 1995, it clangs with deafening authority today.

Which leads us to the only problem with the current campaigns to raise the minimum wage: It’s not just workers at the low end of the wage scale who need a raise. It’s not just the work of the bottom 9 percent of labor force that is undervalued. It’s the work of the bottom 90 percent.

Conservatives who oppose raising the minimum wage argue that we need to address the decline of the family and the failure of the schools if we are to arrest the income decline at the bottom of the economic ladder. But how then to explain the income stagnation of those who are, say, on the 85^th rung of a 100-rung ladder? How does the decline of the family explain why all gains in productivity now go to the richest 10 percent of Americans only? And are teachers unions really to blame for the fact that wages now constitute the lowest share of Gross Domestic Product since the government started measuring shares, and that corporate profits now constitute the highest share?

We need to raise the minimum wage, but that’s only the start. Even more fundamentally, we must reverse the deeper and more profound redistribution of wealth that has now plagued the nation for several decades: that from capital to labor.

For as income from work declines for the nation as a whole—inflation-adjusted median hourly wages are now more than $1.50 lower than they were in 1972—income from investment soars. The stock markets are hitting record highs, and major corporations are using the $1.5 trillion they have lying around to raise not wages but dividends. They are also using some of that cash to buy back their own stock, which raises the value of the outstanding shares, to which, happily, most CEO’s compensation packages are linked.

The institutions that once ensured that American workers actually got their share of the pie—unions—have been so thoroughly battered down that they can no longer effectively bargain for raises. That leaves that other instrument of the popular will— the state—as the sole remaining institution that can bargain for workers. That’s why the minimum wage, the living wage and the Earned Income Tax Credit have taken on a greater significance than they previously held: They not only raise the incomes of the poor, but are the last remaining vehicles for raising wages.

That’s why just stopping with raising the minimum, important though that be to the nation’s economic and moral health, is nowhere near enough. Making it safe again for workers to try to join unions is a necessity, too, but that’s a fight that labor has been waging for half-a-century with nothing to show for it. The left needs to battle on other fronts as well.

We could begin by shifting the tax burden from labor to capital—after all, income in America has long been shifted from labor to capital.  We could abolish the payroll tax on the first $25,000 that people make, substituting for it a higher threshold on taxable income. We could raise the tax rates on capital gains and dividends not just to the same levels as income derived from work but higher still. And we could explicitly designate some of the revenue from capital income to go to a much expanded Earned Income Tax Credit—expanded not just by making the payments more generous, but also by raising the criterion for eligibility well above the government’s poverty threshold.

By explicitly taking back from capital some of the wealth it has taken from labor, government would begin to address the root causes of economic inequality. Not all of them, to be sure: The stratospheric salaries that top corporate executives and Wall Street traders command aren’t capital income as such. One way to rein in executive pay might be to set corporate tax rates by the size of the gap between top executives’ and median workers’ pay, the data on which the Securities and Exchange Commission is supposed to make public under the terms of Dodd-Frank. Or it might be to set corporate tax rates based whether the corporation has a stakeholder or a shareholder board. In Germany, corporations are required to have equal numbers of employee and management representatives on their boards, which has effectively reduced CEO pay at most German companies to a multiple of 10 or 12 times that of its median employee, not the 200 or 300 times that’s the norm in the U.S.

If we want to address economic equality, we need to follow the money. In recent decades, as a result not just of globalization and technology but also of the decline of unions and the rising political power of the rich, the money has almost entirely gone to the rich—in the current recovery, fully 95 percent of income growth to the top 1 percent. So by all means, raise the minimum wage. But don’t stop there.

By: Harold Meyerson, The American Prospect, January 22, 2014

January 24, 2014 - Posted by raemd95 | Economic Inequality, Minimum Wage | Capitalism, Corporate Taxes, Corporations, Labor, Poor and Low Income, Unions, Wages, Workers