Home > Uncategorized > You want to replace the pay working-class Americans have lost?

You want to replace the pay working-class Americans have lost?

from David Ruccio


Neil Irwin is right: “Poor and working-class Americans have fallen behind over the last generation, receiving few of the gains of an expanding economy.” So, he wants to devise a tax plan to change that.

The problem is, Irwin only looks at raising the income of the bottom 20 percent of families to where they would be if they shared equally in the gains since 1979. 

So what would it all cost? The Tax Policy Center crunched the numbers: The policy would deplete federal coffers by $1.02 trillion over a decade.

That is serious money.

Sure, it’s serious money. But it’s only the tip of the iceberg. By my calculations (illustrated in the chart above), national income per adult and the average income of the bottom 90 percent (both in 2013 dollars) were almost equal in 1970. But national income per adult has risen a whopping 87 percent since 1970, while the average income of the bottom 90 percent has actually fallen, by 6.7 percent.

If we want to make up that gap, it’s going to cost much more than $1.02 trillion. In fact, it would take about $5.6 trillion—equal to the amount of the tax cuts President-elect Donald Trump wants to shower on wealthy individuals and large corporations—just to close the gap for one year.*

Now that’s serious money.

And it doesn’t begin to make up for all the pay working-class Americans have lost since 1970.

The only way to close the gap and to compensate working-class Americans for the pay they’ve lost over recent decades is to not to tinker with the tax system (or, for that matter, close the trade deficit, boost economic growth, or attempt to protect the safety net), but to change the existing set of economic institutions—by giving workers a real say in how the extra income they create gets distributed.


*My back-of-the-envelope calculation (90 percent of tax units times the gap between national income per adult and average income of the bottom 90 percent) is for 2013.

  1. December 17, 2016 at 3:30 pm

    CEO “bonuses”, not pay, in 2015 totaled over 28.4 billion dollars whereas the total compensation to all minimum wage earners in the U.S. was 40 billion dollars.

    Source: https://disqus.com/home/discussion/truthout/a_mere_100_ceos_have_retirement_money_equal_to_that_of_41_percent_of_us_population/#comment-3055884996
    at 5:18-5:49

  2. patrick newman
    December 19, 2016 at 12:11 pm

    The best you can hope for is the Beatles ‘solution’ (The Tax Man 1966) and the lament of the wealthy as the tax man takes the lion’s share – “nineteen for me one for you” (failing to point out this was the highest marginal income tax rate in the UK at the time!).

  3. December 20, 2016 at 3:30 am

    I certainly agree with the problem statement, but I disagree with this:

    “but to change the existing set of economic institutions—by giving workers a real say in how the extra income they create gets distributed.”

    Changing the tax structure has more power to fix things than rules to try to give worker voice (unless my imagination is too limited on how this would be carried out) if you pair it with Universal Basic Income.

    As far as cost? What was the cost of fixing the imbalance in the economy in 1933-1945 when the economy grew by 190% in 12 years? (and on that point, how is it that the only people who even know about this 190% growth in 12 years are the ones that downloaded data from the BLS themselves?)

    • robert locke
      December 20, 2016 at 9:24 am

      Establish a “compensation committee” in firms on which representatives of employees sit and let them set emoluments.

      • December 21, 2016 at 10:05 am

        You are talking about forcefully converting capitalist firms into socialist companies? I think this would be harder to get politically than the 1960-style tax rates. It would also require converting multinational corporations to intra-national corporations, which would probably require tariffs to be effective (although these would likely be required in other scenarios also).

        I do suppose that would fix income inequality, though.

      • December 21, 2016 at 2:05 pm

        That’s how I understand co-operatives work (see Race Mathews; “Jobs of our Own”). This works at the personal rather than the company level, Jeff, for all members are both capitalists and workers.

        Incidentally, the old craftsmen’s guild system before the Reformation had the master craftsmen, who understood the work involved, fix prices to stop those with special advantages cornering the market. (Exactly the opposite of Ricardo’s doctrine about exploiting comparative advantage). Within a cooperative this would be the case for the different types of work involved in running the company.

    • December 20, 2016 at 4:45 pm

      Repeat, JEFF1089, “Changing the tax structure has more power to fix things than rules to try to give worker voice..”

      • Garrett Connelly
        December 21, 2016 at 4:33 pm

        One key problem is full employment and modern consumption leads directly to environmental catastrophe. What mechanism avoids this?

  4. Garrett Connelly
    December 20, 2016 at 4:01 pm

    A form of democracy that focuses distributed intelligence is the only possible way to avoid human extinction.

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