Stacking the Deck

A Moral Economy #5. Part II: What do we have? (continued)

This continues a three part series of excerpts from Social Security Basic Income: A Safety Net for All Americans, which I published in March 2020. Part I: What would it look like? concluded with #2. Part III is How do we get from here to there? This essay includes text from Chapter 3 Nothing to Lose but Shackles. Refer to #1 in the series for a brief introduction of my purpose and perspective on this subject.

Disingenuous tax policies

Wall Street jumped for joy when Congress delivered the Tax Cuts and Jobs Act of 2017 (TCJA) — a present that had been on their wish list for years. Workers got another promise of trickle-down benefits that was not taken seriously.

The TCJA aimed to increase investment, which should not have been a problem with record high stock market indices and interest rates near zero. Research by Economic Policy Institute scholars Josh Bivens and Hunter Blair had found cutting corporate tax rates would do very little to boost employment generation or productivity. Also, since the top one percent of households account for 47 percent of the incidence of corporate income tax, cuts clearly boost incomes substantially more for richer households.

It’s not as if corporations had been carrying a heavy load to begin with. Corporate tax revenues fell from 5.9 percent of GDP in 1952 to 1.1 percent in 2019. Moreover, as indicated in the chart below, this reduced burden came at workers’ expense because payroll tax revenues rose by a similar percent of GDP over the same period.

We do have a jobs problem that has been caused by policies that favor investment in capital at the expense of labor — especially policies that encourage debt. According to a report by the MIT Task Force on the Work of the Future,

The U.S. tax code favors capital investment, offering low marginal rates on capital income, rapid rates of depreciation on plant and equipment investments, and, in many cases, directly subsidizing capital expenditure (e.g., the R&D tax credit). Similar subsidies for investments in labor and skills are lacking. As a result, the effective tax rate on human capital investments — in the form of labor income taxes — greatly exceeds the tax rate on capital investments. This imbalance between the taxation of human versus physical capital investments gives firms an incentive to replace workers with tax-subsidized machinery where possible; indeed, one reason that firms may adopt ‘so-so’ technologies is because taxpayers implicitly subsidize labor-replacing capital investments.

More of the same will only make the problem worse.

In this economy, reducing the tax burden on business is more likely to lead to more stock repurchases than hiring. Evidently, US-based corporations cannot find profitable investments, and despite persistent complaints about worker shortages, many have been reluctant to raise wages. Public companies’ net purchase of their own shares soared in this century; by 2016 it had reached 4 percent of GDP and expenditures totaled $7 trillion from 2004–2014.

A sincere effort to create good jobs would ask and answer questions like “How can we make it easier for businesses to hire workers and for workers to support their families?” Eliminating the payroll tax, for example, would reduce the cost of hiring and increase all wages. For many if not most wage earners, it is a larger burden than the federal income tax. Moreover, as stated by Daniel Markovits (The Meritocracy Trap: How America’s Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite, 2019), this tax “makes middle-class labor the most highly taxed factor of production in the entire economy.”

Because it seizes the first 15.3 percent of earnings, this extremely regressive tax kills small businesses. Anyone who has ever started a business knows that cash is dearest in the early years. “Saving” for retirement should be deferred until the enterprise generates positive cash flow. It’s a real slap in the face to entrepreneurs that our federal government justifies bailouts of big business to save jobs yet keeps the ball-and-chain payroll tax firmly in place. As indicated in the chart below, thanks to payroll taxes, state income taxes, and food stamp benefits, those with low incomes often keep less of additional earnings than those with high incomes.

Generally, when any government — state, local, or federal — makes its case for spending or tax breaks on the jobs that will be created (which is just about all the time), we should apply the rule that if it sounds too good to be true, it usually is. Of course, there will be new jobs, but at whose expense? Interest in growth and jobs is a given for politicians; however, we should challenge their use of the term “job creator” at every turn, because it so clearly and inappropriately assumes employers are benevolent agents of the government. Existence of a job is just as dependent on a person’s willingness to work as it is on an employer’s willingness to pay. Yet large businesses (e.g., Amazon, which famously solicited bids for its new headquarters in 2018) have come to expect tax concessions and far too often, elected officials take the bait. Even when there are guarantees of employment and good wages, gains for the newcomers can be offset by losses to other businesses and workers who are priced out of property and labor markets. There is no such thing as a free lunch.

Just to be clear: I’m not saying growth is bad. I’m saying it’s wrong and unproductive for society when government plays favorites in the market. Intervention should be neutral; the same rule should apply to everyone. I am just as strongly opposed to protectionism. A business that decides to relocate without bribing or being bribed deserves fair treatment. Existing businesses and workers should not expect immunity to competition. That would be unfair to residents who may benefit from increasing property values, demand for services, and higher wages. Opening the door to exemptions creates a market for exemptions — a Pandora’s box of rent-seeking — that is like catnip to politicians and the corporations, wealthy individuals, and special interests they rely on to gain or retain office.

Lousy jobs

For most of the 20th century, we had a competitive market for labor, but since then, real wages have not grown, benefits are not as generous, and fewer jobs are full-time and permanent. Many of the working poor face “precarious” working conditions such as scarce or nonexistent paid time off and overtime, work off the clock, just-in-time scheduling, and unhealthy workplaces.

Technology has completely changed the nature of work, mostly to the good. Stories abound of people who enjoy new flexibilities. Yet there is a dark side. The so-called gig economy created a buyer’s market for piecework labor that can be performed by anyone, anywhere. Desperate people who cannot find regular employment literally hunt for work posted on Mechanical Turk, Uber, and TaskRabbit that pays them (as independent contractors, i.e., not protected by minimum wage laws) an average of $4–5/hour. About 5 percent of Americans are doing this kind of work, and even more are expected to turn to it in the next decade.

Another example is Amazon’s use of vendors whom it pays by the package and trucking companies’ monitoring of drivers. Brishen Rogers notes that while “some workers will thrive as their unique skills and talents are rewarded by new technologies, many others will have less autonomy, less generous wages, less time for social connection, and unpredictable schedules.” Overall, with more contractual relationships and less formal employment and collective bargaining, workers have less power to improve their wages and working conditions.

From 2008–2017, college graduates captured “all” of the net new jobs created, while the number of employed Americans with a high school education or less declined. The financial crisis accounted for the loss; however, as job opportunities for those without a college degree did not reach pre-recession levels, millions became discouraged and left the labor force. Official statistics (low unemployment rates) suggested a healthy labor market. But numerous employers and workers were not happy; businesses were not finding “qualified” workers because they failed to offer sufficient wages and good working conditions.

Unfortunately, low-paid service jobs grew much faster than well-paid high-tech jobs. Automation (along with international trade) displaces middle-skill workers. The resulting polarized labor market concentrates rewards among the highly skilled and educated workers while devaluing (presumably by increasing supply) non-specialized work.

Low pay is not the only problem here; workers’ relationships, health, and self-esteem are casualties of a system that relies on cheap labor. In The Job: Work and its Future in a Time of Radical Change (2018), Ellen Ruppel Shell says we need to flip this around so that instead of expecting workers to meet the demands of a job, workers are empowered to choose work that actually provides meaning to life — the kind we refer to when we speak of a work ethic.

Education is not the answer, either. As Oren Cass explains in The Once and Future Worker: A Vision for the Renewal of Work in America (2018), despite our best efforts, not every student will succeed:

Roughly speaking, one-fifth of all students were already off-track and did not join their classmates crossing the [high school diploma] stage. Another fifth will move from their senior year to something besides further schooling. The third fifth will enroll in college but fail to complete it. Yet another fifth will complete some form of college but land in jobs that don’t require the degree they just earned. Despite decades of reform in teacher training, student testing, and standards, as well as school choice and hundreds of billions of dollars in new annual education spending, only a final fifth will successfully navigate the path — high school to college to career — that is our education system’s ideal.

Instead of insisting that everyone try what works for just one fifth of us, let’s do what every other developed country has done, which is to help students develop and market their demonstrated aptitudes. We have invested heavily in vocational training programs, but more as a remedy for adult unemployment than proactively preparing youth — and they have not proven to be good investments.

We have a culture and institutions that equate jobs with income, and therein lies the problem. We all need income, yet not everyone can get a job. Well known basic income advocate Scott Santens presented data in the chart below on the nature of work that helps explain why college graduates are capturing new jobs at the expense of those with less education. He says we fail to recognize the fundamental error of requiring work in exchange for food, water, and shelter. Now machines do most of the work, so we have a surplus of labor. This is why the labor force participation rate is low and median wages have not grown with the economy. Common policy responses are so lacking in understanding or imagination that they include even more work requirements for public assistance and job guarantees. Santens says, “[P]erhaps jobs have become the problem, not the solution,” which is why basic income — by severing the knot tying income to work — is the way out of technological unemployment.

Santens has put his finger on the crux of the matter. Our work ethic has such a hold on our society that we find it extremely difficult to imagine unconditional assistance. Our attempts to employ everyone are actually hindering the progress available through automation because we’re forcing people into less productive jobs and — because they’re paid so little — making it less worthwhile to invest in technology that could make those jobs easier or unnecessary. Moreover, reduced discretionary incomes make machines’ products less affordable to workers, limiting markets and sustainable growth.

The next essay in this series will continue Part II What do we have? It will include text from Chapter 4 Moral Inventory.