Better Economics for a Better Tomorrow: Four steps to rebuilding the middle class

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There are four pieces of legislation that Congress could pass that would have both immediate and significant impacts on the income of well over half of families. Today’s discussions on how to help the middle class has focused solely on raising the minimum wage and instituting some form of universal health care. And while economists are in agreement that raising the minimum wage will benefit more than 35 million workers and a Medicare-for-All plan will save the nation $2 trillion over the next ten years, there’s other structural changes that can have an equally significant impact.

For starters it’s well known that women, on average, have more education than men but are paid less. According to the Economic Policy Institute, “When evaluated by wages per hour, a typical woman is paid 83 cents for every dollar a man is paid. This disparity actually grows as a woman’s income grows. At the 10th percentile, women are paid 92 percent of what males earn, whereas women at the 95th percentile are paid only 74 percent of what males earn.” For this reason it’s time to reintroduce and pass the Equal Rights Amendment. Differing pay scales for males and females with equal education and experience should be prima fascia evidence illegal discrimination and subject to legal remedies.

In 2003, Gerald Mayer, of the Congressional Research Service, showed that as a percent of employed workers, union membership peaked in 1954 at 28.3 percent, today the percent of workers unionized stands at 10.5 percent. This trend is counter productive for building a middle class as evidenced by the fact that wages and salaries of private sector union members increased more rapidly, growing by 25.1 percent from 2007 to 2015, compared to just 18.9 percent for non-union workers.

To remedy this problem Congress should pass the Protecting the Right to Organize (PRO) Act. The PRO Act would make it easier for workers to organize by limiting a company’s ability to interfere with organizing efforts, requiring employers to bargain in good faith or face arbitration, prohibiting companies from permanently replacing striking workers, and increasing the organizing rights of workers by preventing companies from misclassifying workers as contract labor or supervisors. Unionizing a larger percentage of the labor force would benefit the nation in as much as union workers, on average, earned 17 percent more than their non union counterparts.

Critics of efforts to raise the income of any demographic group claim that such efforts are unaffordable forcing firms to raise prices which in turn will increase inflation negating efforts to raise real incomes. And, to the extent that we don’t restructure the marginal tax rates and SEC rules, their concerns have some validity. Thus the final two steps involve changing the number of tax brackets, the size of the highest marginal tax bracket, and changing the SEC rules on the legality of corporate stock buy backs.

According to experts, the Trump tax cut did little to increase investment or economic growth. The tax cut boosted CEO salaries and corporate stock buy backs, but it did not generate the promised $4,000 pay raises for workers. In the 1950s, a typical CEO made 20 times the salary of his or her average worker. Last year, CEO pay soared to an average of 361 times more than the average rank-and-file worker, averaging $13,940,000 a year, with the CEO of Disney, Robert Iger, earning $65 million.

Stock buy backs were illegal up until the early 1980s because they were considered a form of stock market manipulation. But, in 1982, the SEC passed rule creating a legal process for buy backs benefitting the richest 10 percent of American families who own 84 percent of all corporate stock. Thus, stock buy backs are major contributors to both income inequality and the concentration of wealth for the richest households.

To correct these last two problems, Congress should increase the marginal tax rate on incomes in excess of $10 million to 90 percent (which would effectively cap CEO salaries) and reverse the SEC’s rule 10b-18 which would again make stock buy backs a form of stock manipulation. Both of these changes would eliminate the drain on corporate profits and giving them the ability to increase wages without allowing them to claim that the wage increase is unaffordable.

Market economies are good at creating income and wealth, but there is nothing inherent in a market system that will generate a socially acceptable distribution of either. For this to be achieved society needs rules, eliminate rules via deregulation and the result is a green light for those with enough economic power to use it to their advantage in the marketplace and in the halls of Congress.