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It's Wages, Stupid!

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- 1884 days ago -
The key to reducing income inequality and assuring general prosperity, Petrella argues, is to tackle the widening wage-to-productivity ratio and assure everyone a living wage.

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Kit B (276)
Friday December 28, 2012, 12:28 pm
(Photo: 401(K) 2012 / Flickr)

It's Wages, Stupid! Progressive Tax Reform Alone Will Do Little to Close the Gap Between Haves and Productive Have-Nots

While President Obama and Congressional Republicans fiddle with so-called "fiscal cliff" negotiations, the working class burns.

Central to the budgetary impasse is an all-too-predictable partisan discrepancy over how best to handle the impending expiration of the Bush-era tax cuts. Whereas the Obama administration seeks to extend the 2001/2003 tax cuts for middle-income taxpayers only, Republicans insist that they must remain intact for all, including the most affluent. Political cheap shots aside, the debate illustrates a fundamental battle over competing visions for correcting widening levels of income inequality in the United States.

Here's some context for the deliberation: In 2001, the Bush administration reduced income-tax rates across the board. They scaled back the top marginal rate from 39.6 percent to 35 percent. Moreover, they cut the 36, 31, and 28 percent brackets by three percentage points each. And the 15 percent tax levied against the lowest-income earners was split into two sub-brackets to include a new 10 percent classification. Then, in 2003, President Bush eliminated the long-term capital-gains tax on individuals and couples in the two lowest marginal income brackets and dropped the 20 percent capital-gains tax bracket to 15 percent. The legislation also set in motion a plan to reduce the estate tax from 55 to 35 percent on estates valued at $5 million or more over the course of five years.

Though the expiration of Bush-era cuts would be fairly progressive, with the largest subsequent increases in taxes disproportionately affecting high-income families and individuals, our national obsession with tax-centered solutions to our so-called "fiscal cliff" problematically diverts attention from the ultimate source of widening income inequality in the United States: stagnating real wages for low- and middle-income earners.

Fiddling with tax rates - though nominally helpful for reducing income inequality in the short-term - represents an imaginary resolution to a more pressing challenge: ensuring that wages keep pace with gains in worker productivity.

Surging income inequality is fundamentally attributable to the grotesque divergence of pay and productivity for low- and middle-income workers since the mid-1970s. Though wages and productivity rates tracked evenly from 1948-1972, according to the Bureau of Economic Analysis (BEA), hourly compensation for low- and middle-income workers has grown less than half as fast as gains in productivity since the mid-1970s. Beginning in the mid-1970s, employers began taking advantage of historically high levels of surplus labor by suppressing wages. US labor shortages, which were a mainstay of the national economy since at least the formal abolition of race-based slavery, all but disappeared in the mid-1970s as a result of emerging automated technologies, the growth of outsourcing, the introduction of women into the "formal" labor market, and the passage of pro-immigration statutes in 1964.

The widening chasm between productivity and pay helps to explain why in the third quarter of 2012 after-tax corporate profits achieved a record share of the GDP - while total wages simultaneously plummeted to their lowest-ever GDP ratio.

From 1979-2007, the after-tax income of the top 1 percent of income earners grew 13.5 times as fast as the after-tax wages of the bottom 20 percent of workers. But here's the catch. The pre-tax income of the top 1 percent grew at nearly an identical rate - 13.9 times as fast - as the bottom 20 percent of workers over the same period of time. These data suggest in exceptionally clear terms that a regressive tax system isn't the primary driver of our nation's widening levels income stratification.

Yes, demanding that everyone "pay their fair share," as goes the fashionably vague leftist mantra, is certainly not a bad idea, but the single most enduring impediment to shared prosperity is stagnating wages for low- and middle-class income earners.

Quite simply, most of us aren't getting paid enough relative to our productivity levels.

That employment gains during our so-called economic recovery (2010 Q1 to 2012 Q1), for instance, "have been concentrated in lower-wage occupations, which grew 2.7 times as fast as mid-wage and higher-wage occupations," is of grave concern.

If we're truly serious about reducing income inequality, then we must tackle the widening wage-to-productivity ratio before we begin fiddling with taxes. Strengthening collective bargaining rights and agitating for living-wage legislation - more than any other factor - are crucial for re-establishing a robust linkage between worker productivity and pay, and ensuring shared, non-debt-financed prosperity for all.
*************Links within article at VISIT SITE****

By Christopher Petrella, Truthout | Op-Ed

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Roger G (154)
Friday December 28, 2012, 12:56 pm
noted, thanks !

pam w (139)
Friday December 28, 2012, 1:24 pm
AND...."trickle down prosperity" is a myth!

Tamara Hayes (185)
Friday December 28, 2012, 1:52 pm
Noted and it could not be more clear that this article has hit the nail on the head. Thanks Kit

Kit B (276)
Friday December 28, 2012, 1:58 pm

Thanks Tamara and Pam - though I guess it just might depend on the color of the trickle down, it sure is not green.

Yvonne White (229)
Friday December 28, 2012, 2:30 pm
Illinois is SO generous (NOT!) that I get a raise Next year of 10 cents! AND NO Gaurantee I'll keep the reduced hours we got last year, even with a contract, because the Governor is Still threatening Homecare cuts, after cutting Vital, Popular Institutions! So I lost my last line of Defense for my autistic son, in case of my death..:( I HATE Gov. Quinn (biggest DINO on earth!)..

Kit B (276)
Friday December 28, 2012, 2:45 pm

I'm sorry to hear that Yvonne, though I think that anyone in the US that is not suffering from wages abuse, is most likely within that tiny bracket of 1-5% of the nation. Fair and reasonable wages by far off set the anger and frustration most are feeling. Fair wages are also good for the economy, and allow for increased taxation which in turn helps to off set the cost of needed programs, like the one Yvonne mentions for her son.

Yvonne White (229)
Friday December 28, 2012, 4:40 pm
The politicians prefer cronyism & outrageous profits for "managed care" - meaning low wages, low quality of life, and much quicker over-turns of workers and "customers" (because those customers die more quickly, but I think more because they WANT to) ... Our family SAVED Illinois millions by NOT Institutionalizing our son when school Adm. suggested "He might be better off in a Home." I was shocked and nearly screamed "He has a home and it's in Your school district! So let's set up that IEP meeting - NOW!" He obviously wasn't used to being told what the law was & was used to bullying farm wives, but he quickly changed gears & got us taken care of... the great thing about small towns is everybody knows where everybody else lives, and their entire genealogy, politics, and Temperment!;) I love small towns, hate uppity Suburban Politicians!

Trish K (93)
Friday December 28, 2012, 4:52 pm
We should all make as much $ as congress - $174k - I mean, gee whiz, we do so much more for america than they do. Imagine there is no minimum wage, just a living wage and no Public Corporation CEO making 100 X's more than the average worker and by the way, why aren't these profits trickling down to the stock holders since they are publicly traded ? Who is voting for all this for all this crap ? I am so ashamed and embarrassed for Americans to have such a racist , obstructionist , overpaid and incompetent congress. Thanks for helping me shed a little frustration Kit.

Kit B (276)
Friday December 28, 2012, 5:08 pm

I think most of us feel that way Trish.

Paul Girardin (126)
Friday December 28, 2012, 5:26 pm

JL A (282)
Friday December 28, 2012, 5:37 pm
I'd like to see a rule requiring that the ratio of CEO compensation (including stock options and bonuses) to the median wages of the company's employees cannot be more than 5 or 10-fold...that would be a start along with raising the minimum wage so it has the buying power of 1966's minimum wage.

Kit B (276)
Friday December 28, 2012, 5:54 pm

In 1966 the minimum wage was $1.40 per hour and it was directly in keeping with the cost of living. I remember way back then and top company executives had $20,000- 25,000 as a annual salary as a goal of accomplishment.
Current minimum wage is $7.25 per hour and couldn't be much farther from the current cost of living. Top executives are paid in the high millions and additional bonus packages, for which they complain endlessly about the tiny taxes they are assessed. That is the disconnect, people that do the work are cast aside for the wealthy.

Kerrie G (118)
Saturday December 29, 2012, 4:40 am
Noted, thanks.

lee e (114)
Saturday December 29, 2012, 9:27 am
Thanks to the deconstruction of this empire by the wealthy - aka bushites - we are not going to achieve a semblance of sanity economically without revolution, hopefully a non-violent one! The bushites brought a new definition to governance - the country be damned - it's the money - hence their consorting with the BinLadens and Saudis - thet're an unscrupulous lot - and we're all suffering - in worse shape than daddy in the ICU!

Craig Pittman (52)
Saturday December 29, 2012, 9:55 am
I tend to agree Lee. There will be no equity without an economic revolution. The democratic process just isn't working for most of us. Let's see what happens in a few days with the so-called financial cliff. Will there be any move at all to level the playing field a little or will the middle class get hammered with even more disproportionate taxes. Totally bang on Kit. Trouble is that not enough of us working folks are angry enough YET to do much about it. Or?

Kit B (276)
Saturday December 29, 2012, 12:45 pm

Unions need to reorganize and expand their base to include all workers. Unions could also take the next logical step that has shown to be successful; buying the company and forming Co-Ops owned and operated by the employees.

Wayne W (12)
Saturday December 29, 2012, 3:39 pm
Thanks, Kit.

It's been axiomatic in the United States that niddle class income, union or not, rises and falls with union membership. Unions brought the reforms that differentiate the American worker from a serf.

Here's what we need to remember. As unions shrank, inequality grew. Since 1983 [about the time Ronald Reagan began the assault on the American worker], the number of states in which at least 10 percent of private-sector workers have union contracts has shrunk from 42 to 8. In light of that, to now claim that unions are the cause of the debt is just absurd.

Here's a (very long but informative) essay on this issue.

If Labor Dies, What's Next?

The only way unions can regain their strength and provide a counterweight to corporate power is if liberals join the fight.

Judy ComputerDownC (97)
Saturday December 29, 2012, 9:25 pm
This article and everyone's comments are so true. Middle and especially lower class wages have stagnated for a long time. Inflation continues, but wages are nearly flat. Something has to reverse the money and power shift that is moving toward the wealthy and the corporations. Fooling with the tax system is not going to make much difference. The people on top have lawyers who can figure out how to beat the system, anyway, and there are always offshore tax shelters.

I know everyone is sick to death of the threat of the fiscal cliff. It pays to keep the poorly-informed (and there are a LOT of them) in fear. Really, the politicians remind me of a fifth grader campaigning for class president. The politician says, "I'll cut everybody's taxes." No matter that there will not be enough money to pay for essential services, education, infrastructure, etc. Everybody says, yeah, that will be great. The other guys need to quit spending, and collecting entitlements. I can't believe the general public has been manipulated into actually giving a damn about the deficit, when they can't even get a decent job! The fifth grader says, if you elect me class president, I will see that everyone in the cafeteria gets free ice cream every day, and everybody cheers.

Mary Donnelly (47)
Saturday December 29, 2012, 10:09 pm
Thanks Kit.

What's a living wage? That definition varies from time to time and place.

Once again I point out that the minimum wage (somewhere between $US7.50 and US$10 per hour for an adulult) would bring massive fines etc. in Australia, and other places. Americans seem to accept that wage,, and, as a result, go for crime, defence forces, and sport; or work several jobs to get what they need.

This point validates your constant point about modern USA--inequality seems to be systemic, and accepted, as it has been since at least 1789.

reft h (66)
Saturday December 29, 2012, 11:57 pm
thanks for the article

Deborah W (6)
Sunday December 30, 2012, 6:32 am
Dues to unions are like taxes to Government ... the imbalance to reality for the masses they represent is overwhelming, and we voted for it all.

Lois Jordan (63)
Sunday December 30, 2012, 2:56 pm
Noted. Thanks, Kit. While the suffering continues throughout middle and lower class America, the headline I read today is that Congress is getting a raise! Now, that really burns me up. This "do-nothing" Congress who has given themselves so many days off I've lost track....gets a raise?! I hope the phone lines to Congress tomorrow overload. We must ask for a new minimum wage of $15 hr. They use their "bargaining tools" and its time for us to use ours.

Angelus S (125)
Wednesday January 2, 2013, 5:00 am
The federal poverty level should be $35000 per year for a single and $65000 for a family of three. Wj=hy doesnt the governemnt bring back tax deductions for credit card,car,personal, mortgage loan interest like back in 1980-81 to stimulate credit markets? We need to nix the new TPP and do away with NAFTA to bring manufacturing back to the USA and legsilate mandatory CEO and other Executive maximum pay and bonuses to a reasonable level and this will free some funds to help provide a living wage. tax incentives for companies which provide a living wage can be implemented.
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