A Radical Tradeoff and What It Might Do

Consider this possibility: Living Wage becomes the law of the land; business pays no tax.

With individuals, Living Wage would pay for all necessities, rent, food, health care, etc. A family of four could live decently on this minimum wage. This would not be lavish living, but they would lack for nothing important, including health insurance and retirement savings. Poverty would largely vanish among those who are able to work and hold a job.

For purposes of discussion, let us assume that a Living Wage for a family of four is $42,000 per year (about $20/hr.). That’s double the official poverty level. This would be the lowest wage, beginning wage. No one could earn less. It would be a US average, varying somewhat with local conditions, and would probably be higher in most cities.

Australia has had Living Wage laws for a century. Poverty has not gone away, but workers are considerably better off than their American counterparts. Common work such as driving a jitney pays over $20 an hour. Australians in general are rather scornful of the idea of tipping because they consider it mildly insulting, rather like tipping your nurse, or your bank teller. Waiters are not tipped.

With our brave new plan, businesses would pay nothing in tax at federal, state, or local level. It is crucial that there be no erosion of regulations, particularly for safety and environment. Rather, they should be strengthened. Business would benefit by adherence to wise regulations because of fewer lawsuits, modernization, and increased efficiency. Years of studies have repeatedly shown this to be true, in spite of corporate beliefs to the contrary. Rules put in place, which would also be required of all companies exporting to the US, would modernize businesses and increase their competitiveness. Banning imports from companies who did not meet our standards would also protect American business.

States and localities could make up for lost business revenue by increasing the tax on individuals if necessary. This probably would not be necessary because the Living Wage would by itself sharply increase revenue from individuals, as well as eliminate much welfare cost. Since present corporate tax revenue is only 37% of individual income tax revenue, government tax revenue need only replace that 37% to come out even. For each new worker paid Living Wage, government not only gains a greater amount of tax revenue, but also benefits by no longer having to pay for unemployment.

Business has brought forth a continuous litany of complaints about their tax burden, which has fallen from 6+% of GDP in 1952 to about 1% in 2009, in spite of high nominal rates. Many big corporations spend large sums finding ways to avoid tax payments, and in fact, many or most of them pay either nothing or very low tax. Total elimination of the tax burden completely relieves them of the necessity of all calculation.

The greatest benefit to the country would be that poverty among the able bodied would be greatly diminished. The working poor would become the working middle class. Plutocracy really doesn’t care about this, but democracy does. The only welfare payments necessary would be for those who are unable to work. At the same time, there would be a large increase of revenue from individual income tax, of enormous benefit to the national budget and the national debt, as well as state and local budgets.

Where we run into difficulty with our radical plan is with businesses where taxes are not a significant cost, and with imports. High-labor food crops, for example. Field laborers would be lifted out of poverty, but the business would gain little benefit in taxes because business taxes are already low. However, this only means that costs would be passed along to consumers.

Imported goods would pose an even greater problem than they do today, unless we can pass laws requiring that they be made under living wage conditions. Many such goods today are made under exploitative, frequently dangerous, conditions by grossly underpaid third world employees. Our government makes virtually no effort to control these conditions. That leaves us, the consumers, as the regulator of last resort, and we find that determining such things is very difficult at best. There are very few efforts to guarantee fair pay, Fair Trade coffee being one, and they are voluntary, depending on us as consumers. Underpaid workers in the clothing industry are the reason we all have so many clothes. You can see the truth of this by inspecting the clothes closets in American homes built before WWII compared to those built more recently. Many new homes have walk-in closets, whereas older homes’ closets are usually no more than a fourth of their size.

Given that it’s nearly impossible to get the most practical laws through Congress, chances of getting Living Wage and no business tax established is slim indeed. But as a “what if” exercise to examine our national morality, it’s well worth thinking about, because it addresses two big problems in America today.

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Published in: on 2011/11/15 at 2:50 pm  Leave a Comment  
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