Would It Work?

Perhaps you are among the few who can recall when, years ago, Amory Lovins, the energy maven, and his band of merry engineers at Rocky Mountain Institute looked into ways to reimagine cars. Every time they got rid of some aspect of standard Detroit engineering, such as a hugely heavy steel chassis and body, then a hugely heavy steel engine block, then the hugely heavy air conditioner that could cool half of Alabama, they found that each reduction made additional economies possible. They had to keep going back to the beginning and starting over with new assumptions. After dozens of such improvements, they put their findings in the public domain, and before long we ended up with the Prius and a bunch of other hybrids.

Amory Lovins looked at ways to reimagine cars.
Could we do the same for the working world?

Could something like that happen to our economy if everyone were paid a Living Wage? Is it possible that Living Wage would have a broad beneficial effect on taxes and government costs? Would we actually get better “mileage” out of a redesigned wage and tax structure? Sharply reduce poverty? Make lower taxes possible? Are we crippling ourselves by not having a Living Wage law?

Here’s some back-of-envelope figures. Obviously, it would take a systematic study to come up with dependable data. This is just a Test of Concept. Here they are.

There are 46.2M people living at or below poverty level, and 12.3M unemployed.

First, let’s assume that 80% of the people in poverty would be raised out of poverty by Living Wage, which I previously set at $53,000 per year for a family of four, which is enough to buy health insurance, retirement savings, and to pay taxes. That comes to almost 37M people. Not having them on the poverty rolls would save $256B per year.

When those families no longer collected government assistance, but instead paid taxes, the increased tax revenue would come to some $490B. The total tax balance would be $490B plus the $256B payments avoided, or $746B. That’s in the range of 35% of gross income tax revenue, a huge difference. The addition of $746B in tax revenue would boost total income tax revenue from $2.1T to $2.8T. That additional amount could be used to fund government programs, pay down national debt, or it could lead to lower taxes, which nobody complains about much. Making the lowest wage a Living Wage would also have a beneficial effect on our inequality, which is the worst among our peer nations.

Some back-of-envelope figures:
Living Wage might remove 37M people from poverty
and generate additional tax revenue of $746B.

A caveat: These figures assume that the 80% of people who are rescued from poverty can work. But many will not be able to work if we don’t also institute a work week of perhaps 28 hours, which I have dealt with earlier.

So, will it work? It’s far from certain from these tentative figures, but they do raise the question of whether we’ve been doing it all wrong. Perhaps, just perhaps, we could change the way we hire, pay, and tax, particularly at the bottom end of the income scale, work a shorter week, and end up far better off than we imagined.

Shouldn’t we be looking into this?

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4 CommentsLeave a comment

  1. A living wage would do away with that insidious system of gratuities for one thing. It is demeaning a waiter or waitress for example to have to depend on the generosity or otherwise of their customers tips to earn a proper living wage.

    They’re paid a pittance run off their feet for hours and can be fired at the slightest whim of their employers and pretty well treated like dirt from what I’ve seen on my visits to your country.

    Pay a fair days wage for a fair days pay.

    It’s time that all US workers were paid a decent minimum wage.and not have to depend on handouts.

    It wouldn’t be tolerated in Australia

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    • I couldn’t agree more.

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      • I think this is something along the lines of what you’d like to see in the US John; by following the link you can access the rates of pay for just about every type of worker in this country.
        Then when you consider that a small portion of the tax everybody pays 1½% is for Medicare benefits we are indeed the “Lucky Country”. Our Medicare service is second to none.
        I’d be interested in your views if you get the chance to follow the link through;
        The wages are set by the Federal Govt not the State Govt, so all Australian’s are treated equally
        http://www.fairwork.gov.au/awards/a-z-of-modern-awards/pages/default.aspx

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      • Yes, it’s pretty close. How nice to have a national ombudsman site where all these things are explained. In the US we won’t have a real democracy until the lowest paid is no longer in deep poverty.

        More than anything, I’d like the US to quit treating ordinary people as if they were disposable, not-quite-human, lazy, etc. The irony is that conservatives sincerely believe, against all evidence, that making the rich richer will eventually trickle down to everyone else.

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