Attacking Inequality

In Labor Day's Washington Post, Sebastian Mallaby presents an excellent analysis which concludes that tax reform may be the best way to attack inequality.

We in the Christian Left agree with everything he says, or almost everything. Unionization and an increase in the mimimum wage are necessary parts of the equation and must be done at the same time so that when the minumum wage goes up working conditions, such as air conditioning do not deteriorate. More about this later.

There is only one fly in the ointment - getting the changes he advises done. The political leadership of both parties like rich people. Rich people give them money. The centrist tax reform solutions which we also agree with will be resisted by anyone who sends their legislator a big check, which is why if you are serious about tax reform you must look to campaign finance reform first. We will do that. Our tax reform will also be more attractive to working people, because we have proposed and will end the responsibilty of filing by all but business owners and the wealthiest tax payers. We will also bring together the anti-abortion vote and the living wage vote by increasing the credit for children to an adequate level for a middle class existence. This will allow an end to welfare programs for all but the illiterate, who would be paid to achieve literacy. Shifting tax benefits to families and tax filing to employers leaves open a loophole that must be filled, since employers may potentially shift their entire payroll cost to this tax credit. In order to avoid this, the minimum wage subject to what would amount to a value added tax would be raised to at least $20,000.00 per year.

Going back to unionization, there is one circumstance where it will not drive jobs offshore - if unions invest their pension funds in the firms where their employer work - especially the multi-national employers or employers with significant off-shore supply chains. Gaining control of these firms will allow for unions to benefit from the Wal-Mart effect in reverse. Rather than demanding a non-union shop, union owned firms will demand that their supply chains be unionized and that a living wage be paid to overseas workers. Further, they will use transfer pricing schemes to assure this happens. If unions wish to survive and have firms that thrive, they will change the way they do business as well as how the firms they own do business and pay their employees. they will als change their longstanding fear of Social Security reform. Mallaby states that tax reform can be used to lower payroll taxes. This is one possible scenario. Another is to meld the payroll taxes for non-retired survivors, disability insurance and Medicare into the business income tax as part of tax reform (lowering net but not gross wages accordingly) and by directing at least a portion of the retirement portion (possibly the employer contribution) to acquiring shares in the employer which would be voted by the union or professional association. Diversivification is important, but this can be accomplished by a joint insurance fund whereby each such firm donates share of its employee or union owned equity each year so that, unless all such funds fail at once, no retiree or employee looses everything in a business failure. This is also a cheaper alternative than a mutual fund, as fund administration is done at the group rather than individual level.

Doing all of these things will truly attack inequality, although it can all start with tax reform.