By Richie Ross
Special to Calbuzz
The loud roar of economic populism now reverberating in the U.S. is a kind of political mash up, fusing two similar, but distinct themes: “Tax the Rich” and “Income Inequality.”
The Urban Dictionary defines a “mash up” in two ways: the first is: “To take elements of two or more pre-existing pieces of music and combine them to make a new song.” The second is: “A cacophony of the senses.”
For as long as I can remember, “Tax the Rich” has been one of the top hits in the legislative/political juke box; unlike that great oldie, the Occupy Movement’s hit single, “Income Inequality” has soared to the top of the charts only in the last several months.
Both “songs” are important public policy discussions. Unfortunately for progressives, however, the mash up of the two in the debate over the economy has become a “cacophony” that detracts from the clarity and power of both.
Equity is not equality: The political class, both in Washington and Sacramento, is debating tax increases on the richest 1%. Such a policy, while important and necessary, only addresses tax equity to pay for public services – it doesn’t deal with income inequality.
The mainstream media’s focus on legislative wrangling over taxes, combined with the Occupy movement’s inarticulate program for dealing with wealth disparity, means that the income inequality issue has been almost completely lost in the “cacophony.”
Among other things, conflating the tax debate with the inequality discussion minimizes the gross inequities among working people.
The Occupy movement’s “99%” slogan makes a good protest sign. But under the 99% formulation, those just below the top 1% (the next 9%) — who earn between $125,000 and $400,000 per year – share their “plight” with those in the bottom 40% — who earn a maximum of $26,000 per year.
I’m no economist, but while changing income tax rates and brackets addresses tax equity, no matter how progressive the changes, it isn’t going to do much to deal with the far more fundamental problem of income inequality raised by those numbers.
So here are some suggestions for some different political “mash-ups” we should consider playing to deal with the tax and equality issues alike.
Public works: In October, Los Angeles Times columnist George Skelton wrote about the $9.1 billion in infrastructure bonds that California voters have approved, that the State Treasurer has sold, and that the General Fund has been paying $630 million a year in interest on… but which aren’t being used.
If one accepts the premise that each $1 billion in infrastructure construction creates 15,000 jobs paying $65,000 per year, we could put 135,000 construction workers back to work.
Work done by the California State Library’s Research Service shows that for every 100,000 jobs created paying $65,000, the state’s General Fund would gain $2.3 billion. The state would collect $800 million in additional income, sales and gas taxes while being relieved of $1.5 billion in demand for social services.
Putting the bonds we’ve approved to work would address income inequality while generating real revenues. But instead, Sacramento is only debating tax equity.
Taxes vs. pay hikes: The good people involved in the Think Long project have developed a proposal for taxing the service sector of the economy. They correctly point out that such taxation would generate billions in new sales tax revenues for the state.
Imposing an 8% sales tax on services is essentially adding an 8% price increase. The majority of the 40% of Californians earning below $26,000 work in the service sector of the economy. If we are going to consider raising prices by 8% on the services that these Californians provide, shouldn’t we at least consider what impact an 8% wage increase would have on both their lives and the state’s General Fund?
A reasonable back-of-the-envelope estimate is that an 8% wage increase for the bottom 40% of taxpayers would generate roughly $500 million in General Fund revenues… and be a step in addressing income inequality. As wages rise so do General Fund revenues. And rising wages lowers demand for services… doubling the positive impact on the state budget deficit.
Buy California: Think Long also suggests that we lower the sales tax on non-service items. What would happen if instead of doing that we simply eliminated the sales tax on goods made in California?
We would empower ourselves to decide whether or not we would pay sales tax based on our consumptive decisions. How long would it take for manufacturers to locate here in order to take advantage of what would be an 8% price advantage over goods manufactured elsewhere?
And what impact would such a policy have on creating jobs that address income inequality?
Bottom line: Maybe a “mash up” of all three of these concepts would give us lyrics that go something like this…
Joe, a heavy equipment operator, is back at work on an infrastructure project… He’s got enough money to rehire Carl his gardener, and pay him the 8% increase… Carl buys a couple of new lawnmowers. He picks out the model that’s made in California so he doesn’t have to pay sales tax… Martha in L.A. got a job in a small new manufacturing plant assembling lawn mowers… Joe, Carl and Martha are all paying taxes that support their kids’ schools.
While my numbers may not be perfect, I do think it’s mash-up worth discussing.