Op-Ed: Three Proposals for the OWS Crowd


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.

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There are 8 comments for this post

  1. avatar smoker1 says:

    I missed something. Carl the gardener used to make $100. Now he makes $108. Is that a tax? Does the money go to the state? Or is it a wage increase? Does he keep the money? Either he keeps it or pays it to the state. Not both.

    (unless he has a photocopying business on the side)

    • avatar Donald from Pasadena says:

      I think you’re inadvertantly conflating the concept of a sales tax with that of an excise tax. A sales tax is levied on the seller, while an excise tax is assessed on the buyer.

      A sales tax works like this: For every $100 Carl charges his customers, he would have to pat $8 to the state, which means that he nets $92. (For purposes of discussion, we won’t factor in local sales taxes or federal and state income taxes.)

      An excise tax works like this: For every $100 one of Carl’s customers spent on purchases, Carl would act as an agent for the state and assess the customer an additional $8 in tax, thus raising the cost of the purchase to $108.

      Therefore, eliminating the sales tax would therefore imply that Carl gets to keep the entire $100 he charges, and not that he’d have $108.

  2. avatar Elliott_James says:

    “What would happen if instead of doing that we simply eliminated the sales tax on goods made in California?”

    I think this is an OUTSTANDING idea. There are some complicated things that would have to be sorted out, such as how much of the material and labor would have to be California sourced to qualify as “made in California,” and whether or not the corporate HQ needs to be in California as well. Regardless, I like the idea because it would function as a de facto tariff against cheap imported goods.

  3. avatar sqrjn says:

    Great idea! To bad it’s probably unconstitutional. States generally can’t discriminate in favor of local goods without violating the commerce clause. See Brady four part test 1 must be applied to activity with substantial nexus to in state activity 2 be fairly apportioned to in state activity 3 not discriminate against interstate commerce 4 be fairly related to services provided by state.

    You could eliminate sales taxes, but you can’t do it just for California goods. Think of what would happen if every state started behaving like that.

    • avatar Elliott_James says:

      Thanks for the legal education. I see the logic of not wanting trade wars among the states, even if Calif would do pretty well given the diversity of our economy. Rhode Island would be hurtin’ though.

    • avatar sqrjn says:

      I say we secede!! SF is already on its own planet, no reason California can’t be it’s own nation. We only get back 78 cents for every dollar we send the feds!!

    • avatar Donald from Pasadena says:

      That’s a great idea, except for that pesky U.S. Constitution again. Remember, the Confederacy didn’t the Civil War — it lost, so the question od secession is moot.

  4. avatar chrisfinnie says:

    Empowering unions is another way we could reduce income inequality. At least it has worked in the past.

    In Germany, workers sit on the corporate boards. That helps to reduce inequality of pay scales as they get to vote on the bosses’ pay packet, as well as the workers’.

    Investing in infrastructure tends to increase domestic manufacturing–unless it’s the Bay Bridge. But there are other projects that would have that effect. And manufacturing jobs have traditionally had relatively high pay.

    Frankly, the other way we could raise pay scales is to reverse the slide in funding for higher education. Unemployment rates are lower and pay is higher among those with a college education. Plus an educated workforce tends to draw employers and to increase the start-up rate for new businesses. In other words, making college less expensive and more accessible is a good investment in our people, our economy, and our future. Plus it creates an upward spiral as more broad-based pay increases mean that more people are paying higher taxes, which helps bring in the revenue to fund colleges.

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