NC Budget and Tax Center

Raising wages not cutting taxes

Yesterday, Lawrence Mishel from the Economic Policy Institute made the compelling case that policymakers have missed the mark by focusing on tax levels rather than wage stagnation in their pursuit of improving growth rates and the economic well-being of the majority of Americans.  As Mishel points out:

Wage stagnation is a decades-long phenomenon. Between 1979 and 2014, while the gross domestic product grew 150 percent and productivity grew 75 percent, the inflation-adjusted hourly wage of the median worker rose just 5.6 percent — less than 0.2 percent a year. And since 2002, the bottom 80 percent of wage earners, including both male and female college graduates, have actually seen their wages stagnate or fall.

At the same time, taxation does not explain why middle-income families are having a harder time making ends meet, even as they increase their education and become ever more productive. According to the latest Congressional Budget Office data, the middle 60 percent of families paid just 3.2 percent of their income in federal income taxes in 2011, less than half what they paid in 1979.

Mishel goes on to detail a policy agenda that is far better targeted than tax cuts for delivering benefits to the majority of American workers and the broader economy.  This agenda includes some familiar proposals also appropriate for state policymakers: addressing wage theft and misclassification, raising the minimum wage and protecting workers rights to collectively bargain.  It also includes important macro-economic and trade policy choices like stopping the offshoring of jobs through trade deals like the Trans-Pacific Partnership and ensuring the Federal Reserve holds interest rates down until wage growth is more robust.

Again in Mishel’s own words:

Contrary to conventional wisdom, wage stagnation is not a result of forces beyond our control. It is a result of a policy regime that has undercut the individual and collective bargaining power of most workers. Because wage stagnation was caused by policy, it can be reversed by policy, too.

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