Income Inequality Is A Policy Choice

Two headlines, side by side, in the New York Times the other day explain succinctly why income inequality is so rampant and extreme in our country. The first story, entitled “Profitable Giants Like Amazon Pay $0 in Corporate Taxes. Some Voters Are Sick of It”, details how some of the most profitable corporations in the country, or in the world for that matter, pay no taxes at all.

It has been the case for a long time that many of the country’s most profitable companies rarely pay taxes, despite the supposedly “oppressive” 39% top marginal tax rate that existed prior to the massive Trump corporate tax cut that became effective in 2018. Under the new 21% corporate tax rate, the number of corporations who paid no tax doubled from the previous year and includes more than 10% of the Fortune 500 companies who together made nearly $80 billion in profits last year. Many of those highly profitable companies actually managed to pay a negative tax rate, meaning they actually received a rebate in addition to paying no taxes on the billions in profit they made. The prime example of this situation is one of the world’s most valuable companies, Amazon. The online retailing behemoth received a $129 million rebate on income of nearly $11 billion.

The second story in the Times is entitled “Labor Dept. Says Workers at a Gig Company Are Contractors”. The story concerns a Labor Department ruling involving the workers at an unnamed company, assumed to be a cleaning service. The Department decided that the workers for that company could be classified as contractors rather than employees, allowing the company to avoid the costs of offering a minimum wage, paying overtime, or contributing Social Security taxes, costs that could raise the labor expenses of the firm by up to 30%.

While the ruling technically only applies to this one unnamed company, experts believe it is written so broadly and expansively that it will effect millions of workers in the gig economy. The ruling was delivered in a so-called “opinion letter” that has far more weight than a simple agency guidance. Opinion letters indicate that the Labor Department will not begin enforcement action against the company in question and are usually very specifically tied to that company. According to one labor lawyer, “This doesn’t read like a normal opinion letter. You go back historically to most opinion letters and they are short, defined, with multiple disclaimers. This is expansive — it’s back to the basics, applicable to numerous situations”.

Specifically, the letter states that the company “does not impose requirements on how its service providers must perform their work, such as what transportation route to take, the order in which to clean an apartment”. In addition, workers could determine how many and which cleaning jobs they wished to take and provided their own cleaning materials. In summary, the letter stated that the workers “do not develop, maintain or otherwise operate” the application through which cleaning jobs are posted and taken and are therefore not critical to the company in question. That reasoning, of course, is patently absurd in that their business would collapse if no workers took these jobs. Describing the workers as not integral to the job is, according to another labor lawyer, “a narrow parsing of the business of this company. It’s a huge red flag” for allowing other gig economy workers to be classified as contractors, further reducing workers’ pay and economic security while saving businesses potentially billions of dollars. If this ruling does begin to be applied broadly within the gig economy, you can be sure that other typically employee-centric firms will restructure their business models to take advantage of the potential savings of this kind of contractor model.

The Republican attack on workers may get any worse than anyone can imagine. Stephen Moore, a Trump nominee for a position on the Federal Reserve Board, has been 100% wrong on economic issues 100% of the time, yet he remains an important and respected figure in conservative economic circles, despite massive evidence that he is simply a GOP hack. Moore will apparently not be confirmed for the position, not because of his economic acumen or lack thereof, but due to his history of sexist and racist comments and his apparent unwillingness to pay alimony to his former wife who divorced him after he openly carried on an affair in front of her.

As a still respected conservative economist, however, Moore has some unique economic theories. In 2016, Moore stated, “I’m a radical on this. I’d get rid of a lot of these child labor laws. I want people starting to work at 11, 12”. This idea may seem laughable to reasonable people but it is a remarkably prevalent theme on the right. In 2011, Newt Gingrich described child labor laws as “truly stupid”, adding “[S]chools ought to get rid of the unionized janitors, have one master janitor and pay local students to take care of the school” which also “would be dramatically less expensive than unionized janitors”. As Ian Millhiser also points out, there are probably at least a few justices on the Supreme Court who would uphold a law that banned child labor protections altogether.

If you have trouble believing that this is not the direction of the Republican party, you haven’t been following its decline into radicalism over the last four decades. As all these stories indicate, the goal of the Republican party is to allow CEOs and shareholders to pocket more and more money while paying actual workers less and less. Looking at the rampant income inequality in this country, exceeding the levels seen in the Gilded Age of the 1920s, the GOP has been remarkably successful in achieving their goal.

Originally published at https://thesoundings.com on May 2, 2019.

Thoughtful discussions on politics and economics with some sidelights in photography and astronomy.

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