Tag Archives: Salaries

New paper on income inequality: Does taxing the rich hurt the middle class?

Aparna Mathur (right)
Aparna Mathur (right)

Here’s an article by Indian economist Aparna Mathur.

She writes (in part):

In a recent paper that I co-authored with Kevin Hassett, we explored the effect of high corporate taxes on worker wages. The motivation for the paper came from the international tax literature (summarized by Roger Gordon and Jim Hines in a 2002 paper1) that suggested that mobile capital flows from high tax to low tax jurisdictions. In other words, in any set of competing countries, investment flows are determined by relative rates of taxation. The current U.S. headline rate of corporate tax is 35 percent. The combined federal and state statutory rate of 39 percent is second only to Japan in the OECD. With Japan set to lower its statutory rate later this year, the U.S. rate will soon be the highest in the OECD and one of the highest in the world. What effect do these high rates have on worker wages?

When capital flows out of a high tax country, such as the United States, it leads to lower domestic investment, as firms decide against adding a new machine or building a factory. The lower levels of investment affect the productivity of the American worker, because they may not have the best machines or enough machines to work with. This leads to lower wages, as there is a tight link between workers’ productivity and their pay. It could also lead to less demand for workers, since the firms have decided to carry out investment activities elsewhere.

Our paper was one of the first to explore the adverse effect of corporate taxes on worker wages. Using data on more than 100 countries, we found that higher corporate taxes lead to lower wages. In fact, workers shoulder a much larger share of the corporate tax burden (more than 100 percent) than had previously been assumed. The reason the incidence can be higher than 100 percent is neatly explained in a 2006 paper by the famous economist Arnold Harberger.2 Simply put, when taxes are imposed on a corporation, wages are lowered not only for the workers in that firm, but for all workers in the economy since otherwise competition would drive workers away from the low-wage firms. As a result, a $1 corporate income tax on a firm could lead to a $1 loss in wages for workers in that firm, but could also lead to more than a $1 loss overall when we look at the lower wages across all workers.

Following our paper, several academic economists substantiated our results, using different data sets and applying varied econometric modeling and techniques. Some examples of these studies include a 2007 paper by Mihir A. Desai and C. Fritz Foley of Harvard Business School and James Hines Jr. of Michigan University Law School, a 2007 paper by R. Alison Felix of the Federal Reserve Bank of Kansas City, a 2009 paper by Robert Carroll of The Tax Foundation, and a 2010 paper by Wiji Arulampalam of the University of Warwick and Michael Devereux and Giorgia Maffini of Oxford.3 A recent Tax Notes article that I co-authored summarizes these various studies and also the lessons from the theoretical literature on the topic. The general consensus from theory and empirical work is that while we may argue academically about the size of the effect, there is no disagreement among economists that a sizeable burden of the corporate income tax is disproportionately felt by working Americans. On average, a $1 increase in corporate tax revenues could lead to a dollar or more decline in the wage bill.

Conservatives and liberals have the same goal. We both want to help the poor. Liberals think that taking money from the rich and giving it to the poor helps, but all it does it cause the rich to move their capital and jobs elsewhere, leaving the poor poorer. Conservatives let the rich keep their money and encourage them to risk it trying to make more money by engaging in enterprises that create wealth – creating products and services from less valuable raw materials. In a socialist system, the rich get poorer, but so do the poor. In a capitalist system, the rich get very rich, but the poor also gain more wealth. That’s what happens when corporations like Apple make IPads out of junky raw materials. That’s how wealth is created – by letting people who want to make things keep more of what they earn. We all benefit from encouraging people to make new things and provide value for their neighbors.

Related articles

Republicans introduce national right-to-work legislation

Sen. James Demint

From the Hill.

Excerpt:

Eight Republican Senators introduced a bill Tuesday giving workers a choice as to whether to join labor unions, which they argue will boost the nation’s economy and provide an increase in wages.

Sen. Jim DeMint (R-S.C.), introduced the National Right to Work Act to “reduce workplace discrimination by protecting the free choice of individuals to form, join, or assist labor organizations, or to refrain from such activities,” according to a statement.

Seven other Republicans signed onto the effort: Sens. Tom Coburn (Okla.), Orrin Hatch (Utah), Mike Lee (Utah), Rand Paul (Ky.), James Risch (Idaho), Pat Toomey (Pa.) and David Vitter (La.).

“Facing a steady decline in membership, unions have turned to strong-arm political tactics to make forced unionization the default position of every American worker, even if they don’t want it,” Hatch said. “This is simply unacceptable. At the very least, it should be the policy of the U.S. government to ensure that no employee will be forced to join a union in order to get or keep their job.

“Republicans cited a recent poll they said shows that 80 percent of union members support having their policy and that “Right to Work” states outperform “forced-union” states in factors that affect worker well being.

From 2000 to 2008, about 4.7 million Americans moved from forced-union to right to work states and a recent study found that there is “a very strong and highly statistically significant relationship between right-to-work laws and economic growth,” and that from 1977 to 2007, right-to-work states experienced a 23 percent faster growth in per capita income than states with forced unionization.

“To see the negative impacts of forced unionization, look no further than the struggling businesses in states whose laws allow it,” Vitter said. “It can’t be a coincidence that right-to-work states have on balance grown in population over the last 10 years, arguably at the expense of heavy union-favoring states.”

DeMint blamed the problems faced by U.S. automakers on the unions.

“Forced-unionism helped lead to GM and Chrysler’s near bankruptcy and their requests for government bailouts as they struggled to compete in a global marketplace,” he said. “When American businesses suffer because of these anti-worker laws, jobs and investment are driven overseas.”

If you want to attract businesses, then you need to have pro-business laws. That’s where jobs come from – businesses.

Here’s an article about states who are trying to pass these laws to attract more employers.

Excerpt:

Currently 14 states beyond Indiana and Wisconsin are considering legislation that would limit union benefits and/or collective bargaining power. They are: Alaska, Hawaii, Maine, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Mexico, Ohio, Pennsylvania, Virginia, Washington (state) and West Virginia. In any number of these states, supporters have planned or held rallies against the measures. But public support might be less than deep. According to a Rasmussen Poll conducted late last week and released Monday, 48 percent of likely U.S. voters sided with Wisconsin Governor Walker whereas only 38 percent sided with his union opponents; the other 14 percent were undecided. And 50 percent of the respondents favored reducing their home state’s government payroll by one percent a year for 10 years either by reducing the work force or reducing their pay. Only 28 percent opposed such action.

This is how we are going to turn the recession around. Cut off the spending on left-wing special interests – NPR, PBS, ACORN, Planned Parenthood, Unions. They all will have to pay their own way, just like the grown-ups do.

Ohio Republicans pass bill to cut bloated union salaries and benefits

From the Wall Street Journal.

Excerpt:

Ohio state senators narrowly approved a bill that would prohibit public-employee unions representing 400,000 state employees from bargaining over health benefits, pensions and working conditions.

While national attention has focused for weeks on a similar battle in Wisconsin, the vote, by 17-16 in Ohio’s Republican-controlled Senate, virtually ensured that the Buckeye State will become the first to strip collective bargaining rights from public employees as a means of grappling with gaping budget deficits.

The bill now goes to the House, where the Republicans have a 59-40 majority. If approved, as expected, it will move for signature to Republican Ohio Gov. John Kasich, who supports the bill.

[…]Republican lawmakers say worker pay and benefit cuts are needed to offset projected budget shortfalls. “If we’re going to grow in Ohio, we cannot raise taxes,” Republican state Sen. Keith Faber said Wednesday.

[…]Union officials began a coordinated effort to try to block bills in Wisconsin and Ohio that would curtail collective bargaining rights for public workers, and right-to-work legislation introduced in 13 states, including New Hampshire and Missouri. Those bills would allow workers in the private-sector to opt out of paying dues or belonging to a union. Such legislation threatens the unions’ funding and their political clout heading into the 2012 elections.

In Wisconsin, Republican state senators passed a resolution fining the 14 Democrats who left the state Feb. 17 to prevent a vote on Republican Gov. Scott Walker’s bill restricting public employees’ collective-bargaining rights. The vote on the resolution didn’t require a quorum, unlike the budget bill that would curb bargaining.

The Wisconsin Democrats, who are in Illinois, will be fined $100 a day for their absence when the Senate is in session. Several of the Democrats went to Kenosha, Wis., Monday to meet with Republican Wisconsin Senate Majority Leader Scott Fitzgerald, said Fitzgerald spokesman Andrew Welhouse. But the fines seemed to set back efforts to break the impasse.

Remember that Indiana Republicans are proposing a right-to-work bill, which would allow workers to OPT OUT of paying union dues, which are just used to campaign for Democrats and leftists causes anyway. This bill would break the backs of the unions.

Buckeyes and Badgers and Hoosiers, oh my!

Walter Williams asks how well public schools perform for the money

Walter Williams explains how much public schools cost and how well they perform.

One of the most left-wing places in the country is Washington, D.C. – which votes 90% Democrat.

How good are schools run by Democrats?

Only 14 percent of Washington’s fourth-graders score at or above proficiency in the reading and math portions of the National Assessment of Educational Progress (NAEP) test. Their national rank of 51 makes them the nation’s worst. Eighth-graders are even further behind with only 12 percent scoring at or above proficiency in reading and 8 percent in math and again the worst performance in the nation. One shouldn’t be surprised by Washington student performance on college admissions tests. They have an average composite SAT score of 925 and ACT score of 19.1, compared to the national average respectively of 1017 and 21.1. In terms of national ranking, their SAT and ACT rankings are identical to their fourth- and eighth-grade rankings — dead last.

And how expensive are schools run by Democrats?

During the 2006-07 academic year, expenditures per pupil averaged $13,848 compared to a national average of $9,389. That made Washington’s per pupil expenditures the third highest in the nation coming in behind New Jersey ($14,998) and New York ($14,747). Washington’s teacher-student ratio is 13.9 compared with the national average of 15.3 students per teacher, ranking 18th in the nation. What about teacher salaries? Washington’s teachers are the highest paid in the nation, having an average annual salary of $61,195 compared with the nation’s average $46,593.

Public schools cost too much and perform too little.