Op-Ed Contributor

Even Better Than a Tax Cut

By Lawrence Mishel

CreditCreditPablo Delcan





Republican tax proposals, like the reforms put forward by Representative Paul D. Ryan of Wisconsin, focus on lowering individual and corporate tax rates alongside revenue-saving efforts to simplify the tax code. But this same approach has been tried for decades — the same decades in which wages have continued to stagnate. Instead, these cuts have helped corporations, shareholders and the top 1 percent capture a larger share of economic growth.

Similarly, President George W. Bush’s 2001 and 2003 tax cuts, which likewise promised to increase middle-class income, were followed by slower productivity and wage stagnation. The latest proposed Republican cuts won’t even provide much short-term relief, as they tend to be targeted at the highest-income households. For example, under a much-touted proposal by Representative Dave Camp of Michigan, the middle fifth would gain just $279 in tax relief a year, according to the Tax Policy Center, while the top 0.1 percent would garner the largest rate cut, valued at $248,000.

Obtaining better economic growth, another goal of these cuts, is certainly worthwhile, but it establishes only the potential for broad-based wage growth — it’s no guarantee. Again, we have seen plenty of growth since 1979, but this expansion has not “trickled down” to middle-wage workers.

The challenge is to ensure that a typical worker’s wages grow along with profits and productivity. There is no silver bullet, but the key is to make raising wages the central focus of economic policy making and to reverse decades of decisions that have undercut wage growth.

We need to start with monetary policy. In the next few years, the most important decisions being made about wages are those of the Federal Reserve Board as it determines the scale and pace at which it raises interest rates — and thereby slows job growth. Before raising rates, it is essential we achieve a robust recovery, with roughly 3.5 to 4 percent annual wage growth. This will ensure that wage growth matches productivity growth and that everyone can benefit from the rebounding economy.

Another short- to medium-term policy decision affecting wage growth is to avoid trade deals, such as the proposed Trans-Pacific Partnership, that would further erode Americans’ wages and send jobs overseas.

And there are several things we can do to bolster the labor standards and institutions that support wage growth. Raising the minimum wage to $12.50 an hour by 2020 would ensure that the minimum wage equals more than half the average wage, as it did in the late 1960s. And it has been too long since we have raised the salary threshold for overtime pay; raising it to $50,000, so that anyone making below that would get overtime, would move us closer to what prevailed in the 1970s, when about two-thirds of salaried workers received overtime pay.

Protecting and expanding workers’ right to unionize and bargain collectively is also essential; the erosion of collective bargaining is the single largest factor suppressing wage growth for middle-wage workers over the last few decades. And we need to modernize our New Deal-era labor standards to include earned sick leave and paid family leave so workers can balance work and family.

Finally, stronger laws and enforcement to deter and remedy wage theft and the illegal treatment of employees as independent contractors could put tens of billions of dollars into workers’ pockets.


Lawrence Mishel is the president of the Economic Policy Institute and co-chairman of Americans for Tax Fairness.

A version of this article appears in print on , on Page A19 of the New York edition with the headline: Even Better Than a Tax Cut. Order Reprints | Today’s Paper | Subscribe