Sort by

Income Redistribution That Both Parties Love

David Callahan

Suppose we think income redistribution is a good idea -- given near-record corporate profits at a time when wages for most workers are stagnant. There are two main ways to achieve this goal: We could make business pick up the tab directly by raising the minimum wage, making it easier for workers to form unions, and mandating more employee benefits, such as paid vacation time. Or, we could leave business alone, but give poorly paid workers public benefits like tax refunds, free health insurance, food assistance, and so on. 

Surveys show that most Americans believe it's better to force business to pick up the tab to reduce inequality. That's the finding of Leslie McCall's important new book, The Undeserving Rich: American Beliefs of About Inequality, Opportunity, and Redistribution. This isn't surprising, since it seems fair that if lots of wealth is being created, the workers who are helping create that wealth should get a nice slice of the pie. And it seems fair that if business greed is fanning inequality, we should lean on business to solve that problem. Why should I, David Taxpayer, be asked to solve inequality by paying for things like the EITC and Medicaid for low-wage workers?

As it happens, though, the United States political system has favored the exact opposite approach to inequality over the past twent years. Politicians of both parties have not pressed business to share the wealth. Instead, we have seen a dramatic expansion of public subsidies of low-wage work since the early 1990s. While the minimum wage stagnated during the Clinton years, and modern union busting became commonplace, Congress dramatically expanded the Earned Income Tax Credit, enacted other tax credits to help lower income working families, and created SCHIP, the largest expansion of taxpayer-subsidized health insurance since Medicare.

During the early 2000s, when Republicans controlled both branches of government, all these subsidies were preserved and Congress also cut federal income taxes for households lower down the economic ladder -- to virtually nil. (Although these households still pay considerable payroll, sales, and state taxes.) Meanwhile, the minimum wage remained unchanged from 1997 to 2007, steadily losing its purchasing power, and business became ever more brazen in flouting or circumventing labor standards, including the right to organize. 

When President Obama came in, he enacted another major expansion of tax credits for low wage workers and, of course, the Affordable Care Act -- the biggest helping hand such workers have gotten in a generation. But he didn't lift a finger to fight for the Employee Free Choice Act, which would have made it easier for workers to join labor unions. And only recently did the President come out strongly in favor of raising the minimum wage. 

While today's hardline Republicans are now gunning to reduce various subsidies for low-wage workers, the longer story over two decades is that both parties have created a system that redistributes wealth via the tax code and the safety net, while letting business do whatever it pleases. 

All this explains why a new study out yesterday finds, as my colleague Amy Traub wrote here, that: 

public assistance to workers in the fast food industry and their families costs nearly $7 billion a year. That includes public spending on Medicaid, the Children’s Health Insurance Program, food stamps, the Earned Income Tax Credit and Temporary Assistance for Needy Families—but doesn't account for free school lunches, housing assistance, or home heating aid that families may also need to survive on median wages of $8.69 an hour.  

Taxpayers forked over $1.2 billion last year to subsidize McDonald's workers alone. As Amy points out: 

For the fast food corporations it’s a lucrative business model: they get labor at rates too low to keep families housed and fed, the public makes up the difference, and the company rakes in the profits.

Of course, though, Amy also notes that even with public assistance programs, fast food workers still struggle to survive. So this system isn't working for either taxpayers or workers. Only for business -- yet more evidence of how money saturates politics. 

The only bright spot in this picture is that -- as conservative love to remind us, and as CBO data shows -- the top 10 percent of Americans pay over 70 percent of all federal income taxes. The top 1 percent pay some 40 percent of income taxes. Those taxes, along with corporate taxes that also mainly fall on the wealthy, are the chief source of revenue for all federal safety net programs -- excluding Social Security and Medicare, which are funded by payroll taxes.

The share of federal income taxes paid by the rich is going up further, too, thanks to the fiscal cliff deal at the start of this year that raised rates on income, capital gains, and dividends for high earners. 

So redistribution is definitely happening. But the rich are being hit up on behalf of the working poor after they deposit their fat executive paychecks or get their stock dividends or realize capital gains.

Unfortunately, of course, less affluent taxpayers are also chipping in to subsidize cheap labor for places like McDonald's.  

You'd think that taxpayers will eventually get tired of footing this bill. In particular, somebody might want to tip off all the rich people who don't exploit cheap labor to make their bundle -- and there are plenty of them -- that they are subsidizing some other guy's cheapskate business model.