Agenda

by Dave Schuler on January 28, 2014

Here’s an op-ed at USA Today by Sam Pizzigati of the Institute for Policy Studies arguing that we should double the minimum wage and the top marginal tax rate:

A century ago, Americans faced an income and wealth distribution even more top-heavy than today’s. But Americans trimmed the super rich down to democratic size. Our forbears had the courage, in short, to confront concentrated wealth and power. Do we?

One test: Berkeley economist Emmanuel Saez says our top marginal tax rate could hit 80% — double the current top rate — without negatively impacting anybody but the super rich. In the two decades after World War II, our top tax rate hovered around 90%.

Another test: Fast-food workers are pushing for a $15 hourly minimum wage. If the federal minimum had risen since the 1960s as fast as the incomes of the top 1%, that minimum today would exceed $22.

An 80% top tax rate, a $15 minimum wage. Simple steps. Let’s take them.

I’ve read any number of articles from economists to the effect that small increases in the minimum wage don’t have a great deal of effect on employment. That doesn’t appear to be a consensus view (the consensus view remains that the demand for labor continues to be elastic) but it is a mainstream view. Is doubling the minimum wage “small”?

I also think that, as long as Congress insists on maintaining what some call loopholes and others call tax expenditures (the source of a great deal of Congress’s influence), Mr. Pizzigati would be appalled at how little effect an 80%, 90%, or 95% top marginal tax rate would have. There’s a big difference between the top marginal rate which has bounced all over the place over the period of the last 80 years and the effective tax rate which has been remarkably steady in the low twenties.

How Mr. Pizzigati will convince Congress of his plan when they have refused to increase the top marginal tax rate beyond 40% is beyond me.

{ 4 comments… read them below or add one }

TastyBits January 28, 2014 at 12:31 pm

He needs to add a yearly COLA.

... January 28, 2014 at 12:49 pm

A century ago, did they institute a 15 dollar an hour minimum wage (or equivalent amount) and an 80% income tax rate on the rich to create better conditions?

PD Shaw January 28, 2014 at 1:38 pm

My impression is that economist that think small increases in the minimum wage have little impact are basing their views on studies of past increases in the minimum wage. What I don’t know is what the greatest federal increase (let alone state). It might be the $2.10 increase from July 2007 ($5.15) to July 2009 ($7.25), enacted in seventy cent increments yearly. There appears to have been a significant set of increases in the 70s that were completely lost to inflation.

Anyway, I read the economist consensus as an increase to $9 per hour would make it harder for low-skilled workers to find jobs, but would benefit low-skilled employees with jobs. U of Chicago survey. Who do you love?

Dave Schuler January 28, 2014 at 1:53 pm

did they institute a 15 dollar an hour minimum wage (or equivalent amount) and an 80% income tax rate on the rich to create better conditions?

There was no minimum wage a century ago. When the first minimum wage was put in place in 1938 it was about $4 an hour in today’s dollars. The reason you generally see references to 1968 is that’s when the minimum wage peaked—about $10 an hour in today’s dollars. That is, by the way, something I think is a legitimate concern. I think there’s an argument to be made that the high minimum wage created a black market in labor.

My concern about returning the highest marginal tax rate to its Kennedy-era level is that it won’t have much effect on the highest income earners but it will prevent the accumulation of wealth by people who aren’t already among the highest income earners. BTW, something that isn’t generally mentioned in talking about high marginal rates is that during most of the era when we had a high top marginal income tax rate the rate on capital gains was 25%.

A century ago capital gains was taxed at the same rate as ordinary income with a maximum rate of 7%.

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