April 07, 2019
In American media, we hear a lot about the taxes that the wealthy want cut: Income taxes, estate taxes, and corporate taxes. What we don’t hear about is the largest tax the American labor force faces. This is the difference between what we produce and what we get paid.
Let’s call this the profit tax because it goes to corporate profits. This tax is taken from workers and redistributed to owners and shareholders. As tax day approaches, I wanted to highlight this hidden tax.
Five percent? Ten percent? Twenty or 30 percent? The average profit tax in America is actually 74 percent. Here’s how to calculate the average profit tax. It’s the difference between the productivity index, what an average worker produces in 1 hour, and what this average worker gets paid by the hour.
The latest business productivity index number from Q4 2018 is $106.27/hour. For this same quarter in 2018, the latest average wage number is $27.53/hour.
This means that the average worker is producing $106 worth of goods per hour and is getting paid roughly $28/hour for it. The difference or profit tax is 74 percent. In America, business owners take 74 percent before you ever see a paycheck.
Good question. My best guess is because it’s gone before people ever see it. That is, we don’t know about it. Most people have no idea how much they’re producing. All they see is their paycheck. They don’t get to see the profits.
Why aren’t more people angry?
And numbers like the productivity index typically aren’t presented in this fashion. It’s just a number that doesn’t have a lot of meaning to it. Whereas if someone gave you a weekly check for $4,240 and then made you pay 74 percent of that or $3,137.6 to the government we would have armed uprisings. Without seeing the value of what you’re producing, it’s hard to be angry about the difference.
Why didn’t you include benefits?
You could say, “but your calculation doesn’t include benefits.” You would be right. The reason I didn’t include benefits is for a couple reasons. First, it’s an illustrative exercise. I wanted to show people that we have numbers for what people produce and what people get paid. It just takes some digging to find them because they don’t often appear in our media. What appears in our media are all kinds of numbers trying to convince us to give tax breaks to wealthy people. Why? Because our media is mostly advertising and the wealthy advertise to get what they want.
Second and more importantly, corporate America is trying to shift the cost of benefits onto people. We see this with health care. We see this with the shift to contract labor. We see this with the attacks on Medicare and Social Security (which are benefits we get taxed on through FICA taxes). Corporate special interests want to simply give people a flat wage and then have benefits come out of everyone’s pockets. Benefits are going away so we can’t count on benefits.
This is what’s really wrong with America
In our media we hear a lot about what’s wrong with America. We hear that there’s a loss of values. We hear complaints about the government. We hear that our taxes are too high. We hear that it’s the fault of immigrants or gay people or black people in the inner city. We hear about this political party or that.
I think what’s really wrong with America is the 74 percent tax we pay to corporate America. If the average person is producing $106 worth of goods per hour, maybe the average worker should make $80/hour.
Wages flatlined in the 1970s
We’re told that a rising tide lifts all boats. Productivity and wage data tell a different story.
The reasons often cited by researchers for why wage growth stopped in the U.S. are: technology, globalization, and government capture.
It’s not this way everywhere
The Organization for Economic Cooperation and Development (OECD) has also looked at wage/productivity decoupling and found that it’s not happening everywhere.
In the United States, for instance, annual real median wage growth over the past two decades has been around .5 percent. Countries with similar productivity growth but no decoupling such as France, Finland, and the UK, have seen wage growth between 1.5-2 percent.
According to the OECD’s report, the three primary factors behind wage/productivity decoupling are:
- Technology —Reducing labor’s share of productivity gains
- Labor Globalization —Outsourcing reduces labor’s share of productivity gains
- Government Capture —Governmental policies that put downward pressure on wage growth
In 2014, the Economic Policy Institute released a report titled Raising America’s Pay. In this report, they argue that raising pay is the economic challenge of our times.
In addition, they argue that policy decisions are critical:
Key economic evidence implicates policy decisions–and particularly changes in labor market policies and business practices–as more important in explaining the slowdown in hourly wages for the vast majority than many commonly accepted explanations (such as the interaction between technological change and the skills and credentials of American workers).
What this means is that government is important.
This isn’t what we’re told. We’re told government is the problem. The people telling us this, meanwhile, spend billions on influencing government to increase the profit tax.
If we want to change anything, or if you believe in any cause, the first step is getting people into government, getting representatives who believe that government matters and should be run by and for the people of our country.