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Tax the Rich

How to Reduce Unemployment, Rebuild the Middle Class and Free Ourselves From Wall Street

by MOSHE ADLER

Ten percent of Americans are unemployed, and many doubt that President Obama’s stimulus will create enough jobs to reduce this rate significantly. But given the structure of our labor force, more jobs is not necessarily what we need anyway. Our workforce includes 13.5 million people who don’t belong in it at all. Permitting them not to work would free up jobs and raise the wages of millions of workers who belong in the middle class. It would also free all of us of our dependence on Wall Street.

Currently, four million children under the age of eighteen work, filling the equivalent of two million full time jobs. (The actual number is higher. Even though the law permits the employment of children over the age of fourteen, the Census Bureau only collects data about workers who are older than sixteen.) Ten million college-age youth (between the ages of eighteen and twenty one) also work, and they fill the equivalent of eight million full time jobs. Five million of these college-age youth do not attend college at all. Finally, there are also four and a half million workers who are sixty six years or older, and they fill the equivalent of three and a half million full time jobs. The questions before us are then: Should these workers be removed from the workforce? How much would this cost? Can we afford it? And finally, what will our lives look like after all these workers stop working?

That high school students don’t belong in the workforce does not require an explanation. Of course, the families of these children need the money they earn, but their earnings are very small, just $19 billion in 2007, and they could be replaced by child subsidies to low income families.

That high school grads belong in college is also pretty obvious. Today, workers must have a college education in order to do well. In 1950 the difference between the wage of a college graduate and a high school graduate was 27%. But by 2000 this gap grew to 75%. Nevertheless, just as the importance of having a college education has been increasing, it has become dramatically less affordable. Between 1981 and 2005 tuition in state universities increased four times faster than personal incomes did. Making college education free would both increase the number of youth who go to college and decrease the need of those who are already in college to work.

Of course, providing all interested high school graduates with a free college education plus stipends cost will not be cheap. The average yearly tuition in public colleges is currently $6,585 and this figure covers 40% of the total cost of education. If all young adults chose to go to college, and assuming that tuition was entirely free, the additional cost to taxpayers would be $164 billion a year. The salaries and wages that all college age workers earned, both students and non-students, in 2007, was $135 billion. If the lost earnings are fully replaced by student-stipends, the total cost of providing college education to all would be some $300 billion.

That old people ought to be able to retire shouldn’t be controversial. But the social security payment of the median retiree amounts to just forty-two percent of the income she earned while working, and it is not surprising that many workers are forced to continue working even when they are old. Doubling retiree benefits would cost an additional $505 billion a year, and it is the most expensive item in our proposal.

No doubt, not all young adults who are offered the opportunity to go to college will take advantage of it, and not all older Americans will retire even with higher social security payments. But for argument’s sake if we assume that all these individuals will in fact leave, the cost of removing thirteen and a half million workers from the workforce, and giving all young adults free college education would come to $825 billion a year. This may sound like a large sum, but it is actually just 11% of the total income that households earn, excluding the wages and salaries of the workers who will no longer work.

Can we afford an average increase of 11% in taxes (a higher increase for the rich, smaller increase for the poor)? Let’s recall that between 1913, the year in which the income tax became constitutional, and 1981, the first year of the Reagan presidency, the highest marginal tax rate was on average 68%. Today it is 35%.

What will our lives be like if millions of low-wage workers stop working? The most visible effect will probably be a drastic reduction in the number of stores that are open 24 hours a day, because it is the abundance of workers that keeps these stores open in the wee hours of the night, when there is nary a customer.

But the most significant change will come from the shift to government financed higher education and retirement. Our lives will be remarkably more secure when we will no longer have to entrust our fate and the fate of our children to retirement and college savings invested in stocks. And when this happens, the incomes and the political power of stock brokers will decline precipitously; Main Street will no longer be in the clutches of Wall Street.

Inequality would decline dramatically as well. With five million fewer retail and restaurant workers, a million fewer construction and a million fewer manufacturing workers, and a six million reduction in the numbers of workers available for work in all other industries, wages will rise significantly. Furthermore, the number of positions seeking workers will increase too, because in order to accommodate five million additional students, the number of jobs on colleges will have to increase by three and a half million. And if millions of old workers will be able to retire, the services that cater to them will also have to increase.

The current crisis inflicts great harm on middle class and low-wage workers. But what we don’t want is to return to the world as it was before the crisis. That world deprived millions of children of childhood and the chance for a good education; it prevented millions of youth from being able to attend college; and it deprived millions of old people from being able to retire. It also made all of us dependent on Wall Street. Instead, let’s make sure that families have enough money to support their children, that high school grads can afford to go to college, and that older workers who want to retire can.

MOSHE ADLER teaches economics in the dept. of urban planning at Columbia and his book, "Economics for the Rest of Us: Debunking the Science that Makes Life Dismal," will be published in January 2010 by the New Press. He can be reached at: ma820@columbia.edu