Will Tax Reform Raise Worker Wages? Senator Bob Casey’s Idea and the Peter Georgescu Insight

12/01/2017 03:14 pm ET

By Joseph R. Blasi

Whatever your point of view on the tax reform package in its final hours of debate and voting in the U.S. Senate today, whether the bill will actually raise worker wages is the heart of the matter for the American middle class. Republicans have made the argument that deep corporate tax cuts will give corporations more capital to invest in their companies and their workers and that the bill will lead to meaningful rises in worker wages. Democrats have made the argument that corporations will take their giant tax cuts and continue doing what they have been doing for the last few decades, namely, keeping workers’ real wages relatively flat. There are a host of reasons explaining why inflation-adjusted wages have been basically flat but the fact is that this has largely been the case. What do we do?

For weeks this debate has been simply a endlessly running tape with the two sides stating and restating their ideas about the impact on the working middle class. That was until Senator Robert Casey (D-PA) introduced an interesting amendment during the tax reform debate on Thursday evening November 30th that could have served as the basis of a bipartisan compromise. The Casey amendment was voted down by his Republican colleagues and heralded by fellow Democrats. Despite its failure, the core idea of the amendment may have a lot of relevance to the future of tax policy in the United States going forward. Despite the fact that it did not pass, the Casey amendment may signal a bipartisan way forward in the future. That is why it is important to stop and take a long look at the concept. The idea could get resurrected in the coming hours and days as Republicans search for a way to insure that the tax bill really benefits the working middle class.

Senator Casey’s proposed amendment says that corporations shall only receive their tax cut if they can demonstrate that they are sharing the gains of the tax cut with their workers. This amendment thus proposed to make corporate tax reform conditional on corporations actually demonstrating the impact of the tax cuts on increasing workers’ income in their companies. In his floor speech introducing the amendment, that the Senator posted on his Facebook and Twitter page, Senator Casey says that he wants to insure that tax cuts are not simply used to give executives a raise or give dividends to shareholders or benefit shareholders and executives through stock buybacks without actually putting money in the pockets of middle class workers.

Casey’s plan would be to disallow tax cuts to corporations that do not meet this standard. Interestingly enough, the standard itself is bipartisan since both the GOP and Democrats agree that tax reform should indeed benefit the middle class. While the small print and the details of how to confirm that the idea is workable were not a major part of the Senator’s speech, the idea of a big “if” for this major corporate tax reform plan, depending on how it treats the middle class, represents a major innovation in the policy discussion that is due to have long-term consequences in our political debates way in the future. This is not just about one amendment. Senator Casey is opening up a whole family of future policies for consideration.

What were Senator Casey’s arguments for his plan? He cited evidence that rising corporate profits have not been related to rising worker wages. He cited studies that the richest 1% have seen their share of the national income double from 11% in 1980 to about 20% in 2014. Casey quoted the Economic Policy Institute’s research that demonstrates how wages rose meaningfully since WWII but have stagnated since 1973. Members of the working middle class are actually living these statistics. As proof that his amendment was needed, Casey cited a November 29th Bloomberg News report entitled “Trumps Tax Promises Undercut by CEO Plans to Help Investors” that has been widely circulated in the media. His motive, he has said, was to lock in these benefits for the working middle class into tax reform.

The rebuffed Casey amendment should not be forgotten because it raises a much larger and profound public policy issue: if the American economy is not finding a way to reward employees for their part in producing corporate profits, then what exactly is the solution? If tax reform passes, an entire cottage industry is going to be created to study what actually happens to workers’ incomes? The results will be a major part of the economic discussion in the coming years. Senator Casey’s question and point is not going to go away as the amendment did. As those studies are completed, we will look back on Senator Casey’s arguments and his amendment and the promises and claims of the architects of corporate tax reform very carefully. If tax reform does not pass this year, Senator Casey’s rejected amendment will not stand as a failure but as the opening up of a discussion about just what any tax reform means in the age of a declining middle class.

This debate raises giant issue about our entire political and economic system. Peter Georgescu, author of Capitalists Arise! End Economic Inequality, Grow the Middle Class, Heal the Nation, is a highly respected corporate executive. He is the Chairman Emeritus of Young & Rubicam. Georgescu takes up the same problem that the Casey amendment attempted to solve by focusing more intently on the future of the U.S. economic system. He sees shareholder primacy as central to both economic inequality and the social and political breakdown that is widespread. Georgescu’s point of view is that the divisions in Congress and the lack of capability of the government to solve these problems suggests that the future of the middle class can only be addressed by business leaders. Indeed, the sheer unwillingness of Congress to entertain the Casey amendment or even seriously debate it, serves as proof of Georgescu’s assertions in his book. Maybe the pendulum is swinging to responsible business leaders!

Georgescu’s argument is that corporate leaders need to think about the future survival of the entire capitalist economy in the United States through the lens of their own company and their own behavior in pushing company-level policies, not state policies. He says that they need to find and implement ways to improve the skills and training of their workforces to make them more productive. He supports exploring ways to share profits and equity – like employee stock ownership -- with those same workers so that they are included in the fruits that they produce. Essentially, he wants to see peer pressure among business leaders to privately reform capitalism. Today’s events may prove Georgescu to be very perceptive.

We are now at a crossroads where the Casey solution and the Georgescu proposal are going to be high up in the conversation of both political and business leaders.

Joseph Blasi is the J. Robert Beyster Distinguished Professor at Rutgers University’s School of Management and Labor Relations. He is co-author of The Citizen’s Share: Reducing Inequality in the 21st Century (Yale University Press, 2014) and Having a Stake, a ThirdWay.org policy study with Richard Freeman an Douglas Kruse.

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