Missing from the Labor Force: Examining Declining Employment among Working-Age Men

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Human Resources Subcommittee

Hearing on Missing from the Labor Force:

Examining Declining Employment among Working-Age Men

Wednesday, September 6, 2017, 2:00 PM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Smith and Ranking Member Davis, thank you for the opportunity to submit my comments on this topic. Individuals and members attending this morning’s hearing on disability eligibility will recognize some of these themes.  As usual, our comments are based on our four-part tax reform plan, which is as follows:

·         A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.

·         Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25% in either 5% or 10% increments.  Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.

·         Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.

·         A VAT-like Net Business Receipts Tax (NBRT), essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age sixty.

Since the Great Recession, many workers have been hired back into the economy. For others, getting a new job has become impossible through either age or disability, especially those with behavioral disorders.

Long before applying for assistance, workers have applied for jobs and have been denied. Hiring managers are, therefore, the first line of examination as to whether an unemployed worker is able to return to work, regardless of any legal protections designed to protect their employment rights. Those same managers are the gatekeepers keeping people on disability and older men, regardless of what government claims examiners and doctors determine. If disability payments are available, it is not even worth the considerable effort to try to get back to work.

Should the disabled remain idle? No. Psychiatric and physical rehabilitation programs could carry a stipend with them rather than or in addition to disability benefits, which for some workers are often too low for an adequate standard of living. Such programs should be made available to Medicare beneficiaries (which is not now the case), instead of just Medicaid recipients. These stipends should be at least the same as the minimum wage (which should be $15 per hour) and the children of beneficiaries, like all children, should get a refundable tax credit of $1000 per month per child rather than a payment based on parental salary history.

Even before a disability determination is made, stipend supplemented PRP and physical therapy programs will ease the burden of a long examination process. If someone leaves hospitalization for a disabling condition without a job, such programs should be automatically referred. Indeed, people in partial hospitalization or intensive outpatient therapy who are not employed and probably not employable should start receiving money without any application process. This should also be the case for newly treated substance abuse patients.

Many men are unavailable to work, especially poor and minority men, because of society’s response to drug abuse. While middle class men are diverted to treatment, others are caught up in the criminal justice system and are either incarcerated or have a criminal record which makes re-employment that much harder. It is time to quit criminalizing disease and using prosecutorial discretion to punish low level dealers into cooperation. Legalization will end the ability to traffic in substances that could be sold openly, although for the hardest drugs, hospitalization for abuse should be mandatory and require long-term treatment, not just detoxification.

Some men are mentally disabled due to parental drug use or simply bad educational services. Remedial education should also be paid at the minimum wage with the same stipend. You will find many leaving SSI given such provisions (where they were channeled by state welfare agencies when Messrs.. Clinton and Gingrich ended welfare as we know it). It is time to end TANF and Food Stamps as we know them and start paying people to be able to live up to their full potential.

If vocational or educational training is required, as it likely should be in some cases, then the training provider will serve as both “case worker” and conduit for additional benefits, including the Child Tax Credit. Participants would be paid the minimum wage for engaging in training, along with any additional stipend provided to program beneficiaries of the benefit level were set higher.

Some men require college educations to advance.  The first two years of college would be grouped with the last two years of high school and would be provided by the state (including parochial high school and college), by employers directly or through a third-party provider or through contributions to a public or private school.  Students would receive a stipend and both tuition and stipend would be fully creditable against the NBRT.  Labor provided as a supplement to the employer would be fully taxed as other value added.  After the second of school, employees would be paid for the remainder of college and graduate school along the same lines as vocational training.

These programs would be funded by the Net Business Receipts Tax/Subtraction VAT proposed in our tax reform program. Employers could either fund the government or sponsor these services themselves for prior employees or employee family members, including siblings.

Many have retired early, either because they have followed the advice of financial professionals and invested wisely so that continued work is not necessary, while others have been able to successfully apply for disability. For early retirees, inflation or higher taxes on dividends and capital gains might bring a return to work.

Economic factors also determine whether work is worth it. Some are comfortable now and don’t need to work, primarily because a capitalist economy is designed to reward savers, supervisors and executives by channeling the productive product labor to those deemed more worthy to spend the money. Supply and demand does not cause this determination unless employers have hierarchical or market power over such wage determinations, which is to say that there is no free market for wages. He who makes the rules gets the gold.

The most important factor in returning people to work is an adequate wage for work.  Ideally, this should come from a higher minimum wage, which puts the burden on employers and ultimately customers for fair pay, rather than a tax support for low wage workers (regardless of parental status). 

The market cannot provide this wage, as there will always be more desperate employees who can be taken advantage of to force wages lower for everyone else.  A minimum wage protects those employers who would do the right thing by their employees if not for their competitors.

A $15 per hour minimum wage is currently being demanded by a significant share of the voters.  Perhaps it is time to listen.  If the marginal productive product of these employees is more than this rate, job losses will not occur – of course, the estimates of this product can be easily manipulated by opponents who believe that managers provide much more productivity than people who actually work, so such estimates should be examined critically.  Internally, people usually have the correct number, but are loathe to share it if doing so hurts their political point.

Aside from higher base wages and training, the best way to keep families wanting to work is to give them enough money.  None other than Milton Friedman suggested a negative income tax and both Republican and Democratic presidents have enacted and expanded the Earned Income Tax Credit and the Child Tax Credit. 

We propose that the Child Tax Credit be increased to at least $500 per month, which is paid for by ending the child tax exemption (which is gone anyway with the income tax for most families) and the deductions for home mortgage interest and property taxes.  Replacing welfare programs and the EITC should allow a $1000 per month credit, which would be paid as an offset to the NBRT and paid with wages.  Even if the NBRT rate must be raised to cover the cost of the excess credit.

The loss of the EITC would be ameliorated by a higher Child Tax Credit, the paid training opportunities and a floor on the Employee Contribution to Social Security.  Social Security accumulation would be held harmless, or increased, by crediting the employer contribution equally (regardless of wage) and funding it with the NBRT.

These proposals will have a positive impact on the prevention of abortion.  Indeed, they are the essence of the Seamless Garment of Life as discussed by Cardinal Bernardin.  The Center urges the National Right to Life Committee to make adoption of these recommendations a scored life issue.  Failure to do so proves the point of NARAL-Pro-Choice America that abortion restrictions would be all about controlling sexuality.  Prove NARAL wrong and adopt these recommendations.

A key part of our agenda is to increase income tax revenue from the very wealthy through our income and inheritance surtax.  The higher the marginal tax rate goes, the less likely shareholders and CEOs will go after worker wages in the guise of productivity while pocketing the gains for themselves.  Since shareholders usually receive a normal profit through dividends, it is the CEO class that gets rich off of workers unless tax rates are high enough to dissuade them.  Sadly, the split tax system we propose makes high enough rates impossible to achieve.

Employee-ownership is the ultimate protection for worker wages, although it will allow more men and women to retire early.  Our proposal for expanding it involves diverting an every-increasing portion of the employer-contribution to the Old Age and Survivors fund to a combination of employer voting stock and an insurance fund holding the stock of all similar companies.  At some point, these companies will be run democratically, including CEO pay, and workers will be safe from predatory management practices.

Employee-ownership will also lead multi-national corporations to include its overseas subsidiaries in their ownership structure, while assuring that overseas and domestic workers have the same standard of living.  This will lead to both the right type of international economic development and eventually more multinationalism.

Tax reform is important as well. The NBRT proposed is an element of our tax reform plan. The work men do has been harmed by the drive toward lower costs and prices that has shifted jobs off-shore and to automation. While employee ownership will help control that, tax reform is necessary as well.

The tax reforms detailed here will make the nation truly competitive internationally while creating economic growth domestically, not by making job creators richer but families better off. The Center’s reform plan will give you job creation. The current blueprint and the President’s proposed tax cuts for the wealthy will not.

In September 2o11, the Center submitted comments on Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals. Our findings, which were presented to the JCT and the Congressional Budget Office (as well as the Wharton School and the Tax Policy Center), showed that when taxes are cut, especially on the wealthy, only deficit spending will lead to economic growth as we borrow the money we should have taxed. When taxes on the wealthy are increased, spending is also usually cut and growth still results. The study is available at 

http://fiscalequity.blogspot.com/2011/09/economic-models-available-to-joint.html

and it is likely in use by the CBO and JTC in scoring tax and budget proposals. We know this because their forecasts and ours on the last Obama budget matched. Advocates for dynamic scoring should be careful what they wish for.

The national debt is possible because of progressive income taxation. The liability for repayment, therefore, is a function of that tax. The Gross Debt (we have to pay back trust funds too) is $19 Trillion. Income Tax revenue is roughly $1.8 Trillion per year. That means that for every dollar you pay in taxes, you owe $10.55 in debt. People who pay nothing owe nothing. People who pay tens of thousands of dollars a year owe hundreds of thousands. The answer is not making the poor pay more or giving them less benefits, either only slows the economy. Rich people must pay more and do it faster. My child is becoming a social worker, although she was going to be an artist. Don’t look to her to pay off the debt. Trump’s children and grandchildren are the ones on the hook unless their parents step up and pay more. How’s that for incentive?

The proposed Destination-Based Cash Flow Tax is a compromise between those who hate the idea of a value-added tax and those who seek a better deal for workers in trade. It is not a very good idea because it does not meet World Trade Organization standards, though a VAT would. It would be simpler to adopt a VAT on the international level and it would allow an expansion of family support through an expanded child tax credit. Many in the majority party oppose a VAT for just that reason, yet call themselves pro-life, which is true hypocrisy. Indeed, a VAT with enhanced family support is the best solution anyone has found to grow the economy and increase jobs.

Value added taxes act as instant economic growth, as they are spur to domestic industry and its workers, who will have more money to spend.  The Net Business Receipts Tax as we propose it includes a child tax credit to be paid with income of between $500 and $1000 per month.  Such money will undoubtedly be spent by the families who receive it on everything from food to housing to consumer electronics. 

The high income and inheritance surtax will take money out of the savings sector and put it into government spending, which eventually works down to the household level.  Growth comes when people have money and spend it, which causes business to invest.  Any corporate investment manager will tell you that he would be fired if he proposed an expansion or investment without customers willing and able to pay.  Tax rates are an afterthought.

Our current expansion and the expansion under the Clinton Administration show that higher tax rates always spur growth, while tax cuts on capital gains lead to toxic investments – almost always in housing.  Business expansion and job creation will occur with economic growth, not because of investment from the outside but from the recycling of profits and debt driven by customers rather than the price of funds.  We won’t be fooled again by the saccharin song of the supply siders, whose tax cuts have led to debt and economic growth more attributable to the theories of Keynes than of Stockman.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.