Labor’s share of Income has been falling since the 1980’s
According to a recent article entitled ‘Labour pains’ in the Economist magazine of November 2, 2013, the share of national income by labor has been falling since the 1980’s across the world. Before that time, it had been a very constant figure. In the United States, labor’s share has decreased from 70% in the 1980’s to 64% by 2010. This share is much worse if you exclude the top 1% of the earners. According to the Economist, the culprit for this decrease in income during the 1980’s and 1990’s was automation as ‘cheaper and more powerful equipment, in robotics and computing, has allowed firms to automate an ever larger array of tasks.’ In the 2000’s it has been globalization as labor in the US was replaced by labor in China and other low cost countries.
Given the decrease in labor’s share of US income, it is imperative that the tilt of the US federal tax system for capital and against labor must be addressed. Otherwise, the distribution of income after federal taxation will be further skewed, an unreasonable and unfair result. That means that dividends and carried or investment interest must be taxed as ordinary income. The capital gains holding period must be changed from 1 year to 5 years. In addition, the relatively free ride of the elderly must be addressed and social security retirement benefits should be made fully taxable.
Harry Pukay-Martin
