Routing the two-tier system: Part VII – compensation

In a system like this, the wealthy would be the ones paying taxes, because the non-wealthy would be receiving only basic income.

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Having a job is very important in our society.  A job is how you earn income to support yourself and your family.  When you retire, you should get Social Security as at least a partial replacement for your job income.  If you lose your job, you should get unemployment insurance, again in at least partial replacement for your job income.  Your job income is supposed to give you enough money to pay for your food, clothing, and housing, as well as the other expenses of an ordinary life, plus money for savings so that when you retire, your social security and savings will allow you to keep living.

The big problem with life today is that job income does not usually increase at a satisfactory rate, while prices rise with inflation.  So you cannot buy the things you used to, and the future looks bleak.

We are supposed to receive equal pay for equal work.  We look out from our jobs at the compensation which the CEO of our company gets, and we realize that he is receiving over 300 times what we are receiving.  While we would not say that our work equals his, we would deny that his work equals that of over 300 of us.

CEO compensation has risen 940% since 1978.  On the other hand, the compensation for the ordinary work has risen only 12%.  In 1965, the typical CEO earned 20 times more than the typical worker.  It was 58-to-1 in 1989.  “CEOs are even making a lot more—about five times as much—as other earners in the top 0.1%. From 1978 to 2018, CEO compensation grew by 1,007.5% (940.3% under the options-realized measure), far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%). In contrast, wages for the typical worker grew by just 11.9%.”

“We need to enact policy solutions that would both reduce incentives for CEOs to extract economic concessions and limit their ability to do so. Such policies could include reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; establishing a luxury tax on compensation such that for every dollar in compensation over a set cap, a firm must pay a dollar in taxes; reforming corporate governance to give other stakeholders better tools to exercise countervailing power against CEOs’ pay demands; and allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.”

We might point out again that employees in the top 0.1% saw their income increase by 339.2%, but CEOs – with their power to control compensation – earn over five times as much as those top earners.  Still, the top employees saw their income go up by 30 times over the income of the ordinary workers.  So the “ordinary Joe” has much to complain about.

Andrew Yang, who is running for President in the Democratic race, has promised a Universal Basic Income of $1,000 per month for everyone.  While this is helpful, it certainly doesn’t solve the problem.  What we need to do is take a good, hard look at how much it would cost an individual to have a good life in the United States.

Much would depend upon how much vital services cost.  For example, healthcare.  If we really had Medicare for All, then it would be free, and we could subtract that from the basic cost for a good life.  Similarly, if education is paid by the society, that would not have to be borne by the basic cost.

What about social security?  It seems rather silly that this is paid by employees, because “[w]orkers and employers pay for Social Security. Workers pay 6.2 percent of their earnings up to a cap, which is $127,200 a year in 2017. (The cap on taxable earnings usually rises each year with average wages.) Employers pay a matching amount for a combined contribution of 12.4 percent of earnings.”  Employers should just pay 12.4% of what they pay their employees.

As I suggested in Part I of these articles, transportation should just consist of renting cars and paying for trains, busses, and subways.  The basic cost for living would include those costs.  Similarly, the basic cost would include communication (cell phones, other telephones, and Internet).

All right: we know that individuals need enough money to pay these basic costs of life.  But should these be paid by their salaries, or from some other source?  In our present society, employers have power over their employees, because they can cut the employees off from their jobs and hence from their income.  So why not have a UBI equal to the real basic cost of living where the recipient is living and have the employer pay an employment incentive?  If the recipient is basically covered, then what the employer pays is something extra – and the recipient can afford to quit the job if it becomes unpleasant.  At the same time, the employer can pay something that will provide a real incentive for the employee to work.  Naturally, the employer is paying taxes which goes towards the basic income.  The employee really only pays taxes on the incentive he receives.  (And it would simplify tax collection enormously if the UBI were received tax free, and the employer paid the taxes on the incentive.  It would mean that the government and employer would pay out and the employee would not have to calculate taxes on it.)

In a system like this, the wealthy would be the ones paying taxes, because the non-wealthy would be receiving only basic income (plus incentive, which would be taxed but paid directly from the employer to the government).  This would greatly simplify tax collection.  The society would still want to make sure that a few wealthy people are not keeping all the money in the society.

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