I was having a discussion with one of my more liberal friends (yes, conservatives and liberals can be friends) a few weeks back, regarding the “fiscal cliff,” right to work and our federal tax structure. According to him, citizens of right to work states have historically earned less than their unionized counterparts. Unfortunately for him, that’s just not true:
According to data from the Bureau of Economic Analysis, and as the graph shows above, in the last 30 years, incomes have risen 92.8% in non-right to work states, while in non-forced unionized states, incomes have risen an astonishing 164.4%. That’s a whopping +77% difference in Right to Work States.
In real dollars, a family making $25,000 in a non-right to work state in 1977 would be making roughly $48,000 today. In a non-forced unionization state, that same family would be making $66,000. The math isn’t all that hard.
But, as with any liberal, that fact didn’t matter. It was actually the income disparity between the top earners and the middle class–that was the key problem. To be honest, I didn’t have any facts at the ready to counter his argument (though if I’m making more and my quality of life is better, I really don’t care how much more “the rich” are making, but that’s another quandry), so I decided to do some research. Perhaps my liberal friend could be right? Maybe America is most prosperous when income disparity is low?
Well, as it turns out, my friend was right, but the liberal logic didn’t add up. Go figure…
A great article was published this week in Forbes, and the author, David John Marotta, does a fantastic job of explaining income disparity and why President Obama’s disdain for “the rich” is actually driving that disparity. It’s worth a full read, but here’s a quick excerpt:
Imagine the tax code is a flat 25% tax. Now picture a situation where a business owner pays her 20 employees a gross salary of $50,000. Having put massive amounts of capital into the business, the owner receives a gross salary and a profit five times what her employees make, or $250,000.
Each employee pays $12,500 in taxes (25%) and nets an income of $37,500. The owner pays $62,500 (25%) and receives a net income five times that of the employees, or $187,500…
Assume that these numbers are fair according to the economics of supply and demand, but now the government is going to single out the rich to pay more taxes and relieve the middle class of paying their fair share. In fact, we are going to let the workers enjoy a tax rate of zero while we heap their share of taxes onto the company owner.
Each worker paid $12,500 in taxes. With 20 workers that means the owner must pay an extra $250,000. To pay this tax and still receive the same net pay, the owner has to pay herself twice her old salary. Now, instead of grossing $250,000 and netting $187,500, she must gross $500,000 to net the same amount. Her effective tax rate will be 62.5%.
But where will she get the extra $250,000? She will have to reduce her employees’ salaries from $50,000 to $37,500…
Of course, no one needs to be told about President Obama’s problem with the concept of math, but this article underscores why liberal logic just doesn’t add up. Liberals try to create income parity by taking more from those that produce, but in the end, it simply creates further disparity. Why not lessen the tax burden on businesses, allow them to create more jobs, and in turn, more taxpayers, thus boosting revenues?
Oh, no, no, no… That just won’t do. It doesn’t fit with the President’s class warfare style of governing. Instead of applying policies that make sense, he’d rather force taxes on the group of folks that actually create jobs, making it harder for them to, ya know, create jobs.
And therein lies the problem with liberal logic: it’s just not that logical.