The US needs a debate on wages, not tax cuts

Wages have stagnated for 30 years - people just don't have enough money.

President Barack Obama is gleefully awaiting another showdown with Congressional Republicans over the question of whether to allow the Bush-era tax cuts to expire for the richest one per cent of Americans. 

I say "gleefully" for two reasons. One, Obama lost this fight last fall when Republicans forced him to trade extending tax cuts for extending jobless insurance. Yes, the GOP actually said it wouldn't give relief to the unemployed unless Obama agreed to give the rich more money, and Republicans didn't pay a political price for that. The other reason Obama is "gleefully" awaiting another showdown is that Republicans will finally pay that price in the form of their candidate, Mitt Romney.

Obama wants to extend the cuts on incomes under $250,000 a year but let them expire, as they are set to do at year's end, for people like himself who make more than $250,000. The Republicans are saying such a tax hike is going to hurt small business owners, which is what they usually say when they no plausible pretext for protecting the super-rich.

It's going to be fun to watch but we need more than fun in our political discourse. Far more than a debate on tax cuts, we need a debate on wages. We have paid the lowest tax rate in 30 years, according to the Congressional Budget Office. While that has surely mitigated the effects of the recession, it hasn't gotten us out of it, because the fundamental problem with the economy is that people don't have enough money. I'm not being cheeky. Wages have stagnated for 30 years.

More importantly, our conception of the recession is backwards. Lack of demand is what's keeping the economy from thriving, not supply. But we drank the Kool-Aid of supply-side economics back when Reagan was president, so it's no longer possible to see the importance of raising aggregate demand. The debate is so upside down now that a Republican Congressman from Florida, when asked recently if he'd support a bill to raise the minimum wage, actually said: "Get a job." US Rep. Bill Young didn't seem to understand that minimum wage-earners have jobs. They just want a living wage.

Fortunately, another Congressman, Democrat Jesse Jackson Jr. of Chicago, has introduced legislation to raise the federal minimum wage from $7.25 to $10 an hour (some states add to the federal rate for their own minimum wage). It's unlikely Congress will take up debate, not with an election looming, but even if it were to pass the bill by some miracle, it wouldn't be enough for a family of four to live above the poverty line.

It would come close but it could be much better.

In March, the lefty Center for Economic and Policy Research released a report using the three most commonly used benchmarks: inflation, average wages and productivity. If minimum wage kept up with inflation since 1968 (when minimum wage was at its peak value), it would be $10.52 an hour. If it kept up with the average production worker's earnings, it would be at $10.01. Both of these benchmarks have been stable over the years, but productivity has soared.

This means workers are working harder per hour but not being paid more for all that extra productivity. Workers give, bosses take. So if the minimum wage had kept up with labor productivity since 1968, then it would be a staggering $21.72 a hour. The CEPR report notes that if workers received only half the productivity gains, the wage would be $15.34. A quarter would be $12.25, all of which is far higher than today's paltry $7.25.

It's going to be a long time before we shift from a debate on tax cuts to a debate on wages, but it will happen. It's not a question of if. There are too many Americans struggling too hard to get by. And if the minimum wage rose to only $12.25 an hour, the president wouldn't be the only who's gleeful.

 

Workers are working harder per hour but not being paid for their extra productivity. Photograph: Getty Images
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The Home Office made Theresa May. But it could still destroy her

Even politicians who leave the Home Office a success may find themselves dogged by it. 

Good morning. When Theresa May left the Home Office for the last time, she told civil servants that there would always be a little bit of the Home Office inside her.

She meant in terms of its enduring effect on her, but today is a reminder of its enduring ability to do damage on her reputation in the present day.

The case of Jamal al-Harith, released from Guantanamo Bay under David Blunkett but handed a £1m compensation payout under Theresa May, who last week died in a suicide bomb attack on Iraqi forces in Mosul, where he was fighting on behalf of Isis. 

For all Blunkett left in the wake of a scandal, his handling of the department was seen to be effective and his reputation was enhanced, rather than diminished, by his tenure. May's reputation as a "safe pair of hands" in the country, as "one of us" on immigration as far as the Conservative right is concerned and her credibility as not just another headbanger on stop and search all come from her long tenure at the Home Office. 

The event was the cue for the Mail to engage in its preferred sport of Blair-bashing. It’s all his fault for the payout – which in addition to buying al-Harith a house may also have fattened the pockets of IS – and the release. Not so fast, replied Blair in a punchy statement: didn’t you campaign for him to be released, and wasn’t the payout approved by your old pal Theresa May? (I paraphrase slightly.)

That resulted in a difficult Q&A for Downing Street’s spokesman yesterday, which HuffPo’s Paul Waugh has posted in full here. As it was May’s old department which has the job of keeping tabs on domestic terror threats the row rebounds onto her. 

Blair is right to say that every government has to “balance proper concern for civil liberties with desire to protect our security”. And it would be an act of spectacular revisionism to declare that Blair’s government was overly concerned with civil liberty rather than internal security.

Whether al-Harith should never have been freed or, as his family believe, was picked up by mistake before being radicalised in prison is an open question. Certainly the journey from wrongly-incarcerated fellow traveller to hardened terrorist is one that we’ve seen before in Northern Ireland and may have occurred here.

Regardless, the presumption of innocence is an important one but it means that occasionally, that means that someone goes on to commit crimes again. (The case of Ian Stewart, convicted of murdering the author Helen Bailey yesterday, and who may have murdered his first wife Diane Stewart as well, is another example of this.)

Nonetheless, May won’t have got that right every time. Her tenure at the Home Office, so crucial to her reputation as a “safe pair of hands”, may yet be weaponised by a clever rival, whether from inside or outside the Conservative Party. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.