The decline in labor’s share of national income in the United States is sometimes portrayed as a defeat for the proletariat in the kind of power struggle that Karl Marx wrote about. That’s not completely wrong. But tax policy, starting with the Tax Reform Act of 1986 signed by President Ronald Reagan, accounts for about a third of the decline of labor’s share of corporate-sector income, according to research by Matthew Smith of the Treasury Department; Danny Yagan of the University of California, Berkeley; Owen Zidar of Princeton; and Eric Zwick of the University of Chicago’s Booth School of Business.
“Entrepreneurs have flexibility to characterize their income as labor payments or as profits” and, to minimize tax rates, are choosing to label the income as profits, the authors write in the latest version of a paper that’s forthcoming in American Economic Review: Insights. Also, they write, “many labor-intensive firms are now organized outside the corporate sector as tax-preferred partnerships.”
Zwick told me he’s “definitely sympathetic” with the view that capitalists are winning against labor. But he said that highly paid consultants, lawyers and others whose compensation is being relabeled as profit instead of wages don’t fit the picture of exploited workers: “They’re the bourgeoisie in the Marx story.”
Quote of the day
How beauteous are rouleaus! how charming chests
Containing ingots, bags of dollars, coins
(Not of old victors, all whose heads and crests
Weigh not the thin ore where their visage shines,
But) of fine unclipt gold, where dully rests
Some likeness, which the glittering cirque confines,
Of modern, reigning, sterling, stupid stamp: —
Yes! ready money is Aladdin’s lamp.
— Lord Byron, “Don Juan,” canto 12, stanza 12 (1819-24)
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