In-Depth Essay

Fair Shares

by Peter Barnes

Part Two (Part One is available at the Progress Report Archive)

What's the matter? On the one hand, ownership of wealth is rewarded more generously by the economy (remember that switchboard) than is labor. This would not in itself be a bad thing were it not for the other half of the problem: ownership of productive wealth is highly concentrated in the hands of a few, and seems inclined to stay that way. This analysis of the problem points to three types of nonsocialist remedies: either reward labor as generously or more generously than wealth, figure out a new basis for rewarding people who don't own wealth, or distribute wealth itself more equitably. A socialist alternative, which is beyond the scope of this article, would abolish private ownership of the means of production, substitute state ownership and distribute income on the basis of labor and/or need.

Let's look at the three nonsocialist remedies. The first approach, increasing the rewards for labor, suggests several possibilities, including collective bargaining for higher wages. This is essentially the path that the trade union movement has chosen, and it has achieved some gains. The share of national income that went to labor in 1970 (75 percent) was considerably higher than its share in 1929 (59 percent). This increase has something to do with the mushrooming number of government jobs, as well as with greater union bargaining strength, but there can be no doubt that the relative position of unionized labor has markedly improved since the 1930s. But it leaves out millions of workers who are not in unionized industries, and whom the unions seem either unwilling or unable to organize. There is also the problem of the corporations' power, especially in monopolistic industries, to shift the burden of higher wages back to consumers (that is to say, workers) in the form of higher prices. This creates the kind of inflationary treadmill we have had in recent years, and makes larger paychecks to labor illusory.

Attempts to increase the rewards of labor through minimum wage laws have run into similar problems. Such laws, while useful, don't seem to help those on the bottom and they can't overcome the power of wealth to make labor pay for its gains in different guise. Massive public service employment, at wage levels designed to drive up the wage structure of private industry, would be more helpful, but would still not significantly increase labor's reward relative to wealth's.

Conceivably the tax code could be a vehicle for equalizing the rewards of labor and ownership, but at present the tax laws aggravate the inequities created by the private economy. Income earned from labor is stiffly taxed by the federal government; unearned income from wealth enjoys a vast array of preferences and loopholes. Comprehensive tax reform could remedy this by providing what tax economists call horizontal equity -- equal taxation of all income, regardless of source -- as well as vertical progressivity. In addition, the states and federal government could impose an annual tax on wealth itself, similar to the tax on real property, but progressive rather than flat rate. Several Western European countries, notably Sweden, impose a wealth tax, and a number of American states tax intangible property (stocks, bonds, bank deposits, etc.), albeit very lightly. A federal wealth tax might require a constitutional amendment.

The second broad approach to income sharing -- devising new techniques for rewarding people who don't own wealth - builds upon the notion that workers and consumers are entitled to a share of the unearned income that currently accrues to wealthowners alone. Corporations might be required to share profits with consumers - for example, each purchaser of a GM automobile might receive a rebate at the end of the year, much as cooperatives give rebates to their members. Or the same principle could be applied to workers, as many corporations have already done to top executives (i.e., those big bonuses vice presidents receive when the company has a good year, and sometimes when it has a bad year). In a limited way this process has begun in the form of profit-sharing plans, which cover some eight million Americans, but the share of profits allocated to workers under such plans is generally only one-sixth the share allocated to wealthowners.

As a practical matter, it might be simpler to redistribute unearned income through the federal treasury, rather than through a multitude of corporate treasuries. This would require a tax system that, at one end, effectively tapped unearned income and large accumulations of wealth, and at the other end paid out, e.g., through negative taxes, appropriate amounts. This is, in principle, what George McGovern once proposed in milder form and is not too far from what conservatives such as Milton Friedman have suggested. The basis for receipt of income under this sort of negative income tax plan would not be wealth ownership, or even labor, but citizenship and need. In this sense such plansand even Richard Nixon's modest Family Assistance Plan - represent a departure from traditional capitalist principles of distribution. In another sense, they scarcely tamper with the private economy at all. They accept the existing concentration of wealth (and, concomitantly, of power), leave the economy pretty much as is, and let the great GNP machine do its thing. Then, at the end, they skim some cream off the top and pass it around to more people.

The third approach to economic sharing is, in concept, simplicity itself. Since wealth is inherently more income-producing than labor, and since every American's dream is to own wealth, why not distribute wealth? Exponents of this approach come from all corners of the political ring. Among them are Louis Kelso, a San Francisco attorney and financial consultant, who is either very radical or very conservative or both; John McClaughry, a former White House aide under President Nixon and unsuccessful Republican primary candidate for lieutenant governor of Vermont; and Robert Browne, director of the Black Economic Research Center- all of whom deserve more attention than they have received.

This essay is part of a series written by Peter Barnes for The New Republic magazine in 1971-72. We think you'll be pleased -- and perhaps shocked -- to see how timely and insightful the essays are for today. Each essay is being republished, in installments, by The Progress Report.