How to Slow Worsening Income Inequality

Source: Paul Cillo 

Last December, Washington passed a giant tax cut that mostly benefits corporations and those at the top—in Vermont they will see a $350 million federal tax reduction in 2018 alone.  This new federal law will increase Vermont’s income inequality, which slows economic growth, increases poverty, and reduces upward mobility.

The Legislature is contemplating two measures that would slow this worsening income inequality by giving working Vermonters a bigger slice of the pie: a minimum wage increase and paid family and medical leave.

Gradually raising the minimum wage to $15 per hour would put $174 million into the pockets of more than 65,000 low-paid working Vermonters, giving those workers and their families a better shot at success.

Some worry about what a minimum wage hike would do to the economy, but they shouldn’t worry about that.  Low-paid workers spend their money where they live, right here in Vermont.  A minimum wage hike at the level being considered in the Legislature is unlikely to harm Vermont’s economy, and could even stimulate it.

The federal tax cut, on the other hand, is cause for worry. Those at the top can’t spend all their money in Vermont. And money that ends up in a hedge fund on Wall Street or a vacation home on Anguilla does little for Vermont’s economy.

In fact, this huge federal tax giveaway is bound to lead to damaging federal budget cuts as Congress confronts a ballooning deficit. Vermont relies on federal funding to cover 35 percent of the state budget. Lawmakers could mitigate the damage from these expected budget cuts and build a more prosperous state by recapturing some of that $350 million that will flow to the state with changes to Vermont’s tax code this year.

Meanwhile, enacting paid family and medical leave would ensure that all Vermonters have the time to care for new children, ill relatives or themselves without having to worry about losing a paycheck – or even worse, a job. Only 11 percent of U.S. workers have access to paid family leave and only 40 percent have paid medical leave.  While slightly more workers have access to unpaid leave, the number one reason they cite for not accessing it is not being able to afford the wage loss. Low-paid workers are much less likely to have paid leave, and much less likely to use unpaid leave.

Income inequality is a social ill, and it is driven by many factors. Wage stagnation and lack of benefits at the lower end of the income scale are part of the problem, as are tax policies that disproportionately benefit those at the top.  Preferential treatment of capital gains, the mortgage interest deduction, and lower taxes on pass-through businesses (most of which are owned by upper-income tax payers) are just a few ways that we reward wealth.

Vermont cannot completely undo the damaging effects of the federal tax cuts, but we can take some concrete steps.  We could tax pass-through income; we could make the tax code more progressive; we could cap tax expenditures that benefit the rich.  These actions would all help to reduce income inequality by reducing state tax breaks for those at the top.

But reducing income inequality also requires bringing up the bottom. Increasing the minimum wage to $15 by 2024 and enacting paid family and medical leave would do the other half of the job.

Vermont can’t afford to wait for inequality to grow even worse. This is the year to get this done for the sake of our state’s future.

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