Restoring the Raise: How to Cause a Labor
Shortage in America
By Susan Shelley
The United States of America needs a labor shortage.
That would fix everything.
If we had more jobs than workers, employers would have
to offer higher wages and better benefits to attract and hold employees.
If we had more jobs than workers, recruiters would
be on college campuses saying things like, "What's your major? Sixteenth-century
English literature? Let's talk signing bonus."
With more jobs than workers, the federal government
and the state governments would see their tax revenues go up and their safety-net
expenses go down.
If we had more people working, there would be more
revenue coming in from payroll taxes, making Social Security and Medicare
gradually less insolvent.
If more people were working, more people would be able
to buy houses and cars and major appliances and even solar energy panels,
stimulating the economy without burying everybody in debt.
A labor shortage would fix everything.
Hang on to that thought, and ask yourself this
What would you do tomorrow if you knew you could keep
95 percent of the money you made doing it?
Would you start a business? Would you expand your business?
Would you invest in a business started by somebody else?
Would you invest in stocks instead of bonds or
If the United States of America threw out the entire
tax code and replaced it with a five percent flat tax, what would
Please, don't interrupt.
We're not discussing whether it could happen.
We're discussing what would happen if it did happen.
If the tax rate was five percent on wages, business
income, corporate income, capital gains, dividends and interest, the United
States would become the world's greatest tax haven.
Businesses in other countries would relocate to the
United States to get in on our new low corporate tax rates. They would need
U.S. businesses would expand and new ones would start
up. They would all need more employees.
Enterprises that are currently not profitable enough
to be sustained would suddenly be a lot more profitable. You can probably
think of two or three things you'd like to try yourself.
We would have economic growth.
We might have so much economic growth that we'd have
a labor shortage within a few years.
This is the point where certain economists and former
Federal Reserve chairmen would interrupt and warn that a labor shortage would
result in higher wages, risking inflation.
The whole point of this exercise is to demonstrate
that it is possible to have a tax policy that results in higher wages.
So, are we all in agreement, except for the former
Fed chairmen, that more jobs would fix everything?
Let's figure out if we can get there.
The first objection to a flat tax is always that it
is unfair for the rich and poor to pay the same amount in taxes. But they
won't pay the same amount in taxes. Five percent of a million dollars is
$50,000. Five percent of $20,000 is $1,000.
Fifty thousand dollars will always be more than one
thousand dollars. The rich will always pay more in taxes than the poor, and
they'll really pay it because there won't be any tax sheltering.
It would be possible and sensible to exempt people
who earned less than $20,000 or $15,000 or $30,000 from the
The next objection to a flat tax is the political
impossibility of repealing the home mortgage deduction.
The problem here is that we have a tax code that sets
rates much too high and then offers generous tax breaks so people can get
their taxes down to a manageable level.
But is that really the best idea?
Wouldn't it be better to have taxes at a manageable
level without telling people that they have to own real estate?
Maybe you can't yet afford the house you want, or maybe
you'd rather rent than own. Why should tax policy push you to buy or keep
a home just so your tax bill isn't insanely high?
If the tax rate was cut to five percent, many people
could give up their home mortgage deduction and still come out ahead.
Maybe some people would decide that rental property
is a good business, and they'd buy houses or build apartments, eventually
leading to a glut of rental property and more affordable rents. At a tax
rate of five percent, rents could drop and the business could still be
Maybe you would buy up a few foreclosures yourself.
A little paint, some sod in the front yard, and soon you'll be keeping 95
percent of that rental income.
Maybe the loss of the tax deduction wouldn't hurt the
real estate market at all.
The next objection to a flat tax is the loss of the
deduction for charitable donations.
The assumption is that no one will give to charity
unless the government offers an incentive for donations.
That's a cynical view. Well-run charities that spend
a high proportion of donations on non-administrative expenses can count on
the generosity of Americans. Bloated charities would no longer have a government
subsidy to bring them a stream of complacent donors. After all, if you're
really donating just to get the tax deduction, it doesn't matter to you if
the charity spends most of its money on high salaries and lavish
It's also hard to see the logic of allowing people
in need of charity to block a policy that would help people stay off
Many people think a flat tax can't pass because
even one dollar in income tax is more than almost half of Americans are currently
According to a study by the Tax Policy Center, about
47 percent of Americans paid no income tax in 2009. Some did not earn enough
to owe anything, and the rest qualified for credits, deductions and exemptions
that wiped out their tax liability completely.
If you have young children, you might very well be
in that group. Every year, the "child tax credit" knocks thousands of dollars
off the tax bills of people with kids, and what's more, the government mails
out a check for the amount of the credit to anyone who doesn't owe enough
in taxes to take full advantage of it.
But if you have kids, and you care about their future,
you may want to think this all the way through. A tax code that discourages
economic growth could be replaced by one that causes a labor shortage. A
labor shortage means you could earn more money. It means your kids will have
jobs when they get out of school. It means Social Security and Medicare will
be adequately funded by the payroll taxes of an increasing number of workers,
instead of just being drained by payments to an increasing number of
The price of that future is not a thirty-nine percent
tax rate. It's just five percent of your income.
No one wants to lose a tax credit or a government subsidy.
Politicians count on that. They run on that.
That's how the tax code came to be weighed down with
worthy and wonderful things you can do to get a tax credit or deduction.
What this really means is that the tax rates are
deliberately too high so the government can influence what you do with your
life and your money.
The longer you think about this, the more you'll realize
that it is a terrible infringement on your freedom.
Your tax bill is determined by how much money you earn
and also by whether you buy a house, donate to charity, install energy-efficient
windows, have young children, put money away for retirement, invest in municipal
bonds and... well, let's stop there, before the list runs to 17,000
Do we really want this? Do we need the government telling
us how to live? Should we have to confess to the Internal Revenue Service
how we spend every dollar?
Taxes are necessary to fund the operations of government,
but the government has turned the tax code into a giant rolled-up newspaper
and a box of dog treats.
This has been going on for decades, and it goes on
regardless of which party is in power. The only thing that changes is who
gets hit with the newspaper and who gets the dog treat, and for what.
A little tinkering with the tax code may dull the pain,
but it is not going to solve our problems.
A labor shortage will solve our problems.
A five percent flat tax will cause a labor
Can it be done?
Congress will never vote for it. They'd be removing
their own power to award favors and impose penalties, and if they do that,
they'll never get their fundraising phone calls returned.
Think about this: the income tax was created by the
16th Amendment in 1913. The U.S. Constitution prohibited an income tax, and
that's why a constitutional amendment was necessary in order to impose
Think about the possibility of amending the Constitution
again, this time to repeal the current federal tax code and replace it with
a five percent flat tax.
Think about adding a section to the amendment that
gives Congress the power to set the minimum income that would be subject
to the tax, allowing lawmakers to exempt low-income people from paying
Think about how easy it would be for businesses to
plan and grow once they know for certain that Congress can't hike their taxes
every year with new legislation or with some clause slipped into some bill
on some unrelated matter.
Think about all the investment dollars that would be
directed to productive enterprises instead of things no sane person would
invest in except for the fact that there's a tax break for it.
Think about economic growth, more jobs, higher wages,
better benefits, and enough tax revenue to cut the deficit and adequately
fund Medicare and Social Security.
That just leaves one question.
How do you pass a constitutional amendment?
The procedure is set out in Article V of the U.S.
Constitution: an amendment has to be proposed, then ratified, and once ratified
it's as much a part of the Constitution as if it had been there from the
An amendment can be proposed in one of two ways. It
can be proposed in Congress, where both the House and the Senate must pass
it with at least two-thirds of the vote.
Obviously that's not going to happen.
But the Constitution sets forth a second option for
proposing amendments. If two-thirds of the states ask Congress to call a
convention for the purpose of proposing amendments, Congress must call
It says so, right there in Article V.
That means if thirty-four of the fifty state legislatures
want an amendment to the Constitution, they can get around Congress' objections
and propose one.
Once the proposed amendment is passed by the convention,
it goes out to the states for ratification. In every state, the amendment
would be discussed and debated. Only when the legislatures of three-quarters
of the states that's thirty-eight of the fifty have approved
the amendment does it become the law of the land.
The process for amending the Constitution is cautious
and deliberative. It's not quick and it's not easy.
That's why, for the last eighty or so years, Americans
have accepted the U.S. Supreme Court's reinterpretations of the Constitution
in place of amendments.
Today, people are so accustomed to the idea that the
Constitution is updated through "test cases" that they think the process
of amending the Constitution is wacky, unpredictable and dangerous.
You can judge for yourself which method is more wacky,
unpredictable and dangerous, but in any case, it's technically possible to
amend the U.S. Constitution entirely through the state legislatures, even
if the House, the Senate, the President of the United States, the U.S. Supreme
Court and all fifty state governors oppose the idea.
Interesting, isn't it?
Some people think Americans today are not wise enough
to amend the Constitution. They think we're not as smart as Washington, Madison,
Jefferson and Adams.
But we're at least as smart as those guys in 1913 who
passed the income tax amendment.
August 20, 2011
© Copyright 2011 by Susan
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