The Middle Class Don’t Pay Their Fair Share of Taxes

The Democrats keep harping on the mistaken idea, that the top 5% are not paying their fair share of taxes, when in fact, the top 5% pay 66% of all income taxes, that is more than at any time in recent history. So, the wealthy are clearly paying their fair share.

Workers are paying the lowest share of income taxes in recent history, and so it stands to reason, they are not paying their “fair share”. But the problem is not the tax rates are too low. The reason workers are not paying their “fair share” of taxes is because workers are not earning enough income. In economic terms, “labor” has become devalued by becoming commoditized.

Here are the numbers. In 1960, the bottom 95% earn 86% of the reported income. By 1980, that number had fallen to 83.5% of the reported income. By 2000, that number had fallen 79% of income. The bottom 95% earned 75% of reported income in 2023. Income is a “proxy” for the value being created over the resources used to produce goods and services and simply stated workers are getting a smaller share of that value and no amount of higher taxes is going to fix that problem, it will simply make people more dependent on politicians.

Any politician that tries to fool voters, that by taxing the rich, the bottom 95% are going to “earn” more is a liar. People lives are not improved by taxing the rich more, their lives are improved by them earning more.

So, the real question is how you increase the negotiating power of “labor”. And economics says the single best way to increase the value of resource is through “scarcity”. The scarcer an important resource is, the more valuable it becomes. So, if we want to improve the share of income that workers receive, we need to make American labor scarcer or we need to increase the demand for American labor such that “owners” are willing to pay more for it.

The economy produces goods and services. While it is an oversimplification, the primary source of incremental “cheap” labor for manufactured goods comes in the form of imported products, which are produced by “cheap” labor. The primary source of incremental “cheap” labor for services comes from illegal immigrants entering the country. Influences these sources of cheap labor, and US citizens will have more negotiating power to secure higher wages and that will shift the allocation of value created by our economy from owners to workers.

So, Trump’s idea of putting tariffs or imported goods to stimulate domestic job growth has the added impact of giving US workers more negotiating power with owners of companies to secure higher wages. To afford those higher wages, owners will have to invest in productivity so they can pay higher wages and try to keep selling prices down. But some of those higher wages will go into higher consumer prices and so we as a nation have to decide we are willing to pay slightly more for goods (around 3–4%) in order to provide workers higher incomes and provide better lives for themselves and their families and all of those businesses and their workers and families that provide goods and services to these workers.

How high should the tariffs be? It depends on the product, but as a accountant by training, I am confident, smart people could figure out how to set tariffs high enough to give US produced products a slight advantage in labor costs. The US should be able to compete without tariffs with respect to energy costs and most other inputs. Meanwhile, the tariffs collected should go to training US workers to do the needed jobs that tariffs will create.

Next, securing our border and enforcing our immigration quotas to make sure that we limit competition especially in lower wage service jobs, where lower paid American workers are getting especially hurt will allow these lower paid workers to demand higher wages. A recent article where a hotel in Santa Monica, CA employed illegal immigrants, while the housekeeping staff went on strike for higher wages illustrates the issue at a “collective bargaining” level, but at the individual level, workers in the service industry are facing competition daily from millions of illegal immigrants in this country. We need immigrants to fill jobs and bring needed skills into this country, but we also need to manage the composition of immigrants as it relates to what specific skills they have.

We may need more nurses and doctors and less “cooks”. We may need more workers in rural areas and fewer in poor urban neighborhoods, where job shortages already exist. In simply terms, we need to make immigration a more targeted process that strengthens our economy rather than undermines the ability for service workers to earn fair pay.

I am not advocating we deport all the illegal workers in this country at the present. I am advocating we deport all illegal workers that fail to register as temporary guest workers. Employers can then sponsor registered guest workers. The government will require that they pay illegal immigrants 10% more than they pay American workers (a tariff on “imported” guest worker wages) and pay similar benefits and taxes as they pay on US workers. Employers failing to do so, would receive punitive fines. This would allow US workers to demand higher wages and employers would pay them before employing illegal immigrants and only employ them if the illegal immigrant were more productive or US workers were not available.

Over time, we need to push the “share” of income earned by workers as a percent of total income reported. With their higher incomes they can decide whether our government should receive more of their income as taxes or whether they should keep their higher incomes and decide how they want to spend it.

Politicians should also be told to prioritize our spending rather than promote class warfare by arguing that the rich “earn” too much money and so should pay more taxes. The solution for the rich “earning” too much money is not higher taxes, but it is for workers to earn a greater share of the income by them having more negotiating power for higher wages.

Globalization has changed the world by commoditizing labor and that has resulted in the concentration of income and wealth. Cheap labor means “cheap products and services”, but for all the appeal of lower prices, it comes with the high cost of declining incomes for workers. We need to understand this reality and take steps to protect workers, and the first two steps are addressing the impact on wages that imports, and illegal immigration is having in our country on workers’ incomes.

I support regulated capitalism and when something gets out of whack you fix it. You don’t fix lower incomes for workers with higher taxes on the rich, you fix lower incomes for workers by influencing the marketplace such workers can demand higher incomes. Get elect a President that understands how to give workers more negotiating power to demand higher incomes, while promoting domestic job growth.

I touched on how we could improve our immigration policies, but that is a subject onto itself. I also think we need to reengineer our education system to produce citizens with needed job skills and an understanding of our democracy and economic system. To many young people seem to have little concept of economics, the necessary skills to support themselves, and an understanding of their important role as citizens in preserving our individual rights and freedoms through the ballot box.