U.S. President Joe Biden has just proposed a new tax on billionaires, and that is a welcome step forward in terms of a “fair share” tax policy regarding the civic obligation of those who reap outsized financial benefits from the American system of democracy. However, the focus on an elite group of 700 or so super-rich citizens distracts from a much broader wage inequality issue that has an impact on millions nationwide.
Written by Sarah Anderson, director of the ISP's Global Economy Project, the article takes note of the vast chasm between Wall Street bonuses and the federal minimum wage. That gap looms all the larger in the context of the COVID-19 pandemic and subsequent inflation.
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In war and other times of great stress — such as a deadly pandemic — it is comforting to think that democratic governance would lean toward distributing resources more equitably, at least until the crisis has passed.
That has happened to a small degree, in the form of relief distributed through the federal CARES Act. However, as Anderson described, the underlying problem not only persisted, but grew in depth and ugliness, as illustrated by the difference between the federal minimum wage and the bonuses earned by Wall Street executives.
Anderson notes that it has been 12 years since the Dodd-Frank financial reform bill became law, with the purported aim of avoiding another financial crash on the order of the 2008 crisis. However, a key part of that law has never taken effect.
“Powerful Wall Street lobbyists have succeeded in blocking Section 956 of the Dodd-Frank legislation, which prohibits large financial institutions from awarding pay packages that encourage ‘inappropriate risks,’” Anderson writes.
“Regulators were supposed to implement this new rule within nine months of the law’s passage but have dragged their feet — despite widespread recognition that these bonuses encouraged the high-risk behaviors that led to the 2008 financial crisis, costing millions of Americans their homes and livelihoods,” she explains.
As a result, even under the twin crises of pandemic and inflation, Wall Street bonuses have soared through the roof, while lower-wage workers have effectively lost income.
According to ISP’s analysis of data from the New York State Comptroller, the average annual bonus for securities industry employees based in New York City increased by 20 percent from 2020 to 2021, exceeding the 7 percent inflation rate almost threefold.
Meanwhile, data from the Bureau of Labor Statistics indicates that average weekly earnings for all private sector employees in the U.S. rose only 2 percent.
No one is suggesting that all workers in every field should all be paid the same wage. However, the failure to implement Section 956 over the past 12 years has occurred hand-in-hand with a failure to increase the federal minimum wage over the past 13 years, feeding the wage gap into its current state.
The federal minimum wage was $7.25 in 2009, and it has stood there ever since.
Meanwhile, ISP notes that the 2021 Wall Street bonus represents a 1,743 percent increase from the average bonus of $13,970 in 1985.
“If the minimum wage had increased at that rate, it would be worth $61.75 today, instead of $7.25,” Anderson notes.
The bottom line is that federal income policy has taken good care of Wall Street bonus earners, while virtually ignoring the needs of low-wage workers.
In terms of race and gender, the ripple effects of wage inequality are equally extreme. Anderson cites figures indicating that white men reap the lion’s share of benefits from the kid-gloves treatment of Wall Street income, while women and non-white men hold down low-paying service work that is vital to a functioning society, including child care and home care.
In this time of pandemic, climate crisis, inflation, a potential energy shortage and Russian warmongering, those in the most precarious financial position have been forced to shoulder the heaviest burden. Increasing the tax on a few hundred U.S. billionaires could help make a difference in terms of increasing the availability of federal aid for financially struggling households. However, the root of the problem is legislative inaction on wage inequality.
Increasing the federal minimum wage and implement Section 956 would not solve all problems, but those twin actions would help reinvigorate a sense of collective responsibility for the general welfare, as outlined in Article I of the U.S. Constitution.
Russia’s murderous rampage through Ukraine has exposed the misery and treachery of a self-described democracy that rewards the few at the expense of many. Those who assume such a thing could never happen in America need only look to the influence of money and power in the failed insurrection of January 6, the wave of voter suppression bills sweeping the nation and the corruption of the U.S. Supreme Court to realize how close to the edge we are all skating.
Image credit: Andrea Piacquadio via Pexels
Tina writes frequently for TriplePundit and other websites, with a focus on military, government and corporate sustainability, clean tech research and emerging energy technologies. She is a former Deputy Director of Public Affairs of the New York City Department of Environmental Protection, and author of books and articles on recycling and other conservation themes. She is currently Deputy Director of Public Information for the County of Union, New Jersey. Views expressed here are her own and do not necessarily reflect agency policy.