NCPA - National Center for Policy Analysis

Should Government Interfere?

April 1, 1996

Leading Democrats in Congress want to give tax breaks and regulatory relief to firms that boost spending on their workers, in terms of wages and benefits, and insulate themselves from their own shareholders and other investors.

Under one proposal, a company could qualify for favorable tax treatment if it: Contributes 3 percent of payroll to a portable, multiple-employer pension plan, and 2 percent of payroll to employee training. Pays half the costs of a qualifying health plan for both permanent and temporary workers.

Operates an employee profit-sharing plan or an employee stock ownership plan managed by workers. Requires the highest-paid employee to be paid no more than 50 times the lowest-paid full time employee. Also, to ease perceived Wall Street pressures for short-term results, a sliding transaction tax would be imposed on sales of securities held less than two years. Critics say companies are already doing all they can to keep good workers -- including expanded health benefits, child care and profit sharing -- and forcing them to change their practices would skew the market away from the most productive uses of capital and labor.

Some have even called one such proposal a "preposterous piece of social engineering" motivated by "ignorance or malice." While politicians harangue against record corporate profits and supposedly low wages, the data do not back them up.

Corporate profits are currently around 8 percent of GDP. That is higher than the 5 percent to 7 percent seen in the 1980s, but below the peak of 10 to 11 percent seen in the 1960s. And while figures show wages for male workers falling 12 percent over the last 20 years, when inflation is accurately figured, wages may actually have risen 14 percent.


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