The Democratic Party's left flank has ideas for fixing the country
TUCKER CARLSON, a Fox News host, and Bernie Sanders, a democratic-socialist senator, seldom agree. Yet on the matter of billionaires supposedly sponging off taxpayer largesse, they are completely simpatico. On September 5th Mr Sanders introduced a bill which would force large firms to pay taxes exactly equal to the amount of safety-net benefits consumed by their employees, including food stamps, housing vouchers and Medicaid. The target of Mr Sanders’s legislation, titled the “Stop Bad Employers by Zeroing Out Subsidies” or “Stop BEZOS” Act, was clear. Attacking Jeff Bezos, the founder and boss of Amazon, is a uniquely bipartisan pastime. The left of the Democratic Party views him as a latter-day Ebenezer Scrooge. Trump-cheerleaders like Mr Carlson despise him for owning the meddlesome Washington Post. Mainstream economists took a dismal view of the pitch.
Congressional Democrats, especially those eyeing a presidential run in 2020, are awash with bold policy ideas. In addition to Mr Sanders’s pitch, Kamala Harris, a Democratic senator from California, has offered a proposal to give generous tax credits to citizens who spend more than 30% of their incomes on rent. Elizabeth Warren, a progressive senator from Massachusetts, would like to up-end corporate boards by requiring that employees pick 40% of the members
Start with Mr Sanders’s proposal. The cost of safety-net programmes like food benefits, Medicaid coverage and rental subsidies could easily amount to thousands of dollars per employee. A pitch to charge firms that amount would be a de facto head tax, strongly discouraging employment. “It’s essentially a tax on hiring low-skill workers, but worse,” says Samuel Hammond of the Niskanen Centre, a think-tank. “Since eligibility largely varies with children and dependants, it’s actually a tax on firms for hiring low-skill parents.” Companies would have perverse incentives to filter out the applicants they thought likeliest to be on benefits. Because they would be barred by law from asking about welfare status directly, they would probably resort to pernicious stereotypes (such as not hiring a middle-aged black woman without a wedding ring). It would also encourage companies to minimise low-skilled labour as much as possible, hastening automation.
Bad, worse, wurst
Ro Khanna, a Democrat from Silicon Valley, introduced an identical bill in the House of Representatives. While he concedes that automation is a real worry, he dismisses the discrimination critique offered by liberal economists. Though discrimination is notoriously difficult to prove in court, high penalties would still encourage firms to behave, Mr Khanna insists. Besides, he says, the point of the bill is to encourage companies to forgo the headache by paying their employees a higher minimum wage. “If you raise to a liveable wage, like $15 an hour, then you’re exempt. But if you’re not going to provide a decent wage, and you’re making trillions of dollars, then you’re going to be on the hook for all the public benefits that you’re consuming,” Mr Khanna says.
The idea that benefits schemes for low-income workers are corporate welfare is mainstream on the far left. Yet it is also quite strange, since it implies that for those at the bottom of the earnings distribution, wages would rise if the safety-net were slashed. “Some people could draw a message from the bill that programmes like SNAP [food stamps] or Medicaid are bad…because they’re fundamentally corporate subsidies,” says Robert Greenstein of the Centre on Budget and Public Priorities, a left-leaning think-tank. The earned-income tax credit, which operates explicitly as a wage subsidy for working-class families through the tax system, has been helpful in alleviating poverty. Indeed, many—including Mr Sanders—would like to see it expanded.
Similar problems haunt Ms Harris’s daring plan to offer tax credits for those facing high rents. She would like the federal government to reimburse households for rent that is over 30% of household income. Housing affordability is certainly a growing issue, especially in America’s booming cities. But that is because of constrained supply. Fuelling demand with billions in government cash while housing supply is stuck means that prices will only rise. The winners would be landlords, who would pocket most of the vast expenditure.
Ms Harris’s proposal would encourage people to rent flats well beyond their means. Those making less than $25,000 would get 100% of their excess rent subsidised by the government. In San Francisco, the costliest city in America, this means that such a person would pay at most $625 a month, even for a flat costing $4,681 a month. Uncle Sam would kick in the rest. Because the policy abruptly shifts reimbursement rates around cut-off points, those making $75,000 in San Francisco could lose as much as $8,500 of tax credits by making an additional dollar. In cities with high rents, those making up to $125,000 a year, hardly a needy bunch, would qualify for subsidies.
Of all the proposals, Ms Warren’s Accountable Capitalism Act is the least destructive. Some of its provisions—like requiring firms with more than $1bn in revenue to obtain a federal charter and barring executives from selling shares for five years—are relatively modest. Others, like requiring corporations to create a “general public benefit”, seem vague and unenforceable. The most eye-catching proposal, which is for employees to elect 50% of the representatives on corporate boards of directors, seems radical but has been commonplace in Germany since 1976. Although such a system might not work as well in America, where employees are less likely to remain loyal for years, it is hardly the stuff of revolution.
None of the proposals will become law anytime soon. But they do foreshadow the themes of the next Democratic presidential primary, at a time when the party seems to be in its wilderness-wandering stage. Populist policies, such as sticking it to Mr Bezos, subsidising rent and giving more power to workers, are in the ascendant.