A cargo truck makes its way around stacks of shipping containers at the Yangshan port in Shanghai. (AP Photo/File)
Opinion writer

On Wednesday, former car czar Steven Rattner testified before the House Ways and Means Committee. He began his prepared remarks by telling the committee members what they should have done on tax reform:

1) It should be deficit neutral, given projections for rising fiscal gaps.

2) It should be fair and certainly not diminish the progressivity of our system.

3) It should be growth and investment enhancing.

4) It should improve our international competitive position.

Now, one year later, we know that what was ultimately passed failed to address most of these tests.

On the debt, Rattner explained, “According to the Congressional Budget Office, the fiscal gap could total as much as $2.7 trillion over the next 10 years. Supporters counter that added economic growth of 0.4% percent per year would offset the cost. But every reputable forecast of which I’m aware puts the likely incremental growth at a negligible amount.” As for the fairness issue, he argued that “it is not fair; just 16% of the benefits will go to individuals making less than $75,000 per year.”

Now if we were going to get huge growth and millions of new, good-paying jobs all this might be worth it. However, we now have an economy a little less robust than it was under President Barack Obama (“the average number of jobs added each month has been lower since the Trump Administration began — 187,000 jobs per month versus 201,000 jobs a month between October 2010 and December 2016.”) That’s not surprising considering we are into the ninth year of an economic recovery, but with a tighter job market, we still haven’t see a boost in wages. “Under the prior Administration, average hourly earnings (after adjusting for inflation) grew by 0.8% per year; so far under President Trump, they have grown by half of that amount. Last month, real wages for private employees even declined.”

Every economist seems to have his or her own theory about wages. U.S. workers now compete in a global labor market where wages are kept lower by cheaper foreign labor. Unionization has diminished. Labor participation rates are historically low so the labor market has more slack than the unemployment numbers suggest. 

Let’s remember, however, that rising wages require rising productivity. You can raise the minimum wage or create government supplements such as the Earned Income Tax Credit, but generally you cannot keep raising wages if workers aren’t earning more for their employers.

One way to stimulate productivity would be to invest more in technology and in worker training. Rattner says that isn’t happening. (“That has not occurred. Instead, stock buybacks have risen to record levels while dividends to shareholders have been increased and comparatively little has been passed on to workers. Meanwhile, CEO pay continues to rise.”)

Another way to help workers and their employers be more productive is to finally undertake serious infrastructure reform — both investing and speeding up the regulatory process. If we have better roads, high-tech ports, high-speed Internet, etc. employers should be able to conduct business more efficiently, speed their products to markets and get their employees where they need to be more quickly. We haven’t done that, either.

Well, we could try to make our workforce more flexible and encourage entrepreneurialism. The Harvard Business Review posited last year:

The wage stagnation of the past 40 years is also linked to some developments that may have suppressed productivity growth, which has slowed since 1973, with an exception of a surge from 1995 to 2004. Some of the most disturbing trends can be loosely grouped under the heading of declining “dynamism.” Workers are less likely to move across states than they once were (fewer than 2% of workers do so today, as compared with about 3% who did 40 years ago). They are also less likely to switch jobs than they once were. These changes may reflect a diminished ability to find the places and jobs that are most conducive to upward mobility.

Business dynamism also fell. In the late 1970s, 14% of firms were under a year old; that figure has fallen to 8% in the most recent data. Because young, fast-expanding firms have historically been an important driver of wage growth, the increasing age of firms may be contributing to lackluster worker gains.

There are some things we can do to boost dynamism. Noah Smith suggests: “One idea is to provide big relocation vouchers at the federal level during recessions, to encourage laid-off workers to move around the country. Another is to make sure that housing vouchers allow poor people to move to better neighborhoods — a policy that’s already being implemented in some cities. A final idea is to create systems of relocation insurance at the city, state or federal level, similar to unemployment insurance, so that poor people displaced by a local recession or rising rents can move to a better place with less of a life disruption.”

Other ideas include re-examining zoning laws that keep housing prices artificially high, encouraging reciprocity for state licensing (be it for an electrician or a lawyer) or removing burdensome licensing requirements altogether. We can invest more in research and technology, helping to build high-tech hubs around universities and other research facilities. And slapping a green card on the diploma of foreigners graduating from U.S. colleges and universities with degrees in STEM fields would be another positive move. After all, one important source of dynamism in the American economy has always been immigrants, who embody entrepreneurship (e.g., risk-taking, adaptability, delayed gratification).

In short, the tax plan didn’t do what it promised or needed to do, but it did drain revenue severely. If Democrats want a positive, compassionate agenda to contrast with Trump’s weird mix of protectionism, corporate cronyism and pro-income inequality policies, they could do worse than to provide a robust agenda built around making work pay. That would take some public revenue, but maybe we can claw some back from the irresponsible and ultimately ineffective tax cuts. If we are going to run up the debt, we might as well get something for it (e.g., new roads, more skilled workers).