The Meritocracy Trap
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the most modest incursions: Yale University, for example, aggressively resisted not just the Connecticut endowment tax but also a recent proposal to subject just some of its buildings to local real estate taxes, even though the sums at stake in that proposal had only symbolic significance. See Connecticut General Assembly SB 414 (2016). See also Christine Stuart, “Bill Allowing New Haven to Tax Yale Moves Forward,” New Haven Register, April 7, 2016, accessed September 28, 2018, www.nhregister.com/colleges/article/Bill-allowing-New-Haven-to-tax-Yale-moves-forward-11336701.php; “Yale Decries Tax Bill as Unconstitutional,” YaleNews, April 11, 2016, accessed September 28, 2018, https://news.yale.edu/2016/04/11/yale-decries-tax-bill-unconstitutional.
finance for nearly one-tenth: See “Historical,” Centers for Medicare & Medicaid Services, accessed September 28, 2018, www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.
perhaps half of the richest 1 percent of workers: See Chapter 4.
emphasizes nurse-practitioners rather than doctors: Assembly Bill-1810 (Cal. 2017–2018), http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1810.
ordinarily diagnosed by doctors: See, e.g., Nisarg A. Patel, “Could Your Next Doctor Be Your Dentist?,” Slate, August 28, 2017, accessed September 28, 2018, www.slate.com/articles/health_and_science/medical_examiner/2017/08/why_your_next_doctor_could_be_your_dentist.html.
routine legal services: See Washington State Bar Association, Legal Technician Program, “Become a Legal Technician,” accessed September 29, 2018, www.wsba.org/for-legal-professionals/join-the-legal-profession-in-wa/limited-license-legal-technicians/become-a-legal-technician. Substantive law might also be changed to encourage mid-skilled legal labor. Larry Lessig, for example, proposes a copyright registration scheme that would reduce the complexity of intellectual property rights creation and registration and dramatically reduce skill fetishism in intellectual property law. See Lawrence Lessig, Free Culture: How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity (New York: Penguin Press, 2004), 287–93.
a cost/benefit analysis: This requirement traces back to the Reagan administration. See Executive Order 12291, 46 Fed. Reg. 13193 (1981).
outcomes that the procedures produce: See Kevin M. Stack, “The Paradox of Process in Administrative Rulemaking,” University of Cambridge, Conference Panel, Faculty of Law, Public Law Conference Presentation, Cambridge, England, September 17, 2014.
to which it applies: “Policy Basics: Federal Payroll Taxes,” Center on Budget and Policy Priorities, March 23, 2016, accessed October 11, 2018, www.cbpp.org/research/federal-tax/policy-basics-federal-payroll-taxes. For 2018, the Social Security tax applied to only the first $128,400 of income, and only the Medicare tax applied after that. For 2019, the threshold is $132,900. This means that the tax imposes rates of 15.3 percent on the first $132,900 of individual income but just 2.9 percent on income between $132,900 and $200,000 and 3.8 percent on all income above $200,000. See IRS, Tax Topics, “Topic Number: 751—Social Security and Medicare Withholding Rates,” www.irs.gov/taxtopics/tc751. For employed workers, both taxes are charged half to the employee and half to the employer. But regardless of who must pay the payroll tax, it amounts economically to a burden on labor understood as a factor of production.
The cap reflects historical contingencies rather than any deeper logic. Franklin Roosevelt’s Committee on Economic Security introduced Social Security as an antipoverty measure and so proposed to exempt high-earning nonmanual workers from the program altogether, but Congress instead included all workers, while capping the earnings subject to the tax that funded the program. See Congressional Research Service, Social Security: Raising or Eliminating the Taxable Earnings Base, CRS Report no. RL32896 (2017), 3, 4, https://fas.org/sgp/crs/misc/RL32896.pdf. Quite possibly, Congress took this route in order to frame Social Security as a pension program rather than as poverty relief: as the House Ways and Means Committee observed in recommending the Social Security Act, the program “is not class legislation, but a measure which will benefit the entire public.” H.R. Rep. No. 74-615 (1935), 16.
In any event, the original arguments for capping the Social Security payroll tax cannot justify the cap today. For one thing, the cap has moved down the income scale, and the share of total payroll earnings that are taxable for Social Security is substantially lower today than it was at the program’s inception. In 1937, 92 percent of payroll income was subject to Social Security taxation; today, just 83 percent is. Social Security Administration, Fast Facts and Figures About Social Security, 2017, SSA Publication No. 13-11785 (September 2017), accessed October 11, 2018, www.ssa.gov/policy/docs/chartbooks/fast_facts/2017/fast_facts17.pdf.
Moreover, by suppressing mid-skilled and encouraging superordinate labor, the cap itself gives Social Security a class profile. Pure social insurance is a myth, and payroll taxes inevitably influence labor markets against or for democratic models of work. The status quo is not neutral but rather affirmatively sides with meritocratic inequality. Moreover, Social Security no longer requires the cap on the payroll tax in order to survive politically. The Medicare payroll taxes that fund Social Security’s sister program were originally subject to the same cap as Social Security payroll taxes, but the Medicare income cap was raised in 1990 and repealed entirely in 1993. See Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508, 104 Stat. 1388, and Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, 107 Stat. 312. Some legislators did object that removing the cap adulterated the program’s tradition of pure social insurance, but Medicare survives and even expands. See, e.g., U.S. Congress, Senate, Committee on Finance, Administration’s Tax Proposals: Hearings Before the S. Comm. on Finance, 103rd Cong., 1st sess., 1993, 169 (statement of Sen. Harvey Coustan).
of the income tax: Today, for example, a married couple filing jointly pays income tax at a rate of 15 percent on its first $36,900 of taxable income, 28 percent on taxable income between $36,900 and $89,150, 31 percent on taxable income between $89,150 and $140,000, 36 percent on taxable income between $140,000 and $250,000, and 39.6 percent on taxable income above $250,000. See 26 U.S.C. § 1 (2018).
People whose incomes exceed the Social Security contribution cap must pay, on the margin, only income taxes. Others must pay both income and wage taxes.
Together, these rate structures entail that a person with an annual income of $1 million pays a marginal income tax rate just 8.6 percent higher than a person with an annual income of $90,000 but pays a wage tax rate 12.4 percent lower.
highest aggregate marginal federal tax rate: Since 1982, the top marginal federal income tax rate has never exceeded 50 percent. “U.S. Federal Individual Income Tax Rates History, 1862–2013 (Nominal and Inflation-Adjusted Brackets),” Tax Foundation, October 17, 2013, accessed October 19, 2018, https://files.taxfoundation.org/legacy/docs/fed_individual_rate_history_nominal.pdf. The Social Security wage tax has over this period risen from 10.8 percent in 1982 to 12.4 percent beginning in 1990 and has held steady ever since. See www.ssa.gov/oact/progdata/taxRates.html.
Combining the two rates reveals the distinctive burden on middle- and upper-middle-class labor. In 1990, for example, a married couple filing jointly in which each partner earned the equivalent of $100,000 (in current dollars) faced a total marginal tax rate of 45.4 percent, while someone whose income was $1 million faced a rate of just 28 percent. In 2000, the upper-middle-class coupled faced a total marginal tax rate of 42.9 percent, while the millionaire faced a rate of 39.1 percent. And in 2010, the upper-middle-class couple faced a total marginal tax rate of 40.4 percent while the millionaire faced a rate of 35 percent. The effect is still larger for households with a single earner only, because the payroll tax, being assessed on individual wages rather than household incomes, does not decrease to reflect a spouse’s lack of income, whereas the income tax does.
The Trump tax reforms, although broadly regressive, have actually helped relieve the relative overtaxation of specifically middle-class labor income, as whatever wage tax relief they provide is in fact concentrated on middle-class labor. See Rob Berger, “The New 2018 Federal Income Tax Brackets Rates,” Forbes, December 17, 2017, accessed October 11, 2018, www.forbes.com/sites/robertberger/2017/12/17/the-new-2018-federal-income-tax-brackets-rates/#15ef3d52292a.
only half as high: See Tax Policy Center, Historical Capital Gains and Taxes, 1954–2014, May 4, 2017, https://www.taxpolicycenter.org/statistics/historical-capital-gains-and-taxes.
only about $90,000: 100,000 × 15.3/100 × 20 = 306,000; (132,900 × 15.3/100) + (67,100 × 2.9/100) + (1,800,000 × 3.8/100) = 90,679.6.
by 1.1 percent of GDP: See “Social Security Policy Options, 2015,” Congressional Budget Office, December 2015, accessed September 29, 2018, www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51011-SSOptions_OneCol-2.pdf; “Single-Year Tables Consistent with 2016 OASDI Trustees Report,” Social Security Administration, accessed September 29, 2018, www.ssa.gov/oact/tr/2016/lrIndex.html; “Increase the Maximum Taxable Earnings for the Social Security Payroll Tax,” Congressional Budget Office, December 8, 2016, accessed September 29, 2018, www.cbo.gov/budget-options/2016/52266; Jeffrey Liebman and Emmanuel Saez, “Earnings Responses to Increases in Payroll Taxes,” September 2006, accessed September 29, 2018, https://eml.berkeley.edu/~saez/liebman-saezSSA06.pdf. Expanding the tax base to include non-payroll labor income would plausibly double the new revenues raised. See “Publication 15-B (2017), Employer’s Tax Guide to Fringe Benefits,” Internal Revenue Service, accessed September 29, 2018, www.irs.gov/publications/p15b/ar02.html; “Relative Standard Errors for Estimates Published in Employer Costs for Employee Compensation—News Release Tables,” Bureau of Labor Statistics, June 2018, Table 1, accessed September 29, 2018, www.bls.gov/web/ecec/ececrse.pdf; “Reduce Tax Preferences for Employment-Based Health Insurance,” Congressional Budget Office, December 8, 2016, accessed September 29, 2018, www.cbo.gov/budget-options/2016/52246.
its 2018 budget: See “Fiscal Year 2018 Budget in Brief,” Department of Labor, 7, accessed September 29, 2018, www.dol.gov/sites/default/files/FY2018BIB_0.pdf [inactive].
U.S. colleges and universities: See “Expenditures of Educational Institutions Related to the Gross Domestic Product, by Level of Institution: Selected Years, 1929–30 Through 2014–15,” National Center for Education Statistics, accessed September 29, 2018, https://nces.ed.gov/programs/digest/d15/tables/dt15_106.10.asp?referrer=report. The table cites the following sources: U.S. Department of Education, National Center for Education Statistics; Biennial Survey of Education in the United States, 1929–30 Through 1949–50; Statistics of State School Systems, 1959–60 Through 1969–70; Revenues and Expenditures for Public Elementary and Secondary Education, 1970–71 Through 1986–87; Common Core of Data (CCD), “National Public Education Financial Survey,” 1987–88 through 2012–13; Higher Education General Information Survey (HEGIS), Financial Statistics of Institutions of Higher Education, 1965–66 Through 1985–86; Integrated Postsecondary Education Data System (IPEDS), “Finance Survey” (IPEDS-F:FY87–99); and IPEDS Spring 2001 Through Spring 2015, Finance Component. “Selected National Income and Product Accounts Tables,” U.S. Department of Commerce, Bureau of Economic Analysis, retrieved January 29, 2016, https://apps.bea.gov/scb/pdf/2016/01%20January/0116_selected_nipa_tables.pdf (table prepared January 2016; all figures in current dollars).
mid-skilled, middle-class workers: Paying the subsidies to employers will drive up pretax wages and emphasize middle-class industry and the dignity of mid-skilled work (whereas paying subsidies to employees would drive down pretax wages and establish an atmosphere of condescension). This point is also made by Zachary Liscow, “A Plan for America’s Dispossessed” (manuscript, November 2016).
from capturing the subsidies: See, e.g., Matthew Dimick, “Should the Law Do Anything About Economic Inequality?,” Cornell Journal of Law and Public Policy 26, no. 1 (2016); Jesse Rothstein, “Is the EITC as Good as an NIT? Conditional Cash Transfers and Incidence,” American Economic Journal: Economic Policy 2 (2010): 177–79; David Lee and Emmanuel Saez, “Optimal Minimum Wage Policy in Competitive Labor Markets,” Journal of Public Economics 96 (2012): 739 (“With a binding minimum wage . . . an EITC expansion would increase after-tax incomes of low-skilled workers dollar for dollar.”).
support middle-class jobs and wages: “Sens. Warner, Casey, and Stabenow Introduce Proposal to Encourage Employers to Provide Job Training That Moves Workers up the Economic Ladder,” Mark R. Warner, U.S. Senator from the Commonwealth of Virginia, October 31, 2017, www.warner.senate.gov/public/index.cfm/pressreleases?ID=F440D3FD-3C49-4111-8C7C-61CA0B0C3D05.
roughly $150 billion per year: See Neera Tanden et al., “Toward a Marshall Plan for America,” Center for American Progress, May 16, 2017, www.americanprogress.org/issues/economy/reports/2017/05/16/432499/toward-marshall-plan-america.
backs federal wage subsidies: See Peter Georgescu, Capitalists Arise! End Economic Inequality, Grow the Middle Class, Heal the Nation (Oakland, CA: Berrett Koehler, 2017); Peter Georgescu, “Capitalists, Arise: We Need to Deal with Income Inequality,” New York Times, August 7, 2015, accessed September 29, 2018, www.nytimes.com/2015/08/09/opinion/sunday/capitalists-arise-we-need-to-deal-with-income-inequality.html?mcubz=3. In the 2016 cycle, Langone contributed $535,700 to support exclusively Republican candidates. See “Kenneth Langone Political Campaign Contributions—2016 Election Cycle,” Campaignmoney.com, www.campaignmoney.com/political/contributions/kenneth-langone.asp?cycle=16.
for middle-class labor in its stead: See Lawrence L. Katz, “Wage Subsidies for the Disadvantaged,” in Generating Jobs, ed. Richard B. Freeman and Peter Gottschalk (New York: Russell Sage Foundation, 1998), 21–53; Timothy J. Bartik, Jobs for the Poor: Can Labor Demand Policies Help? (New York: Russell Sage Foundation, 2001). See also Zachary Liscow, “A Plan for America’s Dispossessed” (manuscript, November 2016). Liscow would concentrate the wage subsidies geographically, in counties with low ratios of employment to population.
“Same Bosses, Same Fight”: See “Same Bosses, Same Fight,” Poster Workshop, www.posterworkshop.co.uk/students/page_14.html.
the grand alliance that the poster championed: The diagnosis of meritocratic inequality invites a new politics of redistribution in another sense also. The case for democratic equality suits a broad range of incumbent political ideologies. Progressives straightforwardly embrace democratic equality because it undoes the massive social and economic stratification that meritocracy has produced. Conservatives can also embrace democratic equality, although this affinity takes a little more explaining. Insofar as meritocratic inequality reflects distortions in training and labor markets, democratic reforms would perfect rather than obstruct free markets. Democratic equality sets aside redistribution in favor of achieving a more equal market distribution; it aspires not to constrain but rather to perfect labor markets (freeing markets from the hyper-meritocratic distortions). By marrying markets and equality, the democratic project brings free-market conservatives and egalitarian progressives together.
only by working together: This coalition is no more fanciful than the coalitions that the Enlightenment ideal of universal humanity created when it allowed people to look past clan, religion, and race to see one other as free and equal citizens. Most
recently, this ideal has enabled the civil rights movement, from midcentury through the present day, to appreciate the harms that racial discrimination imposes on everyone whom it affects, across the racial divide.
The diagnosis of meritocratic inequality offers a similar promise for economic life. The diagnosis invites, for the first time in human history, a cooperative politics of economic redistribution. It replaces the zero-sum competition between the rich and the rest and between capital and labor that has dominated redistribution from time immemorial with a positive-sum collaboration to restore industry, income, and honor to middle-class workers and to restore freedom and authenticity to superordinate ones.
they have reason to join: These formulations apply the old Fabian slogan—“Educate, Agitate, Organize.” “Our History,” Fabian Society, accessed September 29, 2018, https://fabians.org.uk/about-us/our-history.
a whole world to win: See Karl Marx and Friedrich Engels, The Communist Manifesto (New York: Simon & Schuster, 1988).
Figures and Tables
Average Hours Worked per Week by Income Rank: Systematic data on the work habits of the top 1 percent are difficult to come by. Many of the most prominent data sets on wages and hours top-code. This means that they decline to separate out the most elite slices of their populations, but rather merge these (without identification) into larger, less select groups. Moreover, the elite (including because they work such long hours) are reluctant to participate in time-consuming and intrusive surveys.
The data in the figure come from the Integrated Public Use Microdata Series (funded by the National Institute of Child Health and Human Development), which includes information about incomes and usual hours worked from the Federal Census and the American Community Survey. Data for 1940, 1950, 1960, 1970, 1980, 1990, and 2000 come from the census. Annual data from 2001 onward come from the American Community Survey. All observations in the sample used to construct this figure are (1) full-time employed, (2) not self-employed, (3) male, and (4) age 25–64.