Distributive Justice and Senate Bill to Raise Minimimum Wage (and Repeal Estate Tax)

On August 3rd the Senate fell short of the 60 votes needed to end discussion of a bill which includes both a gradual three year increase of the minimum wage AND the repeal of the estate tax which effects two percent of the population. The Washington Post reported that "Republican leaders in Congress have long wanted to eliminate or slash the taxes levied on estates left by wealthy people, but the Senate has repeatedly refused. Hoping to attract enough Democratic support, House leaders last week added a sweetener: the first increase in the federal minimum wage in nine years, plus an extension of several popular tax breaks for businesses. The House passed the complex measure -- dubbed "the trifecta" because of its three main facets -- and sent it to the Senate, which planned to vote before adjourning this weekend for the August break.
Frist agreed to the deal, hoping that several Democrats could not resist a chance to raise the minimum wage, in three phases, to $7.25 an hour from the current $5.15. The bill would also have exempted from taxation all estates worth as much as $5 million -- or $10 million for a married couple -- and applied a 15 percent tax rate to inheritances above that threshold and up to $25 million. The value of estates exceeding $25 million would have been taxed at 30 percent."--Source: Washington Post, Aug. 4th 2006

So, the question is, of course, why not pass this bill? Everybody wins: the poor and the rich! Its got a little bit for everybody....or so it seems. Well, one way to assess this bill is to ask of it whether it is just. Specifically, we apply the concept of distributive justice to it, a concept of fairness in the distribution of goods. Now, clearly, dividing up income is not like dividing up portions of birthday cake. Social inequalities are bound to occur based, if nothing else, on the division of labor. Some labor requires more work or more training and requires more sacrifice, some who own the means of production are simply lucky, and so forth. In a free market there are bound to be inequalities.

The political philosopher John Rawls made it is his life's work to articulate a conception of distributive justice and defend it as a suitable aspect of the public reason of a democratic society such as ours. There are two aspects to his theory:
"1. Each person has the same indefeasible claim to a fully adequate scheme of equal basic liberties, which scheme is compatible with the same scheme of liberties for all; and
2. Social and economic inequalities are to satisfy two conditions: first, they are to be attached to offices and positions open to allunder condtions of fair equality of opportunity; and second they are to be to the greatest benefit to the least advantaged group. "John Rawls, Justice as Fairness: A Restatement, p. 240
Taxation is a burden that all in society must bear. The government just is the set of institutions which administer the basic structure of society and without which the society would devolve into feudalism with little or no social cooperation amongst the various social classes. Taxation funds the central functions of the government. And since we all benefit from the system of social cooperation that is made possible by the government, it stands to reason that the policies of the government must be reasonable to each citizen in their political equality. We think of citizens as equal stakeholders in the social enterprise. Rawls second of the two principles is called "the difference principle" and speaks to how it is possible to have inequalities which are just and reasonable. One view of political equality is that no inequalities should occur. This is the view of a radical socialism. In a free market capitalist economy such as ours, the ideals of democratic equality have always sat rather uneasily with the gross inequalities that often emerge. So, Rawls theory of distributive justice is one way to mediate between the demands of political equality and the demands of liberty--particularly economic liberty as in the "free market".

So, with regards to the bill that was being debated in which the Republicans were asking for a repeal of the estate tax and then threw in raising the minimum wage, we can ask whether it satisfies the demands of distributive justice. If we look to Rawls' difference principle as a measure of the justice of such a policy we can get a better idea of whether the policy is reasonable and just or not. At first blush, the policy would appear to be acceptable. Recall that social inequalities are permitted provided they are to the advantage of the least fortunate members. So, by eliminating the estate tax for the upper 2% of the population--a net loss of income to the federal government over the course of 10 years estimated at around 286 Billion Dollars--appears to be offset by the interest in raising the minimum wage by 2+ dollars an hour over a three year period. Everybody wins, right?

Not quite. First, the upper two percent are not the employer of the minimum wage worker. The wages do not in any significant degree come out of the people affected by the estate tax. Second, the loss of federal revenue, i.e., the decrease of taxation--especially at a time of record federal deficits and the future insolvency of social security--is a serious consideration and should be apportioned, if at all, only onto the "least fortunate members" and not the most fortunate members. This is due to the fact that the federal government will increase taxes of necessity, but if it has passed legislation that excludes the upper 2% from being taxed on their assets it again falls to the middle and lower income classes to pay for this. A kind of perverse logic of the long tail ensues. Third, even by Rawls own theory, the difference principle was never intended to make the wealthy wealthier and the poor poorer. The pareto optimal difference principle was to increase the share of the least fortunate members up to that point beyond which they would necessarily decrease. Clearly, giving away a tax break to the upper 2% does not in any way increase the fortunes of the least fortunate members. If anything, it shifts the tax burden onto their shoulders now that the rich are excluded from being taxed on their assets. A better solution would be to tax the estates of the rich even more and raise the minimum wages up to the point at which the economy would begin to suffer. We are a long way from that.

So, when we consider the economic justice of the Republicans bill to both raise the minimum wage and to eliminate the estate tax, we can see that it is a far cry from the demands of distributive justice. While it looks like everybody wins, really it is only the rich who win and the poor who must make up the differences yet again. I can think of few more antidemocratic and cynical gestures than to link the fortunes of the poor with the opulence of the rich. Shame on you, Republicans. May you pay for your sins come November.