Home > Politics and the Economy, Taxes, Unions > Question and answers about the Wisconsin vote

Question and answers about the Wisconsin vote

My Twitter feed has just exploded with the Republicans in Wisconsin voting to remove collective bargaining rights from government workers on the issues of retirement and health care benefits.  I thought I’d post a few of my own questions I asked myself about this issue and the research I did to find answers.

Is this really a violation of workers’ rights?

The simple answer is no.  The slightly more complex answer is no.

Wisconsin was the first state to allow government workers to organize and bargain collectively.  It was done through the legislative process, but it wasn’t a unanimous vote.  The point is this isn’t an innate human right or a Constitutional right.  It was a legal right granted by the legislature.  It is in their power to take it away.  Think of it more like a privilege, like a driver’s license.  Not everyone can have a driver’s license, and the legislature can change the rules depending on the needs of the state.  So again, it isn’t really a right.  And the voters in November thought it was time for a change, and the legislature should follow the will of the people.

Why not just raise taxes and that will solve the problem?

As you will see in my previous posts, raising taxes does not translate to many more overall dollars.  Even when the top federal tax rates were over 90%, the tax revenues as a percentage of GDP were no different than they are now with a top rate just under 40%. Because we have messed with tax rates so often, it is a little harder to tell what tax rates do to GDP in the modern economy.  Our last real example was when President Reagan was elected and dramatically reduced taxes, we had some of the highest GDP rates in the last 50 years and a dramatic reduction in inflation and interest rates.  I am not a big fan of using that correlation because I don’t feel it is enough data to confirm the tax rate/GDP correlation, but it should be studied further.  The main point is higher tax rates don’t mean more tax dollars. I often think about it this way – if tax rates were 100%, how many dollars would the government take in?  $0.

But we all want to help out each other. Can’t we just do a small tax increase? We won’t even notice.

Because no matter how hard we try to say we want to help others, we are self-interested and self-preserving creatures.  Sure, we want to help, but only to a point.  How else do you explain the existence of gaming systems, luxury cars, big screen TVs, etc.?  Why do most of us shop at Wal-mart and Target?  If we were all truly interested in protecting unions, we would all demand products made by union shops.  You would stop shopping at these stores, demand union made jeans, TVs, cell phones, etc.  Of course, the wage difference between the overseas workers and the workers in the United States would mean we would have a lot less of these things.  We’d probably have to watch the Minnesota Wild on our old 23″ tube TV and more of us would be patching our old jeans to make them last longer.

There is another way.  The U.S. Treasury, as well as any state treasury, will gladly accept your extra money.  If you look at the annual income rate for the 3rd quarter of 2010 in Wisconsin, it totals about $220 billion.  If we use the Wisconsin Senate as a guide to how voters break down (19 Republicans, 14 Democrats) and assume that it is the Democrats that want to raise taxes to pay the union workers (since they left town), then 42% of Wisconsin residents want the tax increase.  So, if those 42% of people want to pay an extra 3.9% of their income to the government, it would cover the projected $3.6 billion shortfall for next year in Wisconsin.  Write the check.

Michael Moore was in Wisconsin spouting about how it is time to take money back from the rich.  It is estimated his net worth is somewhere around $50-$100 million.  Why is he worth so much if this wealth isn’t really his?  Shouldn’t he give it back to the government so they can spend it properly?  In case you didn’t pick it up, that was sarcasm.  Union leaders such as the president of the Wisconsin AFL-CIO  was in town saying it is “us vs. the Big Bucks.”  Interestingly, Mr. Neuenfeldt made almost $150,000 in 2009.  In fact, there are many union leaders making well into 6-figures.  Personally, that’s alot of money – and to me makes them part of the “Big Buck” crowd.

Modern rich people didn’t get rich through inheritance or income.  Steve Jobs is CEO of the largest company in the world, yet he started by wiring circuit boards in his garage.  Bill Gates and Paul Allen started programming together because of a magazine article, and didn’t even have a finished product before trying to sell it to IBM.  Warren Buffett started with a paper route and selling gum.  Their wealth accumulated in the value of their company and the products they create and services they provide.  A small percentage of their overall wealth is from income.  So, if we follow Michael Moore’s philosophy, we should forcibly take their wealth and turn it over to the government to spend.  Previously, I sarcastically stated that perhaps we should just send all of our income to the government, they can spend what they want and return to us whatever they think we deserve.  Sounds to me like Michael Moore is serious about this.

What about the hard-fought victories of unions in regards to working conditions?

Here is where unions deserve credit. Private sector unions in the late 19th century and the first half of the 20th century worked hard to improve working conditions, often facing violence from our very government.  Unions are responsible for improving worker safety, the 40-hour work week, and protecting the less educated worker who historically came from a rural background.

The difference today is most of these things are now codified into law.  OSHA exists to protect all workers, even non-union ones.  President George W. Bush signed into law a strengthening of worker protections in regards to overtime (despite some groups that tried to say otherwise).  Regardless, there are rules providing more pay if you work beyond a “normal” work week.  We have a minimum wage.  If all unions were dissolved today, these basic protections would still exist in law.

Do we still need unions?

This is a complex issue.  Unions will probably always exist, as they should because we have freedom of association.  In the past, unions and employers have both done things wrong or even illegal.  Looking to the future, unions are going to have to modernize their focus and use their resources to not only help workers negotiate reasonable and fair wages and benefits, but to also find ways to support the American workforce and economy in general.  How can we keep more jobs here in the United States?  How can we better get union products on store shelves at Target and Wal-mart?  Perhaps if the unions spent less of their dues on elections and instead promoted the benefit of buying and supporting union products, the unions would gain more strength and leverage than trying to get more tax dollars for government workers.

I really do think unions could use their resources and help all of us.  Employers have to help too.  Although not a perfect deal, Harley-Davidson was able to ratify labor deals to give them long-term cost stability while saving jobs.  What unions in the private sector should be doing is pushing for less in wages and more in profit sharing.  Some companies do so voluntarily such as Hormel.  Public sector unions are not so easy.  Even FDR thought public sector unions shouldn’t exist. This is more difficult because there is no real product and no profit.  However, this again is where unions could spend their money on research to find a better solution.  Perhaps putting together a group to design a formula for wage increases and even “bonuses” for government workers in a longer-term deal that would be tied to economic growth and tax revenues.  I am sure we have enough smart economists, mathematicians, and others that could work to figure this out.

So what does this mean for Wisconsin?

As I’ve said in a few previous posts, I don’t like the way the Governor and legislature approached this situation.  I also think it is reprehensible that the Democrats left down to try to disrupt the legislative process.  The outcome is a step in the right direction in fixing the drain public pensions are putting on our economy and tax dollars.  But it also takes two steps in the wrong direction because it shows the government not willing to admit it messed-up in promising unrealistic benefits and not finding some concessions for that error and also shows the union members are not willing to budge and acknowledge the benefits are unrealistic.  Buffalo Springfield said it best, “Nobody’s right if everybody’s wrong.”  That’s about what we have here.

One additional comment now that the bill has been signed. update 3/11/11 2pm

The rough estimate of total government employees (federal, state, and local) is about 3 million people.  If we took a more reasonable approach and offered all employees a “buyout” of their pension where we turn over funds to an individual and put it into some kind of defined contribution plan (401(k), etc) and then offered an increased wage and a small matching contribution, I bet you would see a small but noticeable effect on the economy when all of those additional dollars are invested and spent because I would also bet over half would take that deal.  For new employees, they would only have that one choice.  It would save much more money later on, boost household incomes, and avoid the mess of trying to force changes.  I am happy we are finally having this conversation about unsustainable entitlements, but I am sad we can’t find new solutions instead of the usual one said or the other solution.  I hope in the next election, we can start talking about these new ideas.  Can we all agree there is a way to meet, not in the middle, but off in a new and better direction?

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