Eleutherian

I read the following headline on The Hill, AFL-CIO, Dems Push New Wall Street Tax, and my first reaction was...why? First, why would anyone propose this tax (during a recession no less!)? Second, why does the AFL-CIO care?

The bill's supporters answer the first question - in their way. Thea Lee, policy director at the AFL-CIO, stated:

It would have two benefits, raise a lot of revenue and discourage speculative financial activity. The big disadvantage of most taxes is that they discourage some really productive activity. This would discourage numerous financial transactions.

At least she recognizes that it will discourage financial transactions, but why does she actually view this as a positive development?

Grover Norquist (say what you will about him, but he really does have some great insights) once said the biggest mistake Democrats have made in recent history was passing legislation to create tax-exempt individual retirement accounts. This reduced the financial dependency of U.S. citizens on not only government welfare programs but also labor union pensions. Realizing their "mistake," this tax is an attempt to regain some lost ground in their control over Americans' lives.

Supporters of this tax are hoping that the average American is too stupid to realize that if an investment firm is making money, the average Americans investing in their funds are making money.

From a previous post:

In 2005, 50.3% of U.S. households owned financial equities such as stock and mutual funds. This is up from 49.5% in 2002 (which may not seem like much but represents an increase of more than 4 million households). As such, taxing these large companies constitutes taxing roughly half of American households.

Pennsylvania plans to build four new prisons in coming years. Associated Builders and Contractors (ABC) were originally assured that the prisons contracts would not utilize project labor agreements (PLAs), effectively prohibiting nonunion contractors form working on the projects. However, strong lobbying by labor unions influenced the Pennsylvania Department of General Services to reverse their promise.

Even without a PLA, Pennsylvania's outdated prevailing wage law makes it difficult for nonunion contractors to receive large, government contracts. The Keystone Research Center (a union-funded think tank) supports the use of project labor agreements. According to its labor economist, Mark Price:

The work requires a broader range of training. The union sector succeeds in tracking people into the industry and training them.

This statement flies in the face of evidence in Ohio and Kentucky where prevailing wage laws were overturned for school projects, and over 95% of school districts found improvements or no change in construction quality for nonunion contractors. Additionally, studies have found that construction workers in market wage states are 6.3% more productive than workers in prevailing wage states. Since wages are directly related to productivity, prevailing wage laws are counterproductive.

For example, the International Brotherhood of Electrical Workers Local 102 is picketing the construction site of a Giant food store because their nonunion contractor is not paying prevailing wages (i.e. union wages). However, only projects receiving state government funding are required to pay prevailing wages. In Monroe County, the prevailing wage for electricians is 127.04% higher than the market wage. It is no wonder a nonunion contractor won the contract.

Returning to the prison contracts, the total estimated cost to taxpayers for the four prisons comes to $800 million. If Pennsylvania repealed the state prevailing wage law, taxpayers would save a significant amount of money on the contracts. For the two prisons in Montgomery County, the estimated cost comes to $400 million. Market wages would reduce the cost by 15.58% or $62,320,000.

The Forest and Centre County prisons are expected to each cost $200 million. Prevailing wages inflate the cost of the Forest County prison by 14.29% ($28,580,000) and the Centre County prison by 17.78% ($35,560,000).

Pennsylvania's prevailing wage law inflates the total cost for the four prisons by 15.81% or $126,460,000.

The Akron Beacon Journal recently ran an article on union labor and school construction projects in Ohio. One Akron school project, Leggett Elementary, is running over budget, costing 22 percent more per square foot than other area school projects. The source of the cost difference is easily identified:

Leggett is the only school project to date that has required contractors to pay prevailing union wages and to provide union benefits and working conditions in an arrangement known as a ''project labor agreement,'' or PLA.

In 1997, Ohio's legislature repealed the state's prevailing wage requirement on school construction costs. The Ohio Legislative Service Commission's 5-year analysis on the bill is available here.

Prevailing wage laws were instituted to protect construction workers from out-of-state competition, typically black workers from the southern states. These laws set a minimum wage for the construction industry on projects performed for the state or federal government. In many prevailing wage states, the “prevailing” wage has customarily been set to the regional union wage for each worker classification. This practice continues even though union membership has declined from 39.5% in 1973 to 15.6% in the construction industry nationwide.

Prevailing wage laws proclaim the wages earned by 15.6% of the industry's workers to prevail. Dictionary.com defines "prevail" as "to be widespread or current; exist everywhere or generally; predominate." Unions wages obviously do not "predominate" in the United States. The site offers the following alternative definitions:

• to be or prove superior in strength, power, or influence
• to use persuasion or inducement successfully

These definitions are better suited to union influence over prevailing wage laws.

Getting back to Leggett Elementary, city officials support the use of a PLA because it provides work for more residents. However, this increased employment is necessarily funded through increased taxes. The jobs lost by these taxes are incalculable, and therefore, easy to dismiss. Henry Hazlitt states in Economics in One Lesson:

As a character in Bernard Shaw's Saint Joan replies when told of the theory of Pythagoras that the earth is round and revolves around the sun: 'What an utter fool! Couldn't he use his eyes?'

If taxes are taken from individuals and corporations, and spent in one particular section of the country [or state], why should it cause surprise, why should it be regarded as a miracle, if that section becomes comparatively richer?

In Pennsylvania, prevailing wages (i.e. union wages) are 37% higher than market wages for the same work, adding nearly 17% to the total project cost. The Pennsylvania School Board Association (PSBA) has pushed the state’s legislature to exempt school construction from prevailing wage requirements, but proposals are always tabled in committee before reaching the floor for a vote. Using estimates from the PSBA, exempting school construction would have saved $375 million from 2002-2006 or $75.2 million per year.

Using the most recent data available (2005-06), Pennsylvania taxpayers would save over $1.4 billion each year on all public construction projects by repealing the state’s prevailing wage law. According to a Right to Know Law Request through the Pennsylvania Department of labor and Industry, 6,622 predeterminations for prevailing wage projects were issued in 2007 for a total estimated cost of more than $59 billion. Assuming that ten percent would have been covered by the federal Davis-Bacon Act, repealing Pennsylvania’s prevailing wage law would have saved $8.9 billion for construction projects receiving state funding approved in 2007.