By ALEXANDRA THORNTON
Washington — In December 2017, President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law. Among its many flaws, the act worsened a tax code double standard that tilts the scales against workers.
Employers, especially large corporations, have the upper hand at the negotiating table for many reasons, including their ability to fully write off, or deduct, management and legal costs, such as those involved in resisting unionization campaigns and negotiating with unions. Meanwhile, workers, who are often represented by unions in these negotiations, cannot deduct the cost of the dues they pay to support their unions.
In other words, workers cannot deduct an important cost of earning their income, while employers can deduct the costs of maximizing their profits at the expense of workers.
Deducting the costs of earning one’s income is a basic principle of income taxation. Unions are a proven mechanism for workers to negotiate for the pay and benefits they deserve, and union dues are an essential expense in negotiating those benefits. All workers should be able to deduct those expenses on their tax returns.
THE 2017 TAX LAW FAVORS CORPORATIONS OVER WORKERS
The TCJA is tilted in many ways toward the wealthy and corporations. Corporations receive large, permanent tax cuts, including steeply discounted tax rates on their past overseas profits.
The law implemented a lower rate on U.S. companies’ current and future overseas profits relative to their domestic profits and included provisions that reduced companies’ tax bills if they have more of their physical assets overseas, potentially rewarding offshoring.
Meanwhile, pass-through businesses — which do not pay corporate tax — received a special new tax deduction, overwhelmingly benefiting the wealthy owners of such entities.
High-income Americans received larger tax cuts, even as a share of their income, than middle- and lower-income Americans.
The law also reduced or eliminated many individual tax benefits, such as the itemized deduction for unreimbursed employee expenses, which includes union dues.
UNIONS PLAY A CRITICAL ROLE IN THE LIVES OF WORKERS
Historically, unions have helped to ensure that American workers have decent pay and benefits as well as a voice in the nation’s democracy. Union wages are about 12 percent higher for unionized workers than their non-unionized counterparts. And unions raise wages for all workers, including non-college graduates, millennials, people of color, and women.
By law, unions are required to represent the interests of all workers in a bargaining unit. More broadly, research shows that union advocacy aligns with the economic interests of working people. Unions also motivate their members to participate in U.S. democracy and support voter mobilization efforts; as a result, areas with higher unionization rates have higher voter turnout.
Together, these facts suggest not only that unions are an important check on corporate power but also that they play a critical role in addressing inequality and boosting the prosperity of the middle class.
Over the past three to four decades, however, union membership has declined, workers’ wages have stagnated, and workers have not benefited much from the substantial increases in U.S. productivity.
CHANGES IN THE ECONOMY
Many factors have contributed to this erosion in union membership and power, including changes in the economy, such as the decline in U.S. manufacturing; the trend toward increased concentration of corporations; recent laws that conservative policymakers have passed at the state level; and regulatory actions that the Trump administration has taken.
Among many other anti-worker actions, the Trump administration has derailed a plan to extend overtime protection to 8.2 million workers, made it more difficult for businesses to be held liable for wage violations against contract and franchise workers, and awarded billions of dollars in federal contracts to companies that violate wage laws.
BLOCKED WORKERS’ ACCESS TO COURTS
The administration has also blocked workers’ access to courts, siding with corporate interests by letting companies force workers into mandatory arbitration agreements. The 60 million workers covered under these agreements are left without real access to the courts, as the agreements often prohibit them from bringing class and collective actions to resolve workplace disputes in judicial or arbitral forums.
Furthermore, the administration has taken steps to revoke civil rights protections and implement policies that would threaten workers’ safety on the job.
Unions are essential to holding corporations accountable for inequitable treatment of workers and wage disparities between workers and CEOs.
Unfortunately, the TCJA’s elimination of the deduction for union dues is an additional blow that undermines workers’ ability to seek the basic rights of fair pay and benefits in this challenging time. Along with the changes to international tax law mentioned above, the TCJA’s elimination of the union dues deduction appears to be part of a concerted effort to put corporate interests above those of workers and undermine unionization.
A BETTER TAX POLICY
Allowing an above-the-line deduction—one that could be taken regardless of whether a worker chooses the standard deduction or itemized deductions—for union dues would increase tax fairness for workers. The current tax treatment of union dues is not only fundamentally unfair but also inconsistent with basic income tax principles.
An above-the-line deduction would follow two important principles of taxation:
1) That taxable income should not include the costs of earning that income; and
2) That income tax should be based on an individual’s ability to pay.
A STRONG, COLLECTIVE VOICE
Without a strong collective voice, it is difficult for workers to ensure that they share in the profits they help to generate. Unions are a proven mechanism for workers to stand together and negotiate for the pay and benefits they deserve.
Moreover, because each union can tailor their negotiations to the specific group of workers they represent, union representation may be a more efficient means of addressing sector-specific issues as well as the widespread and persistent problem of stagnant wage growth.
Union dues are an essential expense for workers in their pursuit of fair wages and job security, and all workers should be able to deduct them on their tax returns.
(Alexandra Thornton is the senior director of Tax Policy for Economic Policy at the Center for American Progress.)