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The decline in labor’s share of national income in the United States is sometimes described as a defeat for the proletariat in the kind of power struggle Karl Marx spoke of. It’s not completely wrong. But tax policy, beginning with the Tax Reform Act of 1986 signed by President Ronald Reagan, explains about a third of the decline in labor’s share of business sector income, according to research by Matthew Smith of the Department of Treasure ; Danny Yagan of the University of California, Berkeley; Princeton’s Owen Zidar; and Eric Zwick of the University of Chicago Booth School of Business.

“Entrepreneurs have the option of characterizing their income as labor payments or profit” and, to minimize tax rates, choose to characterize income as profit, the authors write in the latest version of a forthcoming article in American Economic Review: Insights. Furthermore, they write, “many labor-intensive businesses are now organized outside the corporate sector as tax-advantaged partnerships.”

Zwick told me he is “definitely sympathetic” to the idea that the capitalists are winning against the workers. But he said highly paid consultants, lawyers and others whose pay is rebranded as profit instead of salary don’t fit the image of exploited workers: “It’s the bourgeoisie in Marx’s story.”

How beautiful are the rolls! how lovely the chests are

Containing bullion, bags of dollars, coins

(No old victors, all whose heads and crests

Do not weigh the thin ore where their face shines,

But) of fine uncut gold, where rests dully

Some resemblance, which the scintillating circus confines,

Of modern, reigning, sterling, stupid stamp:-

Yes! cash is Aladdin’s lamp.

— Lord Byron, “Don Juan”, canto 12, stanza 12 (1819-1824)

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