Prop Up the Heavenly Chorus? Labor Unions, Tax Policy, and Political Voice Equality

By Hackney, Philip T. | St. John's Law Review, Summer 2017 | Go to article overview

Prop Up the Heavenly Chorus? Labor Unions, Tax Policy, and Political Voice Equality


Hackney, Philip T., St. John's Law Review


"The function of democracy has been to provide the public with a second power system, which is an alternative power system, which can be used to counterbalance the economic power."

E.E. Schattschneider

INTRODUCTION

Labor unions are weak politically and continue to decline in number and political power in the United States.1 Many contend that this is a positive development for the country because they believe labor unions cause economic harm.2 Others see this loss as unfortunate and harmful because the decline of labor comes with a reduction in working class benefits and opportunities, and also because it exacerbates economic inequality.3 These forces battle over policies focused on the ease of union organization and maintenance such as right to work laws and union shops. While these are important policies for labor union power,4 this Article examines labor union tax treatment instead. The Article focuses primarily on whether we should grant exemption from federal income tax to these interest groups, but also considers whether labor union members should be allowed to deduct labor union dues. In evaluating these questions, this Article focuses on the value of groups in our democracy in a social choice function model, rather than on the economic benefits of labor unions in a social welfare function model.5 A review of labor union tax treatment suggests that we systematically undermine the important voice of labor in our democracy. This Article proposes some changes to tax policy related to labor unions as a result of this review.

In this Article I consider two somewhat divergent income tax policies: the tax treatment of labor union income and the deductibility of labor union dues. The first raises the issue of whether we should tax the economic activity of a particular legal business entity. The second raises the issue of whether certain individual expenditures should offset income for tax purposes. Both issues raise, as a primary matter, whether the expenditures or income represent "real income." I argue labor union revenue is real income, and that therefore its exemption should be justified by some policy goal.6 In other words, there is nothing special about the income earned by labor unions that makes it entitled on its face to exemption from income tax. conversely, because labor union member dues payments represent an amount that reduces income of the labor union member, we should allow the deduction in the ordinary course of business unless there is a legitimate reason for not allowing that deduction.7

In evaluating these two policies, I adopt a social choice function model. Under this model, we should maximize the number of individuals who have an opportunity to express their voice to influence our democracy. As a very simple and incomplete example, if there were 100 people in a particular democracy, and we said that only 25 had the ability to influence the final decisions, a policy that increased that number of individuals to 30 would improve the social choice function. The incompleteness of the example is the question of the quality of the voice. If the new five now speaking are only reiterating the voice of the 25 already speaking, then there is no real enhancement to social choice function. In this Article, I struggle to assess when social choice function is enhanced by this policy but do my best to suggest a way through the problem with the limited information at our disposal.

Importantly, the influence at issue in political voice is more than an opportunity to vote for representatives; it includes the opportunity to engage in policy discussions and influence final decisions on governmental policy. As I will develop in the Article, in a large and modern democracy, a polyarchy, the primary means of obtaining political voice for most citizens is through interest groups. Thus, the question becomes, where we can identify a group that suffers from a particularly weak political voice, should we and could we consider enhancing that political voice through public policy. …

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