If companies won’t pay their workers a living wage, the government will try to do it for them. I laid out this argument in a 2019 column and have since watched with dismay as ever more counterproductive policies are proposed — and some adopted — around the country to address affordability. These range from millionaire taxes and rent control to government-run grocery stores and credit card interest rate caps.

Add to the list two misguided California referenda slated for later this year. In June, San Francisco voters will decide on the Overpaid CEO Act, which would raise taxes on large companies whose chief executives make more than 100 times their median worker’s salary. The other, a ballot initiative that will likely be put to California voters in November, proposes a one-time 5% tax on billionaires.

Affordability is a major problem that is finally getting the attention it needs. As important is directing that attention at the root cause of America’s cost-of-living crisis: inadequate wages.

More than four in 10 U.S. households can’t afford necessities, including housing, childcare, food, transportation, healthcare and basic technology. That includes 13% of households that live below the federal poverty line. An additional 29% were judged as “asset limited, income constrained, employed,” by United for ALICE, a research and advocacy group led by United Way of Northern New Jersey. In other words, they earn more than the federal poverty level but still not enough to cover basic costs. That’s up from 20% in 2007.

Based on the number and average size of U.S. households, that 42% adds up to nearly 140 million people who can’t cover necessities, never mind simple comforts many Americans take for granted, like a night out or extra money for emergencies. They span all ages, ethnicities and family types, and often include workers with two or more jobs. They live in every city and town. At least a third of households in every state fall short of basic needs, and in some states, such as New York, California and Mississippi, the number approaches 50%.

When I share those numbers, I’m often met with disbelief. How can the struggle of so many Americans be practically invisible? People encounter ALICE workers all the time on healthcare visits, in schools, at grocery stores and retailers. But the U.S. is largely segregated along socioeconomic lines; the richer half has little meaningful contact with the poorer half aside from brief commercial interactions.

The economic gap between the two halves is also widening. One reason the middle class is shrinking is that more families are moving up. According to a recent analysis from the American Enterprise Institute, the percentage of families in the upper middle class swelled to 31% in 2024 from 10% in 1979. That likely means more people are disconnected from the hardships of less fortunate families.

Recently proposed policies aimed at improving affordability, mostly in blue cities and states, are not likely to help, as numerous observers have pointed out. Rent control will discourage new building and the upkeep of existing homes. Interest rate caps will discourage lending to lower income borrowers. New York City municipal grocery stores, expected late next year, are seemingly a no-win proposition: If they succeed at selling food below market prices, they will drive out of business privately run grocery stores operating on notoriously thin margins; if city stores aren’t cheaper, they will have wasted tens of millions of taxpayer dollars.

Millionaire and billionaire taxes are also likely to backfire. As the gap between states with the highest and lowest tax rates widens, employers and workers will have greater incentive to relocate, particularly when work is more mobile than ever.

Massachusetts stands to lose $1 billion in annual tax revenue by 2030 from high-income residents fleeing the state’s millionaire tax, according to a Boston University study. Recently released Internal Revenue Service migration data for 2022 and 2023 revealed that tax havens Texas and Florida gained the most net residents while high tax states California and New York lost the most.

California has already lost some of the world’s richest entrepreneurs to its contemplated wealth tax, prominent among them Alphabet Inc. founders Larry Page and Sergey Brin. Together with other, already departed billionaires, they would have generated tens of billions of the $100 billion in wealth taxes the state hoped to collect. California will now forgo their considerable income taxes as well. None of that is surprising. France tried a wealth tax for nearly four decades. A lot of rich people left, and the country’s coffers didn’t grow much.

The biggest objection to these policy prescriptions, however, is that they won’t make much difference.

To affect real change, we must deal with the core issue, which is insufficient wages. The solution starts with greater transparency around worker pay. It’s not an accident that San Francisco’s proposed corporate tax hike is pegged to the CEO-to-worker pay ratio – it’s the only compensation disclosure the Securities and Exchange Commission requires public companies to make related to ordinary workers. But pay ratios are the wrong target: What matters most is how much workers earn in absolute dollars, not relative to the highest paid executives.

To that end, the SEC should require companies to disclose employee compensation, preferably in deciles. With that detail, Congress can take up tax legislation like the one San Francisco is considering, but with some key improvements. It should require wages across companies to grow in line with profits over the medium term, so that as companies make more money, so do all workers. Companies that fail to raise wages with profits should be assessed a surtax equal to the amount of the shortfall, and that tax should be redistributed directly to the company’s workers. In effect, if companies won’t share their growth with workers, the federal government should do it for them.

It won’t solve affordability overnight, but it will move wages in the right direction.

Since the early 1990s, the collective profit margin of U.S. public companies has tripled. That was accomplished in part by paying workers as little as possible, which companies have every legal right to do. If they had allowed workers to participate in their growth, affordability would not be as widespread a problem as it is today.

Nor would it have fueled a backlash against capitalism, free markets and entrepreneurs, or ignited a wave of populism. If we don’t get serious about wages, the issue of affordability will be used to argue for more unhelpful and potentially harmful ideas. For a preview, google “microlooting.”

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Nir Kaissar is a Bloomberg Opinion columnist covering markets. He is the founder of Unison Advisors, an asset management firm.

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