House approves minimum wage increase with strings attached

The House voted 230-180 to approve a measure to raise the minimum wage but only after a provision was added to make permanent tax cuts on inheritance taxes on multimillion-dollar estates, so the reporting goes. I would like to state quite clearly that I haven’t had the opportunity to actually read the bill passed, so I’m accepting on faith that it’s being reported correctly. (Man, what was I  thinking?)

The bill would raise the minimum wage from $5.15/hour to $7.25/hour, a 41% increase. Not too bad, even if it’s been a long time since it’s been raised. This would raise the yearly pay on a minimum-wage, full-time job from $10,712 to $15,080. That figure might not win any prizes here, near DC, but it’s way above the current poverty level. (I might add that the cost of living out here in DC is also why even the traditional minimum-wage jobs in fast-food restaurants pay far more than the minimum wage. Other parts of the country, however…)

As regards the inheritance tax, our reliably-liberal media would have you believe that those damn Republicans are trying to get more of their fellow millionaires’ money moved into a safe, tax-free harbor by enacting yet another new tax cut. Wrong. The tax cut is already in place and has been for a few years. The existing tax cut will reduce the estate tax on estates larger than $1 million in value gradually to zero in 2010. In 2011, however, that tax cut sunsets and suddenly estate tax is back to 55%. Does that make any sense whatsoever?

What the Republicans did was to add language to make the cuts permanent and raise the exemption from the estate tax from the 1st $1 million of an estate to the 1st $5 million. Couples’ estates get up to $10 million before estate taxes hit. And lest you think those cuts are only for the super-rich, let me point out that the average single-family home in this part of northern Virginia hit a value of $680,000 to $700,000 this year. What that means is that almost every owner of a single-family home in this area is pretty close to that $1 million cut-off when you take into account just their house, let alone any other assets they might have. This tax affects quite a number of the so-called “average joes” out here.

The story also raises the point – as did I in the title of this post – that the Republicans are somehow doing something wrong by including this language in with the minimum wage legislation. Why is that? Senator Reid calls it “[b]lackmailing working families” but I call it compromising. The long-lost art of actually coming to agreements is all a matter of compromising – getting what you want by giving someone else what they want. So I would have to ask the Senator and others that feel as he does, how valuable is the minimum wage increase to them? Do they want it badly enough to give the Republicans what they want in return?

Apparently, they did. And that’s OK. Make noises to cover this unpleasant truth all you like but arbitrarily raising the minimum wage is a lose-lose proposition for business owners. They get to pay out $5000 more per year per employee while also having to pay more payroll taxes as a result. In any voluntary pay raise, the employer may reasonably expect the employee to respond with more production or better attitude on the job. Not so with this legislation – the employee simply expects the employer to cough up more cash because that’s the law. No work or promise of work by the employee is involved. So the shop owner who has 5 minimum wage employees to whom he paid $1030 last week will pay $1450 this week. That’s $420 more expense with no return on that expense. Additional payroll taxes will be due at the end of the month, too.

Oh, and do you really think that shop owner is just going to eat that expense? That $420 has to come from somewhere and that somewhere is likely to be your pocket. His prices will go up. Which means you won’t be able to afford as much of his stuff which means you won’t be buying as much which lowers his income, etc., etc., etc. If he doesn’t want to raise his prices because he wants to keep his income up, his alternative is to reduce his payroll expense by dropping an employee or 2. If he lets go of 1 employee that will almost recover his expenses to where they were. Of course, that means he only has 4 people to do the work he had 5 doing last week.

Gets complicated looking at both sides, doesn’t it?

I can understand that minimum wage earners would want to see this increase. Hey, I like to see increases in my pay, too. I just think that the market is a better method of getting those increases. Recall what I said before about the fast-food businesses out here. The typical McDonald’s employee out here is making $8/hour and he also gets benefits like insurance, 401K, etc. He’s not making $5.15/hour with no bene’s. Why? Because the idiot business owner who tries to keep paying people minimum wage won’t have anyone take the job. (That, or will only attract people whose work is so poor no one else will hire them.) The minimum wage laws are a non-issue here because the market has worked to raise the pay to acceptable levels on its own.

Of course, not everywhere in the US has our unemployment rate, I grant you, and the market forces don’t work like this where demand for employees is lower than demand for jobs. It would take longer to get that pay scale up than to simply pass a law mandating it. I just think that, in the long run, the market forces are a better way to go.

And in governance, compromise is the definitely the way to go.