Thursday, March 27, 2008

The Answer for Liberalgeek: Supporting a $.50 minimum-wage increase is like supporting the surge in Iraq . . .

. . . it creates the dangerous illusion that we're somehow winning (or even fighting) the right war.

Last week I posted Minimum wage, living wage, and the State as Vampire to the Working Poor, in which I argued that the real culprit in keeping the poor in working poor was the government tax bite, not the penury of business owners. If you haven't read that one, you should go back and do so, because the argument is pretty detailed.

But if you're not willing, here was my main point: Poverty in America's Living Wage Calculator reports for Delaware that Federal and State taxes (income plus payroll) take a 16.5% bite out of a family of four struggling to reach their target living wage of $45,673. If we were to adopt the principle of not taxing people until after they had earned enough money to meet their family's basic needs, each earner in a two-income family of four would only need to average $9.57/hour in order to achieve the living wage. Under our current tax structure, however, those earners now need to bring home $11.46/hour to make the ends meet.

Essentially, eliminating those taxes for people below the living wage is the equivalent of giving both earners a $2/hour raise, instead of the $.50/hour raise envisioned in current legislation.

Liberalgeek then entered the dialogue with me in the comments section. After several interchanges, I challenged him:

I go back to my original premise and ask if you can sign on to it in principle: the government should not be able to tax your income until after you have made enough to provide the basic necessities for your family.

He met this in a forthright manner, and then added a counter-challenge:

Indeed I can sign on to it, in principle. I am looking at ways to help now.

From a legislative standpoint, there is only a yes or no question on the table. So, let me kick it back to you, my friend, yes or no to the minimum wage hike on the table?

Legitimate question, that I could not answer immediately because (as we all know happens occasionally) real life intervened.

But his willingness to answer my challenge straight out places the obligation on me to be equally frank:

My answer is no. But I think my reasons are quite different from what most people would expect, so I want to lay them out and let people examine them closely.

First I wanted to check and see if what I found for Delaware held true for other states. That Living Wage Calculator is a great tool with one serious flaw. You can figure out the living wage for a lot of counties in the US and even their projected averages for entire states, but you can't--even for ballpark estimates--do a general average for the entire country. I realize that, given the varying costs of living around the nation it would a very abstract term, but it wasn't the cost of living I was interested in--it was the tax burden.

So--truth in advertising--I did an incomplete survey, looking at several noted high-tax states (Connecticut, Massachusetts), several low tax states (Mississippi, Alabama, Tennessee), and a few in the middle. I had neither the time nor (at least not today) the inclination to work my way through all fifty states. So the statistical conclusions I offer below are rough impressions at best.

I discovered that the tax bite on the working poor in Delaware (16.5%) is probably right around the national median. Tennessee had the lowest I found (14.4%), which is certainly because the Volunteer State has no income tax. Massachusetts, on the other hand, hit the working poor for 19.6%. Most states (I did fourteen of them) ran in the 15-17% range.

(Side note: people may get a lot more in services for their 19.6% in Massachusetts, which is impossible to quantify using this data, but I remain skeptical.)

So what I discovered (I think) is that on average the government is reaching into the pockets of the people just scraping by and taking out (for a family of four) $7,000-8,000/year. Imagine what that family could do with an additional $288 of net income every two weeks.

Now consider the proposed minimum wage increase of $.50/hour. Poverty in America points out that raising the minimum wage is not a very effective way of improving people's lives. Why? Because of taxes! The site notes that a $.70/hour increase only actually nets the worker a $.30/hour increase in purchasing power. By that standard, the $.50/hour increase under consideration works out to a paltry $.21/hour increase in purchasing power.

Over the course of two forty-hour weeks (one for each of our earners), that's just $16.80 more a week, $33.60 more every two weeks.

Let's see: $33.60 versus $288.00? Which to choose?

Liberalgeek essentially suggests--and it is a point we must consider--that the difference is that the $33.60 is potentially available now, that some relief is better than no relief, and that it's unlikely my proposal would ever actually be adopted.

My problem is that--like the surge in Iraq--all raising the minimum wage a few cents here or a few cents there does is to (a) create the mistaken impression that we're making progress toward helping the working poor reach a living wage, and (b) even worse arguably prevents us from ever taking the big steps necessary to fix the problem.

Why? Because it continues to avoid and ignore the government's direct role in keeping the working poor from making it by taxing them at unjustifiably high rates.

Yesterday I posted A Few Facts for Those Who Think We Can't Have A Limited Government, at the end of which I noted (talking about the Federal government alone):

So let's recap the Federal Government's holdings in just three areas:

Land: 670,000,000 acres (we think, but even the government doesn't know for sure)

Federal buildings: 1,700 (most decaying, many being deserted by government agencies, and now being leased to the private sector instead of being liquidated)

Military bases: 3,700 (including 766 in other countries) with nearly 600,000 "buildings, structures and utilities" spread between them. (That means, by the way, that the US military owns roughly one building for every three troops.)

We're not taxing the working poor to pay for essential services like health care or police protection--we're taxing them to subsidize the Federal government as the largest landlord on the entire planet.

So, Geek, here's the short version of a long-winded answer: I will only support minimum-wage increases that are guaranteed by the government to be tax-free, so that these workers actually get to keep the money.

Otherwise, all we're doing is erecting concrete barriers in Baghdad and pretending we've brought peace to Iraq--because on the current terms every minimum-wage increase is also a tax revenue increase on the poorest working Americans.

And that's a large compromise for me, by the way, because I really want to tie them to drastic tax reductions or eliminations for our working poor, tax eliminations that are paid for by reducing the size of our bloated government, not by spreading the debt to other income ranges.


Bowly said...

Another inefficiency of the minimum wage is who earns it. 53% of min wage earners are between 16-24; the vast majority of these are not family of four breadwinner types. So half of the paltry improvement doesn't even go to the poor.

It's a feel-good thing to do. But it's not necessarily a good thing to do. I don't see how making McDonald's a more expensive place to eat or WalMart a more expensive place to shop is helpful to the poor.

Anonymous said...

The only solution that really works is to end income taxes. That way people get to keep what they earn and it makes everyone, except arguably the government, have more disposable income.

In fact it might even make the government rent some of it land holdings and work for a living like a normal bread winner.

joe m said...

Excellent post, Steve. Thanks for the new (to me) perspective!