Saturday, March 22, 2008

Minimum wage, living wage, and the State as Vampire to the Working Poor . . . .

There are approximately 8,000 working poor families in Delaware, according to Women's Opportunity Link in Delaware.

The Poverty in America Living Wage Calculator suggests that in New Castle County (the only DE county I can find on their site) that a family of four requires a Gross Annual Income of $47,674 to achieve an After-Tax income of $39,817, which they believe is sufficient to constitute a Living Wage.

Assuming that this family has a single bread-winner, this means that this individual must pull down $22.92/hour, working full-time (2080 hours/year). However, I suspect that they intend this example to be a two-income family, as they have budgeted $842 monthly for child-care, which would not seem to be necessary with a stay-at-home parent.

So let's go two ways with that. If you have only one working parent we should be able to deduct the child-care expenses from the necessary income ($842 x 12 = $10,104 pre-tax, which by my rough calculations would reduce the necessary Gross Annual Income for a family of four by $11,887--to $35,787. This means that a single individual supporting a family of four would have to have an annual income of not $22.92/hour, but $17.21.

On the other hand, with two working breadwinners and the child-care figured in, each would have to average $11.46/hour.

For the sake of argument, I'm going to accept these figures, even though I have some doubts, given that the 2006 Delaware Median Income was $52,438 (as compared to a US median of $48,201).

The question becomes, how do we best help the largest possible number of families reach a living wage?

Given the arguments currently circulating on Delwareliberal, the entire problem revolves around businesses and business owners being too greedy to pay their employees.

Quoth Liberalgeek in the main post:

So here is Joe’s statement in real English: Prices for everything are going up. The people that should suffer for that are the people that make the least amount of money in our economy. People working for minimum wage should just have to suffer along, because their food costs are rising, their fuel prices are rising, their energy costs are rising, their rent is rising, but their pay should stay the same, so that the business owner can still make his profit.

And his follow-up in the comments:

Look, for most small businesses, this is a level playing field. Their competitors are in the same boat. If it means that your pizza goes up a nickle a slice, that’s what happens. They raise the price of coffe when the cost of beans goes up, why not when it costs more to have your employees drive to work?

Yes, I see the inflationary implications of this, but the alternative is to grease the wheels of business with the blood and sweat of the low-wage employees.

The problem here is that they're arguing over a minimum wage hike of $.50/hour, not the multi-dollar hike that would be necessary to achieve the living wage.

Arguments that might have validity in raising a minimum wage from $6.15/hour to $6.65/hour have nothing in common with the arguments necessary to posit a living wage of $11.46/hour, to say nothing of $22.92.

Liberalgeek's slice of pizza is going up by considerably more than a nickel to get folks to the living wage.

Let's go back to that $47,674 Gross Annual Income for a family of four in NCC, and see what we can do without breaking the bank (or driving the employers out of business).

First step, realize that this Gross Annual Income includes $3,647 in payroll taxes (SSI, FICA, etc), $969 in state taxes, and $3,242 in Federal Income Tax. That's a total of $7,858, or a 16.5% tax bite on people just scraping by.

Instead of taking 16.5% of their income in direct taxes (we'll talk about indirect taxes in a moment), only to return a significant portion to them in food stamps, housing subsidies, or other benefits, here's a radical idea: Let's allow every family below 120% of the living wage to keep all the money that they actually earn.

That's right: let's credit them with SSI, FICA, and Medicaire taxes without taking them out of their checks, and let's exempt them from Federal and State income taxes. That act alone would reduce the necessary wage for a single breadwinner in a family of four from $17.21/hour to $13.43/hour.

In a family of four with two working parents (and therefore child-care expenses), this would mean that each earner has to average just $9.57/hour to make ends meet.

The expenses calculation for that family of four includes $570/month for food and $511/month for "other"--a grand total of $1,081/month or $12,972/year. Now let's exempt our family from the DE Gross Receipts Tax (each family could have an exemption card), calculated at roughly 1.5%, returning another $194.58 to them each year. Likewise we could allow these families to be exempted from (a) gasoline taxes; (b) vehicle registration fees; (c) telecommunication fees and taxes; (d) cigarette and alcohol taxes; and (e) any other fees or taxes charged by the locality, state, or Federal government. [This would include at least a phased exemption from property taxes to allow them to purchase homes.]

In other words: we could adopt the principle that taxes or fees should not be charged to anyone until after they have achieved a living wage.

And guess what? At that point the wage necessary for a two-worker, four-person family would drop somewhere into the neighborhood of $7-8.50/hour.

Of course, there is a price to be paid for this kind of plan. The government on all levels would have to learn to make do with a lot less tax revenue, and actually start making some hard decisions about what to spend and where to spend it.

[Yes, I'm well aware that my liberal and progressive brethren and cistern would see it differently: they'd want to raise taxes on everybody "above middle class" (which, conveniently, they never define) in order to assure that the government does not starve. Good luck with that. If they're willing to meet me half way and say, "No person should be taxed until after he or she has provided their family a living wage," I'm willing to take my chances with the political process.]

What's sad is that nobody will take me up on this. It's a hell of a lot easier to lampoon the problem as greedy corporate executives sucking the lifeblood out of convenience store clerks than to deal with the fact that 61% of all American firms that have any payroll at all employ fewer than five employees. And it's a lot easier to bemoan the fact that limited government is a pipe-dream of lunatic Libertarians than to admit that when the State is taking up to 20% of the income of people who aren't able to get by, then the State is part of the problem rather than part of the solution.


LiberalGeek said...

It bears noting that the point of the post was to attack a representative of the business lobby for their bass-ackwards thought process. If his quote were something like "We know that employees need more pay or less taxes or a break at the pump, fine, I may have had a post that was laudatory, rather than derisive.

The point is that you never hear a business lobbyist make the points that you made above. And your points above are tempting.

I have two concerns about the plan, though. First, I have seen too many of these things go up to believe that the devil isn't in the details. I have fought enough battles to know that that freaking living wage number will be frozen for ten years at a time. If you can find a non-partisan, fair way of insulating your plan from these sorts of manipulations, amen.

My other concern is quite out of a stereotypical liberal character. Having a zero tax class in this country may actually cause a ballooning of that population. An underground economy of non-taxable transactions may hide the true number of people living under the living wage. As Warren Buffett says, he pays a lower tax burden than his assistant. There are always ways to cheat the system, and without proper controls, it only takes one guy under sufficient sunlight to miscast the whole program and defeat the purpose.

As for the reason that this sort of reform is unlikely, the beneficiaries are the unempowered. There is a large, powerful group of people that think that everyone must contribute, no matter the situation.

Thanks for extending the discussion of this issue. I am glad that you cared enough to post on lil ol' me. :)

Steve Newton said...

The devil is ALWAYS lurking in the details.

My primary point is that it is ridiculous to talk about helping the working poor without first admitting that the government itself is also taking the money out of the pockets of those who need it most.

What's wrong with starting with the principle that no one should be taxed until they are able to bear it without compromising their ability to provide for their families.

As for the idea that creating a "tax-free" population would cause "a ballooning of that population," you bet your ass it would.

So what?

I think the reason this reform is unlikely in a practical sense is simply that the government (including both our legislators and bureaucrats) would be unwilling to part with the power of the purse.

LiberalGeek said...

Steve - In the same comment you state that it is unlikely that your reforms would happen and that we need to work on them first. In the meantime (which could be forever), we are supposed to just let the system keep on keepin' on.

Do you have any suggestions that are politically feasible and that you are more amenable to than raising the minimum wage?

Steve Newton said...

You're right, Geek, that my answer was inconsistent--got to work on that late at night.

My original premise was not taxing families below the living wage line at all. I agree with you that won't happen. What I'd like to see, however, is a move toward taxing people at the low end of the scale through consumption taxes rather than income or withholding taxes. (Remembering that outside Delaware you always have to think about sales taxes.)

So if I had my druthers I would first find a way (possibly through the EITC or similar mechanism) to dramatically expand Federal and State tax exemptions. As much as I hate making the tax code more complicated, here's a thought experiment:

We have multiple levels of progressive taxation, in which the more you make the higher a percentage you are taxed. Why not compliment that with progressive exemptions? Let's say (and I'm making up numbers here so don't hold me to them) that for a family of four in Delaware making less than 50K the personal exemption would be $8,000/person. Between 51-75K the exemption drops to $6,000; between 76-100K the exemption drops to $4,000, and so on.

Thus the tax exempt income for that family would look like this:

up to 50K, first 32K not taxable
51-75K, first 24K not taxable
76-100K, first 16K not taxable

The reason I prefer this to raising the minimum wage as an answer is that most of our working poor already make significantly more than the minimum, and the "bump up" effect dissipates rapidly.

I'll use my daughter as an example--high school graduate with a "part time" (carefully maintained at below 32.5 hours/week so that her employer can keep from offering benefits) job in a nursing home. She started at $8.50/hour two years ago, and is above $10 today--well above minimum wage, right? But far below what Poverty in America suggests that she needs to make to support herself and her son. The $75-100 she loses every two weeks in Federal and State withholding is a critical loss, far more important than the additional $16-20/week she'd make if the $.50/hour minimum wage change percolated upward.

The plain truth, Geek, is that the government hurts the working poor more than the frugality of their employers. And until we address that uncomfortable fact, we're not going to make headway in helping people achieve a living wage.

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.

LiberalGeek said...

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?

Steve Newton said...

I'm going to answer your question but today was frankly the day from hell in terms of my family's health and I did not get to it. I will try in the next couple of days.

LiberalGeek said...

Steve - Don't sweat it for a second. I know how those days go. Hopefully, some day we can discuss it over a beer.

Melloncat said...

Great post! Glad I found your blog. :-)