Tax Cuts and the Minimum Wage

NYT, January 5

As the minimum wage moves to the top of the new Congress’s agenda, some politicians — mainly President Bush and Senate Republicans — seem incapable of viewing the issue as anything other than a pretext for more tax cuts. This time the lucky recipients would be small-business owners, who the politicians contend will be unduly harmed by having to pay higher wages. So much for ringing in the new.

It has been more than nine years since the government last increased the federal minimum wage, currently $5.15 an hour. During that period inflation has severely eroded the wage’s value. Arguing that it is only fair to cut taxes on business owners when the minimum wage goes up is akin to arguing that taxes should have been raised as the wage fell because of inflation. Instead, as the minimum wage has eroded over the past decade, taxes have been cut sharply.

It’s even doubtful that the wage increase under discussion — a $2.10 increase over roughly two years, to $7.25 — would impair business. Eighty-six percent of small-business owners surveyed by the Wells Fargo/Gallup Small Business Index said the minimum wage had no effect on their businesses.

There’s also no reason to believe that the proposed tax cuts would be aimed at employers of low-wage workers. In 2006, when Congress tried to link the minimum wage to tax cuts, the proposals included an estate-tax cut for America’s wealthiest families. One proposal now being considered would allow small businesses to write off a larger part of their attorney fees when they go to court to challenge federal regulations. It sounds like a stretch to us that typical employers of minimum-wage workers — say, restaurants and small factories — are in any great need of relief from the high cost of federal litigation.

And then there’s the probability that tax cuts would cost the government far more than a wage increase would ever cost employers, driving up the budget deficit. The Economic Policy Institute analyzed the tax cuts that were linked to an unsuccessful attempt to raise the minimum wage in 2000. Those cuts would have cost $123 billion over 10 years, versus $11.2 billion for the wage increase.

It’s that sort of idiocy the new Congress was elected to stop. Chances are good the House of Representatives will eschew tax cuts and pass a clean bill to raise the minimum wage. The Senate should follow suit. And President Bush should sign it.