Today is Tax Day. Federal tax returns are due to the Internal Revenue Service with a postmark before midnight. The Congressional Budget Office (CBO) projects that the federal government will collect $3.2 trillion in revenue this year.
Revenue comes from five main sources:
In a new report, the Congressional Budget Office estimates that raising the federal minimum wage from its current level of $7.25 an hour would raise the incomes of low-wage workers who remain employed while lowering the incomes of low-wage workers who lose their jobs. CBO’s “middle” estimate is that a $10.10 minimum wage would reduce total employment by about 500,000.
In the State of the Union address, President Obama endorsed a bill to raise the $7.25 federal minimum wage by nearly 40% over three years to $10.10 an hour in 2016. That would be an exact copy of what President Bush did on May 25, 2007, by signing into law a 40% minimum wage hike in three stages — from $5.15 to $5.85 on July 24, 2007, then $6.55 a year later and $7.25 on July 24, 2009. Have we not learned anything from what happened last time?
When President Obama advocates a higher minimum wage in his State of the Union Address, he will no doubt argue that by increasing the minimum to $10.10, workers will have fatter pay checks and spend more, thus stimulating the economy and creating more jobs. In fact, economic logic tells a different story.
Seventy-five economists, including seven Nobel winners, have signed a letter advocating an increase in the minimum wage. The letter was preceded by a New York Times editorial on January 2 making the same argument. I assume that there will be an opposing letter shortly, probably also including some Nobel signers.
I was surprised to read this assertion about the minimum wage by labor analyst Harry Holzer in the Washington Post today:
“The biggest concern among economists is that imposing pay increases on employers will reduce the hiring of low-wage workers and raise unemployment. But in four decades of research by economists, this appears to be a small or nonexistent effect.”
The Reason Foundation’s Adam Millsap and Anthony Randazzo have an op-ed up at RealClearPolicy.com that cites examples of how federal job training programs are used to favor particular commercial interests. A snippet:
It’s that time again; time for supporters of trade liberalisation to question the value of enhanced training and welfare programs for those who lose their jobs because of import competition, and for trade-skeptics to ask why we need trade liberalization at all.
[Editor’s Note: See this Cato essay for more on the negative effects of the minimum wage.]
Recent protests by fast food workers have renewed interest in the minimum wage. Often, these protests focus on the inability of an individual worker to support a family on the minimum wage. Such a question spurred McDonald’s to release a mock budget for low wage workers. McDonald’s first mistake, however, was in accepting the premise of the question.
Economic research has only a tenuous relationship to economic policymaking in Washington. President Obama’s new proposal to raise the federal minimum wage from $7.25 to $9.00 is a case in point. It would bad for workers and the economy, but the administration seems to be ignoring the large body of theory and evidence on the issue.
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