The current minimum wage is $7.25/hr, and under the guise of that being not enough to live on (it works out to about $15,000/yr before taxes), there’s move afoot to raise the minimum—to anywhere between $9/hr and $15/hr.
I’ll ignore in this post the fact that the jobs that get minimum wage are low-skill and/or entry-level jobs whose product simply isn’t worth very much money. I’ll ignore, also, the fact that very few minimum wage earners have this job as their sole source of income—it’s a second job, intended to supplement the income from the primary job.
I want, instead, to propose a wholly radical idea: how about reducing regulations, especially for small businesses (the ones hardest hit by minimum wage laws) and lowering tax rates (of which min-wage earners aren’t paying much, but which taxes contribute to the cost of the goods min-wage earners are trying to buy)? Those tax and regulatory costs drive up our (which includes min-wage earners) cost of living, as the cost of the things we buy is driven by those regulatory and tax costs of doing business.
Here’s a brief look at (aggregated) regulation costs for small businesses. Daniel Sutter, a Professor of Economics at Troy University, had this information in a recent piece in the Troy Messenger:
…compliance [with Federal regulations] often requires spending on new equipment, signs, or other changes to workplaces. Both the Competitive Enterprise Institute and Small Business Administration estimate the cost of regulations at around $1.8 trillion. …this $1.8 trillion (largely hidden) cost of [Federal] regulatory compliance exceeds the revenue from Federal individual and corporate income taxes combined. It represents almost 12% of GDP, or nearly $15,000 per family, annually.
There’re those $15,000, again. Also, that aggregate cost equals 10% of the current national debt.
Sutter also had this:
Automobile dealers, for example, must comply with over forty Federal regulations affecting every aspect of their business, from the showroom to the service bays.
They aren’t even allowed to run their own businesses without the Feds looking over their shoulder, telling them how to do so.
And it goes beyond compliance costs.
Regulation reduces the freedom of individuals and businesses to innovate or create new products. Regulation reduces productivity growth, ultimately reducing standards of living, and particularly burdens small businesses, which are the source of many new jobs. The greatest cost is likely the new products, services and businesses that are never created because of regulation.
Now, about those taxes….
The small business owner, rather than the business itself, typically pays the taxes on the business’ income, as that, and its costs, typically are passed through to him.
A small business might have an annual income of, oh, say, $500,000—and if it’s really successful, that’ll generate a profit of $50,000. Any salary he might take out of the business is on top of that, but let’s ignore salary and only concern ourselves with the income tax on that profit. On those $50k, he’ll pay roughly $8,400 in ordinary income tax—nearly 17% of that profit ultimately lost to the government—at 2013 single rates. At married, filing jointly, the bite will be roughly $6,600—13% of his profit lost.
Rather than raising the minimum wage, and pricing the worker out of the labor market, it’d be better to enable the existing wage to go farther by getting rid of all those Federal regulations, and their costs, and lowering tax rates.