The Minimum Wage Debate and Tax Incentives

Originally when I started over at Chicago Boyz I used to write regularly about tax policy. I haven’t written as much lately on that topic because the news has been completely dispiriting… at every turn it seems that the Federal, State and Local governments have taken positions to make the system more complex, confusing, and dysfunctional.

The goal of a tax policy should be to:
1. Achieve the revenue goals that they set out to meet
2. Do so in a way that has causes the least amount of distortions to the economy

Recently the idea of “fixing” our tax policies and incentives, for me at least, is aligned with recent discussions on the idea of raising the minimum wage. The minimum wage is $7.25 / hour, although this varies with state and local laws as summarized here. A suburb in Seattle, near the Seattle-Tacoma airport (Sea-Tac), recently passed an ordinance to raise the minimum wage to $15 / hour. This ordinance is a bit more clever than most, since the airport is unlikely to close or take significant actions due to the immense capital costs and constraints associated with doing so, and has a strong public element (politicians can just try to pass the costs on to air travelers).

These same discussions come up in Chicago, as fast food workers also have had some (small) demonstrations to try to raise the minimum wage to $15 / hour. While their campaign has sputtered out, it will likely re-surface and be championed by our governor.

The obvious difficulty with raising the minimum wage is that employers are not sitting ducks. There are many low wage workers in River North, for instance, working in bars, restaurants, cleaning services, and in various security related occupations (virtually every building has a set of doormen). If you doubled the minimum wage, for instance, all of these businesses and institutions would immediately embark on a host of labor saving initiatives and automation efforts. I am not an expert in these sorts of automation experts but can imagine people being replaced by computers, call centers handling service, and moving to self-service for customers in other instances. It is highly unlikely that they would just attempt to pass on the price increases and keep the same level of staffing; that would be economic suicide, especially with their competitors scrambling to reduce their labor expenses. Efforts that could not be automated would rise in price, which would likewise discourage consumption, until an equilibrium was reached.

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Quote of the Day

Bad tidings of sea and air space challenges” by J. E. Dyer:

The slide toward the conditions for war – when some governments will think the price of aggression is cheap – will take time. It will wend its way through geopolitical realities that could, each one, be ameliorable, even if they aren’t footholds for a concept of the perfect. The decisive factor at each and every point will be the will, purpose, and means put together by the status quo powers. Is America one of those powers today? The reason we are where we are is that no one knows the answer to that question.

Worth reading in full, as are most of Dyer’s posts.

Could Someone Remind Me What Year This Is?

…because it increasingly seems that the first three digits must be One, Nine, and Three.

Kanye West says Obama’s problems with getting things done are because “Black people don’t have the same level of connections as Jewish people”…(also, “Black people don’t have the same connection as oil people.”)

New York Mayor-Elect Bill de Blasio praises Al Sharpton, who was one of the primary instigators of the Crown Heights Pogrom.

Representative Charlie Rangel (D-NY) recently asserted that “President Obama should drop the charade of democracy and rule directly through executive orders.”

Obama-supporting protestors demand that Obama make even more use of government by executive order than he has already done.

Obama’s frontmen at Organizing for America told their members to propagandize for Obamacare at family Thanksgiving dinners. As Byron York notes, politicization of all aspects of life is a standard feature of totalitarian societies.

MSNBC’s Chris Matthews is one example of those “progressives” who think patriotism is all about obeisance to the government and the Leader, rather than being about love of country.

A third-grade textbook, said to be compliant with the new Common Core standards, portrays Obama with the kind of messianic iconography commonly used by totalitarian governments in praising their rulers.