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Tags: minimum wage | increased taxes | hike

Do Increased Income Taxes Negate Minimum Wage Hike?

By    |   Wednesday, 27 May 2015 09:35 AM EDT

While more money always sounds good at the start, minimum wage increases must be examined for their nuanced effects and policy makers must ask themselves what is the true cost of increasing the minimum wage.

A common economic-based response of raising the minimum wage is that it will cost employers too much and they will have to lay off workers. This is true, but not in the simplified sense that many may think.

Urgent: Do You Think the Minimum Wage Should Be Raised?

When minimum wage increases, taxes for businesses do also. CNN Money reports that on top of increased compensation, taxes for unemployment and disability insurance, Social Security, and Medicare all rise as the employer’s contribution is based on a percentage of the employee’s wages.

However, business-owner Jason Lerner told CNN this increase would not impact his business drastically.

The impact adds up nonetheless. Businesses may pass the cost burden on to the consumer, which will ultimately affect those at the lowest-income levels the most. Also, business owners may choose to invest in higher-efficiency technology or less employees with higher skill levels.

The New York Times contributing writer and economist Christina Romer states, “It’s precisely because the redistributive effects of a minimum wage are complicated that most economists prefer other ways to help low-income families.”

Vote Now: How Do You Feel About the Minimum Wage?

One of the solutions Romer discussed in 2013 is still widely advocated for today — increasing the earned-income tax credit (EITC).

Warren Buffett recently published in The Wall Street Journal an argument supporting this option. Buffett argued minimum wage increases would only “crush” basic-skilled workers.

The White House’s minimum wage briefing that argues for a federal minimum of $10.10 shows a marginal decrease in tax benefits for the employee, being able to surpass the poverty line. The graph shows that wages will rise from $14,500 to $20,200, and while tax credits will decrease, it will only drop from $6,200 with a $7.25 minimum wage to $6,050 with the proposed $10.10. This would raise an estimated 2 million out of poverty.

Tell Us: Should the Government Raise the Minimum Wage?

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FastFeatures
While more money always sounds good at the start, minimum wage increases must be examined for their nuanced effects and policy makers must ask themselves what is the true cost of increasing the minimum wage.
minimum wage, increased taxes, hike
356
2015-35-27
Wednesday, 27 May 2015 09:35 AM
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