2007_01_01_archive

Congress Should say No to New Tax Cuts Tied to Minimum Wage Increase

The President says he wants to work constructively with Democrats.

We'll see. One of the first items of business when the new Congress

convenes will be to increase the minimum wage from $5.15 to $7.25. The

President says he'll sign the bill -- but only if it contains new tax

breaks for small businesses that will offset the increased cost

resulting from a minimum-wage hike.

Congress should pass the minimum wage increase without any

small-business tax break. Small businesses don't need new tax breaks

because the minimum wage increase won't actually impose new burdens on

them.

First, virtually all small businesses that pay the minimum wage

compete in the local service economy. They're retailers, contractors,

providers of elder care and child care, local hospitals. They don't

compete internationally or even nationally. Their competitors are in

same city or town, and all of them will be paying the same

minimum-wage increase. So it's likely that the increase will be passed

on to consumers.

Besides, it's not really an increase anyway. The current minimum wage

was enacted ten years ago, and inflation since then has eroded its

value so much that the new proposed minimum is more like an inflation

adjustment than a real increase. Most small businesses charge prices

that have risen with inflation. It's only fair that their employees'

wages should rise with inflation, too.

In fact, a minimum wage hike may actually help small businesses.

Evidence from states that have already increased their own minimum

wages suggests that a modest increase convinces more people to enter

the labor market - people like retirees, spouses, or teenagers who

wouldn't bother working at a lower minimum wage. With more people

willing to work, small businesses have more choice of whom to hire.

That means they can find more reliable employees, and reduce costs

associated with turnover.

The nation can't afford a tax cut anyway. That's why Democrats have

pledged to restore fiscal responsibility by requiring that any new tax

cuts be fully paid for.

Maybe this is why the President says he'll sign the minimum wage

increase if it's tied to a tax cut for small business. He knows that

if the Democrats are true to their word, there can't be any such tax