Who Cares about Minimum Wage?

wage-article

Why should you care about minimum wage or any other issue that does not directly impact you? First and foremost, all social issues impact you, directly or indirectly, one way or another, some more so than others. Second, when an issue impacts you directly, you will need others to support you. So, should you care about minimum wage issue? The answer is a resounding YES. Despite the politics introduced into the debate, the proposed solution – to increase minimum wage to $10.10 (higher is better) – is timely, logical and necessary. The assumption that an increase in minimum wage would prevent small businesses from hiring is based almost exclusively on ignorance and politicians’ talking points; coincidentally, those politicians do not have the interests of the public at heart, oppose to everything Obama and are hypocritical; every year or so, they vote to increase their salaries (paid with your tax dollar) while forcefully opposing an increase in the minimum wage.

Contrary to what the politicians would want you to believe, an increase in minimum wage is very good for the economy of the community, the city, the state you live in, and ultimately the country. Consider the following scenario, someone who makes $7.25/hr (current minimum wage) earns $290 a week (for 40 hours of work) would take home $238 a week ($12,376 a year) after taxes (assume a 18% tax bracket). Needless to convince you that with such a meager salary, that individual is right at the poverty level, unable to purchase much of anything! With an average apartment rental in the Northeastern region of the country going at $875 a month ($10,500 a year), that individual is left with just $1,876 for transportation, food, clothing for the whole year. This is not a movie; this is not science fiction. Some people live in even more dire state than the featured individual in the example. According to a 2011 US Census, there are 46 million people living at or below poverty, and that number is believed to have increased in 2012. Suppose the individual in our example is now able to earn $10.10 an hour. S/he would earn $404 before taxes and take home $331 a week ($17,227 a year). If everything else remains the same, that individual (has now $6,726 to spend – not much but considering) is now able to shop at the neighborhood grocery store, something s/he could not possibly do with the $7.25/hr minimum wage. Politics notwithstanding, that individual can now contribute to the economic growth of the neighborhood where s/he lives. Economic growth of neighborhoods is good for the city, for the state and ultimately for the country. It is hard to imagine that could be seen as a bad thing; small businesses can now have additional footsteps into their doors, translating to business expansion.

So, what happens to the small businesses that have to pay higher wages to hourly workers? Despite the outrage expressed by the politicians, at times accompanied with some shoddy and unscrupulous small business owners, the increase in minimum wage has very little to no impact on their small businesses. Take a look! Let’s consider a small business owner with ten fulltime employees. With minimum wage at $7.25/hr, the business owner would have total wages for the year of $150,800 {[($7.25 * 40hours) * 52weeks] * 10employees}. Let’s also assume that the business has revenue of $5 million dollars and expenses (including cost of goods sold) of $4,099,200 dollars. After adding wages to the expenses, the business owner makes a profit of $750,000 before taxes [$5M – ($4,099,200 + 150,800)]. Let’s further assume that the 40% corporate tax rate is applied to the gross profit (Note: since 2011, corporate tax collected by IRS is not the US 40% rate but a mere 12% average). Per IRS Federal Tax table, the business owner would pay taxes as follows, $113,900 + 34% of the amount over $335,000. In other words, the business owner in this scenario would pay $255,000 {$113,900 + [34% (750,000-335,000)]}, keeping a net profit of $495,000. Now, let’s find out how different it would be if the business pays employees $10.10/hr, everything else remains the same. Total expenses will jump to $4,310,000 [$4,099,200 + wages for 10 employees for 1 year]; wages for the year is: $210,080 {[($10.10 * 40hours) * 52weeks] * 10employees}. The change in minimum wage also causes a change in gross profit, which is now $690,000. Using IRS Federal Tax table, the business would pay $234,600 taxes {$113,900 + [34% (690,000-335,000)]}, leaving the business with a net profit of $455,400. It is also important to note that most small businesses are structured as S-Corporation, meaning they DO NOT pay the taxes I calculated earlier; according to a 2006 IRS release, out of six (6) million businesses that filed their taxes, four (4) million were S-Corporations.

Clearly, the minimum wage increase that could spell doom for small business owners is the worst fabricated lie, second only to “the weapon of mass destruction (WMD) pile Saddam Hussein had” lie that would provoke a billion dollar war which bill the taxpayers are still footing. Notwithstanding the blatant lie unscrupulous politicians are spreading around, US has the lowest minimum wage among the industrialized nations; below is a small sample of how other countries are helping those at the bottom of the economic ladder to do a little better in life:

  • Australia, $16.88 as of July-2013
  • Belgium, $11.69 as of April-2013
  • Canada, $9.95 as of Sept-2013
  • France, $12.22 as of Jan-2014
  • Ireland, $11.09 as of July-2011
  • Luxembourg, $14.24 as of Oct-2013
  • Netherlands, $10.99 as of Apr-2014
  • New Zealand, $11.59 as of Apr-2014
  • UK, $10.02 as of Oct-2013

Switzerland, the world’s highest minimum wage ($24.70 as of this writing) voted down on May 18 2014 a proposal to double that rate; even with that defeat, Switzerland remains the highest minimum wage country in the world.

By now, it should be obvious that most debates in Washington are framed in Political Party backdrop making a resolution near impossible. Short of an act of God, We The People are screwed over and over by those whose principal task should be to represent and defend our interests. It was conceived by the framers of the Constitution that the House of Congress and The Senate are to pass legislations that protect and defend the interests of the majority against the actions or inactions of a minority. To that end, one must admire the wisdom and the unselfishness of our forefathers. Unfortunately, shortsighted by the goodness of their hearts – presuming that mankind would remain the same or become even more communal – the framers did not add failsafe to the Constitution which would have made it possible to immediately hold accountable those who would deviate from the original intent. The only recourse We The People have is to await the next election cycle, a proposition that would have worked had the Representatives been elected by The People, a story for another day.

The issue of minimum wage may not affect you at all which may explain why you pay very little (to no) attention to the debates that are currently raging in Washington. Your disinterest in the topic is exploited by your Representatives in Washington, thus making it near impossible for those who are affected to get any relief. That may help explain why our Representatives have managed to be in Washington for 20, 30 or even 50 years without attending to any of our concerns. Today, it’s the minimum wage you show no concern for and provide no support; tomorrow, it’s the contraceptive issue I have no interest in and provide no support for and so on. We The People are part of the problem created in Washington. We only provide support when the issue directly impacts us; otherwise, it’s somebody else’s business. Lucky for those Representatives, they don’t have to worry about losing their jobs because they can easily exploit this widespread weakness among us. Washington has no incentive to change. Fortunately, We The People can instantiate change when we all learn to support the views of even those we disagree with.

 

Follow Mike Ducheine on Twitter: @mducheiney
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Note: if you want to contribute to this or any topic related to politics and social issues, drop me a line at: mducheiney@gmail.com . Please mention CONTRIBUTOR in the subject line

 

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