Earlier this month, Duluth area State Senator for District 7, Jen McEwen introduced Bill SF 2031 to the Minnesota House. The bill is a reworked version of the bill that was used to increase Minnesota’s minimum wage to $9.50 a few years back.
McEwen’s version of the bill states that large employees with an annual gross volume of sales made or business done at not less than $500,000 “must pay each employee wages at a rate of at least $17 per hour beginning August 1, 2021”. And small businesses classified as those with an annual gross volume of sales made or business done is less than $500,000 “must pay each employee wages at a rate of at least $15 per hour beginning August 1, 2021”. Both also account for increases in the rate of pay based on inflation set in the Consumer Price Index set by the Bureau of Labor Statistics no later than August 31st of each year or “the lesser of 2.5”, which would take effect by January 1st of the following year.
Twin Cities area Senators Omar Fateh (Dist 62), John Marty (Dist 66), Patricia Torres Ray (Dist 63), and Scott Dibble (Dist 61) joined McEwen on the bill.
McEwen, an attorney, supported by far-left organizations during her campaign for her deep progressive views, did not run with a focus on minimum wage. Her key issues were single-payer healthcare, affordable housing, equity issues, securing local government aid, and preventing the “mass extinction event” she believes climate change will cause in the next few years. What’s available of McEwen’s resume lacks any reference to business experience, including her upbringing by her mom, a nurse, and dad, a teacher. Her husband is also a teacher and activist.
So it makes sense that McEwen thinks that companies can willy-nilly nearly double the hourly wage of their employees with less than six months’ notice and everything will be hunky-dory. Unfortunately, studies have shown this could be disastrous. That’s not to say that it wouldn’t be great if every job across the country could provide a livable wage, but the reality is many are not supposed to.
A recent article in Forbes by WeCruitr CEO, Jack Kelly, explains the unintended consequences of a $15 minimum wage. He explains a Congressional Budget Office report called “Effects on Employment and Family Income of Increasing the Federal Minimum Wage” which examines the impact of raising the minimum wage from $7.25 to $10, $12, and $15 by the year 2025. (Keep in mind McEwen wants $17 by August of this year).
The report states that while earnings would increase for many and lift families out of poverty, other low-wage workers would become jobless, with their income dropping and pushing them deeper into poverty.
The unintended consequences include hurting small and midsize businesses disproportionately by the extra costs incurred. Many small, local businesses have small profit margins as a result of trying to compete with the big box stores. To pay more labor costs they would need to raise their prices which would most likely send customers to the big retailers, forcing the small businesses to layoff workers or sadly, close. On the other end of the spectrum, large corporations will weigh the difference between increasing their investment in technology solutions versus human labor. With the cost of increased hourly wages and payroll taxes on top of benefits, health insurance, etc compared to the one-time costs of technology investments with only ongoing maintenance and upgrades it will become much easier for them to reduce their workforce in favor of automation or shopper-based tech. This would impact many industries, from retail and foodservice where we already see self-checkouts and self-ordering to hospitality, construction, and manufacturing. The Netflix documentary, American Factory, examines the Chinese take over a glass factory in Dayton, Ohio, the Chinese managers and owners and are disgruntled when they find production less than they had hoped because of American work schedules (5 day weeks and 8 hour days). They consider American workers lazy and replace entire portions of production with automated machines to make production and financial goals.
A few years ago, Seattle instituted a $15 minimum wage, the immediate result was reducing workers’ hours with an overall net loss in pay.
The Democratic Party has a history of pushing policy with heart-eyed emoji passion – things that sound good in a vacuum, but they never seem to work out the long game. They miss the big picture completely. For example, the impact their low-income housing policies from around 50 years ago have had on an entire race of people. When they segregated low-income housing to specific areas in cities so it wouldn’t devalue or otherwise bother middle and upper-class homes and people, they essentially cut off access for low-income families, primarily people of color, to good schools, transportation, jobs, and healthcare, perpetuating poverty, breeding drug, crime, and gang problems, and stunting opportunities. Their minimum wage policies will do the same for our entire country.
The truth is, in our job sector, there is a category of “bottom-of-the-rung” jobs that are not intended to support families. These jobs are intended for those just starting out in the job market or those that want to make some money part-time. The less than desirable pay and hours these jobs offer provide an incentive to seek something better – whether by experience or training/schooling. The goal of these jobs is to push people up the ladder, not sustain families or a middle-class American lifestyle. By raising the wages of these jobs you not only hurt the business upfront, but in the long run, you erode the potential of the workers who stay in the jobs too long and miss their opportunity for something better, in turn hurting trade schools, colleges, and universities when students no longer knock down their doors for a higher education to learn the skills and knowledge that earn them higher pay. And if you futher down the road, the big picture is a failing country, because the bright high school girl with a love of science keeps serving burgers instead of going for a 4-year degree that will lead her to discover something incredible for humankind, or the ambitious boy with a knack for building things moves into his summer roofing job full time instead of going to school to be the engineer that could revolutionize our infrastructure.
Despite what Press Secretary Psaki says, raising the minimum wage will raise prices of goods and services, as well as the overall cost of living. It’s simple math. Extremely simple math.
Let’s say a farmer has three chickens that lay one egg a day. To care and keep the chickens it costs the farmer $1.00 a day, to keep his farm it costs $1.50 a day. His overhead costs are $2.50. He charges a dollar an egg and makes a profit of $0.50. Jen McEwen decides that the farmer must set aside a wage for each chicken to provide a cushy retirement (not understanding that they’ll become nuggets when they stop laying). Knowing nothing about farming or business or the cost of raising chickens she arbitrarily decides that $0.25 seems fair. But now, the farmer’s cost per day is $3.25. If he keeps charging $1.00 an egg, by the end of the year he’ll be in the hole $91.25. To keep his $.50 profit margin he now has to charge $1.25 an egg.
On top of McEwen’s minimum wage bill, President Biden is wielding his pen ready to sign a corporate tax hike. Creating a bigger headache for our chicken farmer and an even bigger price tag on those eggs.
TaxFoundation.org has reported the President’s tax increase will move the corporate tax rate from 21% to 28% with a 15% minimum tax on book income of large companies. Including state taxes, this puts the average US tax rate for corporations at 32.34%, the highest in the OECD (Organisation for Economic Co-operation and Development) and the highest among the G7 countries. They say this will “harm U.S. economic competitiveness and increase the cost of investment in America. It will reduce long-run economic output by 0.8%, eliminate 159,000 jobs, and reduce wages by 0.7%”. They expect that workers across the income scale would “bear the tax increase” with the bottom 20% of earners seeing a “1.45% drop in after-tax income”.
This increase brings us near the high pre-Trump Tax Cut and Jobs Act of 2017 rate of 38.9%. This means, businesses once again leaving our country, not investing in our cities, and not creating jobs as they have been for the last three years. It literally sinks all the economic improvement we’ve seen in the last 4 years under President Trump. With the added burden of McEwen’s instant wage hike, Minnesota would be set to fare the worst.
TaxFoundation.org explains that Corporate income taxes are the most harmful tax types for economic growth, capital investments are sensitive to corporate taxation and it will shift companies abroad. Since the 1980’s we’ve seen a dramatic drop of corporations in the United States. Corporations typically pay the highest taxes of all business types and create the most jobs. In 1986 the United States had 2.6 million corporations, 800,000 S Corps, and 1.3 million partnerships. In 2017, we only had 1.6 corporations, 4.7 million S Corps, and 3.9 million partnerships.
Currently, corporate income is doubly taxed, first with corporate income tax and then again when distributed at the individual level as dividends and capital gains, making the actual corporate tax rate 47.47%.
Money that goes to the government does not help the economy. Pushing both a minimum wage increase and a corporate tax increase at the same time will end up devastating businesses and the economy.
As usual, our Democratic elected officials see the forest but not the trees. The reality is this, there are some companies that have the capability to pay their employees more, there are some jobs that should make more than minimum wage because of the skill required or the inherent risk of the job, and there are some companies that take advantage of loop-holes to bypass paying any corporate tax. These Democratic policies, like most policies, are designed as a one-size-fits-all, but that rarely works. Focusing on the actual problems and designing policies specifically for them would make so much more sense and would most likely earn bipartisan support. It’s time for Jen and President Biden to take their ideas back to the drawing board and come up with something that actually works. We’ll be waiting.