President Obama, anti-poverty activists and liberal economists may have good intentions, but the policies they advocate have unintended consequences. This is no truer after the non-partisan Congressional Budget Office (CBO) released a report that discovered that a minimum wage hike from $7.25 to $10.10 could cut total employment by 500,000 workers by the end of the president’s second term in 2016.
The federal agency analyzed two scenarios: a minimum wage of $10.10 would lead to as much the elimination of one million workers. In a situation of a $9 minimum wage, there would be a reduction of approximately 100,000 workers.
“Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold,” wrote the CBO. “But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.”
The White House contended the CBO’s numbers. White House Council of Economic Advisers Chairman Jason Furman cited statistics from a private group of economists that found no such thing, while adding that the CBO doesn’t take into account higher wages that would make workers more productive and save companies money through reduced absenteeism.
In addition to job losses, the CBO found that a higher minimum wage might reduce the United States budget deficit by a small amount in the short-term, but in the long-term the budget deficits would increase in later years.
What does the CBO suggest? It proposes an $8.25 minimum wage.
As we have noted before, the minimum wage hurts the poor, the unskilled, immigrants, youth and the most vulnerable in society. It leads to automation of the workforce as well as decreased opportunity because enterprises raise their employment qualifications.
For more on the minimum wage, check out these links below:
8 key arguments against raising the minimum wage to $15 per hour
Elizabeth Warren: Why isn’t the minimum wage at $22 per hour?
Will a $15 minimum wage, technology make fast-food workers obsolete?
Desperate Times Require Bold Measures
It seems that the Democrats are willing to sacrifice 1 in 33 workers (and their families) to pay 32 out of 33 workers a couple more dollars. Unfortunately these 500,000 families are in addition to the 2,000,000 families that will suffer job losses or reduced hours as a result of Obamacare when the $130 billion in penalties begin in 2017.
The Obama economy has not been able to create 2,500,000 jobs in an entire year so the projected job loss is a major setback and would offset all private sector gains for many years. The only thing that could make it worse is immigration reform.
There is a solution. The 15.3% payroll taxes reduce take-home pay and also add to the cost of each U.S. job. Every developed country in the world considers a value added tax (VAT) to be the fairest business tax. Therefore replacing payroll taxes with a VAT will encourage U.S. jobs, increase take-home pay, boost the economy and tax all businesses more fairly (without taxing them more).