Last week, I gave some insight into how a higher state mandated minimum wage would affect our lives and businesses. A quick summary is that it will make some happy; at the same time it will drive up inflation which will gobble up any increases in wages. You should ask then why are many clamoring for these new mandates that will create greater challenges for small businesses and retirees?
Digging Into the Issue
Governments should have no role in the arrangement of what an employer pays its employees. That should be an arrangement between them. If an employee believes his services are more valuable than an employer is willing to pay, he should look for better opportunities. Likewise, if the employee is an asset to the business, the business should reward employees with wages to encourage them to remain. For government to interfere, one needs to look to see who stands to gain to understand what their motives are.
Snake Oil Salesmen (Politicians and Community Organizers)
Those who are the biggest proponents of government mandated pay increases are those who often are the least qualified to have a say on the issue.
Some politicians and community organizers have no understanding of basic economics. Few have experience in actually making a payroll or budgeting a business. Other politicians naively believe that they are acting in compassion, and therefore, chose to ignore the total impact of their actions. Their reasoning is based on selfishness; they want to keep their job! They believe that if it appears they are helping people, they are more likely to get their vote in the next election. What they do understand is that their own personal status is improved if they can claim that they raised the mandatory wages. Watch how many send out mailings bragging about their role in the increases.
Government Wins Big
While small businesses face new challenges from the inflation that will occur, the government at every level will be the real winners. Higher wages will result in more tax revenues. President Biden understands, that is a reason he is advocating for a higher federal minimum wage. He has been around Washington long enough to know that in the years after “The Great Society” started pumping money into households, it increased demand for goods and services. This began a cycle of inflation that resulted in vast new tax revenues in the late sixties and early seventies.
At the federal level, progressive graduated tax rates will push taxpayers in higher tax brackets. Every time a taxpayer moves up a tax bracket, the federal government gets a greater percentage of their income. Virginia’s tax rate is not progressive; therefore, our taxes will only rise at a flat percentage. However, we have removed many lower paid employees from the requirement to pay payroll taxes. Potentially, many will be added back to that group of employees that will once again have to pay income tax.
At both the federal and state levels, gasoline and fuel taxes will increase with inflation. As well, the state sales taxes one pays will increase as wages and inflation increase.
Those that have the least skills and work habits will surely be the greatest losers. Budget focused employers will be less likely to hire those who have yet to learn how to work effectively. They are more likely to change how they operate their businesses. Instead of letting their businesses suffer, many will turn to automation.
Once we had elevator operators and filling station attendants; automation replaced them years ago. Currently, restaurant chains such as Panera Bread and McDonald’s are encouraging customers to use kiosks to place their orders. In Boston, a new restaurant named Spyce has a menu that is focused on only seven menu items that mix the meat, vegetables, and spices automatically as each patron places their order. In doing so, they have eliminated most of their wait staff as well as most of their cooks. These changes and others will negate the need for as many workers.
Watch as both the state and federal level big spenders are eyeing these new tax revenues that they will be able to use to create their latest programs in which they can take credit.
We love to hear from you! You can reach us at Sen.Ruff@verizon.net, 434-374-5129, or P.O. Box 332, Clarksville, VA 23927.