Sen. Graham’s Bad Idea To Link Tax Reform To A Minimum Wage Hike

Original Article:

  • Author: Michael Satlsman

  • Publication Date: October 2017

  • Newspaper: Forbes

  • Topics: Minimum Wage

Tax reform is important. But is it worth sacrificing hundreds of thousands of jobs to get it done?

South Carolina Senator Lindsey Graham seems to think so. Bloomberg reported this afternoon that the Senator suggested linking tax reform to an increase in the federal minimum wage to “help draw Democratic support” for reform.

The Senator should know better. In 2014, he helped stop legislation to raise the federal minimum wage by nearly 40 percent to $10.10 an hour, spurred by a Congressional Budget Office analysis showing that it would cost a half-million jobs. (A analysis by economists at Miami and Trinity Universities estimated that 11,000 of those lost jobs would be in South Carolina.) Even a more-modest increase in the minimum wage to $9 an hour was estimated to cost 100,000 jobs.

That’s not all: Nearly one-half the minimum wage workforce is employed at small businesses with fewer than 100 employees. Tax reform has been sold as a means to help small businesses; why would Congress link it to a policy that will have a disproportionate negative impact on these same employers?

The lost jobs from a wage hike are all the more painful given the policy’s poor track record at reducing poverty. Twenty-eight states raised their minimum wages between 2003 and 2007 to try and accomplish that goal; subsequent research published in the Southern Economic Journal found little evidence it had worked  Beyond the workplace consequences of lost jobs, the economists also identified poor targeting as a problem. Contrary to some stereotypes, most employees affected by a federal wage hike are not living in poverty; rather, they’re often second- or third-earners in households above the poverty line. (The average family income of an employee affected by a $10.10 minimum wage is nearly $60,000, according to an analysis of Census Bureau data.) Over 60 percent of individuals in poverty don’t work at all; they need a job, not a government-mandated “raise.”

Economists have long-understood the drawbacks of raising the minimum wage. A 2015 summary of the best research on the topic, published by the Federal Reserve Bank of San Francisco, found that the most-credible research still points to job losses following a minimum wage increase. These losses become more severe as wage mandates rise higher, as evidenced by recent nonpartisan research from Seattle and San Francisco. 

The stock market might be booming, but many less-educated Americans still aren’t feeling the benefits of a robust economy. In metro areas such as St. Louis, Atlanta, and Cleveland, the average unemployment rate for young high-school drop-outs is still five to seven times the national unemployment rate. A higher federal minimum wage will only put a job further out of reach for these young adults. Senator Graham should stay focused on tax reform; if he wants to raise wages at the bottom end of the pay scale, there are better options to boost pay without reducing employment.