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$15 an Hour Minimum Wage. A huge Tax Hike

July 17, 2019

There is a lot in the news about raising the minimum wage to $15 per hour using legislation rather than economics.  I decided to do a little research and any opinion stated and commentary here is purely my own.  I am not trying to debate big Government or address the poverty of people in need, I just wanted to look at the economic impact of raising the minimum wage to $15 per hour from the governments vs a corporations viewpoint.  I 'Googled' "How much taxes do I pay if I make $16000, $20000, and $30000 per year.  That is $8, $10, and $15 per hour and working full time 2000 hours per year.

One of the first google sites to come up in the google search showed an income tax calculator for New York, USA. which is one of the States prominent in the push for "a living wage".  I am not a tax expert but the numbers displayed surprised me.  $16000 per year the Federal and State Income tax were stated as $400 Fed, $333 State. $20000: $800 Fed $520 State, $30000: $1970 Fed and $1113 State.   What that means is the difference between $8 per hour and $15  is that the the wage increase goes up 87.5%.  Taxes however at the displayed rates would go up 334% for State and 492% for Federal income tax.  That means the rise of the minimum wage to $15 per hour is a huge windfall in tax revenue for the State and Federal Government. It has been estimated that the wages for 27 Million workers would be affected nationally.  That is a $42,390,000,000 tax windfall for the federal government.  

The economist part of my brain says that if there are more jobs than available workers then wages will rise.  With unemployment so low that in order to find industrious, dedicated workers, employers will have to pay more to attract, and retain a good work force.  Wages will go up. Tax revenue will go up.  If an employer is forced to employ and pay regardless of the business environment  and economic concerns the business will suffer.  The employer may hire only 2 employees  at $15 per hour but  might have hired 3 employees at $10 per hour and wages would go up with the retention, growth, and profitability of the business.  There are some occupations that cannot be exported or have automated and the training and skills needed to work in our ever increasing technological world will continue to increase which will also create upward wage pressure.

The greater concern that I see affecting families, our country, the markets, and our future is the size of the national debt.  Currently at about $22 Trillion. That's 22 with 12  zeros.   $22,000,000,000,000.  The $42 Billion dollar windfall noted above will  almost cover about 1/10th of the interest on that debt annually.  To comprehend the size of the $22 Trillion debt, in order to pay that debt off,  the government would have to pay more than 100% of the entire nations tax revenue for the next 10 years. That is our national crisis.

Now the good news.  We can do it.  If we hold our elected officials accountable for having an economic program that includes paying off the national debt. The markets will do what the markets do. They will go up and go down, I trust in the markets and the people.  People will always have a consumer need, food, toiletries, transportation, heating, cooling, entertainment, savings, security,  and more. There will always be innovation and opportunity to invest and to help provide those things to fulfill peoples needs.  Businesses will start and prosper, some will falter and fail.  I believe a free market and that our society can continue to grow and prosper.  People are good, most have good hearts, minds, and intentions.   We have a desire to grow and prosper.  I believe we are living in the greatest country, in the best of times.  There is still much help needed for some people and people will meet those challenges.  There are more Mother Teresa's, Martin Luther King's, Albert Einstein's, Thomas Jefferson's, Leonardo da Vinci's, Henry Ford's,  and others to come and inspire, innovate, and forge our future generations. 

We look forward helping you plan and invest in your future



This is meant for educational purposes only.  Waddell & Reed does not offer tax advice.  07/19