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Minimum wages vs. taxes -Do you get it?

May 19, 2013

Once again the President is calling for an increase in wages. To hear him tell it, the reason below-middle class earners are not making it is because of the greedy corporations keeping all that money for themselves.

What I never hear is how much of the earned income of this country goes for taxes. A quick and dirty calculation on a monthly income of $1256.00 ($15,080/annually based on $7.25 an hour) for a single person with no dependents shows that a large portion of that person’s income goes for some form of tax. FICA is 7.65% (the employees share of 15.3%), or $115.36. Federal withholding amounts to $118.00 (from 2013 IRS Publication 15). State income tax, averaged at 7% is $87.62. Other taxes include sales taxes, Federal gas taxes @ 48.8 cents per gallon, state gas taxes @ about .13/gal, Federal taxes on phone service, heating oil, etc., etc. not to mention local municipal taxes. In total, the average person making minimum wage is paying out at least 30% of their wages just in taxes paid directly by the employees. Don’t want to pay all that? Tell it to the IRS. I’m sure they would be sympathetic.

Then there are the taxes related to payroll paid by businesses. Unemployment fund taxes (Federal and state), workman’s comp and  the soon-to-be-mandatory health insurance tax all increase the cost of the worker to the business, and they are directly mandated from government. The more the business has to send to the government, the less there is for the worker.

The government would have you believe that if business would just increase wages by say (from $7.25 to about $10.00 an hour) everything would be just fine. Of course there is no mention of the fact that all these taxes and employer costs would then apply to the increase as well. A large portion of the money collected is eventually spent on government-funded social impact programs. If the businesses suddenly raised the minimum wage to $10.00 would those programs go away?  No, they wouldn’t.

Why? Because of the reality of prices. Average costs for any ordinary item is loosely based on middle class wages, and the middle class is shrinking. Businesses have to make money or they can’t pay wages. Two factors directly affect prices. One is the cost of doing business. The business has to pay its bills. The other is the choke point at which people simply will do without instead of buying the product. Gasoline is a good example of this. It costs more than twice what it did just eight years ago, and many people have either cut back on driving, or just sold their cars and use public transportation. Ergo, the price goes up to cover the cost of doing business (and paying dividends on their stock).

If the price of a necessity such as housing or food rises to the  point that the low-income wage earner can’t pay for it, then either social impact funding will kick in, or the product simply ceases to exist. How many people do you think would go to college if they had to pay for all of it themselves every year?

This is the fallacy of centralized government control. The more things the government provides, the more they extract from the economy. At some point, there simply isn’t any incentive to work, because WTH, you can’t ever get ahead anyway. The problem with that is, pretty soon there aren’t enough people working to support the centralized government supply depot, and presto, there are no more government programs. What then? Forced labor? It should be interesting to see what happens when the government teat runs dry.

There will be a correction at some point. People will have to stop relying on the government and start figuring out how to make it on their own. We COULD do it gradually by reducing the bite the government takes a little at a time, giving people a fighting chance to adjust. That would actually provide real spendable income increases. History says that we won’t do that, but then history has recorded some drastic changes in public understanding before. One can only hope. 

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