Alpha1, I would submit that fundamentally, what needs to be looked at is the purchasing power of the minimum wage. Without a doubt, the purchasing power of the minimum wage is at an all time low.
However, increasing the minimum wage is a de facto tax on businesses (in that it is a compulsary levy). What I don't understand about proponents of minimum wage increases, is that they're usually the same ones complaining about unemployment.
If we accept the fact that an increase in the cost of something will result in a decrease in its demand, then how can we, in the course of the "worst economy in 20 years" advocate an increase in the minimum wage?
I would argue that the best way (best in terms of economically most "efficient" AND
the way that would get the working poor the most amount of money into their pockets) would be to substantially restructure the payroll tax system in the US.
I'm referring to the 15.3% of taxes (7.65% each by the employer and the employee) that get paid in FICA, SS
and Medicare on every dollar earned below about $81,000). Since most of this tax disappears above $81,000 (the rate drops to about 1.5%), it is the US's most regressive tax.
If we, instead made payroll taxes progressive, such that higher income individuals (those with the most ability to pay, bear the burden), then we could exempt lower income individuals AND
the business employing them from a substantial burden.
Let me be specific about the proposal, let's exempt both employer and employees from payroll taxes on their first $20,000 of income. This would represent a savings of $1,530 per year on someone earning the minimum wage (which is almost 3x the $0.25/hour increase you're proposing). As a revenue offset, let's do away with the cap on FICA wages graduate the rates so that the first $20,000 of wage are exempt, then next $50,000 are taxed at 4%, the next $50,000 at 5% and wage income over $200,000 is taxed fully at a flat 6%. Thefore, when we read about the executives with their multimillion dollar payroll packages, we'd know that they're paying their "fair share". We could give companies incentives, by means of tax credits against payroll tax liability for increasing workers pay from $20,000 to something higher.
Instead of working against economic principles, the above system works with them to encourage companies to higher and pay workers fairly.
The argument that this would destroy the SS
system is ridiculous because the SS
trust fund has already been lent to the general treasury. Therefore repayment of SS
obligations has to come from general revenues. If we spark the economy by encouraging businesses to hire more workers, giver workers more disposable income and allow them to spend the money, the short term decline in total revenues because of the $20,000 exemption will be more than made up by the tax revenues created by the increase in the overall economy.