When is a government payment to someone poor really a handout to someone rich?
It happens when the government gives money to the working poor because they earn so little that they qualify for food stamps, medical assistance or other aid to the poor.
Wal-Mart has perfected this scam. Wal-Mart workers collectively receive $2.66 billion a year, or $420,000 per Wal-Mart store in food stamps. Year after year, low Wal-Mart wages lead to the government providing food stamps and other assistance to their workers and thus indirectly subsidizing Wal-Mart’s profit.
Now another in the horde of modern Sophists hired by conservative think tanks is proposing to help Wal-Mart, McDonald’s and other low-wage employers continue to suppress wages and grow profits. It’s Oren Cass, formerly the domestic policy director of Mitt Romney’s 2012 presidential campaign and now a senior fellow at the right-wing Manhattan Institute.
Cass’s idea is to replace earned income credits and other government unmentioned poverty programs with a subsidy that the government pays directly to workers who don’t make living wage. His plan, presented in a New York Times opinion piece titled “A Smarter Way to Raise Paychecks,” is nothing more than a subsidy to big businesses. In total, he proposes to reallocate $150 billion in aid to the poor from current programs to direct payments to workers.
All of these right-wing diatribes against the minimum wage start with the notion that raising the minimum wage forces employers to hire fewer workers and leads to higher prices. The first assertion—that raising the minimum wage leads to staff reductions—goes against common sense. Virtually all employers only hire employees they need and routinely analyze their workforce to see whether reductions or increases in employees are in order. There is always some inefficiency in the system—friction is what Milton Friedman called it—and raising the minimum wage will likely make employers find and eliminate that friction sooner than they usually would have. Right-wing economists like to ignore the “friction factor” and blame higher minimum wages for job losses, but the jobs were going to go as soon as the employer found out he didn’t need the employees. Last year, the Congressional Budget Office computed that raising the minimum wage to $10.10 an hour might reduce total jobs by three-tenths of one percent of all jobs. In a world in which 4%, 5% and sometimes 6% unemployment is considered full employment, these jobs losses certainly seem more like “friction” than a real shrinkage of total jobs.
The second assertion—that raising the minimum wage leads to higher prices, which will hurt other poor people—is also ridiculous because it overemphasizes labor as a cost factor and ignores the other choice an employer has: to take less profit. I’m not disputing the law of price elasticity, which says that when you raise prices, fewer people buy. What I am disputing is the idea that companies must always expand the profit they make, no matter what. I’ve routinely eaten raises to my employees rather than charge clients more. And I still make a pretty good living, as do the owners and executives of just about all thriving businesses.
Cass accepts these false notions about raising the minimum wage at the very beginning of the article, freeing him to use most of his column inches talking about the benefits to workers and taxpayers of direct payments to low-wage employees. He never mentions the benefit to employers: that they don’t have to pay their workers any more money, since the government is doing it for them. Yet when we follow the cash flow of Cass’s proposal, we find that all the $150 billion he intends to pull from other government programs will end up in the pockets of the wealthy, because it’s money they don’t have to pay out to their workers. Since Cass is proposing to reallocate money that already goes to the poor, they will make nothing additional from his plan.
One particularly odious comment Cass makes is to claim that since rich folk pay most of the taxes, it is the rich that will finance giving workers direct cash payments. With all seriousness, Cass writes “Taxpayers, meaning disproportionately higher-income households, pay for the subsidy. This is a key advantage over the minimum-wage increase, whose cost must be borne by some combination of the employers, other employees and customers.“ Cass ignores the fact that taxes are too low on the wealthy and have been since the Reagan years. He ignores the fact that while the minimum wage and wages to all employees have stagnated for 30 years, the wealthy have been taking more of both the income and the wealth pie. Prices have gone up, but wages haven’t. Employees and customers have both suffered, while the wealthy keep doing better and better.
Raising the minimum wage will put pressure on all wage levels, so eventually all employee salaries will go up. Those employees are most of the customers about whom Cass expresses concern. Keeping the minimum wage below a living wage results in no pressure on other wage levels, thus helping companies continue to suppress wages to other, higher-paid employees. In other words, the benefits he believes will magically appear if the government pays part of the salaries of millions of low-wage workers will not come about.
If Cass really wanted to help the working stiff and the economy, he would call for a higher minimum wage, much higher taxes on the wealthy and a tax on wealth like France has. But Cass is not really interested in helping any employees. He just wants to see the wealthy continue to ride the gravy train.