Commentary

A Modest Proposal for Dealing with the Consequences of Question 4

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Question 4, a citizen initiative passed by Maine voters in 2016, increased the minimum wage in Maine from $7.50/hour in 2016 to $9/hour in 2017, then $1 per hour more each year until it hits $12/hour in 2020. After that, the minimum wage will increase automatically with inflation. It will also raise the direct wage for service workers who receive tips from half the minimum wage from $3.75/hour to $5/hour in 2017, with annual $1 increases until it reaches the general minimum wage.

Republicans, including Governor LePage, unsuccessfully offered competing proposals featuring more modest increases in the minimum wage, but none of them got on the ballot.

The adverse economic impact from this ill-advised initiative should be obvious to anyone who has taken a freshman-level Econ or Business course. To use economic jargon for a moment, there are four factors of production: land, labor, capital and entrepreneurship. When the cost of any of them goes up, individuals and firms tend to reduce the use of the higher-cost input. Question 4 will increase the cost of labor for non-exempt industries, and thus almost certainly reduce employment in those industries. Does the Left really believe employers in low-wage industries will hire more people if the cost of hiring them goes up? What next? An initiative mandating that water in Maine should flow uphill?

So what’s a Republican to do? Let’s reject tepid half-measures like a slightly-less-harmful increase in the minimum wage to, say $10. I have a better idea. Let’s change the terms of the debate. I want those who are most enthusiastic about higher minimum wages to be the ones to bear the burden of them.

First, we need to eliminate all the exemptions built into Maine minimum wage laws. At present, school employees, fishermen, lobstermen, camp counselors, taxicab drivers, salespeople working on commissions and a host of other workers are exempt. Doesn’t the Left care about a “living wage” (whatever that is) for all workers? We need to be sure the pain inflicted by Question 4 applies across the board, not just to the Left’s class enemies.

Second, I suggest that the legislature work around Question 4 by converting Maine’s current minimum wage to permanent wage floor for all workers, public and private. The floor would not be adjusted for inflation. Employers could then obtain a tax credit equal to the difference between the minimum wage, whatever it might be, and the wage floor. Thus, if my car wash employed a worker in 2017 and had to pay him the new minimum wage of $9/hour, my car wash business would receive a tax credit equal to $1.50/hour times the number of hours that employee worked. If the employee worked, say 2000 hours in 2017, his employer would receive a $3,000 tax credit ($9/hour – $7.50/hour = $1.50 x 2,000).

But if employers began claiming large, and rising, tax credits, the State of Maine would lose a lot of revenue, wouldn’t it? Not necessarily. We need to recognize that the most vocal champions of minimum wage laws work for the media. Under my proposal, media companies would be ineligible for the tax credit. Further, there should be a state tax on the advertising revenues of all media companies. That would include newspapers, TV and radio stations, and Internet-based advertisers (to the extent permitted by federal law). The proceeds of the new media tax would offset the State’s revenue loss due to the new employer tax credits.

Under my modest proposal, the cost of Question 4 would be transferred from the Left’s class enemies to the Left’s media mouthpieces. If my modest proposal became law, we might find that all those PC-leftists in the media suddenly discover the virtues of free-market economics.

In politics, stranger things have happened.

About Ernest Copley

Ernest L. Copley III is a community college business instructor and a financial planner. The views expressed her are entirely his own and do not reflect those of York County Community College, or of the Maine Community College System.

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