NCPA - National Center for Policy Analysis

HOW TO REALLY HELP THE POOR

July 24, 2006

Some of the worst ways for Congress to attempt to help poor Americans are paradoxically some of the most popular: raising the minimum wage and retaining the estate tax, says William Beach, director of the Center for Data Analysis at the Heritage Foundation.

There are several reasons why minimum-wage hikes don't achieve all their objectives:

  • Most workers who earn the minimum wage -- generally teenagers -- don't come from low-income households; the average household income for such a worker is $45,000 a year, and many workers with incomes close to the minimum wage come from households earning more than $80,000 annually.
  • Minimum-wage jobs are nearly always entry-level positions, usually filled by new workers who, as they gain experience and become more productive, see their incomes rise without government help; about two out of every three workers hired at the minimum wage are earning more within a year.
  • Minimum-wage hikes increase labor costs, prompting businesses to create fewer entry-level positions; employers forced to pay more to new workers naturally prefer to hire more experienced workers who require less training.

Such workers are no better served by calls to retain the estate tax because this tax directly undermines job creation:

  • The federal estate tax alone is responsible for the loss of 170,000 to 250,000 potential jobs each year, Heritage Foundation economists estimate.
  • The estate tax also dampens wage growth; workers are more productive when they have new tools, machines and factories, and increased productivity boosts wages and salaries.

Source: William Beach, "How to really help the poor," USA Today, July 24, 2006

 

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