Subsidizing businesses and the rich

The level of determination shown by some to prevent the poor from leading decent lives is unbelievable. Take for example the people who work in restaurants and other places that depend upon tips to supplement their very low wages since such workers have lower federal minimum wage requirements than non-tip jobs. Republican legislators in the state of Minnesota seem to feel that some of these workers are earning too much and have taken steps to reduce it.

A change to the minimum wage that would lead to a pay cut for thousands of tip workers passed the Republican-led Minnesota House Wednesday by a vote of 73-56.

The minimum-wage measure, which sharply divided the two parties, was part of a sprawling jobs and energy bill approved by the House, but its ultimate fate is uncertain given opposition to many provisions by the DFL-controlled Senate and Gov. Mark Dayton.

The bill would create a two-tiered minimum wage, with a lower rate for employees who receive tips of at least $4 per hour, while also prohibiting cities or the Minneapolis-St. Paul International Airport from enacting a higher minimum wage than the state minimum.

Rep. Pat Garofalo, R-Farmington, chairman of the Job Growth and Energy Affordability Policy and Finance Committee and the bill’s chief author, said that without a change in the minimum-wage law, restaurants and taverns could be forced out of business by higher labor costs as the state’s minimum wage rises to $9.50 per hour by 2016 and then increases with inflation after that.

Rep. Tim Mahoney, DFL-St. Paul, called the minimum-wage provision an attack on the estimated 8,000 women older than 30 who are tip workers and have children.

What these people want is to increase the profits of businesses. They want to reduce the costs of employment to employers by forcing down wages. This results in low wage employees ending up on welfare to make ends meet. The net result is that taxpayers are essentially subsidizing these employers and padding their profit margins.

Here’s a stark number for understanding how low-wage employers are relying on the kindness of taxpayers: $153 billion.

That’s the annual bill that state and federal governments are footing for working families making poverty-level wages at big corporations such as Walmart (WMT) and McDonald’s (MCD), according to a new study from the University of California Berkeley Labor Center. Because these workers are paid so little, they are increasingly turning to government aid programs such as food stamps to keep them from dire poverty, the study found.

While McDonald’s has vowed to raise wages and Walmart is just this month boosting pay for many workers, that’s come after intense political pressure from advocacy groups such as the Fight for $15, which is urging legislation and private-sector change to push the federal minimum wage to $15 an hour. While the cost of living has continued to rise, the baseline hourly rate has remained at $7.25 since 2009. At the same time, the post-recession years have created more low-wage jobs than higher-paid ones, adding 1.85 million more Americans to the ranks of poorly paid workers.

“When companies pay too little for workers to provide for their families, workers rely on public assistance programs to meet their basic needs,” Ken Jacobs, chair of the labor center and co-author of the new report, said in a statement. “This creates significant cost to the states.”

For example, there is one program that supposedly benefits the poor and that conservatives love and even want to increase and that is the Earned Income Tax Credit because this is another form of subsidy to business disguised as a benefit to the working poor. They prefer this to raising the minimum wage because, as Eileen Appelbaum says, the bill for the EITC is paid by taxpayers while wages are paid by businesses.

There is nothing new about the push by conservatives like Rep. Paul Ryan (R-Wis.) to increase the Earned Income Tax Credit as an alternative to raising wages. Indeed, every time momentum starts to build for raising the minimum wage, opponents suggest expanding the EITC instead.

The EITC is an effective means of reducing poverty for low-wage working families, so let’s hope Congress acts to increase it. But it would be wrong to see the minimum wage and the EITC as competing with each other.

Opponents of raising the minimum wage like to say that the EITC boosts take-home pay. It does no such thing. Pay is what you earn from your employer for working hard and helping the business succeed. The EITC is a tax-payer financed subsidy that enables some employers to pay wages so low that workers are forced into poverty. [My emphasis-MS]

In fact, the EITC helps employers who pay low wages in another way as well. The supplement to workers’ pay acts as an incentive for more workers to be willing to take low wage jobs. That increases the labor supply and drives down the wages of low-paid workers. University of California economist Jesse Rothstein estimates that on average, an additional dollar spent on the EITC raises a low-wage worker’s income by only 73 cents. The rest is captured by employers now able to pay lower wages.

We live in an anti-Robin Hood era where the name of the game is to find more and more way to siphon away money from poor people and the public for private profit.


  1. says

    Throw the wellfare queens out into the street. The real wellfare queens, that is: Big corporations. Let them work for a living instead of mooching off the rest of us.

  2. says

    What’s sad is that many of us, individiually, pay more taxes annually than Boeing, Yahoo!, Chevron, Caterpillar, etc -- mega-corps that get a tax refund each year because of tax accountant chicanery. There’s definitely a lot of reverse Robin-Hooding going on. I hope the voters remember, and I hope those lawmakers are the first up against the wall when the revolution they seem to want, finally comes.

  3. Ben Finney says

    Corporations love states that promise low taxes to the rich owners. States like Texas.

    Then they wrap themselves in laws designed to protect people. Laws protecting freedom of expression, or contributing to political campaigns.

    Corporations thus get massive power over people because they’re not subject to the same physical and biological limits as people; yet they get the law to grant them *also* the same protections as people.

    No matter what the lawmakers say, corporations not people, they are legal fictions. I’ll believe corporations are people when Texas starts executing them for their crimes.

  4. mordred says

    A few weeks ago I read an interesting commentary on German news magazine Spiegel Online from an economic specialist who had predicted that the recently introduced minimum wage here in Germany would kill millions of jobs.

    He had to admit that unemployment had not risen, on the contrary, but this was only because of other factors because his prediction was right, you see? There will come a rise in unemployment, any day now!

  5. raven says

    It is worse than just a war on low wage workers, an increasing number of American workers.

    The GOP also has a War on Poor People that is rather vicious.

    1. Kansas is the leader with their pointless restrictions on welfare recipients who are mostly single mothers and their children.

    2. Maine is doing something similar.

    If you combine that with their War on Birth control, you would end up with an underclass of very poor and desperate people.

  6. moarscienceplz says

    Yeah, the GOP always “know” (since they never pay attention to actual data) that wages and taxes are the main stumbling blocks to success for small businesses. I had a fairly good-sized video rental business for ten years with six employees. I always paid above minimum wage and taxes were hardly a blip on the radar. RENT was my killer expense, coupled with having to pay $60-100 per copy wholesale for the tapes. So basically I was taking money from poor people and funneling it to wealthy landlords and giant movie studios and only keeping a tiny sliver for myself and my employees.

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