No new tax breaks

Commentator Robert Reich


SCOTT JAGOW: The country's lowest paid workers could see an immediate benefit from the new Congress. The Democrats wanna raise the federal minimum wage from $5.15 to $7.25 an hour. President Bush says he'll sign the bill, but only if it contains new tax breaks for small business. But Commentator Robert Reich says Congress should pay no attention.

ROBERT REICH: Small businesses don't need new tax breaks because the minimum wage increase won't actually impose new burdens on them.

First of all, virtually all small businesses that pay the minimum wage compete in the local service economy. They're retailers, contractors, providers of elder care and child care, local hospitals.

They don't compete internationally or even nationally. Their competitors are in the same city or town and all of them will be paying the same minimum-wage increase. So it's likely that the increase will be passed on to consumers.

Besides, it's not really an increase anyway. The current minimum wage was enacted 10 years ago, and inflation since then has eroded its value so much that the new proposed minimum is more like an inflation adjustment than a real increase.

Most small businesses charge prices that have risen with inflation. So it's only fair that their employees' wages should rise with inflation, too.

In fact, a minimum wage hike may actually help small businesses. Evidence from states that have already increased their own minimum wages suggests that a modest increase convinces more people to enter the labor market — people like retirees, spouses or teenagers who wouldn't bother working at a lower minimum wage.

For all these reasons, small businesses won't be harmed by the proposed minimum wage increase and don't need a tax cut.

The nation can't afford a tax cut anyway. Democrats have pledged to restore fiscal responsibility by requiring that any new tax cuts be fully paid for.

Maybe this is why the President says he's willing to sign on. He wants to seem in favor of a minimum wage increase because it's so popular, but he doesn't really want it. So his talk of a small business tax cut is just a ploy to give him an excuse to veto it.

JAGOW: Former Labor Secretary Robert Reich teaches public policy now at the University of California at Berkeley. In Los Angeles, I'm Scott Jagow. Thanks for listening and have a great day.


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