How the Democrats tax proposal affects Minnesota
On Monday, Sept. 13, House Democrats released their tax proposal, which is supposed to pay for their $3.5 trillion spending plan. Among other things, the proposal raises the corporate tax…
Earlier today, the Star Tribune reported the following
Hennepin County on Tuesday became the only public-sector government organization in the Midwest to offer its employees a minimum wage of $20 an hour.
The new wage will affect 480 employees that include office specialists, food-service workers, community health workers and case-management assistants. The increase, which could bump an employee’s annual salary as much as $10,000, starts March 28.
“It’s really humbling to know that something we are doing has other large organizations watching,” Commissioner Angela Conley said after the unanimous vote. “Hopefully they will follow suit.”
The wage increase will cost the county $2.2 million over four years, a minuscule slice of its 2021 budget of $2.2 billion. Departments will draw that money from their budgets.
The move of course has come with its own criticisms, and for the right reasons
Commissioner Chris LaTondresse said his office has received a few calls that the wage raise is a poor use of taxpayer money, particularly at time when people lost jobs during the pandemic.
Small businesses have indeed been dealt a massive blow by the government-mandated lockdowns. Low-income workers have also had to deal with massive job losses, most of which have not been gained back. So, it is quite shocking that at a time when small businesses and low-income workers are still reeling from the effects of a lockdown, Hennepin county wants to use taxpayers’ money for raises for government workers.
But this should tell us something about the government– it spends too much and not wisely. Last year, our report, “Closing Minnesota’s budget deficit” argued against raising taxes to close what was then predicted to be a budget deficit. Instead, we argued for cutting government spending which had grown significantly in the last couple of years. But despite now facing a budget surplus, the Minnesota government still wants more of our money to increase spending.
Now why is that so?
Generally, local and state governments face very little accountability on how they spend our money. This means they have very few incentives to spend it wisely and are very comfortable asking for more of your money to use in whatever way they see fit.
Milton Friedman put it simply, that “if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government.”
If our government was run like a business, it would have incentives to keep costs low, lest it spends more than it can afford. Wages would be based on productivity like in the private sector instead of some exterior motivator like equality.
But of course, Hennepin county faces no such constraint to keep costs low or operate efficiently. Otherwise, the county would not be paying two people doing different jobs the same level of wages. But that is all thanks to the fact that both our local and state governments can always raise taxes on their residents to finance their spending.
While this is obviously a misuse of taxpayers’ money, the decision by Hennepin county to raise its minimum wage has other far-reaching implications on the labor market.
For one, Hennepin county is not the only employer in the region. Numerous other small private businesses are also competing in the same worker pool for human capital. Hennepin county`s decision to significantly raise its minimum wage in this case severely undermines employment in small businesses that cannot afford to pay $20 or more. Small businesses will be forced to raise wages or suffer work shortages. Research has documented that local companies raise wages in order to keep up with big corporations like Amazon.
This is however bad for low-skilled workers because ordinarily small businesses will make sure they get their money’s worth for raising wages. This means they are more likely to hire high skilled workers, effectively displacing low-skilled or inexperienced workers out of the job market. Additionally, small business wage raises are also associated with fewer work hours or reduced new hirings.