1996. I graduated high school and "at the behest of" (aka forced by) my father, went straight to work. I didn't get the chance to go to college like I was planning to. I've never worked a part-time job, ever. That first job, I was making $8/hour at a time that minimum wage was under $6/hour. I basically made about $1,000/month. Back then you could rent an apartment for $500/month. Wouldn't be anything fancy, and don't expect not to get robbed every so often, but the point is it was perfectly possible.
Rather than saving money or doing anything purposeful with it, I spent it on things I don't even remember. Car stereos absolutely, clothes certainly. Beyond that? No clue.
Fast forward nearly 20 years, and I am still working full time and have been continuously for 11 years, though I have moved from job to job in search of "that right fit". I'm convinced it doesn't exist. But I digress; that's not what I'm here to talk about. I'm here to rant about the minimum wage fight. And let me clear: It's not that I don't think minimum wage should be raised. On the contrary, it's long overdue and the law is broken. I simply think that asking for $15 is out of whack.
About two years ago I did some number crunching and estimated that, according to the value of a minimum wage position to the economy, minimum wage should be around $10. Last year (after I made that estimate) the certain economists stated that minimum wage, adjusted for inflation over the years, should be around $10.10. You know what that tells me? It tells me that I had the magic all along. And I want to share that magic with you, despite knowing that many people will simply react emotionally rather than process the information rationally.
The problem with higher wages? Taxes.
Full time employees that make a decent amount of money fully understand how greedy our government is. "The more you make, the more they take" was never true, and this is even worse if you live in a state with income tax separate from Federal. In ways you're getting triple taxed, and this is all before you even see that money. So the pundits say that raising minimum wage will spur the economy because people will spend more. Here are the issues. Let's put some metrics around this.
Say you're making $7/hour right now at some fast food joint, part time 6 hours a day/30 hours a week. So your net income is going to be $210/week, $420/biweekly, $840/monthly.
Under a $15 minimum wage at the same number of hours, you'd be looking at $450/week, $900/biweekly, $1800/monthly.
You with me so far? Good.
- Sales tax will destroy any potential benefits one might see from higher wages. You know it's true. It doesn't matter if you make $8/hour or $15/hour, you still won't buy that shiny new laptop knowing you're paying anywhere from 6%-12% in taxes. Especially if said laptop is over $1,000 in the first place. And don't give me garbage about Amazon, because even they're cracking down on that (reluctantly). But say you start shopping. You'd be thoroughly surprised how fast that $900 will disappear simply by renewing car tags, renewing bus passes, getting gas, getting food, renting a car, buying a plane ticket, getting OTC meds from the drug store, and taking care of one pet and one kid.
- Most that want minimum wage increased are smokers, drinkers, and/or both. But the problem is that most in this minimum wage category are going to buy (more) cigarettes (or weed) and alcohol. If they currently smoke, this just gives them ammunition to buy more of it. Yes, they're paying hefty taxes on those (not hefty enough IMO), and that's the problem. By the time it's done, they're back broke again and asking for another minimum wage hike.
- The Feds are now able to come a-knockin'. Did you know that, under the wage scenario in red above, you'd owe NOTHING in taxes? That's right. This is because, if you were so underpaid as the $7/hour scenario placed above, you'd make $10,080/year. The minimum threshold for being taxable was (as of tax year 2014) $10,150. What's this mean? See, the minimum threshold was designed to ensure that if the government deems you simply insolvent and not financially in a position to pay taxes without putting yourself out, they just don't need to collect.
This is called EXEMPT and if you've filled out a W4, there's a line that asks you this very thing. Many don't understand what it means, but it essentially says, "if you made so little that you ended up getting a full refund, and are still going to make so little that you would get a full refund again, enter EXEMPT and keep your money, we won't take it." That's right - more take home, instead of waiting for the scam known as a tax refund. You don't owe it and it's a waste of time and taxpayer money to file a form requesting money back that never should have been taken from you.
Now, if you bump minimum wage to $15/hour, you're now making $21,600 - well over the minimum threshold. All of a sudden you must pay taxes, and legally, you must pay them via proper W4 exemptions. Given that, and assuming you had 2 kids and filed single (since most minimum wage harpers have at least 2 kids for some reason), your estimated tax is approximately $2600 every year. So now, you're down to approx. $19,000/year. - You're now paying a lot more into Social Security and Medicare like everyone else. Federal was estimated at approx. $19,000/year. So let's look at this a bit more. Another $1,200 (approx.) for Social Security. Another $300 (approx.) for Medicare. So now you're down to $17,500/year.
- Unless you live in one of 7 states, you're paying state income tax. Let's take California - I mean that's where everyone wants to live, right? - so that's another $1,500 (approx.) for that sunshine. So now you're down to $16,000/year.
This is what is known as the Law of Diminishing Returns. You're in a position where you are not required to pay as much tax, and end up making more money to where taxes nearly triple. From a in-pocket perspective, you haven't benefited from the increase. The inevitable next step is to then ask for more money. It becomes a domino effect from there - a slippery slope of failure and disappointment as those who don't understand the tax system start to feel that pain and realize that their "large wage increase" isn't as livable as what they had before.
