Politics and Minimum Wage Increases

By Kollengode S Venkataraman (October 2006)

Folks, there is no way around bringing class and wealth in discussing this issue. Towards the end of July, the US Senate did not pass a bill that proposed to increase the minimum wages from $5.15/hr set in 1997 to $7.25 in three steps over several years. This bill was passed by the US House with Republican majority. The Republicans, facing an uphill task in the November midterm elections, wanted to outfox the Democrats with a bill increasing the minimum wages that was dear to Democrats. So, the Republicans, in spite of their dogma not to disturb the Market Forces in determining wages, yielded to election-year compulsions and passed a minimum wage bill.

Republicans talked how bipartisanship is the need of the hour in today’s poisoned political environment. Sen. Santorum waxed how the bipartisan compromise bill would give something both to Democrats and Republicans to take home.

While the bill increasing the minimum wage gave something to
Democrats to take home, it gave much more to Republicans. In the fall campaign, Republicans, likely to lose majority in one or both chambers of the Congress, sure will take full credit for the minimum wage increase. And also for more tax-cut goodies to their wealthy friends.

The minimum wage of $5.15 was fixed in 1997, which has the same purchasing power of around $4.20 in today’s dollars. The plot above gives the minimum wages and the gas price after adjusting to increases in the US Department of Labor’s consumer price index (CPI). In the history of minimum wages, this is the longest time during which the minimum wages did not see any cost of living adjustment. The members of US Congress during the same time gave themselves several wage increases with impunity. Remember, Republicans have been in majority since 1997, and they had their president since 2000. So much for Bush’s compassionate conservatism!

But true to their commitment to give tax breaks to the real rich, the Republicans also piggy-bagged an item to the bill that would reduce the estate tax to the real wealthy benefitting only slightly over 8,000 people in a country of 300 million. Republicans were only helping the really rich cushion the adverse impact of the rise in minimum wage on their lifestyle. Some Compassionate Conservatism!

The Democrats in the Senate, sensing the Republican blood in the water in November elections, managed to defeat the bill in the Senate. If Democrats win majority in one or both chambers in the Congress in November, they sure will send a bill to President George W. Bush’s desk a stand-alone wage increase bill.

The philosophical basis for the estate tax is well known. Paul Volcker, the ex Federal Reserve chairman and Bill Gates, Sr, the father of multi-billionaire Micro-soft’s Bill Gates support some form of Estate Tax..

After all, we have adjusted to the phenomenal increases in the gas prices in the last 3 years that has a cascading effect on price increases on everything; we have survived the Republican tax cuts to the wealthy; we are continually adjusting to companies walking away from their pension plans; we have survived runaway increases in healthcare costs and the rapid increases in the cost of higher education. So sure we can adjust to marginal increases in the minimum wages as well!

End note: The annual salary of someone on a minimum wage is around $10,500/year. This annualized minimum wage is below the government-estimated poverty level income of over $12,000/year for a single-parent with one child. Besides, people who work at incomes close to minimum wages rarely have health insurance. These people can as well be living in the much-derided Third World. As a matter of fact, they do live in the Third World living conditions, but in the First World. — END


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