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Dr. Merrill Matthews
December 2, 2014
PolicyBytes 11.44

Minimum Wage Increase
Is Another Form of
Income Redistribution

Not satisfied with already being the biggest redistributionist president in U.S. history, President Obama is pushing yet another redistributionist scheme: a minimum wage increase.
We normally use the term “income redistribution” to describe how politicians use taxes to take money away from those who earned it and hand it to those who didn’t.
Today, well over half of the U.S. population receives some benefit from the federal government. That percentage had been just under half of the population, 49 percent, but then along came Obamacare. Putting millions of Americans into Medicaid or receiving federal health insurance subsidies has pushed us over the tipping point.
(Note: Roughly a third of that 49 percent are Social Security and Medicare beneficiaries. But they also paid into the system for decades and so, in essence, earned their benefits, as did recipients of veterans’ benefits.)
Both individuals and companies fund those income redistribution schemes, because both pay income taxes. However, there are other ways to redistribute income, and the minimum wage has to be one of the largest.
For all intents and purposes, the minimum wage acts just like a corporate income tax because it forces companies to transfer a portion of their income to people who didn’t earn it.
Didn’t earn it, you ask? Aren’t these employees working for the company?
Yes, but economists point out that compensation is based on the skills, value and productivity an employee brings to a company. If the market, and the company, value those skills and productivity at, say, $10 an hour, that is what the employee will make.
If the government arbitrarily mandates companies increase that pay to $15 an hour, it has redistributed corporate income just as if it had taxed the money and handed it to those employees. What the employee “earned” was $10 an hour; the additional $5 was a government income transfer.
There are politicians who might oppose increasing government income transfers but support a minimum wage increase, thinking that one is welfare and the other is income. Those politicians need to understand they are essentially the same thing. A vote for an increased minimum wage is a vote for more income transfers.

Today's PolicyByte was written by Dr. Merrill Matthews, resident scholar with the Institute for Policy Innovation.
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