Proposed State Minimum Wage Hike Will Mean Tax Hike

I want everyone to make a wage they are happy with and can support themselves on.  In polling, minimum wage increases have a lot of support across the state in both parties, although the definition is challenging. Last week the Tompkins County Legislature passed by one vote a resolution supporting a state measure that goes far beyond the living wage in Tompkins County and would raise the minimum wage from $15 an hour to $21.25 in the next three years.  Quantifying the impact of such a rapid and large increase seems to be where the polling falls apart.  

To put this move in perspective, it would give New York State the highest minimum wage in the world and Upstate New York would be set at the same level as New York City.  Someone has to be the highest, so that’s not a disqualifier, but this would be almost four dollars an hour higher than the nation’s highest in the San Francisco/Silicon Valley area;  that area is slightly more affluent than… almost everywhere.  While such an increase may seem reasonable in Tompkins with its high rents, it’s less so in almost every other Upstate County.  Every job in NY would pay a minimum of $44,200 a year.   A $6.25 bump would add $12.896 to every minimum wage job.

That’s just the wage. The Federal Insurance Contributions Act, FICA, and unemployment insurance are both based on a percentage of income.  For FICA, a business pays 6.2% of the wage to FICA so higher wage, higher contribution. In addition to that added cost, you’ll have wage compression.  It will be hard to argue someone making $21.25 today should be paid the same as someone with no experience who was just hired at the new minimum wage of $21.25. You may not see every wage rise $6.25, but many will expect that and justifiably so.  Apply that to every business.

There will be some companies able to absorb this.  Large stores such as Walmart will be able to spread out the cost among its many products, raising prices, but even a company of that size will likely look at cutting jobs to make up for lost revenue.  One of the most important retailers is grocery stores.  Their profit margins are between one and three percent.  There’s simply not that much room to navigate this kind of cost hike.  It’s hard to believe anyone goes into that business now.

There are other companies where you have little choice and will be forced to pay higher prices.  Electricity is among the most prominent.  Not only will the cost of delivery go up significantly, production will too.  Many of the renewable projects are subsidized.  How much bigger will the taxpayer subsidy be to make those projects go forward?

While I can’t analyze every business, I can look at the county.  We are already a living wage employer;  with this bump, we are told the direct cost would be about $300,000 a year.  That’s not factoring in wage compression which, if everyone working for the county sees a $6.25 increase, that’s over $9 million and the state will not be showing up to fill in that hole.  It will either come from a property tax increase or a severe cut in staff.

I want people to be able to support themselves, their families.  Most countries want that and looking at other countries, there are different classifications when it comes to the minimum wage from skilled, to youth, to rural versus urban.  I’m not saying this is the way NY should go, but it does show that governments recognize not every job is meant to support someone or a family.  It also shows governments understand that with a rise in cost, there’s also only one way that bill can be paid if you want services to stay the same and that’s increased taxes, something in NY, folks flat out can’t afford. 

As I mentioned, an increased minimum wage is widely supported, but the scale of this increase cannot be ignored. This will affect your schools, essential bills like electricity, food, heat, and childcare.  Starting a business in NY is already a challenge.  Knowing that you’ll be in the red $44,200, plus the FICA and unemployment payment, hiring one person may prove too daunting a risk and a bridge too far for many of the small businesses that make a community unique.