1. Mooncatt's Avatar
    I was listening to the radio the other day when I heard about the effect of the new $15/hr minimum wage at NYC restaurants. That sparked a thought in my head. Because I'm a huge FairTax advocate, I decided to compare $15/hr and the income tax system, to the prior minimum wage and a switch to the FairTax. The FairTax would be a complete replacement of the Federal income tax system with a single 23% inclusive sales tax on all new goods and services above poverty level spending. What follows is a copy of what I posted on my Facebook page.

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    For anyone thinking a minimum wage hike to $15/hr is a good thing, think again.

    https://fee.org/articles/new-york-ci...imum-wage-win/

    Here's the bullet points on what it gets you in NYC:
    -More unemployment (which now there's a battle over "unfair firings" because apparently the restaurant owners have to go bankrupt before being allowed to reduce staff).
    -Less hours worked, less total wages
    -increased workload for the hours you do work
    -reduced quality of service
    -reduced employee moral
    -increased prices
    -increased burden on welfare programs for displaced workers that can't find a new job

    Money doesn't grow on trees, so any forced increase in one cost of doing business (hourly pay, in this case) necessarily mean a negative change elsewhere in the business.

    Let's say a single worker made $15/hr on a regular 40 hr work week, or $31,200/yr. Their effective federal personal income tax rate would be 9.8%. We also have to subtract another 7.65% for the FICA taxes (15.3% if you consider the employer portion just a hidden tax on wages), bringing them up to 17.45% income tax burden. That's not all, because we still have to account for the embedded average 22% tax to cover the income tax and compliance costs of all the companies involved in getting products to market.

    Since it's NYC, I think it's safe to assume that person would be living paycheck to paycheck. If they spend every dollar they earn, that translates to an effective additional 22% tax on income. Combined with the direct income taxes, that comes out to a total federal tax burden of 39.45%. In other words, that $15/hr gives them $9.08/hr after accounting for all federal income taxes. If we added in the employer share of FICA taxes, it comes out to 47.1%, or $7.94/hr.

    The NYC minimum wage for restaurants before this change was $10.50/hr (ten employees or less) or $11/hr (over ten employees).

    So let's compare that to the FairTax and its effects on raising real wages without changing the minimum wage. The plan eliminates ALL income taxes (which also means elimination of the embedded 22% tax) and replaces them with a single 23% inclusive sales tax on all new goods and services. For a worst case scenario, I'll use the lower $10.50/hr rate.

    Elimination of the federal income tax results in greater take home pay, meaning that same employee takes home $10.50/hr. The FairTax also has a a family consumption allowance, aka the prebate. This offsets the sales tax on the basic necessities and is based on family size and the existing poverty level guidelines. For 2019, the single person with no dependents can spend $12,490 tax free (see the attached chart).

    At $10.50/hr on a standard 40 hr work week, that's $21,840/yr. Subtract the prebate, and they have $9,350 worth of income/spending subject to tax. If that person spends every dime of it on new goods and services, that gives an effective tax of about 9.8% of their income, which results in effectively $9.47/hr for direct purchases. Compare that to the effective $9.08/hr under the current system and tell me which one you think is better for the worker.

    And that's just the worst case scenario! Because the FairTax does not tax used item's, and lower income people tend to buy more used goods when possible, it's more realistic that the person's tax burden is much less. The key here is that the FairTax puts your tax burden in your control based on your spending choices. It's naturally progressive, meaning the more you choose to spend on new goods and services, the higher your effective rate.

    Remember all those negatives related to a forced minimum wage hike? They don't exist when converting to the FairTax. It's not an increase in business expenses (it's actually a reduction overall), but just paying everything to the employees instead of sending part of it to the IRS. Also note the lack of mentioning state and local taxes in the calculations. The FairTax is only replacing the federal income tax. State and local taxes are in addition to federal income taxes, and thus a wash when added on top of the FairTax.

    There's way more that could be said about the benefits of the FairTax. I just wanted to concentrate on the wage issue after hearing about the push for $15/hr and the results in NYC. It's not so simple, and there is a much better way. Go to www.FairTax.org to learn more.

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    So I open this up for discussion here as well, be it the push for $15/hr or discussing the FairTax. Given that it's currently tax season in the U.S, I'm sure there's plenty of you out there that will perk up at the thought of eliminating the IRS and never having to file a tax return again.Analyzing the fight for /hr.-screenshot_2019-03-09-09-43-24-1.jpeg
    03-14-2019 05:56 PM

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