Saturday, July 29, 2006

The poor for political gain

In a move that looks politically very bad, the House passed a bill yesterday that would raise minimum wage over the next three years. The Republicans attached to that bill a provision that would drastically reduce estate taxes for the richest americans and provide other tax breaks.

Here's the problem as I see it.

Raising the minimum wage should help the economy. This comes from reports I've seen in the news that indicate the economy has grown faster in states that increased minimum wage on their own than the states that haven't done so.

The cut in estate tax may actually be good, because as the current law is written, estate taxes are to go up to 55% in 2011 for estates higher than $1 million. This provides an impetus for those whose estates would fit that description to avoid inheritance by looking to will substitutes. By decreasing the tax, more people are likely to utilize this option and will provide more money via this tax.

The problem comes from the packaging. What americans see is a raise in minimum wage for the poorest people in America, who live well below the poverty line, while granting more tax breaks to the super-rich. That doesn't look good phrased like that. It comes across looking like a political ploy, trying to show the country that Republicans are interested in raising minimum wage, so long as Democrats are willing to go through with the tax breaks. If it fails in the Senate, the Republicans can say "we tried to raise minimum wage, but the Democrats refused to help."

I don't disagree with the tax cuts in this case. I think the packaging is bad, seemingly transparent, as the article I linked to suggests, but I think from a revenue standpoint, it won't be as bad as people fear.

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