Coyote Blog

OK, I will begin this post with what I guess is, for some, a damning admision:  My company pays many of its employees minimum wage. 

I believe that I have a very honorable relationship with my employees, but for many, particularly on the left, the fact that I pay minimum wage puts me at the approximate moral level of a forced labor camp gaurd.  For those of you that feel that way, you might as well move on now because this post will just irritate you further.

I want to present four case studies from my own business as to what happens to workers and consumers when minimum wages go up.  For the purpose of this post, I will leave out the philosophical argument of why voters or politicians should even have the right to interfere in the free decision-making between employer and employee, but I certainly addressed it here, in this post.  Unfortunately, a large number of voters accept the argument that there is a power imbalance between employer and employee that needs to be moderated by measures like the minimum wage  (folks who believe this obviously never have tried to attract and retain quality wokers). Many politicians support minimum wage measures, mainly because it is one of those measures, like protectionism, where the benefits (e.g. Joe got a raise) are much easier to identify than the costs (e.g. Mary lost her job).

Before I get into the case studies, it may be helpful to describe my workers, because in some ways their situation is unique.  To run our campgrounds, we mainly employ retired people.  Of my 500 workers, well over half are over 60 years old, more than 150 are over 70, some 25 or so are over 80 and a few are even over 90!  Most are on social security and medicaire, and many have pensions and retirement health plans.  A good number are disabled and have some sort of disability support.  While they work slower, they make up for their low productivity in part by their friendliness with customers and their life experience.

Most of  my employees travel the country in their RV.  They take most of the year off, but many like to work over the summer to make a little money and to pay for their camping site.  I give many of them a free or subsidized campsite, worth about $500+ a month, plus all their utilities and then pay them minimum wage for the hours they work.  Many are thrilled with these terms - so many that I have a waiting list now of over 300 names of people who are looking for this type work.  This list is currently growing by about 10 names a day.

There may be employers somewhere who have a power imbalance over their employees.  Some days, I envy them.  My employees most all have independent means of support.  Further, they all have wheels on their houses, so they can and do pick up and leave if they aren't enjoying their job.  And, if they don't like our company, there are thousands of other campground operators who are looking for help.

So why are so many people lining up for minimum wage jobs when lefties and progressives are telling them that they should not want those jobs?  Here are some reasons:

• They value the amenities that come with the job, including living for free in a beautiful outdoor setting, something it is impossible to value under minimum wage laws
• They have other means of support, so the money is incidental.  In fact, I get more inquiries from employees asking me to reduce their hours so as not to mess up their social security or diabiloity payments as I do people asking for more pay
• They get to work with their spouse as a team.  There are not many employers out there that let a husband and wife split up work between them any way they want or even work together - can you imagine such a situation on a GM assembly plant?
• They would have a hard time getting hired by anyone else.  Very few employers will hire new workers in their sixities, and certainly not older than that.  Older workers can be slower and less productive.  For $12 an hour, I would have to hire younger workers too, but at minimum wage, I can afford the lower productivity of older workers and gain the benefit of their experience and trustworthiness.

This last point help set the stage for our cases.  I love hiring older workers at $5.15 an hour, and they love the job and line up for it.  But what happens when I have to pay these less productive workers $6.00 an hour?  What about $7.50?  What about at $12.00 an hour?  Here are some examples of what happens:

Case 1:  The jobs just go away

Washington State has one of the higher minimum wages in the country, at $7.35 an hour.  What makes the Washington minimum particularly hard to manage is the fact that it has a built-in escalator, such that it rises each year based on an inflation index (as you might imagine, since labor is a major component of most goods and services, this creates a positive feedback loop). 

We run a number of campgrounds in Washington under concession contract from the US Forest Service.  Most of these campgrounds are both small and very isolated, and are therefore labor intensive.  Given local market conditions, it is increasingly difficult to raise fees fast enough to keep up with rising labor rates (as well as labor-linked costs such as workers comp and unemployment) since we are competing against larger private campgrounds that are designed more efficiently and may be closer to local labor.  We have effectively given up trying to make money in this area, and will very likely not rebid the contract when it expires.  Given USFS experience on other similar contracts in the area, there is a good chance that no private company will bid for the contract, and the campgrounds will revert to USFS operation.  In this case, many will likely be closed, and instead of having minimum wage jobs, there will be no jobs left at all.

Case 2:  The jobs get outsourced to contractors

In a number of locations, we have been forced by rising minimum wages and associated costs (particulalry workers comp.) to switch some of our cleaning and landscaping duties from our live on-site employees to local contractors.  These contractors may pay their workers more than minimum wage, but the workers are often twice as productive as ours, yielding a cost savings for us.  When minimum wages are $5.15 an hour, these contractors can't compete with our own workers, but when minimum wages rise over $7.00, as they are across the west coast, this option starts to become attractive.

Case 3:  The jobs get automated away

One of the more frustrating situations we have is one government concesion contract where the government has continued to insist that the Service Contract Act (SCA) applies.  Like the Davis-Bacon act, the SCA sets minimum wages that contractors have to pay to employees when serving the government (for example, on a contract to clean the bathrooms in a goverment office building).  These rates, while ostensibly the market prevailing wages, are in almost every case FAR higher than what a private company would have to pay in the market to get good employees.  By specific Labor Department regulation, the SCA typically does not apply to concession contracts (I won't bore you with the details, but more in this series here or email me if you need help in a similar situation, I have been forced to become an expert).

Anyway, on this particular concession we have to pay our living-on-site workers based on the SCA.  This means, for example, that someone who sits in a parking lot booth collecting parking fees must be paid something like $12.50 an hour, which translates to a bit over $15.60 when you factor in FICA, SUI and workers comp.  Over 2000 hours a year that is $31,200 a year. 

A fully automated fee collection machine (which actually does more than the attendent, since it takes credit and debit cards as well as makes change for cash) costs $23,000.  Plus, the machine never will sue over wrongful termination, never will discriminate against or sexually harass a customer, never will steal, and never will fail to show up for work. 

What would you do?  I would prefer to have the person there, and if we put the machine in I will still  probably staff the booth on busy summer weekends to help customers out, but over 5 years the machine may save us over $100,000.

Case 4:  Prices go up to customers

Last election, Floridians voted themselves a minimum wage increase of $1.00, and worse, voted that the wage will increase each year by a cost of living factor.  As a result, on the May 2 effective date, our costs will go up by about 15% in managing the swim areas and campgrounds in that area.  Since this is well over our profit margin, prices will also go up by the same amount on the same day.  This is unfortunate, because it tends to be lower income people who most enjoy the recreation opportunities we offer, since historically we have been able to keep our costs, and therefore the pricing, so much lower than outrageously expensive attractions like Disney and Universal Studios.

Final Thoughts

I'm not going to cry that my business is doomed by minimum wage increases, because it is not.  As you can see above, we have many options for dealing with these changes.  What I fear may be doomed, though, is the special relationship our company has always had with older, retired workers. For now, the business model is OK, but there is a point, somewhere between about $7.00 and hour and $10.00 an hour, where rising minimum wages will push us to look for other ways to staff our parks rather other than our traditional use of live-on-site retirees.  And that would be sad for everyone.

For more on the topic, Powerline has a nice article today on minimum wage increase proposals in Minnesota.  It is astounding to me that people still want to believe the notion that minimum wages don't affect employment.  Just look at France and Germany for living proof.  Or, consider any other commodity in the market.  If the government set a price floor for gasolene, say at $3.00 a gallon, would anyone out there argue that people wouldn't use less gas?  But when we try to raise the price floor on labor, the media and politicians with a straight face try to argue that businesses won't use less labor.  Or, for the reverse, look at the experience with natural gas and airline travel - the government removed price floors on these commodities in the lates 70s / early 80s and look at how demand has skyrocketed.  (update: Powerline has a second post on the topic here)

For even more good reading, Cafe Hayek is always a good source for defense of free market economics, including this good post on French work week laws.  More on minimum wage here.

This a pretty funny story from Zug about just how little security the signature on a credit card slip provides.  Hat tip: Instapundit

Over the last several days, more revelations have emerged that the Bush administration seems to be spending unprecedented amounts of taxpayer money for third party PR support of administration policies.  There is nothing that makes me madder than politicians using my money to help cement their own position in office.  For all the majesty of the office, the President is still the taxpayers' employee, and we should expect an honest accounting of his performance and programs.  What makes this even more ridiculous is that the US Presidency is the greatest bully pulpit in the world -- no one gets more of a chance to get his/her point of view into the public domain than the President.  But Bush is generally a crappy communicator, so he has squandered this opportunity and is forced into paying others to speak for him.

Often business people like myself lament that the government needs to be run like a business - meaning more focus on efficiency and productivity and process improvement.   But there are a number of ways the the government is NOT like a business.  The key difference is that a private company can, at the end of the day, give outsiders the brush-off.  As a private company (with no public stock float) I don't have to tell anyone anything about the decisions I have made or why I made them.  I am not only allowed but expected to pay money (in the form of PR, sales, advertising, etc.) to  put a public spin on my products and services -- this is called marketing.  The government, of course, is not supposed to do this.  They have an accountability to everybody.  (actually, even CEO's of public companies are not supposed to do this either, at least with their shareholders, but they do).

The Bush administration wants to believe they are still running their own private business, rather than a public trust.  They have used 9/11 and the war on terror as excuses to pull a veil of secrecy over decision-making, data, and even mistakes that often have little to do with national security.  They have set a number of unsettling precedents around managing their public image, and their payments for PR and good press fall into this category.

Over the last two days, Phoenix put out an order to boil tap water before drinking and not to bathe or shower.  Many restaurants closed for the two day period, and many many people went out and loaded up on expensive bottled water.

What I found interesting was that through the whole "crisis", and now after the fact, Phoenix officials continued to say that they thought the water was safe, that they had not gotten any bad test results, but that people still shouldn't use the water "as a precaution".

Given the current state of liability and torts, I probably would have done the same in their shoes, but is this really the world we want?  There are costs to shutting off water in a city of 2 million plus people.  Shouldn't those costs be justified by some real risk? 

When I was an engineer, my job was often to rule on whether some condition was "safe".  Every day I had to make decisions like "should we shut this part of the plant down, or can we keep running it safely".  Certainly we wanted to err on the side of safety, but ruling every little concern as cause for shutdown would have caused the plant to be shut down almost all the time.  In that job, I had to take responsibility and make a decision, balancing risks and costs.  People want to say that shutting the plant (or the water system) at every hint of a problem is the "responsible" thing to do -- but in fact it is just the opposite.  It is an avoidance, both of decision-making and responsibility.

Unfortunately, no one wants to make such decisions anymore.  My wife's mammogram had something on it the doctor said he was 100% sure was just an artifact of the photography, but to cover his butt he said he had to get her to go have a biopsy (painful, expensive, and time-consuming) which was of course negative.  We are loading the economy down with risk-defense costs, an invisible tax that is already hammering the medical field.

But beyond just the costs, at what point does this hair-trigger defensive posture lead to a chicken-little syndrome where no one pays attention to warnings any more?  I know that the next time we get a warning about Phoenix water, I will be much less likely to be careful, because I remember that the last time nothing was really wrong with the water.  How many people pay attention to homeland security alerts any more?  Do you even bother to read warning labels any more, on the off chance it is a useful warning and not a "this toaster should not be used as a water ski" type warning?

I am willing to make a bet.  I will bet that at least 90% and probably 100% of US Senators have money invested in equities.  Why?  Because, for long term investments, you would be insane not too.  Even with substantial drops in the market form time to time, equities outperform bonds and government securities by miles and miles.  From this chart, you can see that even if you had the misfortune at age 30 to invest all you savings in stocks the day before the 1929 stock market crash, you STILL would be better off by age 45 having invested in stocks than bonds and your investment would be worth 10 times more at age 65 than if it had been in bonds.  And remember, that is the case of investing on the worst possible day of the last century.  Any other comparison is even more favorable for stocks.  The difference in wealth between stocks and government securities at retirement age is staggering.  Any financial adviser who told a person under 50 saving for retirement not to invest some of their money in stocks should be fired on the spot for malpractice.

However, just like Senators who put their kids in private school but oppose school choice for the rest of us, Senators do not think the rest of us are mature or smart enough to invest in stocks.  Quoting Senator Specter:

On the issue of privatization, I had some time ago considered an idea to place a relatively small portion of benefits in an investment account, providing that the "security" aspect of Social Security was retained and the investment was under professional management. However, with the severe fluctuations of the stock market, I have since rejected that idea.

Men like John Kerry get most of their wealth from stocks, and would fire any financial adviser who did not invest a good portion of his wealth in equities. He understands that stocks will fluctuate from time to time, but that over decades (which is how one invests for retirement) they are the best choice. How hypocritical is it that he and others are saying "Stocks are great for me, they make me wealthy, but trust me, they're not right for you".  More on distrust of individual decision-making here.

via Scrappleface:

As one unnamed reporter put it, "In the hours immediately following the disaster, millions of people in Thailand, India, Indonesia, Somalia and elsewhere turned their eyes toward America to discover whether the president would rush back to Washington D.C. and empathize with their plight. But Bush stayed in Crawford and made just one official statement, as U.S. military planes surveyed the damaged area and Air Force C-130 cargo planes with humanitarian goods headed for the region. It's as if Bush thinks that action is a substitute for news conferences."

LOL.  I have always hated the empathy dance after disasters, particularly the now required visit by the President to the disaster site.  What is he going to do?  The visit to the WTC site soon after the attack on 9/11 had value because it made a statement about security that gave confidence to people that they could return to Manhattan.  Why is it necessary, though, to tour hurricane damage by helicopter?  Isn't that the experts job? 

We had a number of our operations in Florida shut down for weeks after the recent hurricanes there.  Several of my friends asked me if I was going to go visit the damage.  "What for" I asked?  The damage had been described to me, and the folks in charge there who knew the area had a good plan in place for fixing things.  If I showed up, work would have to stop for a day while everyone showed me around.  The time to go back is after it is cleaned up, when you can thank everyone for their hard work.  But of course, I didn't have to deal with the media editorializing on my heartlessness because I didn't run to Florida and sight-see the damage.

In this post on Social Security reform at Powerline (Time blog of the year, congrats guys) they take as a starting point a Sabastian Mallaby article in the WaPo who says:

Privatizing social security would increase stress levels, says Mallaby, because determining where to invest one's retirement money entails making tough choices and taking risks. Thus, Mallaby believes that many, perhaps even most, people would prefer to have the government handle their social security funds as it does now than to "agonize over health stocks vs. Asian bonds."

In this we see two things that characterize liberals and progressives:  "1) distrust of individual decision-making and 2) willingness to accept much less wealth in return for more certainty.  By the way, I have no particular problem with #2 when this decision is made on an individual level.  However, I do have a problem when politicians make this decision at a societal level.  As regards Social Security, I have no problem with people being offered the "let the government continue to keep your money" option as long as it is voluntary.  The Powerline guys have other good comments, read the whole thing.

By the way, I will take a moment for a bit of "I told you so" here.  This "capitalism is too stressful for us dude" attitude is entirely consistent with what I said about progressives and capitalism here.

UPDATE:

Here is a nice post on the same topic at Cafe Hayek.

New, via Reason, comes this excerpt from an article by Milton Friedman:

After World War II, opinion was socialist while practice was free market; currently, opinion is free market while practice is heavily socialist. We have largely won the battle of ideas; we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course. We are still far from bringing practice into conformity with opinion. That is the overriding non-defense task for the second Bush term. It will not be an easy task, particularly with Iraq threatening to consume Bush's political capital.

Reason links to the whole article.  I have said on a number of occasions that as a libertarian, one of the downsides of the Iraq war that does not get discussed much is that it diverted Bush II from promised market reforms, including tort reform and social security.  There appears to be some hope that these can be addressed in the second term.

I am all for restructuring the whole social security system, but, as I have written before, we cannot let the government invest social security funds in private equities.  The potential for manipulation and creeping socialism are astronomical.  Its easy to picture fights over whether the social security funds should be invested in tobacco makers, gun makers, hospitals that conduct abortions, Domino's Pizza (that donates funds to oppose abortion), Haliburton, etc. etc. 

I have always used government-funding of universities as an example -- the government uses the leverage of this funding (and the threat of its withdrawal) to force all kinds of regulations on universities.  Today, we have a good case example that is even more directly applicable. 

Over the past several years, Calpers (the California state workers retirement fund) has been a great example of how government control of equity investments can be a disaster.  In the case of Calpers, their huge pension investments automatically make them one of the largest investors in each company in their portfolio.  Calpers has used that power wisely at times, promoting improvements in corporate governance, but has also used it astronomically poorly. 

Under Sean Harrigan, Calpers portfolio has been unbelievably politicized, up to and including having the portfolio use its ownership in several grocery chains to support striking members of the grocery union run by... Sean Harrigan.  Professor Bainbridge has a couple of good roundups here and here.

If we are change how social security funds are invested, let individuals make their own investment choices. 

I just got back from about 10 days on vacation.  My bookkeeper takes care of all the mail that is vendor related, and I get what is left.  Unsurprisingly, I had about 60 pieces of mail, which is actually pretty low since we are in our off season.

However, when I started going through it, I was struck by how much was government related.  Out of those 60 pieces of mail, 5 were small checks (pay phone commissions, that type of thing), about 5 were from private parties and the rest was all government -- department of labor, department of revenue and taxation, vehicle registrations and issues, etc.  Have we really come to the point that 80% of my correspondence is with government regulatory and taxation authorities?  Part of this is because we are in 10 states, as I have discussed here, but it still seems excessive.

The one dominant piece of mail was a survey from the Department of Labor in every state we operate in.  The first thing I do with these surveys, as discussed here, is check to see if they are voluntary.  If so, they immediately get circular filed.  I don't want to spend the time, and I don't think the government needs the information.  In large part data is just the job security of the bureaucracy - more data means more people collecting and analyzing and reporting, and, the worst, proposing new regulations and taxes based on the data.

Two states, California and Florida, required the survey get done, so I did it.  Actually completing these surveys really got me irritated,  There is very little on this thing that we don't already report to the government.  Already, we have to report every individual person's wages each month or quarter.  Why is this not enough?  Mostly, this survey just asks me to aggregate the data the government already has in different ways.  Why can't they do that?  What are computers for, anyway?

UPDATE #1

I got the following comment:

And you'd like them to propose regulations based on incomplete data?

It is not the accuracy of data that is objectionable - it is the ridiculous detail.  For example, does the government really need to know monthly employment levels by detailed SIC code by county?  This just leads to some government staffer saying - hay, the employment in the tourism business in Maricopa county fell by 1% in August - we need a taxpayer funded initiative to promote tourism there, yada yada.  And whala, pork is born.  See examples here.

Every year, between November and January, tens of thousands of modern nomads descend on the lower Colorado River.Spread out from Yuma to Lake Havasu City, but with their center in the normally small town of Quartzite Arizona, RVers will join together for a month or two in the Arizona desert.  Barren fields alont Interstate 10, totally desolate and empty for 9 months of the year, suddenly become a huge encampment.

One of the little talked about trends within the larger story of the aging of America and the growing population of retired people is the substantial number of people who have given up the traditional notion of a fixed home and neighborhood and headed for the open road. While some still own a home, and travel for many months of the year, an increasing number have sold their home, bought an RV, and live on the road -- with absolutely no attachment to any fixed location. They may spend a day or several months in any one location, but most tend to drift north during the summer and back south for the winter.  These are not people who take their RV out on vacation -- these are people who live on the road 365 days a year.

For reasons of weather and tradition, while you can find RVers in the summer months in every state, in the winter months a large number will converge on Quartzite. Friendships will be renewed. Business will be transacted. Jobs for the summer months will be solicited. A thousand and one vendors will pitch a tent in the desert to sell their wares. These gatherings remind me of how the old western trading posts may have looked during the winter, surrounded by wintering Indians and trappers. The only difference today is that most of the nomads are Caucasian, and many of the trading posts, in the form of Casinos, are run by the Indians.

Some of these new nomads are able to completely retire and live off their savings. Others need to work to bring in a bit of cash, or at least to pay for a place to park and hook up their RV to utilities. In our business, we hire over 400 of these folks a year, usually working the summer months in exchange for a free site for the RV and some money for relaxing in the winter. RVers are generally comfortable with fairly modest pay, but they won't stand still for very long if they don't like the job or their boss or their co-workers. After all, they all have wheels on their houses and can leave with little notice.

As you might imagine, in this Federalist country we live in where most government services occur at the state level, this nomadic lifestyle can lead to confusion. If you spend the entire year traveling around the country, where is your voting precinct? Where do friends send you mail? How do you get bills? Where is your bank? In which state do you pay taxes? If you think you have trouble getting W-2's out to your employees, trying tracking down 400 nomads with no permanent address!

To a large extent, technology has helped solve a number of these problems over the last decade. Cell phones provide telephone service nearly everywhere in the country. DirecTV does the same for television. With a national ISP like EarthLink or AOL, email doesn't care where you RV is parked "“ it will get to you.

In addition, a whole cottage industry has arisen to serve the needs of full-time RVers. Despite advances in technology, most people still need an address for the mail to go, and the IRS still is kindof fussy about having a mailing address for folks. So, entrepreneurs, mainly in Texas and Florida, have created huge PO box operations to serve RVers, with flexible options for holding or forwarding mail. Full-time RVers, living 365 days in their vehicle, have demanded and gotten larger and more elaborate RV's from manufacturers, up to and including RV's built on bus frames. And, new, more elaborate and upscale RV parks are being built to accommodate the more affluent new RVers.

Other people, including, predictably, the government, have not caught up with this trend. For example, many RVers are living on retirement and social security payments. Most state revenue departments have laws in place that if you are a resident of that state for some number of days, then you have to pay income taxes on earnings, even retirement pay or investment earnings, in proportion to the time spent in the state. These laws are mainly put in place to snare some incremental taxes from wealthy athletes and traveling sales people, but they can can hurt RVers.

An RVer who is totally honest about the states they were a resident in during a year might end up having to fill out five, six, or more state income tax returns. No one wants to do that, especially for small sums, so very very few people observe these tax laws. In fact, that is why PO Box drops are in Texas and Florida, because neither have state income taxes. Their pension and investment and social security checks go to those states, and no one has to be any the wiser about what other states they may have parked their RV in for a while.

There are a number of places to get more information about full-time RVing. Web sites and magazines line the Roaming Times and Trailer Life cater to full-time RVers. Working RVers can find information about work camping jobs and camp hosting as well as the whole workamping lifestyle.  Finally, look for good places to camp at goRVing.com, at ReserveUSA, or of course at my company's directory of forest service campgrounds.

I had some links on Social Security reform here. 

One thing I forgot to mention -- No matter what we decide to do, please, please do not let the government invest social security funds in private equities.  I am all for giving individuals control of their social security funds and allowing these individuals to make their own investment choices.  But, allowing the government to invest in equities will lead to all sorts of problems:

1. The most obvious is creeping socialism and regulation, particularly of companies that are not well-loved by the intelligentsia.  Mad at Dick Cheney?  Pass a law that the trust fund can't invest in Haliburton.  Don't like Dan Rather?  Pass a law that the trust fund can't invest in CBS.  You get the idea.  The mere threat of disowning the company's equity from the trust fund investments portfolio would force companies to kowtow to the populist notion of the moment.
2. If you worry about private individuals manipulating the stock market, just wait until the government has the incentive to get in the game.  The government has all kinds of ways, from small (control of economics data) to large (interest rates and SEC regulations) to manipulate the market for short term gain. 

Marginal Revolution also has an interesting post on whether the historic equity premium would still exist if the government invested massively in equities.

One of the less remarked on casualties of 9/11 and the war on terror is any progress on a number of issues that GWB looked like he might tackle (e.g. social security and tort reform).    While the war is far from over, and I have had mixed feelings about some part of it (e.g. here), the infrastructure seems to be in place to fight the war while also tackling some new domestic issues.

Jane Galt, over at Asymmetrical Information, has a nice post about new momentum in the Bush administration to tackle social security.  It is unlikely that Bush could draw any more hatred than he already has, so he might be the right person to finally grab the third rail.

UPDATE #1

Marginal Revolution tackles social security and links to other good sources.

America experienced no major terrorist attack on its soil in the run-up to the election.  This can't be for lack of trying.  If the terrorists bombed Spain, at best a peripheral country in the war on terror, to influence its election, you know that they would have loved to have bombed the Great Satan.  But they didn't.  All we got was a VHS valentine from Osama.

Thank you to the US Military, to the administration, to the department of homeland security, to the FAA, to the Phoenix Police, to the FBI, to the CIA, and to everyone else who made this non-event possible.  And, thank you to all the citizens of the US, who, whatever issues they might have with those in power, would never harbor a terrorist.  This sounds like an obvious statement, but its not.  It is in fact our best defense against terrorism.  Europe is much more vulnerable, because it has communities and groups and various cities who ARE willing to aid and abet terrorists.

Yesterday, Florida apparently passed a new minimum wage $1.00 higher than the Federal minimum wage of $5.15 per hour.

This is actually an oddity - a red state with a higher minimum wage. Before the election, this Department of Labor map, showing the states with minimum wages higher than the Federal rate (shown in green) looked a lot like the presidential election map. With the exception of Alaska (which has price and wage levels so different from the lower 48 that it should have its own currency) all the states with higher than federal minimum wages are also strong Kerry states (e.g. Left Coast, New England and Illinois).

This is going to have huge implications for us. Camping is a low margin business, and most hosts are paid minimum wage. In fact, many of our hosts, who are retired, don't want to get paid at all, so they don't mess with their social security, but that of course is not possible. The total increase in wages will be higher than what we make in Florida, so we are going to be spending a lot of time evaluating price increases vs. cutting back on labor somehow.

UPDATE

I see from our logs we are getting a lot of hits on this post from search engines.  For those of you looking for more information on the implementation of this increase, we still have not seen any enabling regulation to go along with it.  Will it have the same exemptions as the Federal law?  Anyway, the go-live date is apparently 6 months from approval, which I presume equates to early April, 2005.

Its crazy that no one asked me for any sort of ID to vote today. They did not even hear my name right and I just pointed to my name on the list. Since I was voting just before the polls close, I could have been anyone and just looked at their list on the table to quickly spot some one who has not voted and used that name.

I understand the desire to get more people to vote, but we have really gone overboard the other way on election security. I do not think it is too much to ask for some sort of ID when you vote.

UPDATE:

I got a nice paper ballet - it's the kind where you use a black pen to fill in a blank next to your preference. It was easy to use, and the ballot boxes had a built in scanner so they were tallied as soon as I put it in the box. If it could not read what I filled in, it spits it back out and I fix it. As a result, a paper trail exists for each vote, but there is no hand tallying. What is wrong with this system? Why does everyone want an electronic machine with no paper trail?

Also, with a paper ballot, each polling location has near infinite capacity. All you need is tables and pens and some of those little privacy dividers. It costs like $5 to add another voting station. Never was any kind of long line at my voting location. I have not seen the stats, but I would be willing to bet that most of those locations they showed on TV with 5 hour long lines were using some type of machine. Since the machines cost a lot, you end up with too little capacity and long lines.

In part 1, which you should read first, we discussed how the US has crossed a milestone where fewer than 50% of the taxpayers in this country pay about 100% of the personal income taxes. We also discussed how the recent tax cuts actually shifted personal income tax burden more onto the rich, rather than less.

However, John Kerry has cited the same CBO Report I used to make the points in the previous post to say just the opposite - i.e. that the recent tax cuts actually shifted the tax burden away from the rich to the middle class. Assuming he is reading the study correctly (which he is) how can this be?

The answer is in the difference between Federal income taxes and total federal taxes. The tables I used in part 1 were for income taxes only. It strikes me as reasonable to use income tax numbers for analyzing income tax changes. The total tax numbers Kerry uses includes not only income taxes but social security and Medicare taxes (including the employer contribution), federal excise taxes (such as the gasoline tax) and the corporate income tax. Lets look at who bears the brunt of these taxes.

1. Social security taxes are regressive. Very regressive. While your paycheck may show 6.2% FICA, the bill is really 12.4% because your employer matches this payment with funds they probably would otherwise pay you in wages. What makes this tax regressive is that it is a straight 12.4% of every dollar up to a limit, currently $87,900, after which the tax is zero. This kind of profile would never be tolerated in the income tax system. The reason for this is the carryover of the original idea that social security is not a tax and social benefit program but an insurance and retirement plan, a characterization that is becoming increasingly out of whack from reality. (If it was a private retirement plan, the managers would all be in jail right now for the terrible long term returns it pays out).

2. Gas and excise taxes are generally considered regressive as well, since gasoline is probably a much higher percentage of lower and middle class spending than for the rich (those rich who own Hummer H2's notwithstanding).

3. Its harder to pinpoint who pays corporate income taxes. The CBO report allocates corporate income taxes in proportion to dividends reported on income tax statements, which seems reasonable. Fifty years ago, one would have said that this meant the rich pay it, since we pictured the rich as owning all the stock. Today, in our mutual fund world, a lot is probably born by the middle class, particularly middle class retirees.

As a result, the sum of these non-income taxes are probably net regressive - i.e. they disproportionately hit the lower and middle classes. This means that an income neutral income tax cut, i.e. one that does not shift the tax burden but lowers it proportionately for everyone, will still shift the total tax burden to the middle class, because it reduces the amount paid in the progressive system (e.g. income taxes) in proportion to the amount paid in the regressive system (e.g. social security).

This leads me to a couple of thoughts. First, I think while he is quoting correct stats, Kerry is using the data a bit disingenuously. First, it implies to people that the middle class is paying more so the rich can pay less, which is untrue - everyone is paying less. Second, he is trying to use the data to show that personal income tax burden is shifting to the middle class, which we showed in post 1 that it is not - it is actually going the other way. Third, he uses it to justify a tax increase (or a tax cut rollback) on the richest Americans. We showed that already the Bush tax cuts shifted more of an already ridiculously high burden to the rich. This will shift even more.

However, there is a point here if Kerry wanted to latch on to it. Forget the class rhetoric about the income tax system - focus instead on social security. There are two good reasons for this: 1) Social Security is broken, and the financial reckoning is coming 2) unlike the income tax system, social security is truly indefensibly regressive. Yes, you can dig through Kerry's web site and find something on this, but he is for some reason so drawn to the income tax issue he never really hits it hard.

If John Kerry really wants to take up a populist tax banner, leave income taxes as they are (for all the fiscal deficit crisis talk, an economic recovery plus fewer new military invasions will bring the deficit back in line without tax increases). He should instead propose a reduction in the 12.4% FICA tax rate and then an elimination of the $87,900 wage cap. To make this palatable to Congressional Republicans (and me, if I were voting) it should be tied to a package of other reforms such as allowing some investment choice by individuals.

Of course, this is not going to happen. Politicians have used Social Security scare tactics with retired and older people so often that these folks have come to react negatively to any hint of change to Social Security. Reasonable discussion about the future of Social Security is just not possible in the last five weeks of an election, particularly with Florida in play.