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How to Help Small Business, Raise the Minimum Wage, Decrease Unemployment, and Save the Economy

Submitted by Ken Watts on Wed, 04/29/2009 - 17:56

I'VE COMMENTED ON EMAILS HERE before, mostly with an eye to exposing propaganda, but this one actually has quite a bit of merit.

According to the email (I haven't checked, because it doesn't really matter) a reader wrote to the St. Petersburg Times with a suggestion for fixing the economy.

He said that since there are about 40 million people over fifty working in America, we should just give them each a million dollars, with a few strings attached.

They would have to retire, pay off their mortgage, and buy a new car. He figured that this way we could create 40 million new jobs, solve the housing loan crisis, and save the auto industry all with a single program.

I think this idea has merit, and not just because I'm over fifty. It aims at the right target: the drop in demand.

But we can do even better.

My own suggestion, although it won't make me as rich, might have the benefit of bi-partisan support.

I suggest that we do two things:

  1. We raise the minimum wage to the level at which it's actually a decent living.
  2. We give a tax credit to very small businesses for every employee they hire.

It would work something like this.

If you are a very small business, for the sake of argument say a schedule C business netting less than $100,000 a year, for every employee you have you get 75% of the new, increased, minimum wage back as a non-refundable tax credit.

This is true even for employees you're paying more than the minimum wage to. You still have to pay into their social security, etc., as you do now, and the the tax credit doesn't cover those costs.

This credit decreases on a straight line as your net profit moves above $100,000, until it completely disappears at some figure, say half a million. If you're making half a million in profit (after paying out wages) you can afford to pay your employees yourself.

The usual arguments against an increase in the minimum wage are that it's unfair to small businesses, and that it increases unemployment by discouraging hiring.

The beauty of this approach is that it actually benefits small business—we could triple the minimum wage, and small businesses would still come out ahead. At the same time, by giving a hiring incentive, it would decrease unemployment.

And it would save the government money, maybe even increase tax income, in the process.

Every one of those people who get hired by a small business which can now afford the help because of the tax credit is one more person who doesn't end up on welfare or extended unemployment, costing the taxpayer money.

And every one of them will end up paying taxes on a good, living wage.

In addition, such a plan would probably end up pushing real wages even higher. By increasing the demand for employees, and consequently decreasing the supply, market forces should push wages upward.

All of this would mean that those very workers could afford to buy houses, solving the housing crisis, pay their loans off, solving the banking crisis, and start spending money again, which would kick-start the economy.

It would also save many small business owners, who could now afford to buy houses, pay off their loans, and start spending, and even create new small business owners who would do the same.

It's a no-brainer: a win-win-win.

Except, of course, I'll miss the million.

At least, that's what I think today.