Republicans sure do love Ronald Reagan. He introduced new economic policies during his administration. “Reaganomics” was partially based on the concept of trickle-down economics. The basic idea is lowering taxes for businesses, so they can pay their employees more. Reagan cut the tax rate from 70 percent to 50 percent.
The basic idea is that people will spend more if they get to keep what more of what they are earning.
In the last forty-years, the tax rate for people in the top tax-bracket has gone from 91 percent to 35 percent in 2003. During the Clinton years, the rate hovered around 40 percent. In the ’60s, people saw some income growth with these policies, but their income started to decrease in the ’80s.
Hourly wages decreased in the ’80s as more taxes were cut, and they spiked upwards after a tax increase in 1993.
Fast forward to this campaign, and the people protesting about wages. Many people are calling for raising the minimum wage to $15 per hour. The federal minimum wage is stagnant at $7.25 per hour. Proponents of keeping the minimum wage where it is cry that any increase in wages will kill jobs and kill the economy.
A New York Times reporter, Noam Scheiber, via Democracy Journal, had this to say about California raising the minimum wage to $15 per hour:
“California makes itself a guinea pig in a massive and risky minimum wage experiment … Raising minimum wage hurts low-skill workers.”
Many people predict economic Armageddon if the minimum wage is raised. The argument against this is rooted in the law of supply and demand. Raising the price of employment should cause less employment. James Buchanan, a Nobel-prize winning economist said this about the theory:
“The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that ‘water runs uphill,’ no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics.”
There are many myths still out there about the minimum wage. Some people think raising the minimum wage will cause people to lose their jobs, but it will help them because they will have more wages to spend. This would cause a small stimulation in the economy.
Raising the tipped minimum wage will not kill restaurant businesses. San Francisco just raised the minimum wage of tipped workers to $12.25 before tips. This has actually caused some job growth.
Everywhere else, tipped workers are paid as little as $2 an hour before tips. Employers are supposed to make up the difference if the workers’ tips and wages do not equal the minimum wage, but many restaurants don’t actually do that.