Tuesday, September 10, 2013

Wages, Taxes, and the Mid-Sized Business

As we move closer to the next General Session this winter, we should get a better idea about what compromise, if any, may be struck in Annapolis between the seemingly disparate policy proposals of raising the minimum wage and lowering the corporate tax rate.  While no bill has been drafted, early discussions have suggested that a raise in the minimum wage be tied to lowering corporate taxes as a compromise.  The Baltimore Sun has already come out in favor of raising the minimum wage, no strings attached.

It seems the presumption for this "compromise" is that the presumed financial burden of a higher minimum wage will be on corporations.  The logic is as follows: To the extent Maryland is looking to draw big companies to Maryland, it will need to ameliorate the disincentive of higher personnel costs.  That makes perfect sense...until you think about 1) the nature of commercial growth in America today, and 2) goal-setting for capturing high quality jobs in Maryland.

As for the first, I've spoke with numerous people in the commercial sector who have all said pretty much the same thing:  Maryland should stop trying for home runs and pay more attention to the singles.  By that they mean most large corporates are fairly well rooted where they are located and, for many of them, their current location was chosen early on in their formation.  Silicon Valley wasn't created due to California's tax rate.  It was the perfect primordial stew for growing America's tech sector.  In searching out, and promoting, "singles", Maryland policy should do more for mid-size businesses, often those that started in Maryland, to meet their needs, lessen their tax burden, and offer opportunities for growth.  An across the board corporate tax cut may do this incidentally, but it will not be of direct benefit to these target businesses, which may have something different than a straight up corporate structure.

Second, we need to have a discussion about "jobs".  What jobs do we want to attract?  During the 2012 elections, we were treated to news of the "Texas Jobs Miracle" as the foundation of Governor Rick Perry's run for the White House.  Critics of Gov. Perry, such as left-sided economist Paul Krugman, suggested that this was empty job growth, pointing out that the median wage for Texas was under-performing those states with smaller job growth:
(Credit: Paul Krugman, NY Times)

(Contra: That's it dummy.  Lower wages mean higher "at-least-you-have-a" job growth.)

In this context, if Maryland is focused on attracting corporations that offer good jobs at good wages, the minimum wage/corporate tax rate compromise would appear to be meaningless.  The target corporations are already offering a living wage (or higher) and legislation prompting them to do the same is below that floor.  This is the argument of the right: a lower corporate tax rate will attract good jobs and make legislating wages unnecessary.  This argument presumes those corporations are mobile and that there is some proven relation between lower taxes and wages, both of which I think are hard to prove.

But the one thing this compromise proposal completely ignores is the middle.  What are we doing for small and mid-sized businesses that have smaller margins and will be hit the hardest by a minimum wage increase?  I find it unlikely that any corporate tax cut will be sufficient to off-set new costs for these businesses and that more specified relief, such as cuts to small business commercial property taxes, need to be prioritized over more generalized tax cuts.

That's all for today.  Have a great Tuesday doing what you love.