Sorry, Warren- that is a terrible idea

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I read Warren Buffett’s piece, Better than Raising the Minimum Wage, in Friday’s Wall Street Journal. I expected better from Mr. Buffett, who has generally come across with better taxation and income ideas publicly.  This piece is not up to his normal standards- because it is yet another method to have the US citizenry subsidize the actions of moderate and larger sized businesses.

Buffett, Better than Raising the Minimum Wage
Wall Street Journal, 22 May 2015 page A13

While it seems innocuous to the naïve reader, Mr. Buffett’s claim that we should not raise the minimum wage, but instead augment the Earned Income Tax Credit (EITC), serves as yet another false hope to improve the life of denizens operating at the lower echelons of our economy.

I do agree that raising the minimum wage is not the answer. Not because it may or may not help those earning at or nearly at the minimum wage across the US. Raising the minimum wage will make decisions by nascent startups- those not funded by the venture capital or investors- to hire that next employee or two more difficult. Because no matter how busy or overworked that startup may be, contemplating- at current pay rates- adding an additional $ 18,300 to one’s costs per employee is daunting. (That computation is 2080 hours- to cover vacation- plus employer and unemployment taxes at the lowest pay rates.)

Raising the EITC means that businesses- of all sizes and profitability- can continue to pay the lowest wages to their employees, while extoling the profit margins it maintains to their stockholders. In the meantime, the American taxpayer is forced to subsidize their employees, because some 90% of US tax receipts is obtained from the individual taxpayer. (This includes their portions of social security and Medicare taxes, plus the individual income taxes paid.)

Instead, we need to reconsider the “profitability” of American firms like McDonalds, WalMart, Boeing, and the like. We need to calculate the subsidies these firms are forcing the US taxpayer to render to keep these entities profitable. There is no reason for their employees to need AFDC (Aid for Dependent Children), Supplemental Nutrition Assistance Program (SNAP or Food Stamps), EITC, Welfare, and the rest to make ends meet.

We should penalize these firms for the subsidies we are making to afford them the ability to underpay their employees. Why a penalty? Because penalties are non-deductible under the IRS Tax Code. Then, next year, these firms won’t be so parsimonious, since they will pay fair wages to their employees.  Because paying wages is deductible to the entity on their income tax returns.

Smaller firms- those whose total payroll, guaranteed payments, and dividends do not exceed $ 750,000 – would be exempt from this stipulation. This would provide these smaller firms the ability to grow their firms- and grow the wages of their employees as they themselves grow.

Why total payroll and dividends? Because we must include all those pass-through entities (LLC, S corporations) in this process. Many of these firms pay their executives little if anything (and the overworked IRS has not gotten to them to assess their firms which are not paying “reasonable compensation”), and would skate under this new requirement, should we not included guaranteed payments (which are payments to partners operating as a partnership) or dividends (which pass through to owners of an S corporate entity).

I do agree with Mr. Buffett that there is “no perfect system”- but any system that forces the American Taxpayer to subsidize business for its poor business practice is far from perfect. it’s simply abysmal.

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