Just after President Obama delivered the State of the Union address, we can see that consumer spending in January barely grew, just ticking up .1% compared to .5% in December, and 2.2% in the fourth quarter of 2012. The slow growth in consumer spending can easily be attributed to the rise in payroll taxes, and other tax increases on wealthy Americans–people now have less money to spend because more of it goes to the government in taxes. Obviously, this does not help our economic situation, because a slowdown in consumer spending, also means a slowdown in business for retailers. Tax cuts would have had the opposite effect, spurring growth in consumer spending, meaning businesses also grow. Instead the U.S. treasury has grown and your money may be spent on interest for our enormous debt, or maybe a green energy project that goes bankrupt, or maybe more IRS agents to handle Obamacare.
But it is not just taxes which hurt the economy. In the State of the Union speech, Obama talked about raising the minimum wage to $9/hour as a step to take more people out of poverty. This is a classic example of giving a solution that sounds good, but actually hurts people in poverty. When minimum wages are set, that ensures that no one whose skills are worth less than minimum wage can get a job. So if someone has a $6/hour skill set which they use to flip burgers, and the minimum wage is raised to $9/hour, someone with a $9/hour skill set will now be employed flipping burgers. Instead of the business hiring people with burger flipping skills for $6/hour, they will hire someone with cashier skills for $9/hour, even though that person will still be flipping burgers. The rationale from a business perspective is, you might as well get what you pay for. If a business is forced to pay more money than a skill is worth, it is the workers with low skill that will suffer.
And more, most people making minimum wage are not in poverty! According to the Daily Caller:
“The reality is that fewer than 20 percent of people who earn the minimum wage are poor, and most poor people already earn more than the minimum wage,” Jason Riley notes in the Wall Street Journal.
A lot of people earning minimum wage are teenagers and young adults who do not yet have the skills for a job which pays a higher hourly rate. Working a minimum wage jobs allows them to move up the ranks, learn, and acquire skills that pay more than minimum wage. When minimum wage is raised, it eliminates starting positions for people with low skill sets, and erases any opportunity to move up by training for a job that is worth more to employers. In the previous example, someone who only knows how to flip burgers will never be hired, because the employer has to pay cashier level wages. Without a minimum wage the burger flipper would have been hired, and had the opportunity to train on the cash register, then moving up in skills and pay. Higher minimum wages robs the opportunities of low skill labor to move beyond that skill set. And this phenomenon actually hurts minorities worse than white people, according to a study by the Employment Policies Institute.
“Among white males in this group [age 16-24], the authors find that each 10 percent increase in a federal or state minimum wage decreased employment by 2.5 percent. … But among black males in this group, each 10 percent increase in the minimum wage decreased employment by 6.5 percent,” a separate study by EPI found.
Obama would rather pay lip service to low skill laborers and poor people without jobs, than actually help them improve their situations. But the fact is that between 2009-2011, 3 million more Americans slipped below the poverty line. As for the middle 20% of earners, “the Census Bureau found the inflation-adjusted household income was the lowest it had been since 1995”. Obama can talk all he wants, but it is just talk. Americans are doing worse under Obama policy.