Why are Taxpayers Subsidizing Big Mac Buyers?

A friend of mine who wishes to remain anonymous claims the following:

• Walmart employees (as a group) are often the biggest recipients of federal and state aid within each state.
• McDonalds employees are up there as well.

Specifically, my friend asks "Why are Taxpayers Subsidizing Big Mac buyers?"

His proposed solution is to raise the minimum wage to the poverty level, about $23,550 for a family of four.

My friend claims the employer, not the taxpayer will pick up the tab.

Seen and Unseen

My otherwise bright friend is not bright enough to examine the seen and the unseen costs and benefits of his proposal.

It's a given that those who are employed by McDonalds and WalMart will be better off, provided they retain their jobs.

That's a pretty big "provided". But it's far worse than that. Here are 10 things I came up with (and it only took a few minutes to do so). I am sure my list is incomplete.

1. There are no proposals to reduce food stamps or any other government subsidies if minimum wages rise. Money allocated on food stamps and other subsidies will still be spent unless Democrats agree to cuts.
2. Prices at WalMart and McDonalds will rise
3. The higher the wages, the more pressure there will be on businesses to reduce the overall number of employees by other methods, including hardware and software robots
4. The higher the overall costs (of which wages are a huge component), the fewer the number of store that will be built
5. When corporations don’t open stores they otherwise would have, construction jobs are lost, shipping jobs are lost, merchandising jobs are lost, corporate income taxes do not rise as they would have, and property tax collection does not rise as it would have.
6. Marginal stores will be shut.
7. Employees at those marginal stores will be laid off .
8. Shut stores pay no corporate income taxes or property taxes.
9. Vacant stores are a form of blight. They reduce property tax collection and lower rent prices.
10. Marginal store closings and refusal to open new marginal stores will most likely happen in the very neighborhoods most desperately in need of jobs  and services.

Moreover, for all the bashing of WalMart, please note that it pays one of the highest corporate tax rates in the country.

Other Problems With Minimum Wage Laws

Minimum wages impair the liberty of workers and employers to freely enter into voluntary contracts. They are extremely unfair to unskilled and low-skilled workers, many of whom will either lose their jobs or no longer find any.

Young entrants into the labor force won't even have a chance to improve their lot by gaining job experience because they won't be allowed to offer their labor for less than the minimum wage, even if they want to. Instead they will become dependent on handouts.

Issue of Fairness

The government cannot wave its hand and order nature around. Economic laws will remain valid regardless of legislation and regulations. And that means that all those whose labor is simply too expensive at the new minimum wage will be priced out of the market, typically the lowest skilled and poorest workers. It matters not if anyone thinks that is 'fair'. It is simply what is going to happen.

Please consider points number five, nine, and ten one more time:

When corporations don’t open stores they otherwise would have, construction jobs are lost, shipping jobs are lost, merchandising jobs are lost, corporate income taxes do not rise as they would have, and property tax collection does not rise as it would have.

Vacant stores are a form of blight. They reduce property tax collection and lower rent prices.

Marginal store closings and refusal to open new marginal stores will most likely happen in the very neighborhoods most desperately in need of jobs and services.

The above points should be so obvious, my friend should be embarrassed with his simplistic "hike the minimum wage" solution.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com