The fiction of Donald Trump’s tax cuts
Businesses are paying low level workers more only because states are requiring it. The trend has nothing to do with the largest onetime tax break in history for corporations and the wealthiest Americans that the president championed.
Millions of low-wage workers in Illinois and two dozen other states had good reason to welcome in the new year: bigger paychecks.
On New Year’s Day, 6.8 million hourly workers in 22 states received pay increases of up to $1,700 a year as a result of higher minimum wages kicking in, according to the Economic Policy Institute, a left-leaning think tank. Here in Illinois, the minimum wage rose to $9.25 an hour, on its way to $15 an hour in 2025.
Later this year, millions more American workers will get similar pay hikes when higher minimum wages go into effect in three additional states.
It all adds up to a brighter year for struggling workers trying to afford necessities like car repairs, groceries and children’s school fees.
And it’s a boon to the nation’s economy, according to the Institute, which estimates that spending by these workers will pump an additional $8.2 billion into the economy in 2020.
The Institute credits government action for rising wages across the board. Businesses, the think tank argues, are paying low level workers more only because states are requiring that they do so. And that, in turn, has lifted all wages as employers have adjusted their overall pay scales accordingly.
The Trump administration and some conservative economists offer an alternative explanation, one we find less credible. To their thinking, corporations are paying higher wages, even to the lowest-end workers, because Trump and the Republican Congress two years ago passed the largest one-time tax break in history for corporations and the wealthiest Americans.
“In addition to keeping more of their earnings because of individual tax cuts, workers across all income groups are seeing their wages rise,” the White House said in a recent statement celebrating the two-year anniversary of President Donald Trump’s signing of the Tax Cuts and Jobs Act. “Indeed, the lowest wage earners have seen the fastest nominal wage growth (10.6 percent) of any income group since TCJA was signed.”
We see a couple of big holes in that argument.
To begin with, as we have noted, two dozen states in the last year have mandated higher minimum wages, which is a more direct explanation for rising wages than the Trump tax cut cuts. Secondly, wages are growing fastest in states that have set minimum wages.
In 2016, prior to the Trump tax cuts, according to a Washington Post analysis of Department of Labor data, “wages for lower-paid workers rose across the country at more or less the same pace.” But in 2017, “things began to change. Wage growth in states that increased minimum wages began to accelerate.”
As Heidi Shierholz, a senior economist at the Institute, told the Post, policies to raise the minimum wage are “a really meaningful part of wage growth for low-wage workers. That is absolutely, undeniably true.”
What’s our takeaway from this?
For one, Congress should pass the Raise the Wage Act, which would raise the federal minimum wage from a miserly $7.25 an hour to $9.25, and then to $15 an hour by 2024. The federal minimum wage has not been increased since 2009.
That won’t make much difference in Illinois, where the minimum wage already is $9.25, or in Chicago, where the minimum is $13 an hour. But it would be a boon to workers in 21 other states, including neighboring Wisconsin, Iowa and Indiana, where the minimum wage is that paltry $7.25.
The Democrat-controlled U.S. House approved the Raise the Wage Act last year, but it has gone nowhere in the GOP-controlled Senate.
Which lawmakers have stood up for ordinary working people, backing a higher minimum wage?
And which have reserved their compassion for the ultra-wealthy, voting against minimum wage increases while signing on to the Trump tax cuts?
Voters in November, take note.
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