Minimum Wage Hike, Estate Tax Cut Face Senate Vote

By Kai Sandvig | July 7, 2008 | 8:31 PM EDT

( - U.S. Senate legislation, scheduled for a vote Friday, would increase the country's minimum wage while permanently eliminating the tax on estates worth up to $5 million per person, but it now has both liberal and conservative opposition.

Conservative groups like the Institute for Policy Innovation (IPI) oppose increases in the minimum wage. Government wage controls are no different than government price controls, IPI contends, adding that minimum wage increases end up harming the people they are designed to help.

"The minimum wage is a tricky issue, because everyone wants workers to get a 'fair' wage (enough to live on), but not to the extent a mandated minimum destroys jobs by making the cost of new hires too big for some businesses," IPI Senior Research Fellow George Pieler wrote in an email to Cybercast News Service.

"Raising the minimum wage doesn't make it harder for people to look for work, but it means (other things being equal) fewer jobs available at the given price point when the minimum wage goes up," Pieler stated.

Liberals who favor the higher minimum wage, in most cases oppose the estate tax cut and now are enraged over a provision in the Senate bill that they say would eliminate state-approved minimum wages for employees who receive tips.

The Senate bill would supersede the minimum wage laws in California, Alaska, Minnesota, Montana, Nevada, Oregon and Washington State, according to liberal Democrats like Sen. Barbara Boxer of California. Boxer was quoted in the Los Angeles Times as labeling the measure dealing with the state minimum wage laws "a devastating proposal."

The liberal Center on Budget and Policy Priorities (CBPP) considers the estate tax cut and other measures submitted by the Senate's Republican majority "sweeteners to purely attract votes." But CBPP Executive Director Robert Greenstein warned that middle-class taxpayers would eventually have to pay more in order to compensate for the reduction in taxes on wealthy estates.

The Economic Policy Institute (EPI), which bills itself as "nonpartisan," has released a study showing that 8.3 million workers would benefit from the minimum wage increase by 2009, raising the average yearly income for full-time workers making the minimum wage from the current $10,712 per year to $15,080 per year.

EPI's report also stated that the estate tax relief would benefit 8,200 households by 2011. "This [legislation] is more of an excuse to address the estate tax," CBPP Senior Fellow Joel Friedman said.

William Dickens, a senior economic fellow at the "independent" minded Brookings Institution, also supports boosting the minimum wage and rejects the theory that it would reduce the number of available jobs.

"No study I'm aware of has demonstrated that minimum wage increases lead to layoffs. What they show is that the total number of hours worked at affected firms drop," Dickens wrote Cybercast News Service in an email. "The employment reduction can also take place through attrition. But even if someone does lose a job, the low wage labor market is pretty fluid," he added.

Earning power is not based on a higher minimum wage, but rather on education, Pieler noted. There is "plenty of reason to stay at least through high school and preferably beyond ... but a higher minimum wage can reduce opportunities for high-school age workers who may want that option," he said.

The U.S. House on July 28 passed its version of the minimum wage increase bill by a vote of 230 to 180. It would hike the minimum wage from the current $5.15 per hour to $7.25 per hour in 70 cent increments over three years.

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