Wednesday, Apr 23, 2014

Why Harvard lawyers make lousy politicians


One of the reasons or perhaps the main reason that the country faces an economic malaise is that it gets magnified by actions of the government.

The reason is that so few in government — those who pass legislation — have any concept of business, as most of them have never ran a business, much less had to make a payroll.

The experts in Washington are good at raising taxes and spending other people’s money but not good at understanding the basics of business. One of the latest examples of non compos mentis business acumen is the proposal put forth by the senior senator from Massachusetts, Elizabeth Warren, a Democrat.

Once again, initials after a last name do not an intellect make.

She advanced a proposal to triple the minimum wage from $7.25 an hour to $22, claiming that’s where it should be if it kept pace with worker productivity. She then posed a question: “So my question is … what happened to the other $14.75?

A panelist at the hearing of the Education, Labor and Pension Committee, an assistant professor from the University of Massachusetts, Amherst, responded to Warren’s assertion regarding the $14.75 and stated that it went to the top 1 percent of wage earners. He went on to state that had the minimum wage increased at the same rate of incomes to the top 1 percent, the minimum wage would be $33 an hour. Let’s step back a minute to reality and examine the fact that $22 an hour equates to $45,760 annually and $33 an hour likewise annually equals $68,640. Not a bad wage for a high school dropout flipping burgers or for that matter any unskilled worker not willing to further his or her their education.

She went on to claim that an increase in the minimum wage would not lead to fewer jobs as other economists have opined and that such an increase was doable. She went on to say that an increase to $10.10 over three years would only increase the price of a burger by 4 cents, stating, “Are you telling me that’s unsustainable?”

That relates to an increase of 39 percent, which in turn would force the employer to increase its contribution to FICA and the unemployment tax, which the employer alone pays. It usually cost the employer an additional 30 percent on top of the wage paid, so it then cost the employer an increase of approximately $3.03, bringing the cost to $13.13 per hour.

That totals a $3.71 increase in cost to the employer which for a 40 hour week would be an increase of $148.40, which includes the raise of $114 in wages plus another $34.40-plus in payroll charges.

That is an overall increase of 39 percent for wages and other costs, equating to a 13 percent increase in costs each year for the three years. If Sen. Warren can raise costs to the employer by 39 percent over three year, she has to be a magician to only raise the cost of the burger she says she eats from $7.19 to $7.23, or 4 cents, or half of 1 percent on an increase of 39 percent, when in reality the price would have to be $9.99.

With people like her in Congress it is no wonder we are wallowing in a $17 trillion debt that threatens to destroy this nation.      

Len Tria, a regular columnist for Hernando Today, lives in Spring Hill and is a former Hernando County commissioner.


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