![\"MW](\"http:\/\/theredneckeconomist.com\/wp-content\/uploads\/2014\/02\/MW-vs-CPI-Chart3.png\")
<\/a><\/p>\nLet\u2019s make some basic assumptions to illustrate the end result — governments collect more taxes because of inflation.\u00a0\u00a0 Bob works as a machine operator in a chemical plant somewhere in the heartland of America.\u00a0\u00a0 It is 1961, and Bob is preparing to file his income tax return for 1960. \u00a0\u00a0Bob makes well above the Federal minimum wage rate of $1.00 per hour.\u00a0\u00a0 When Bob finishes calculating his taxable income and the amount of income tax he owes, he finds he has taxable income after personal deductions of $8,000.\u00a0\u00a0 Bob also finds he owes $1,680 in Federal income tax.\u00a0\u00a0 He is happy that his employer withheld $1,700 during the year, so he will get a $20 refund.\u00a0 Bob and his family end the year with $6,320 in after tax spendable income, not counting Bob\u2019s social security tax.<\/p>\n
For 2013, using the Bureau of Labor Statistics CPI Inflation Calculator, Bob will find he should have $57,500 in taxable income to have the same after tax spendable income in 2013, that he earned in 1960.\u00a0\u00a0 Bob and his family will pay $7,736 in Federal income tax.\u00a0\u00a0 In 2013, Bob will pay $6,056 more Federal income tax than he paid in 1960, doing the same job.\u00a0\u00a0 This does not consider the increases he has paid in social security \u00a0and medicare taxes. \u00a0However,\u00a0 the Federal government has collected 360% more income tax revenue from Bob’s efforts.<\/p>\n
The Redneck Economist attempts to keep things simple so folks like him can understand why we have gotten ourselves into the mess we are in right now.\u00a0 There are those educated economist that have developed macro analysis of the impact of inflation induced by the simple increase in the minimum wage on tax revenues, domestic gross nation product, and the compound effect of these continuing increases on the increasing number of families in or near the poverty level in the United States. \u00a0The information and data is at our disposal on government websites. \u00a0 The bureaucrats and politicians do not explain what the real reason is behind most of their proposals and plans.<\/p>\n
Let\u2019s take a quick look at what President Obama\u2019s proposal to raise the minimum wage rate from $7.25 an hour to $10.10 an hour will have on just social security and medicare taxes. \u00a0Remember, minimum wage earners must pay their share of these taxes while their employers pay their share. \u00a0 Currently, both employee and employer pay an equal amount (7.65% for the employee, and 7.65% for the employer.)<\/p>\n
Follow this calculation.\u00a0\u00a0 The payroll taxes (social security and medicare) on the $2.85 proposed increase in the minimum wage rate amounts to $ 43.6 cents per hour.\u00a0\u00a0 Assuming an employee works 40 hours a week, 52 weeks a year, the employee and his employer will pay $906.84 more in payroll taxes.\u00a0\u00a0 Assume also, there are five million Americans making the current $7.25 minimum wage rate.\u00a0\u00a0 The US Treasury will collect $4.535 billion more in payroll taxes each year.\u00a0 It is been proven over time that the increase in the minimum wage rate also drives the wages of all Americans higher.\u00a0\u00a0 It is also known that many small businesses cannot meet the demands for higher wages or pay higher payroll taxes and remain in business.<\/p>\n
In addition to Federal income and payroll taxes we all pay, the higher minimum wage affect on increase cost of living will result in higher state and local taxes such as sales tax and property taxes. \u00a0 As we all know, this leads to bigger government and more government spending resulting in a increase in spiraling government debt.<\/p>\n
The Redneck Economist<\/p>\n","protected":false},"excerpt":{"rendered":"
Inflation and Taxes This rant will discuss the impact inflation has on tax revenues of the Federal, State and local governments.\u00a0 Your first reaction will be \u201chow can inflation impact the amount of taxes governments collect?\u201d\u00a0\u00a0 Hopefully, this rant will illustrate the point. \u00a0\u00a0In the earlier rant titled \u201cThe Minimum … Continue reading