Speeches & Floor Statements

Senator Alexander’s Remarks on Small Business, Raising the Minimum Wage

Posted on January 26, 2007

“Mr. President, sometimes we like to say something so often and so vigorously that we believe it actually does what we say it will do, and I am afraid that is the case of the minimum wage arguments that have gone on since 1939. Perhaps it did in 1939, but I would suggest today that it doesn't do what we say it will do. “I expect to vote for the minimum wage proposal the Senate produces if it includes the tax incentives and other measures that will help small business men and women pay the bill so they don't have to cut jobs as they compete with companies around the world, in China and in India and other places. “I will talk for a few minutes this morning about whether the raising minimum wage does what we say it does. We are doing a fairly extraordinary thing here. The Government is intervening in the marketplace. We don't ordinarily do that. We are fixing prices. We are fixing the cost of labor. “Let's say we were in a class at the University of Massachusetts, University of Wyoming, or University of Tennessee in economics 101, and the professor walked in and said, Good morning, students. We have an interesting problem here. Let's pose this: The Government wants to intervene in the marketplace to fix the price of labor -- something it doesn't ordinarily do. So the problem for the students to solve would be this: The reason for the intervention is to help, as the Senator from Massachusetts said, those who are on the lowest rungs of poverty. Working people on the lowest rungs of poverty will be our target. We want to help them have more money in their pockets. “Second, obviously we would like to do this in a way that most efficiently gets whatever money we have for this to them and doesn't miss the mark. Next, we want to do it at the lowest possible cost. We have lots of needs in the Government and in this country. Finally, we want to find the fairest way to pay the bill. If we are going to come up with this grand social objective that is presumably an objective for the whole country, then who pays the bill? All of us? Some of us? A few of us? The richest of us? Who pays the bill? “So the challenge to the students is this: The Government is going to intervene. We are going to help, according to the Senator from Massachusetts, the lowest on the rungs of the economic ladder -- people who are poor -- people who are working. We want to do it in an efficient way. We want to make sure the money gets to the people we want to help, and we want to send the bill for all of this -- hopefully as low as possible -- to the fairest group of people who ought to pay for it. “I think if the answer came back to that question that what we ought to do was raise the minimum wage, the professor would give it a D or an F, or he might even send it back to the students who sent him that answer and say, Maybe you didn't hear my question. My question was: How do we intervene in the marketplace to help the people who are on the lowest rungs of the economic ladder? How do we do that in the least expensive, most efficient way, and with the fairest way to pay the bill? “Let's begin to critique the answer I posed that a student might have given to the professor in economics class 101. First, I think the professor might say, If you come back with a minimum wage idea, it is a very expensive way to go about it. “A new study released by the Congressional Budget Office, which I ask unanimous consent to be included in the Record following my remarks, estimated that raising the minimum wage to $7.25, which is the proposal here, would cost $11 billion. A study done by the Employment Policies Institute put the cost at $18 billion. I ask unanimous consent that this study by Professors Burkhauser of Cornell and Sabia of the University of Georgia be included in the Record following my remarks. “So the student who suggested the minimum wage came up with a pretty expensive idea, an $11 billion price tag, or $18 billion, according to another study. But those estimates are about raising the cost of everyone's wages to $7.25 an hour. That is not how it works, because many workers are already paid a certain amount above the minimum wage and they will continue to earn more than the new minimum wage. So in effect, we are also legislating that a number of workers will receive a wage higher than $7.25, which means the cost is much higher than $11 billion or $18 billion. That is a lot of money. That is the first critique of the student's answer. “The second one: How well does this money hit the mark? We heard Senator Kennedy say repeatedly: Those on the lowest rung of the economic ladder. We have visions of women and children who are poor, particularly single mothers. Senator Kennedy has great passion for this issue. I have heard him many times over the last four years talking about how this is a women's issue; this is a children's issue; this is an issue for Americans on the lowest rung of the ladder who are in poverty. Well, let's see if that is true. “The studies show it is not true. Raising the minimum wage doesn't efficiently target the poor. Only one in five minimum wage workers live in households at or below the poverty line. So most of that $11 billion or $18 billion won't be going to the people who need it the most. It is more likely to be going, for example, to raise the salary of a teenager from a well-off family who has a part-time job at the mall. “The Employment Policies Institute, the study I mentioned a little earlier by the professors from Cornell and the University of Georgia, said in their calculations that even less of the money would go to the workers in poor families -- 13 percent. Even if you look at households earning twice the rate of poverty, which was just under $40,000 in 2005, the Employment Policy Institute study found that less than half -- 43 percent of the minimum wage increase -- would go to those families. “Let me go directly to the professors' study of the minimum wage. They say: While the minimum wage is often promoted as a policy designed to help the poor, minorities, and single mothers, this analysis reveals that only 3.7 percent of the benefits from a $7.25 hour Federal minimum wage would go to poor African-American families. “So 3.7 percent of the benefit of this $18 billion-plus cost will go to poor African-American families. Only 3.8 percent would go to poor single mother families. What we are about to do, if we do it, is spend $11 billion, $18 billion -- more than that, probably -- with the stated objective of helping the poor, especially single women, especially mothers with children, especially minorities, and what the professors’ study shows is that only 3.8 percent goes to poor single mother households. “Even more troubling, they go on: The majority of working poor families, families who are working but remain in poverty, receive no benefit from an increase to $7.25 an hour. The majority of families who are working but in poverty get no benefit from what we are about to do. These families don't benefit because they already earn more than the new Federal minimum wage and remain in poverty either because of a low number of hours worked or a large family size. Many of these individuals would benefit far more from an increase from the generous Federal and State earned-income tax programs. “A couple more statements from the professor from Cornell and the professor from Georgia: Only 3.8 percent of the benefits from an increase to $7.25 an hour accrue to poor single mothers. One of the factors causing this low percentage of benefits is the fact that the majority of poor single mothers have hourly wages above this level. In addition, only 18.5 percent of the benefits going to single mothers will go to those in poverty, the majority of benefits going to single mothers will go to those earning more than twice the poverty line. “So the authors conclude that only 12.7 percent, or 2.3 billion of their estimated $18 billion cost of this increase will go to poor families, and only 3.7 percent goes to poor African-American families. The authors say that the ability of the minimum wage to target poor families is weaker and decreasing over time. Contrary to the statements of its advocates, fewer and fewer low-wage employees are supporting a family on minimum wage, with only 9 percent of low-wage employees actually supporting a poor family. “I think the professor so far, in grading the paper of the student who suggested an increase in the minimum wage, would say, well, you came up with something that is hugely expensive, $18 billion-plus. And second, you came up with something that almost entirely that misses its target, only 3 or 4 percent to poor African-American families out of this huge amount of money? So far that paper is not doing very well at the University of Massachusetts, Wyoming, or Tennessee. “Then there would be another question that ought to be answered. Who pays the bill? The people who are to pay the bill under the proposal of the Senator from Massachusetts are the small businesspeople of America. They were described by the Senator from Wyoming because he used to own a shoe store. We stand in the Senate almost every day and talk about small business men and women and how they have health care costs, how they have taxes to pay, they have OSHA requirements to meet, they have Federal regulations added every year, and we say if we do not do something about this, more of these jobs are going to India and China, and we have a big outsourcing of jobs around the world. “Even if we, as a Senate, were to decide that we wanted to take the most expensive and perhaps the most inefficient way to help the people lowest on the economic ladder, why would we send the bill to the small businesspeople of America? Why wouldn't we send it to Wall Street? Why wouldn't we send it to the big corporations? Why wouldn't we send it to the taxpayers at large? Why couldn't all of us pay the bill? “We are very good in Washington, DC -- I used to notice this as Governor of a State -- some Senator or Congressman would come up with a good-sounding idea, pass it, hold a press conference, take credit for it, and come back down and make a statement at the Lincoln Day or Jefferson Day dinner about local control. What we do here all the time is come up with good ideas, take credit for them, and send the bill to someone else. That is what we are doing here: we are not paying for this. We are not saying: That is going to cost $18 billion so let's raise taxes on Americans to pay for it. We are saying it will cost $18 billion-plus, but, no worries, we will just send that on to the small businesspeople of America, not the big businesspeople. “According to the National Federation of Independent Businesses, small businesses employ 61 percent of all minimum wage workers. That is a lot of mom-and-pop shops, family-owned businesses. Why should they pay the bill for this idea? One reason it might have been better to take this legislation through the committee that the Senator from Massachusetts and the Senator from Wyoming so ably lead is, we could have discussed this and there might have been a better way to reach this goal of taking whatever money we have -- maybe a generous amount, maybe $18 billion -- and sending it directly to people on the lowest rung of the economic ladder. “We might have talked about the earned-income tax credit. The earned-income tax credit isn't always popular on this side of the aisle because it has had some fraud in it, but the idea is a good idea. I first heard about it when Pat Moynihan was in the Nixon White House in the early 1970s. He suggested instead of welfare programs we ought to have a negative income tax. He said rather than set up a lot of Government programs that tend to break down the family and spend money in bureaucracies, if people are working in America, and they are not making much money, let's give them some money. “We are a rich country. We have 25 percent of all the money in the world every year for just 5 percent of the people in the world. And some people are really well off. They have more than one house. They have big incomes. We all know that. And so it tugs at us to think we are so wealthy and we still have people who are not just sitting on a bench, but we have people who are working every day, sometimes two jobs, and they are not making enough to help their families. “That is what this debate is about. Pat Moynihan said in the early 1970s, and this Congress has said before: Let's try the earned-income tax credit. In other words, if you are working, and you are poor and you qualify, we will send you a check. The check comes from all of us. It doesn't come from this segment of society or that segment or just the small businesspeople. We all step up to the plate. “The taxpayer pays the bill for earned-income tax credit. Why didn't we have a hearing to talk about that? The tax credit is targeted to help low-income workers. It is only available for families making up to between 175 to 200 percent of poverty. For example, in 2006, a single parent with two or more children could not receive the earned-income tax credit if he or she earned more than $36,000. That is not a lot of money when you are trying to raise two children. “In comparison, according to the Congressional Budget Office, nearly 60 percent of a minimum wage increase would go to individuals living in families earning more than $36,000. So 60 percent of what we propose to do here goes to families earning more than $36,000, but an earned-income tax credit recipient could not receive money if they made more than $36,000. “The CBO study released this month also looked at the potential impact of increasing the minimum wage to $7.25 as well as possible increases to the earned-income tax credit. I put that in the Record a few minutes ago. If we increase the minimum wage as has been proposed, CBO says it would cost $11 billion, the smaller number, but only $1.6 billion of that $11 billion would go to working families living below the poverty line. CBO is bipartisan, and works for all of us. They went on to say that to send nearly the same amount of money to working poor families, $1.4 billion in assistance, we would only need to increase the earned-income tax credit by $2.4 billion. “So instead of a $11 billion or $18 billion price tag for the minimum wage, we could have done the same thing through the earned-income tax credit by spending $2.4 billion. Increasing the earned-income tax credit would target the same amount of money to poor families as raising the minimum wage at one-fifth the cost. “I have used my example of asking a professor at the University of Massachusetts or Wyoming or Tennessee, saying to his class: We have a large goal. We want to help people who are working and who are at the lowest rung of the economic ladder, as Senator Kennedy describes. What would be the best way to do it? Tell me, the professor would say, tell me how to get the largest amount of money to that group of people, how to do it at a reasonable cost, and tell me who should pay the bill. “I think if the answer came back that we should spend $18 billion or more, and it costs five times as much to do it through the minimum wage as it would through the earned-income tax credit, and in addition to that, doing it through the minimum wage sends the bill to a struggling group of people disproportionately, the small businesspeople of America, and lets off all the rest of us, I think that person would get an F. And I think we ought to, as well. “I am sure what is going to happen in this Congress is we are going to pass a minimum wage bill because we are a wealthy country and we want people who are working and who do not have as much to have more. That is our impulse. And I don't believe that bill will get out of this Senate without substantial assistance for the small businesspeople who are paying the bill, or disproportionately the bill. “My hope is that Senator Kennedy and Senator Enzi, some time before we bring up this minimum wage idea again, will say: Let's give ourselves the same kind of examination that I just suggested for those college students. Let's ask ourselves how to do this in an efficient, fair way that gets the money to the right people, instead of going around the country saying "minimum wage, minimum wage, minimum wage," only to find out some time later that we have a lot of disappointed, poor, working families around America who aren't helped by what we convinced ourselves was the right thing to do.”