Obama's 'jobs deficit' swells to 4.2 million

Created on July 21, 2009

Jobs Killed by Higher Minimum Wage and Taxes on Small Business

By Ken McIntyre

With unemployment edging toward 10 percent nationwide, this summer isn't such a hot time to raise the minimum wage. Owners of on-the-edge small businesses, for instance, hardly need another obstacle to hiring more help.

Yet that's what employers will get as of today, July 24. The cost of hiring unskilled workers will jump 10 percent, to $7.25 an hour, as the increase in the minimum wage passed by Congress two years ago fully kicks in.

"This minimum wage increase will artificially increase costs for struggling businesses at exactly the wrong time," labor policy analyst James Sherk of The Heritage Foundation writes in a new paper. "And as a result, it will cost 300,000 teenagers and young adults their jobs."

Clearly, this is no way to close the "jobs deficit" that has grown each month since President Obama made his final push for a $787 billion economic "stimulus" to create or save 3.5 million jobs.

As of June 30, employers had shed 4.2 million jobs since January. Nearly 7 million jobs will have to materialize to meet the president's prediction that stimulus spending approved by Congress would spur total employment to more than 138 million jobs by the end of next year.

"When Congress passed the minimum wage increase, unemployment was low," Sherk notes. "Now, in the middle of a deep recession, unemployment has risen sharply for the least skilled workers. Wage growth has flattened. Congress should postpone this minimum wage increase until the unemployment rates of teenagers and unskilled adults return to normal."

If some in Congress get their way, though, a minimum wage of $7.25 would be the least of a small business owner's worries.

Rep. Charlie Rangel of New York, chairman of the House Ways and Means Committee, has proposed a surtax of 5.4 percent on 2 million high-income Americans -- to pay for the Democrats' $1.3 trillion health care bill.

About half of those taxpayers, 1.2 million, own small businesses -- as Heritage's state-by-state table shows.

The result would be Americans paying sky-high, European-style taxes at top rates that -- combined with local and state taxes -- exceed those of economic competitors such as Germany and Japan.

"The large tax increases proposed by Charlie Rangel would harm over a million small businesses, making them less likely to expand and hire new workers," Heritage senior policy analyst Rea S. Hederman Jr. writes.

"The Rangel surtax and the expiration of the Bush tax cuts means the top marginal rate would increase by over 28 percent in the next two years. Much of this burden will fall on small businesses, which will pass those costs onto consumers, employees, or both."

Not only that, but the president would have the power to raise the surtax higher.

"The House health care bill also would force small businesses with at least $250,000 in payroll to provide health insurance or pay a tax penalty up to 8 percent of payroll," Hederman adds. "Almost all small businesses and employees would be affected. The mandate increases the cost of each additional worker, making it less likely that small businesses will hire new employees or give raises to existing workers in a weak economy."

None of this sounds like a prescription to close that "jobs deficit," Mr. President.

The Heritage Foundation offers sensible conservative solutions to reviving the economy and reforming health care.

Ken McIntyre is the Marilyn and Fred Guardabassi Fellow in Media and Public Policy Studies at The Heritage Foundation.