Indiana Senator Dan Coats cherry-picks CBO data to oppose minimum wage hike

Also originally published on Examiner.com.  Slight editorial changes--GF

 

As shown on this blog, Indiana Senator Dan Coats drew from a biased think tank financed by the low-wage restaurant and hotel industry and operating as an adjunct to a right-wing public relations firm, the Employment Policies Institute, for part of his rationale for opposing a minimum wage hike on the Senate vote to raise the minimum wage to $10.10 an hour on April 30, 2014.  (See George Fish, “Indiana Senator Dan Coats’ minimum-wage views stem from biased source,” posted on this blog.)

 

But another rationale for Coats’ opposition comes from cherry-picking the data from a far more respectable, and economically respected, source, the Congressional Budget Office’s (CBO) February 2014 report, “The Effects of a Minimum-Wage Increase on Employment and Family Income.”  Senator Coats claimed, in his press release of April 30, 2014 justifying his joining with fellow Republicans to filibuster the minimum-wage increase bill that had passed the Senate by a majority, http://www.coats.senate.gov/newsroom/press/release/coats-statement-on-minimum-wage-vote-, that according to the CBO, a raise in the minimum wage according to the legislation, which would raise it to $10.10 an hour by 2016 and index it to the rate of inflation thereafter, would cost up to a million jobs in the U.S. and that only 19% of the  increased earnings of such a raise would benefit families below the poverty line.

 

But Coats only quotes selectively from what the CBO report says.  The full report, which is available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf, not only contradicts Coats, but presents a far more nuanced and sophisticated approach which actually notes that job loss will probably be only half of what Coats claims above, and the benefits from increased income actually spread out to a lot more people who, even if not below the poverty line, are only of middling income.  In other words, on balance, there is more benefit and less loss to raising the minimum wage to $10.10 an hour by 2016, according to the CBO, than Senator Coats’ alarums claim.  And it’s stated so directly in the CBO’s report.

 

For example, the CBO claims that the most probable job loss in 2016 from raising the minimum wage to $10.10 will only be 500,000 jobs, or 0.3% of the jobs available, though there is a ⅔ probability that the statistical spread of job loss could range from only a small number of jobs lost (or far less than 500,000) up to a million jobs lost.  (p. 1; Table 1, p. 2)  But, and this the CBO did not calculate, although it does so state,  the loss of job income caused by the furlough of 500,000 or so workers would, for an indeterminate number of them, be partially offset by increased federal benefits such as SNAP (food stamps), unemployment compensation, and lower tax liabilities. (See discussion on pp. 8-9 and 15-17; although much of this discussion on benefits is cast into how it would affect those still employed, it is easy to extrapolate on benefit changes for the unemployed from this discussion.) Nor would such workers necessarily be reduced to permanent unemployment; and this author really doubts that the loss of 500,000 extremely-low-wage jobs could be really seen as some sort of disastrous loss either to individual workers or to the economy.  Rather, it might be even a form of “liberation” from the very real misery of being trapped in jobs that cannot pay other than bare subsistence, if even that.  Coats himself says as much in his press release—that “The true problem plaguing impoverished Americans is…a lack of good job opportunities. “ Though he does state rather disingenuously that “The true problem plaguing impoverished Americans is not low wage rates”—as it the two didn’t go hand-in-hand!

 

The CBO report states that this increase in the minimum wage would increase the income of 16.5 million workers and result in $31 billion in added household income, which would benefit not only those presently below the federal poverty threshold calculated by the U.S. Census Bureau, but also significantly, those whose income was between one and three times the poverty threshold, with the largest gain, 2.8%, going to those households below the poverty threshold. Of this $31 billion income increase, 19% of it would go to families earning less than the poverty threshold. (The Average Real Family Income range from below the poverty threshold up to 2.99 times the poverty threshold prior to the minimum wage increase is from $10,700 or less up $51,400 annually; in other words, the poor and the middle class.)  Those whose household income was between three and six times (3.0-5.99) the poverty threshold (Average Real Family Income before the raise of $86,600 annually) would see little household income increase, while those households with incomes six and more times the federal poverty threshold (Average Real Family Income before the raise of $182,200 annually) would see their Average Real Family Income drop about $700 per year, or a decline of 0.4%, due to decline in business income and loss of stock value. (But, what, really, is an income decline of only $700 to a household earning $182,200 or more annually?)  So it’s easy to see here that there would be a slight but positive redistributive effect, certainly welcome in this time of decades-long rise in income inequality and income stagnation or actual decline for the poor and the middle-class, with the gains going to those already rich. Further, 900,000 individuals, out of the 45 million projected as under the poverty threshold in 2016 under current law, would be raised out of poverty. (Table 1, p. 2, Table 4, p. 14; text, pp. 1, 2, 3, 11.)   As the CBO report baldly states on p. 30,

 

In CBO’s estimation, overall real income would increase for families with income less than six times the poverty threshold but would decrease for higher-income families, because both the income losses for business owners and the increase in prices would have the greatest effects on those higher-income families.  In CBO’s estimation, about 1 percent of the reduction in real income would fall on people living in families whose income was below the poverty threshold, whereas about 70 percent would fall on people living in families whose income was more than six times the poverty threshold.

 

Further, this writer, who holds a university degree in economics, wishes to emphasize the CBO’s approach throughout its report is conservative, and does not, for example, attempt to calculate many broader effects of an increase in the minimum wage through increased consumption, such as a calculation of the ripple effect of the Keynesian multiplier throughout the economy.  (Which, technically speaking, is an adaptation of the mathematical formula for calculating the limit of an geometric series, based on the confirmed notion that, especially in the lower income ranges, most income is spent on consumption of goods and services, which provides additional income to the providers of such goods and services, who in turn spend a portion of this additional income purchasing other goods and services, and so on.   Consumer spending comprises 70% of the U.S.’ Gross Domestic Product, or GDP.  The CBO report does acknowledge the ripple effect, p. 21.)

 

From February to December 2012 the Washington Post ran a series of four articles on the extent and sources of Congress members’ wealth, and gave the individual wealth as of 2010 for such members, including Senator Coats, who is emerging onto the national Senatorial Republican stage as a leader, principally in opposing both the extension of unemployment benefits and the raise in the federal minimum wage.  Coats’ individual wealth is found at http://apps.washingtonpost.com/politics/capitol-assets/member/daniel-coats.  The Washington Post estimated Senator Coats’ financial worth in 2010 at $4.8 million, a 5% increase over 2009, of which $1.7 million was in cash and bank accounts alone, with no estimated liabilities.   Further, Senator Coats’ annual salary as a Congressional officeholder is $174,000, http://usgovinfo.about.com/od/uscongress/a/congresspay.htm; This salary is equivalent to $83.65 an hour, which is 11.54 times the wage of a current minimum wage earner, $7.25 an hour, and 8.28 times the wage of a minimum wage earner if the minimum wage were to rise to $10.10 an hour.

 

Thus, from both this and the earlier blog entry here on Dan Coats and his opposition to a minimum wage hike, Senator Coats’ “factual arguments” against raising the minimum wage rely on both a reliance on a clearly biased, questionable think-tank financed by the low-wage restaurant and hospitality industries, and a dubious, cherry-picking, reading of the CBO report on the impact of a minimum wage increase to $10.10 an hour.   Further, Senator Coats’ own personal wealth makes him at the very least an incongruous “champion” of low-wage workers and their jobs, and might even make him appear, same as in his opposition to the extension of unemployment benefits for the long-term unemployed, even as a hypocritical one.  As the other blog entry concluded, when Senator Dan Coats laments the supposed loss of employment stemming from an increase in the minimum wage, “Could it be that when [he] so laments, he does so with guile in his voice and crocodile tears in his eyes?”