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Union Plus Education Services

The Crowd That Doesn't Want to Raise the Minimum Wage Is Really Out of Touch
Posted On: Mar 15, 2014

People who oppose raising the minimum wage are out of touch. That's the key message to be taken from a new poll released Thursday. The poll, conducted on behalf of Small Business Majority, shows that 57% of small business owners support raising the minimum wage to $10.10 an hour. Most of the respondents said that the higher wage would increase consumer demand and make them more competitive with large chain retailers like Walmart.

Nearly half of the poll respondents were self-identified Republicans or Republican-leaning, compared to only 35% who identified with Democrats. Overall, 27% strongly favored raising the wage to $10.10. The survey included a random sample of small business owners and was conducted by Greenberg Quinlan Rosner in February. Small businesses were defined as those with fewer than 100 workers. Several of the respondents spoke on the record:

“I welcome a nationwide increase that would pay all workers enough to survive,” said Zach Davis, owner of The Penny Ice Creamery in Santa Cruz, Calif., on a call with reporters Thursday. “An increase to the minimum wage would allow us to compete far more effectively with bigger chains,” Davis added. That sentiment was echoed by Kris Kleindienst, co-owner of St. Louis-based Left Bank Books. “If big businesses have to pay an increased minimum wage as well, it would be much easier for us to compete for a talented workforce.Here’s how the House Republican plan would promote even more outsourcing: it would allow outsourcers to pay almost no U.S. taxes on their overseas profits when they send jobs overseas. To be precise, outsourcers would be taxed at a rate of 1.25% on most offshore profits. Obviously, if outsourcers can pay taxes at a lower rate when they send jobs overseas, they’re going to have more of an incentive to outsource.

Here’s how Obama described this terrible idea during the 2012 campaign:

“There’s a new study out by nonpartisan economists that says Gov. Romney’s economic plan would in fact create 800,000 jobs. There’s only one problem: The jobs wouldn’t be in America. They’d be in other countries. By eliminating taxes on corporations’ foreign income, Gov. Romney’s plan would actually encourage companies to shift more of their operations to foreign tax havens, creating 800,000 jobs in those other countries.”

The technical name for this idea is a “territorial tax system.” Why is it called “territorial”? Because the United States would only tax American corporations on their profits within the “territory” of the United States, not on their profits overseas.

A “territorial tax system” is a terrible idea for lots of reasons. As Obama explained during the 2012 campaign, it would encourage job creation abroad instead of at home, lowering U.S. wages in the process and opening up opportunities for multinational corporations to avoid paying their taxes by playing accounting games to pretend their domestic profits are earned in foreign tax havens.

Camp claims several features of his plan would keep multinational corporations from avoiding their taxes.  However, as Citizens for Tax Justice (CTJ) explains, “[I]t is impossible to believe they would work since his overall proposal would dramatically increase rewards for any American corporation that can make its U.S. profits appear to be earned in offshore tax havens.”

Unfortunately, the Republican outsourcing plan has not gotten all the bad press it deserves. Why not? Partly because it has been competing for attention with all the other problems with the House Republican “tax reform” proposal. For example, the proposal would increase the deficit over the long term.

In February 2014, the AFL-CIO took a strong position against a “territorial tax system,” arguing that it would increase the tax incentive for shifting jobs and profits overseas. Instead, the AFL-CIO called for the elimination of all—not just some—of the existing tax incentives for outsourcing. What does this mean in practical terms? It means taxing offshore profits no differently than domestic profits—that is, taxing both kinds of profits at the same rate and at the same time.  Legislation that eliminates all tax incentives for outsourcing would generate $583 billion over 10 years, and this is the benchmark by which any international tax reform proposal should be measured.

Although prospects for the House Republican “tax reform” proposal are uncertain, the idea of a “territorial tax system” has wide support among Republicans in Congress, was recently endorsed by Sen. Marco Rubio (R-Fla.) and has attracted interest from some Democrats as well. It would be very dangerous to allow this terrible idea to pick up steam

Kenneth Quinnell

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