Economics 101

Today we'll quickly cover a couple of basic points on wages and taxes:

First, wages. Minimum wage increases are always popular, and only a troll would oppose increasing it, right? But let's look at what actually happens. Raising employee wages increases costs for a company. That company makes a product or performs a service for which they collect a fee. That fee, or price, pays all of their expenses in making the product or performing the service, and it includes the profit the company earns as well. So, when wages have to increase by federal law, does a company a) sacrifice its profit or b) increase the price of its product? And when that price increases (yes, 'b' is the correct answer), what has happened to the buying power of your dollar? The product is not any different than it was, it just now requires more dollars to purchase. So the buying power of each dollar - not just for those who got their wages increased, but for everyone - just decreased, and we call that inflation. So some people are making more money, but the buying power of a dollar just got reduced for every citizen in society.

Second, taxes. "Stick it to the rich guy!" usually translates into higher taxes for both the wealthy and for companies. But can government truly increase the taxes paid by a company? On paper, yes. But in reality, that company has 4 choices when presented by the government with higher taxes: a) sacrifice its profit, b) reduce its other expenses, c) increase its prices, or d) some combination of 'b' and 'c.' For the sake of keeping this simple, we are going to ignore 'd,' but you can see the effects of that choice as we discuss the others. Choice 'a' is as laughable here as it was above (and ultimately, they'll go out of business). Choice 'b' means fewer employees, or fewer benefits for those employees, lower pay, etc. And in choice 'b,' who is truly paying this increase in taxes? Employees, who are individual citizens. Choice 'c' we discussed above - we all, as consumers, end up paying the tax.

So, when you hear about programs - health care, cap and trade, etc. - that propose to give you (or society) a benefit and charge someone else for the cost, remember our 101 class; 'someone else' actually means you.