MN Minimum: Half a Cent per Buck

Raising the minimum wage has become a progressive rallying cry.  While President Obama’s call to raise it to $10.10 per hour throughout the US is a longshot, given the Republican House, many states have either raised their wage or are considering it.  Minnesota is contemplating raising our minimum wage to $9.50 per hour by 2016, possibly indexed to inflation afterwards, and it is likely to pass.

What is the net effect on the economy?  An analysis of the net effects was prepared in December and with a little more math it boils down to something no worse than 0.5% of the total economy of the state.  It’s a way of looking at the proposal that makes the case against raising the wage much more difficult, although the effects are not felt uniformly throughout Minnesota.

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Head Count or Overhead?

What are you worth as an employee? A good check for anyone working is to add up what it takes to keep them employed and what their net value is to the company. A strong positive value means job security, something pretty valuable these days. But to do it right, what you cost the company is a lot more than just your salary. There are benefits, like health care and retirement plans, yes. The total cost is far more than even that and it can roughly be called the “overhead per employee”.

By the simplest calculation that’s more than 42% above what you take home, and it could be much more than that. And this overhead is one of the biggest barriers to increasing employment, reducing hours, and generally creating a better quality of life for working people in the US. Not to mention it puts us at a competitive disadvantage when it comes to creating high quality jobs.

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Corporate Profits – A Bad Thing?

Though the stock market is hitting new highs, many people are less than impressed. It’s commonly believed that the Federal Reserve’s $85B per month spending on mortgage backed bonds is all that is holding things up more than reality. That was backed by the big rally after Bernanke announced the program (aka QE3) would not “taper” in the near future, but continue.

But the truth is that corporate profits are at levels that they have never been before, meaning that there is underlying value in the stock market that is driving the rise. More importantly, corporate profit margins (profit over gross revenues) are also at unknown highs. It points to not only how we get out of the job shortage that is the reason the Fed keeps buying, but also the most obvious ways to close the budget deficit – and gives a little more definition to the boomtimes that probably like ahead in the 2020s.

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Where does Minnesota Stand?

The Minnesota Legislative session is less than a month away.  With the DFL in control of the House, Senate, and Governor’s office for the first time since 1990 we can expect that, at the very least, everything will operate differently than it has in a long time.  This is a good time to look around and back to a complete understanding of the state of the state budget.  The most contentious parts have always been taxes, so we should start with them.

As noted before, there is a structural deficit of $1B per year that is hidden by some awful gimmicks.  Fixing that gap will likely be easy, but it begs for more fundamental reform that Governor Dayton is eager to implement.  Before we get too far into it, two obvious questions stand out – where does Minnesota government income stand in relation to other states as well as where we have been historically?

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Taxing Solutions

The election is over.  The Sunday morning gab shows suddenly found a purpose, interviewing serious Senators and other concerned about the work that the new (and first old!) Congress will face – particularly the “Fiscal Cliff”.  A tremendous amount of movement on the Republican side shows that tax increases, particularly coming as reform in the deductions allowable, is definitely on the table.

Grover Norquist now knows what it’s like to be in a position where you can’t deliver the votes.  Must be a shocker.

The question remains, however, as to how much of the roughly $1.1 Trillion deficit will be tackled in year 2013, and how much will be spun out into the future.  No one expects the gap to close overnight, but instead are looking for serious progress towards balance.  More to the point, they want to assure markets that it won’t grow from here.  How much can they raise get us down the path right away?  Here is a short guide to some of the ways to look at it.

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