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Class Action

By Russ Smith | Posted 8/9/2006

It’s still relatively early in the square-off between Robert Ehrlich and Martin O’Malley, but the governor bested the mayor last week in a to-and-fro over the proposed U.S. Senate bill to raise the federal minimum wage. (The legislation, which combined the wage hike with reduction of estate taxes and business tax breaks, was defeated Aug. 3.) O’Malley, in a transparent gimmick, asked Ehrlich to co-sign a letter he sent to President Bush asking him to support a rise in the minimum wage without tying it to an estate-tax reduction. This is a toxic issue, especially in a Democratic state, but Ehrlich, to his credit, didn’t bite.

As reported by The Sun on Aug. 2, Ehrlich said of O’Malley’s demagogic stunt, "It’s classic class warfare. It’s all we’ve seen so far [from O’Malley]. I wish he would spend more time worrying about the city of Baltimore. Raising the minimum wage helps some people at the margin and hurts some people at the margin. It’s a lousy way to fight poverty." Ehrlich, whose veto was overridden by the General Assembly to raise Maryland’s minimum wage to $6.15 an hour--the federal law would’ve increased it to $7.25 by 2009--is correct: The rise is a "lousy" method to help lower-income workers.

What did O’Malley and his fellow "populist" Democrats plan to tell people who would’ve been laid off by companies who can’t afford a mandated increase in payroll? A higher minimum wage especially hurts small businesses, which are often barely profitable, as the owners are faced with either raising prices for consumers or reducing their work force.

I was surprised the bill was defeated in the Senate. It’s hard to believe that Democrats wouldn’t swallow the estate-tax reform, which affects a very small number of wealthy citizens, for the substantial minimum-wage increase, which would’ve been a potent campaign issue. Most Americans don’t really care about what happens with the estate tax, but the prospect of a larger paycheck--for those kept on the job--would be appealing. Rather, it’s the Democratic purists and editorialists who simply can’t abide the idea that a multimillionaire would be able to pass on, upon death, his or her already-taxed fortune to heirs.

O’Malley typified this tortured logic, by writing to Ehrlich, "The Congressional Republican leadership has endangered the prospects of this small minimum wage increase by linking it to a tax break for a tiny handful of America’s wealthiest heirs and heiresses, like Paris Hilton." Had the mayor wanted to make an original point, he might have named the offspring of people like Bob Dylan, Tom Cruise, or Barbra Streisand.

The Wall Street Journal, in an editorial posted on its web site April 17, effectively ridiculed the Paris Hilton trope, citing a survey by pollster Frank Luntz that 64 percent of Americans favor not only a reduction in the estate tax also but also its complete repeal. The writer said, "Democrats and their media allies like to point out that only a tiny of fraction of Americans--the despised rich--will ever pay estate taxes. . . . [Citizens] understand that the death tax isn’t just about economics. It’s about justice, and no policy that penalizes the thrifty and busts up family businesses belongs in our tax code, whatever its effects on Paris Hilton."

Some honesty would be refreshing from those who oppose reduction or elimination of the estate tax, especially those who fulminate at the New York Times and Washington Post. The Times, whose editorial page denounces tax cuts in general, and this one in particular, on a regular basis, has been controlled by the same family since 1896. In laying out its support of the confiscatory tax, the paper might include full disclosure. Such as the fact that the controlling owners of the Times spend a lot of time and money--like the majority of wealthy people--on estate planning and how making sure that death won’t jeopardize the succeeding generations’ stewardship of the company.

One way to stop the constant argument over this issue is for Congress to enact real tax reform, instead of merely tinkering around in election years. Bush promised such an effort but hasn’t delivered; that failure is a blot on his presidency. The United States needs a flat tax, one that eliminates loopholes and arcane deductions and treats all Americans the same, regardless of economic status. Certainly a necessary exception would be for families whose income falls below, say, $30,000 and a smaller amount for single people, but aside from that everyone is on equal footing.

Unfortunately, there are few politicians who have the courage to vigorously advocate such a plan. Republican presidential candidate Steve Forbes tried in 1996, just as Democrat Jerry Brown did in ’92, but since then there’s barely been a peep about a sweeping change that would not only benefit the economy but also put to rest the "class warfare" cries.

Sun columnist Dan Rodricks applauded the mayor on Aug. 3 for embracing the Paris Hilton cliché. Although he chided O’Malley for still not articulating a reason "why he wants to be governor," Rodricks nonetheless concluded by writing, "We don’t need more welfare for the wealthy. We need a decent minimum wage for the working poor. Hey, Republicans, get on it!"

He cites an Economic Policy Institute report that debunks the idea that a minimum-wage increase has an adverse affect on the employment practices of both corporations and small businesses. Had the recently defeated bill been made law, I doubt the people suddenly out of jobs would have much use for that study.

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