Bernie Sanders is now leading in many polls to be the democratic nominee for President in 2020. Considering this fact, I pondered what I knew about Bernie’s tax plan. Some, but, not enough. So, I started searching. I searched for “Bernie Sanders tax plan” (yes, I omit apostrophes when I search on Google). The first link was the detail-less plan that highlights, as I have written about before, how if you are sick enough, Bernie Sanders favors redistribution that favors millionaires. The second link was a page entitled “Income Inequality Tax Plan – Bernie Sanders”. I clicked on the link, recalling Bernie has proposals for levying taxes on companies that pay their CEOs much more than their workers. But the image the Sanders campaign decided to pair with this article was the one to the left—of Sanders with a group that favored a $15 minimum wage in front of a McDonalds. What does this have to do with taxes?
I believe the Sander’s campaign was highlighting that McDonalds pays their workers relatively little, while their CEO is well-compensated. But when I saw the image, the first thing I thought of was “Indeed, the minimum wage is like a tax.” The minimum wage is a government mandated additional cash outflow that would in many cases not exist from firms, and can be seen as a form of redistribution. There is, obviously, a lot of work on the effect of the minimum wage on employment outcomes.
A related question is who actually pays for those increased wages. It could be that workers themselves bear some of the burden, if other benefits are cut, or if overall employment decreases as a result of the minimum wage (through increased automation, for which there is evidence (my local McDonalds has self-service Kiosks, as do many other outlets, and Flippy may even take over some of the backroom cooking)).
It could be that shareholders are made worse off, as the increased cash flows to employees simply decrease the residual cash left for shareholders. And, finally, it could be that customers foot the bill, as firms increase prices to pay the extra wages (prices that, economy-wide, the workers benefiting from the increased minimum wage would end up paying, perhaps more than their share of if low-income people disproportionately buy goods produced by low-income people). Indeed, a recent paper by Peter Harasztosi and Attila Lindner in the American Economic Review find that 75% of a minimum wage increase in Hungary was paid by customers, and 25% by firm owners.
We might think of that 25% paid by firm owners as being paid by wealthy owners of capital. In some cases, that is certainly true. However, in a recent NBER working paper by Lev Drucker, Katya Mazirov, and David Neumark, they use administrative tax data from Israel, and find that business that employee a lot of minimum wage workers are likely to be owned themselves by relatively lower-income individuals, and that as a result, increases in the minimum wage fall particularly on relatively low-income business owners.
While Sanders likely did not intend for his image to evoke the notion that minimum wages are like a tax, which may fall disproportionally on relatively lower income people, there is some evidence that this is the case.
