What Hillary gets wrong on wages

Hillary Clinton suggests in her recently released "Plan to Raise American's Incomes" that "the defining economic challenge of our time is raising incomes for hardworking Americans." I believe that she has correctly identify the problem — President Obama's economic policies have failed working class Americans — but her proposed responses to this challenge are dishearteningly wrong.

Hillary Clinton
Joshua Roberts | Reuters
Hillary Clinton

According to the Bureau of Labor Statistics (BLS), while there were 530,000 more people employed in February than in January, over 90 percent were working part-time jobs. Not surprisingly, wages stagnated. It's been nearly seven years since the recession officially ended and good paying jobs are still hard to find.

The reason: Economic growth has been woefully insufficient to produce the good paying jobs working class Americans need. Measured by gross domestic product, economic growth since the recession officially ended has stagnated around a dismal 2 percent. Most recently, the fourth quarter of last year came in at 1 percent.

Clinton's plan also correctly notes that strong economic growth would move us "toward a full employment economy that creates jobs, pushes businesses to compete over workers, and raises incomes."

Unfortunately, rather than encouraging economic growth, Clinton's plan would increase the intrusiveness of government through taxes and regulation, furthering the failed polices of what has become an entrenched and tired progressive establishment.

For example, part of her plan is to punish corporate inversions, a practice where U.S.-based companies merge with foreign competitors and headquarter abroad to reduce their exposure to U.S. corporate taxes when bringing their overseas earnings to the U.S. Rather than lowering taxes to incentivize U.S. companies to remain here and invest their foreign earnings in the U.S., Clinton has proposed additional taxes, such as an exit tax on overseas earnings and a "clawback" of tax benefits.

But taxes are the problem, not the solution. American companies keep their foreign earnings overseas because U.S. tax rates, the world's highest, make them uncompetitive in an increasingly global economy.

Consider the rivalry between tech giants Samsung and Apple. Foreign companies like Samsung can invest their non-U.S. earnings in the U.S. without first paying tax to the U.S. government. On the other hand, American companies like Apple must pay American corporate tax on their foreign earnings before they can invest in the U.S. — the largest global market — putting them at a competitive disadvantage.

So, companies like Apple hold or invest those monies overseas. Other companies change their domiciles to more tax friendly foreign countries so they can bring their foreign earnings to the U.S. tax free like their foreign competitors.

American businesses are currently holding over $2 trillion in foreign earnings outside the U.S. (more than double Obama's stimulus package).

If the objective is to generate economic growth, the solution is to address what's incentivizing them to either move their domiciles or leave their overseas earnings overseas — the world's highest corporate tax rate — rather than exacerbating the problem by further increasing already onerous tax penalties.

Another example from Clinton's plan to increase working class incomes is her proposal to raise the federal minimum wage 66 percent, to $12 an hour from $7.25 an hour, a policy she advocates with great enthusiasm on the campaign trail. But, only a very small percentage of adults actually earn the minimum wage.

According to the BLS, of the approximately 132 million wage and salary workers in the U.S. in 2014, only 1.25 million, or about one percent, earned the federal minimum wage. Of these workers, only 550,000, were age 25 or older. That's less than one-half of one percent (0.4 percent) of total wage and salary workers. The remaining 705,000 minimum wage workers were between the ages of 16 and 24, generally working entry level jobs.

A $12 per hour floor on wages obviously would impact more employees than just those earning the federal minimum wage, some positively and others negatively. For those currently making under $12 an hour, it would dramatically increase labor costs accelerating the current trend towards labor cuts and automation, reducing the number of entry-level jobs our working class youth so desperately need.

If the point is truly to increase working class incomes, using economic growth to raise the ceiling would be far more effective than using the force of law to artificially raise the floor. According to the Census Bureau, median family income in the U.S. is about $53,500.

Business-friendly policies such as a simplified tax code and eliminating onerous regulations would enable economic growth creating the jobs and careers necessary to raise median income without a government mandate. Unlike a dramatic minimum wage increase, economic growth would benefit all American workers, rather than just the small percentage at the bottom who manage to keep their jobs.

While these are only two aspects of Clinton's plan, they demonstrate an inclination to address economic problems by tightening the fist of government, an approach that has never generated and will never generate growth.

We need a president who believes in economic freedom and understands that the greatest threat to that freedom is the consolidation of power in government.

Commentary by Andrew F. Puzder, CEO of CKE Restaurants Holdings. which owns Hardee's and Carl's Jr. He co-authored the book "Job Creation: How it Really Works and Why Government Doesn't Understand It." Follow him on Twitter @AndyPuzder.

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