Library Worklife

Volume 3, No. 8 • August 2006

Salaries & Pay Equity

An Update on the Minimum Wage

By Alexander Hawley

In the past few months, the federal minimum wage level has been a hot-button issue in the political world. Since 1996¹, the minimum wage has been set at $5.15.² At this pay rate, a person working full time for a year would only earn $10, 712, living well below the national poverty line for a family of three of $16,600.³ Even if this worker is only supporting him or herself, the rising rent costs⁴ and soaring transportation costs would leave him or her with no ability to save money for the future.⁵

On July 28, 2006, the House of Legislatives passed HR 5970,⁶ which stated that the minimum wage would increase to $7.25 in three steps over the next three years. The first step is to $5.85 in January of 2007. The next increase to $6.55 would occur on June 1, 2008. The minimum wage would then become $7.25 on June 1, 2009.⁷ This bill was defeated in the Senate by a margin of 56-42 on August 3, 2006. The reason for the rejection comes from the fact that this minimum wage plan comes as one component of a larger piece of legislation, one that includes a provision that will make the estate tax (lovingly called the "Paris Hilton Tax") permanent before the current tax "sunsets" in 2010.⁸ The Democrats do not favor the cut to the estate tax because it could cost the government $753 billion dollars in lost tax revenue over the next ten years.⁹

While the federal government has reached an impasse on the minimum wage, all hope should not be lost. Many state governments have been working to ensure that their state's minimum wage rates are at a reasonable level for their residents. Currently, there are 23 states and the District of Columbia with state-level minimum wages that are higher than the federal level.

In 2006, six states, Arkansas, Maryland, Michigan, North Carolina, Pennsylvania, and West Virginia, passed legislation to raise their minimum wage above the federal level for the first time. In Arkansas, the minimum wage will be raised to $6.25 by October 1, 2006.¹⁰ In January 2006, the Maryland State Assembly overrode Governor Robert Ehrlich, Jr.'s veto and raised the minimum wage a dollar to $6.15. Michigan's minimum wage will be $6.95 in October and will rise, with an intermediate step to $7.15 in July 2007, to $7.40 by July of 2008.¹¹ North Carolina has raised its minimum wage by a dollar to $6.15 effective January 2007.¹² Pennsylvania's minimum wage will increase to $7.15 in businesses with more than ten employees by July 2007 while organizations with less than ten will gain the new minimum wage by July of 2008.¹³ West Virginia is the last state so far to increase its minimum wage. The state's minimum wage will increase in three steps to $7.25 by July 1, 2008. The first step has already occurred, moving the minimum wage up to $5.85. The second increase will raise the minimum wage to $6.55 on July 1, 2007. The last step, as noted above, will occur on July 1, 2008 and bring the minimum wage to $7.25. This will apply to public employees and firms with six or more employees in one location for a calendar week.¹⁴

In addition to the states that have just increased their minimum wage for the first time, Vermont, Hawaii, Oregon, Connecticut, New York, Washington, Florida, and Massachusetts enacted new minimum wage legislation that adds on to their already above-federal-level minimum wage rates. The highest minimum wage is in Washington with a rate of $7.63. Following Washington is Oregon with a rate of $7.50. Connecticut has set a minimum wage of $7.40. Vermont has a minimum wage rate of $7.25. New York and Hawaii both have the same rate of $6.75 while Florida's minimum wage rate is $6.40.¹⁵ On August 1, the Massachusetts State Legislature overrode the veto of Governor Mitt Romney to increase their already federal-level minimum wage from $6.75 to $8.00 by 2008.¹⁶

In addition to the aforementioned states, many others are currently working to increase the minimum wages. In Nevada, Arizona, Montana, Colorado, Oklahoma, Missouri, North Dakota, and Ohio, citizens are working to have the issue placed on the ballot in the November elections.¹⁷ Iowa, South Dakota, Nebraska, California, New Mexico, Delaware, Maine, and Rhode Island are all considering legislation that would increase their state's minimum wage rates.¹⁸ These are all battles that are currently being waged, so we will all have to wait and see whether or not workers will gain the extra money that they direly need to survive.

References

"Honk If You Support a Minimum Wage Increase," AFL-CIO NOW, http://blog.aflcio.org/2006/07/20/honk-if-you-support-a-minimum-wage-increase [accessed July 31, 2006]
This and subsequent references to the minimum wage, unless otherwise noted, are per hour.
2006 Federal Poverty Guidelines, Department of Health and Human Services, http://aspe.hhs.gov/poverty/06poverty.shtml [accessed August 2, 2006]
The average cost of rent is $657, meaning that $7,884 of the 10,712 would be spent on rent alone. Self-calculation from numbers at www.dataplace.org/area_overview/index.html?category=2 [accessed July 31, 2006]
The individual poverty guideline is $9,800. This would leave an individual minimum wage worker with very little financial wiggle room in the chance that they were injured or fell ill as they only have around 1,000 dollars of disposable income according to the bar set by HHS. As well, the level of the HHS poverty threshold does not account for the differences in rent and living costs in different locations throughout America.
"Washington D.C.: House Passes Minimum Wage Bill: Step Increases to 7.25 by July 2009," Pacific Magazine, www.pacificislands.cc/pina/pinadefault2.php?urlpinaid=23685 [accessed July 31, 2006]
"House Passes Minimum Wage Increase," Carl Hulse, New York Times 7/29/2006, www.nytimes.com/2006/07/29/washington/29cong.html?ex=1154318400&en=3a02f14630e08d4d&ei=5087%0A [accessed August 1, 2006]
The tax is called the Paris Hilton Tax because future heirs receiving inheritance would not have their taxes slashed by the current statute as passed in 2001. For those unaware, Ms. Hilton is an heiress to the billion-dollar Hilton Hotels Empire, and is expected to inherit more than $350 million. As the law currently stands due to tax cuts made by President Bush in 2001, an estate can only be taxed if it is worth more than $2 million per individual. This number will rise to $3.5 million in 2009. With the current construction of the tax cut, persons such as Ms. Hilton, when she gains her inheritance and becomes a prime benefactor of this tax cut, will have a much smaller tax burden, only being taxed 46% in lieu of the original 55%. Major changes arise if HR 5970 is passed and the estate tax is made permanent. First, the cutoff for taxation would rise in phases from $3.5 million to its maximum $5 million in 2015. In addition, there will be less incremental taxing. Between $5 and $25 million, an inheritor would only have to pay at the capital gains tax rate of 15% on that $20 million. After $25 million, all inheritance will be taxed at the 30% level. The previous system was very complex and is referenced by David Grossman in the below-referenced article. The tax break, under this structure, would put $91 million back in Ms. Hilton's pockets. Sources: "The Estate of the Estate Tax as of 2006," by Joel Friedman and Aviva Aron-Dine, Center on Budget and Policy Priorities, www.cbpp.org/5-31-06tax2.htm [accessed August 1, 2006]; "The New Estate-Tax Rules," Kiplinger Magazine , April 26, 2005, www.kiplinger.com/personalfinance/features/archives/2003/04/rules.html [accessed August 1, 2006]; "GOP Gives Paris Hilton $91M @ 2AM," David Grossman, MyDD, July 29, 2006, www.mydd.com/story/2006/7/29/5027/61829 [accessed August 1, 2006]; "Factbox- Details of U.S. House estate tax, wage bill," Reuters, July 29, 2006, http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-07-29T062852Z_01_N2884155_RTRIDST_0_CONGRESS-WAGE-TAXES-FACTBOX.XML [accessed August 1, 2006]
"Minimum wage, estate tax dead for now/ Unclear provision on tips a sticking point in Senate," Edward Epstein, The San Francisco Chronicle , August 4, 2006 www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2006/08/04/MNGIDKB4Q21.DTL [accessed August 4, 2006]
"Arkansas Gets A Raise!," Association of Community Organizations for Reform Now, April 10, 2006, http://acorn.org/index.php?id=10283&tx_ttnews[tt_news]=18521&tx_ttnews[backPid]=10282&cHash=37171c2d82 [accessed August 1, 2006]
"Michigan Gets A Raise!," Association of Community Organizations for Reform Now, March 28, 2006, http://acorn.org/index.php?id=10283&tx_ttnews[tt_news]=18504&tx_ttnews[backPid]=10282&cHash=2eba1de488 [accessed August 1, 2006]
"Pennsylvania and North Carolina Get A Raise!," Association of Community Organizations for Reform Now, July 14, 2006, http://acorn.org/index.php?id=10283&tx_ttnews[tt_news]=18717&tx_ttnews[backPid]=10282&cHash=5960a0b9f8 [accessed August 1, 2006]
Ibid.
Poster Compliance Center Advises All West Virginia Employers of Change in Mandatory Labor Law Posting; Revised Notice Includes Minimum Wage Increase, New Weekly Unemployment Benefit Amounts, Poster Compliance Center, July 19, 2006, http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20060719005755&newsLang=en [accessed August 2, 2006]
"Raising the Minimum Wage: Issue Brief," Center for American Progress, March 1, 2006, www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=1453117 [accessed July 1, 2006]
"Minimum wage hike veto rejected," Lisa Wangsness & Cristina Silva, Boston Globe , August 1, 2006, www.boston.com/news/local/massachusetts/articles/2006/08/01/minimum_wage_hike_veto_rejected [accessed August 1, 2006]
Center for American Progress. OH, MO, and CO are still gathering signatures for their ballot initiatives.
See Center for American Progress and "Democratic activists push wage minimum-wage hikes state-by-state," David Clary, Associated Press, July 17, 2006, www.boston.com/news/local/rhode_island/articles/2006/07/17/democratic_activists_push_minimum_wage_hikes_state_by_state [accessed August 1, 2006) Additionally, California, Delaware, Maine and Rhode Island have minimum wages above the current federal level. The increases would be on top of their current state level.

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