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Romney’s timely proposal to raise and index the minimum wage

By Editorial Board,February 02, 2012

MITT ROMNEY has had a rough time explaining how he would maintain a social safety net for the poor. His recent remarks have suggested callousness. But amid the kerfuffle, he offered one good idea: specifically, he told the Associated Press on Wednesday that he backs indexing the federal minimum wage to inflation, just as he did when running for governor of Massachusetts a decade ago.

Currently $7.25 per hour, the federal minimum last went up in July 2009. As an anti-poverty measure, it is far from perfect. Among the relative handful of people affected — about 6 percent of the hourly work force — a disproportionate number are teenagers from middle-income families. At the margins, minimum-wage increases probably destroy jobs in small restaurants, landscaping and janitorial firms — as the city of San Francisco, which has just imposed a highest-in-the-nation $10.24 minimum, may soon find out.

Still, the minimum wage does put a floor under the incomes of many poor, unskilled laborers who support dependents and would otherwise have less bargaining power with employers. It is both a practical and symbolic expression of the idea that market competition is healthy — within certain very broad limits. This is why the minimum wage is popular and why it’s probably here to stay.

What business can legitimately demand is more predictability — an end to the sporadic, substantial increases that are a feature of the current system, under which the only way to raise or lower the minimum wage is through an act of Congress. In addition to the risk of periodic wage “shocks,” the status quo perpetuates the minimum wage as a contentious political issue, with organized labor constantly lobbying Congress to raise it and business pushing in the other direction. Mr. Romney has said that he favors “getting the political debate out and [likes] the idea of not having the huge jumps as we do now.” He is right on both counts.

Think of the minimum wage as the price of a basic economic input — low-skill, entry-level labor — plus the social value of preventing unfettered competition for that input. If government is going to set that price, it ought to do so in a rational, consistent manner.

Actually, a similar argument applies to government’s share of another key price: the tax it charges on a gallon of gasoline at the pump. Like the minimum wage, the 18.4-cent-per-gallon federal gas tax is hotly debated but essentially permanent, at least as long as the federal highway trust fund depends on it. Yet, like the minimum wage, gas taxes can’t go up without an act of Congress — the last one of which took place in 1993.

Between the shrinking real value of the tax and increasing auto fuel efficiency, the highway trust fund will become insolvent by fiscal 2013, according to the Congressional Budget Office. If the gas tax had been indexed to inflation in 1993, it would be 27 cents today, hardly intolerable, and the trust fund would be in better shape. The sensible thing to do is raise the tax to 27 cents and index it to inflation thereafter. Congress would have to demonstrate political courage — but only once. Any takers?