The Minimum Wage Makes the Affordability Crisis Worse

Higher labor costs push prices up, while fewer jobs and hours mean less money in workers’ pockets

By Jason L. Riley. Excerpts:

"In a forthcoming academic paper, Mr. Strain and Jeffrey Clemens analyze changes to the minimum wage in the decade preceding the Covid pandemic. They conclude that large increases harmed employment prospects for people with limited skills and work history—the same group who have experienced the most erosion in purchasing power since the pandemic. The authors estimate that “relatively large increases in minimum wages reduced employment rates among individuals with low levels of experience and education by just over 2 and a half percentage points.”

Between 2011 and 2019, California, New York state and the District of Columbia lifted their wage floors by 50%, 53% and 61%, respectively. New York City’s minimum wage more than doubled between 2013 and 2020 and will rise to $17 an hour next year, 13% higher than in 2023. The biggest jump in 2026 will occur in Hawaii, where the minimum will rise by $2 to $16 an hour, a 14% increase."

"the lowest-paid workers tend to spend a larger share of their income on food, housing, medical care and other necessities, which makes them far more sensitive to price increases. Minimum-wage mandates can make their situation even more precarious. The minimum wage for fast-food workers rose to $20 an hour in California in 2024. The Journal reported that in anticipation of the increase, restaurants halted hiring and scaled back hours. Teenage unemployment in the Golden State was already about twice the national average." 

Britain Pushed Ahead With Green Power. Its Grid Can’t Handle It.

Aging power infrastructure threatens ability of U.K. and others to capitalize on AI boom

By Rebecca Feng of The WSJ. Excerpts:

"countries around the world have raced to install solar panels and wind turbines."

"aging electricity grids that can’t handle the power."

"In Europe, a sweeping blackout in Spain in April highlighted how big power swings can overwhelm the system."

"Britain built a vast network of wind and solar farms and generates a higher proportion of its power from renewables than most places in the world. But it didn’t build the transmission lines needed to move all that clean energy around."

"Grid upgrades and associated costs add to what are already some of the world’s most expensive electricity bills. The average-size British household paid almost $1,500 for electricity last year, more than double the bill in 2008, government data show."

"American households pay $1,700 each year for consuming three times as much."

"Wind farms off the coast of Scotland are far from customers in the populated south, and leaving them constantly on risks frying the grid. The U.K. paid power generators $2.3 billion in the year to March to not produce electricity"

"a lot of wind farms are in Scotland, meaning the region generates far more power than it requires and needs to transmit some south, where most of the demand is. The current infrastructure isn’t sufficient to transport all that power." 

"The output from new solar panels and wind turbines depends on the weather, which doesn’t always align with demand. In the past, the grid operator could coordinate with coal-fired power plants to increase output when it knew Britons would return home from work and start turning on lights and TVs."

"Building a new transmission line can take up to a decade" 

Rich People Won’t Just Sit Still While You Tax Them

Higher taxes motivate the wealthy to move out of state and take their job-providing, revenue-creating businesses with them.

By Andrew Wilford of The National Taxpayers Union Foundation.

"As New York City Mayor-elect Zohran Mamdani prepares to take office, tax-happy progressive groups are eager to let you know that the idea that rich people move because of taxes is all a big myth. There are no consequences to raising taxes on rich people, they argue, because rich people will be rich no matter what. 

It’s a pretty picture, and a convenient one for those who have never met anything economically productive that they didn’t want to tax. The only problem is that the data proves it just isn’t true.

The latest media blitz comes in response to Mamdani’s campaign proposals to raise the income tax rate for top earners in the city from 3.9 percent to 5.9 percent. That’s in addition to statewide rates, which currently run as high as 10.9 percent. That means that, under Mamdani’s proposal, the wealthiest Big Apple residents would face state and local income taxes as high as 16.8 percent, even before federal taxes.

But never fear, say progressive groups such as Patriotic Millionaires — Zohran can tax to his heart’s content without fear of millionaire tax flight. They attempt to fortify their claims with research by the Center for Budget and Policy Priorities and tax-happy academics who make points that are technically true, yet entirely miss the point.

For instance, Patriotic Millionaires cites data showing that the millionaire population in New York grew in the wake of recent tax increases on the wealthy at the state level. But of course it did — the population of millionaires is constantly growing across the country due to economic growth and inflation. The more important thing, as the New York-based Empire Center shows, is that New York’s share of the nationwide millionaire population has dropped precipitously in recent years, from 12.7 percent in 2010 to 8.7 percent in 2022.

Others point to a spike in sales in the New York City luxury real estate market to suggest that “there is no Mamdani effect.” But that actually is an indication of the ongoing exodus, not a rebuttal. The New York City housing market has such a severe shortage of housing that when some wealthy New Yorkers pack up and leave, it’s no surprise that remaining millionaires snap up those luxury properties quickly. It’s no coincidence that inquiries from New Yorkers to the Miami Beach Ritz-Carlton for beachfront penthouses worth $10 million or more nearly tripled in the wake of Mamdani’s election.

Looking at the impact of net migration, the highest-tax states lose big among the wealthy every year. In the most recent IRS data, New York lost the second-most wealthy residents (shocker: California lost the most). On the other hand, Florida gained the most new wealthy residents from other states, followed by Texas.

If pressed further, progressive tax advocates may fall back on another true yet ultimately irrelevant point: that specific tax increases, generally speaking, raise more money than they lose in tax flight. And, indeed, Zohran’s two-percent income tax surcharge would likely leave the city with more revenue in the short term. But the cost comes in the long term, and has been coming for spending-addicted cities and states for some time. 

The National Taxpayers Union Foundation estimates that New York will have $3.8 billion less tax revenue to work with at both the state and local levels in 2025 because of out-migration. New York and New York City are losing that revenue year after year, shrinking the tax base and making future spending binges even harder to finance. 

As the cash cows in the top income brackets leave for greener pastures, there are only two options for politicians who treat the idea of “reining in spending” as an odd foreign custom. One is to increase taxes further on the wealthier New Yorkers who are left, which only exacerbates the problem. The other is to start to shift more and more of that tax burden onto the middle class.  

And guess what? A lot of those wealthy emigrants take their businesses — employers who provide jobs and pay a lot of tax revenue — with them. No state is losing firms to other states faster than New York. 

Even long-time New York City staples are looking elsewhere, as Mamdani’s election has managed to accelerate the already exploding growth of the Dallas counterpart to Wall Street (affectionately known as “Y’all Street”). Big names such as Goldman Sachs and JPMorgan Chase continue to shift more and more of their operations to the Lone Star state, and Texas now boasts more jobs in the financial services sector than New York does.

Progressives should not stick their heads in the sand about the consequences of their policies. Many wealthy New Yorkers will choose to stay after yet another tax hike from Mayor Mamdani, and some of those will stay after the next tax hike as well. But with death by a thousand cuts, it’s the steady bleeding that kills you."

Why Some US Indian Reservations Prosper While Others Struggle

From Alex Tabarrok.

"Our colleague Thomas Stratmann writes about the political economy of Indian reservations in his excellent Substack Rules and Results.

Across 123 tribal nations in the lower 48 states, median household income for Native American residents ranges from roughly $20,000 to over $130,000—a sixfold difference. Some reservations have household incomes comparable to middle-class America. Others face persistent poverty.

Why?

The common assumption: casino revenue. The data show otherwise. Gaming, natural resources, and location explain some variation. But they don’t explain most of it. What does? Institutional quality.

The Reservation Economic Freedom Index 2.0 measures how property rights, regulatory clarity, governance, and economic freedom vary across tribal nations. The correlation with prosperity is clear, consistent, and statistically significant. A 1-point improvement in REFI—on a 0-to-13 scale—correlates with approximately $1,800 higher median household income. A 10-point improvement? Nearly $18,000 more per household.

Many low-REFI features aren’t tribal choices—they’re federal impositions. Trust status prevents land from being used as collateral. Overlapping federal-state-tribal jurisdiction creates regulatory uncertainty. BIA approval requirements add months or years to routine transactions. Complex jurisdictional frameworks can deter investment when the rules governing business activity, dispute resolution, and enforcement remain unclear.

This is an important research program. In addition to potentially improving the lives of native Americans, the 123 tribal nations are a new and interesting dataset to study institutions.

See the post for more details amd discussion of causality. A longer paper is here."

Mitt Romney’s Case for Higher Social Security Taxes

By David R Henderson. Excerpt:

"Romney does advocate one particular tax increase that I’m deadset against. He writes:

I have long opposed increasing the income level on which FICA employment taxes are applied (this year, the cap is $176,100). No longer; the consequences of the cliff have changed my mind.

Notice that this isn't a tax on wealth. It’s a tax on income.

His basic argument is the Willie Sutton explanation for why he robbed banks: “That’s where the money is.”

But Romney doesn’t consider two things: (1) whether increasing that tax threshold is fair, and (2) what would be the consequences for the economy.

First, it’s not fair. Social Security is a bad deal for higher income people. They already get very little additional benefit for the additional taxes they pay. Raising the threshold would make that worse. I don’t say this as someone who would be directly hurt. It’s true that I still pay Social Security on my net business income. But that income is well below half of the current threshold and so I would likely never be affected directly. Rather, I say this as someone who thinks high-income people don’t suddenly lose their right to be treated fairly simply because they are high-income.

Second, raising the threshold would suddenly subject a lot of higher-income people to dramatically higher marginal tax rates. Romney doesn’t specify a threshold, but let’s speculate that he advocates raising it to $200,000. There are probably a few million US residents currently making between $176,000 and $200,000 annually. If they were self-employed, they would suddenly be paying a tax rate that is 12.4 percentage points higher than what they have been paying. If they are married and have earning spouses, they are probably in a 22% or 24% federal tax bracket. They also pay a 2.9% tax rate for Medicare. If they are in a state with an income tax, they probably pay a marginal tax rate of at least 4%.

So add up their current marginal tax rates, assuming the 24% federal rate, and you get 24 + 2.9 + 4 = 30.9 percent. That’s bad but not horrible. But then add the 12.4 percentage points and you get a total marginal tax rate of 43.3%."

Tax progressivity and output in the US

By João Tovar Jalles & Georgios Karras.

Highlights

• •
  We use a novel data set on US tax progressivity constructed by Borella et al. (2022).
• •
  We estimate its output effects in the US since 1970.
• •
  Tax progressivity reduces growth temporarily and the level of income per capita permanently.
• •
  Results are robust to controlling for changes in the tax rate.

Abstract

Compared to the economic effects of tax rates, those of tax progressivity have benefited much less from the recent Renaissance in fiscal research. In this letter, we use a novel data set on US tax progressivity constructed by Borella et al. (2022) to estimate its output effects since 1970. Our results show that tax progressivity reduces the economy's growth rate temporarily and the level of income per capita permanently. Both effects are sizable, statistically significant, and robust to various specifications and to controlling for changes in the tax rate.

Economic inequality does not equate to poor well-being or mental health

From Nature. 

"A meta-analysis of 168 studies covering more than 11 million people found no reliable link between economic inequality and well-being or mental health. In other words, living in a place that has large gaps between the rich and poor does not affect these outcomes, with implications for policy."

Also see No meta-analytical effect of economic inequality on well-being or mental health by Nicolas Sommet, Adrien A. Fillon, Ocyna Rudmann, Alfredo Rossi Saldanha Cunha & Annahita Ehsan. From Nature.

"Abstract

Exposure to economic inequality is widely thought to erode subjective well-being and mental health^1,2,3,4,5, which carries important societal implications^6,7,8,9,10. However, existing studies face reproducibility issues^11,12,13, and theory suggests that inequality only affects individuals in disadvantaged contexts^14,15,16. Here we present a meta-analysis of 168 studies using multilevel data (11,389,871 participants from 38,335 geographical units) identified across 10 bibliographical databases (2000–2022). Contrary to popular narratives, random-effects models showed that individuals in more unequal areas do not report lower subjective well-being (standardized odds ratio (OR_+0.05) = 0.979, 95% confidence interval = 0.951–1.008). Moreover, although inequality initially seemed to undermine mental health, the publication-bias-corrected association was null (OR_+0.05 = 1.019; 0.990–1.049)¹⁷. Meta-analytical effects were smaller than the smallest effect of interest, and specification curve analyses confirmed these results across ≈95% of 768 alternative models¹⁸. When assessing study quality and certainty of evidence using ROBINS-E and GRADE criteria, ROBINS-E rated 80% of studies at high risk of bias, and GRADE assigned greater certainty to the null effects than to the negative effects. Meta-regressions revealed that the adverse association between inequality and mental health was confined to low-income samples. Moreover, machine-learning analyses¹⁹ indicated that the association with well-being was negative in high-inflation contexts but positive in low-inflation contexts. These moderation effects were replicated using Gallup World Poll data (up to 2 million participants). These findings challenge the view that economic inequality universally harms psychological health and can inform public health policy."

Timothy Taylor has a longer excerpt.