How the Rich Murder the Poor

When mobs rioted in Ferguson, MO and burned down their own neighborhoods, commentators were aghast. They wondered how anyone could engage in such self-destructive behaviour.

But, to be fair to the impoverished people of Ferguson, they were merely imitating the rich and politically powerful as best they could. A new study shows that those who work to help the poor by raising the minimum wage have, in fact, been burning down poorer neighborhoods and destroying the businesses. Instead of using gasoline and a match, they use the law, but the effect is the same.

"Local minimum wage hikes cause restaurants to leave or shut down and deter new ones from entering, according to a new Harvard Business School study of the San Francisco Bay Area restaurant industry that contradicts the orthodox liberal view that steeply raising the cost of unskilled labor will not affect jobs or hiring.

More interesting, though, are the study’s findings about which restaurants are forced to leave by the higher wage floors. The authors compared rates of departure of restaurants across different Yelp ratings, and found that the policy hit low and mid-quality restaurants much harder than top-tier restaurants. “Our point estimates suggest that a $1 increase in the minimum wage leads to an approximate 14 percent increase in the likelihood of exit for the median 3.5-star restaurant but the impact falls to zero for five-star restaurants.” 

While a restaurant’s Yelp rating doesn’t correlate directly with its price range, this differential effect suggests that it’s easier for rich people to ignore the deleterious effects of minimum wage hikes. Virtually all of the most expensive restaurants in San Francisco have four or more stars; the city’s business and professional elite are unlikely to see many of their favorite high-end destinations pushed out of the city. Poor or middle-income workers are less likely to have the luxury of only frequenting top-rated establishments, not to mention that they are more likely to work at the restaurants that the hikes put out of business.

Similarly, the tax burden on the poor is far too high. Now, you may say, "Wait a minute! You always say the bottom 50% pay essentially nothing in taxes!"

That's true. The bottom 50% do pay almost nothing in taxes. But it isn't quite nothing. Study the chart below. Even a glance shows the bottom 20% of the nation pays 0.6% of the taxes. But, when you consider how much wealth the bottom 20% own, that 0.6% is way, way more than they can afford.

The top 40% pay over 88% of the taxes. And when you consider how much of the nation's wealth that top 40% owns, they still don't pay enough of the taxes.

Notice something about the graph. Even though the top 20% pay 85% of the taxes, the percentage of taxes paid as a ratio of wealth owned flips for everyone below the top 20%. The top one percent of wage earners pay 24% of the nation's taxes, but they own 34.6% of the nation's wealth. That's not a bad deal. Similarly, the top 20% pay nearly 68% of the nation's taxes, but they own 85% of the nation's wealth - they're still doing fine.

But then it flips. Everybody below the top 20% of wage earners actually pay a larger percentage in taxes than the percentage of national wealth they have access to. The second tier pays, in percentage terms, twice as much in taxes as they have in wealth. The third quintile is slightly worse: they pay, in percentage terms, more than double in taxes as they have in wealth. The fourth quintile only pays 2.5% of the taxes, but that's about a thousand times higher than they should be paying, when their wealth portion is considered.

And for the poorest of America's poor, the bottom 20%, Lord have mercy. They may only pay 0.6% of the nation's taxes, but they own absolutely none of the nation's wealth. That is, the bottom 20%, are actually suffering under an essentially INFINITE tax burden once you consider the fact that they own zero percent of the nation's wealth. The table below shows the problem. The bottom 20% has a divide by zero error.

	% Taxes Paid	% National Wealth Owned	Ratio of Taxes Paid to Wealth
Top 1%	24	34.6	69%
Top 20%	68.7	85.1	81%
2nd 20%	19.3	10.9	177%
3rd 20%	8.9	4	223%
4th 20%	2.5	0.2	1250%
Bottom 20%	0.6	0	Ꝏ

"But, wait! Don't the poor get a lot of money from the government?" Well, that depends on what you mean by "a lot". They bottom 40% get between 50% and 100% of their total income from government transfers, but even so, they actually get less government money than the rich do. As I did with the graph above, the graph below is simply a visual representation of the 2011 CBO data that I presented a year ago.

The rich and powerful control the commentary, so we hear a lot about how much the rich pay. And they do pay a lot - there's no question of that. But the poor aren't making out like bandits. They're barely making by at all.