John Stossel discusses minimum wage and its unintended consequences. It might remind you of Milton Friedman’s well know statements on the issue or the 50 years of Congressional research on the impact of minimum wage.

Harvard economics professor Greg Mankiw has been reviewing data recently released by the Congressional Budget Office (CBO), and this is what he found:

Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received. For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned.

The most surprising fact to me was that the effective tax rate is negative for the middle quintile. According to the CBO data, this number was +14 percent in 1979 (when the data begin) and remained positive through 2007. It was negative 0.5 percent in 2008, and negative 5 percent in 2009. That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.

I recognize that part of this change is attributable to temporary measures to deal with the deep recession. But it is noteworthy nonetheless, as other deep recessions, such as that in 1982, did not produce a similar policy response.

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