Bluegrass Beacon: Overtime rules, faulty assumptions

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I asked reporters who contacted me for comment regarding President Obama’s proposal to more than double the salary threshold for those getting overtime pay – from $455 to $970 – whether they also planned on including in their stories the number of people who could suffer financial harm by such a move.

They can’t.

No one knows, including the President and his supporters, who – in the same way – cannot back their claims that this policy will help millions of Americans and tens of thousands of Kentuckians.

Wouldn’t any thoughtful analysis of a mandate that could, according to the National Retail Federation, cost businesses $5.2 billion a year at least acknowledge that while some people may indeed be helped by such a policy, a downside does exist?

But proposals like this aren’t about careful economic analysis. Rather, they’re driven to appeal to a partisan emotionalism.

Otherwise, Obama’s labor-department prognosticators would acknowledge what any Econ 101 student at the University of Kentucky knows: When a tax or regulation is enacted, a process almost subconsciously kicks in whereby those most affected by such government coercion begin searching for ways to avoid paying Uncle Sam’s subsidized piper.

A stark example of this occurred when President George H.W. Bush agreed to raise taxes despite his famous “read my lips: no new taxes” pledge during the 1988 Republican National Convention.

Bush eventually compromised with congressional leaders.

Both sides agreed that raising taxes on items like aircraft, jewelry and luxury yachts would produce some quick revenue and not harm middle-class Americans because those are items generally purchased by wealthier people.

Like Obama’s labor gurus assume that employers will not adjust to avoid his increased labor “taxes,” Bush and Congress apparently assumed no change would occur in the purchasing practices of wealthy Americans despite the tax hikes.

You do know what assumptions make out of us, don’t you?

Instead of raising more money to effectively address the deficit, Bush’s plan backfired as the aircraft, jewelry and yacht industries laid off middle-class Americans who manufactured these items.

In the end, more money was paid out in unemployment benefits than was received in new tax revenue.

It might be worth noting for our progressive friends: wealthy individuals and companies don’t bear the brunt of tax increases or government wage mandates.

They simply pass the cost and consequences on in the form of pink slips for workers, reducing salaried managers to hourly workers and higher prices for customers – all of which negatively impacts the very people they design such policies to assist.

On the other hand, reducing government interference in the marketplace and increasing incentives for entrepreneurship – which was accomplished by welfare-reform legislation passed by a politically divided federal government in the 1990s, among other economic acts in recent history – can refuel and spark an economic recovery.

The Obama administration uses current employment numbers of salaried workers to support its claim that its new overtime rules will result in bigger paychecks for 4.7 million Americans, including 70,000 Kentuckians.

This assumes that employers don’t carry through with plans like those expressed by David Douglass, CEO of Nashville-based Back Yard Burgers, Inc., whom the Wall Street Journal reported was trying to “figure out an arrangement” that places many of currently salaried general managers on hourly pay “so their total compensation doesn’t increase significantly, even accounting for overtime.”

If that could happen to salaried general managers, what might be in store for Kentuckians who are hourly employees but who dream of a brighter future with a salary and an opportunity?

Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com. Read previously published columns at www.bipps.org.