In 2019 the Federal Government’s income was $3.5 Trillion. This was the most income the Federal Government has ever had in one year. But, alas, they still couldn’t live within their budget. Could you?
Florida is raising the minimum wage (MW) to $10/hour in September of this year. Joe Biden is already pushing $15. With their administration having total control of the government this will happen. My column in December 2020 pointed out how buying power of the MW earners is immediately decreased by any mandatory raise in MW. Employers must compensate by raising their prices above the MW percentage increase to cover their additional tax charges. So, why the increase?
The government gets 39% of their total revenue from payroll taxes. That is $1.36 Trillion. Another 50% of their total revenue comes from income taxes, which is also tied to wages. Therefore, a 100% increase in the MW, $7.50/hour to $15.00/hour, would raise the income to the Federal Government by nearly $2.5 Trillion. You can see that the politicians talk about the wage earner, but they are really working to put more money in their coffers!
Inflation will follow quickly. The MW earners will unknowingly suffer the most. If you own hard-appreciating assets, like real estate, you will have a hedge against the volatile forces of the economy.
We could get to Runaway Inflation, as Germany did in the 1920s and Venezuela in the 2000’s. People were bringing money in wheelbarrows to purchase a loaf of bread. Some of you may remember President Gerald Ford’s attempt to mitigate US inflation with his publicity campaign buttons, WIN – Whip Inflation Now! I certainly do.
The Federal Government income in 1940 was $6.548 billion while minimum wage was 25 cents/hour. Fast forward eighty years later to 2020. The Federal Government income was $3.5 trillion while minimum wage was $7.50/hour. Therefore, during this 80-year period, MW increased 30 times while the government income grew 534.5 times. Other factors, such as population and inflation account for some of these staggering statistics, but the questions is, is this a precedent of what we can we expect in the future?
My recommendation is to buy hard-assets such as real estate now. Purchase the assets with cash or finance them and pay the note off with inflated dollars. Normally, I would say that counting on inflation would be a fools’ errand. But knowing the historic relationship between wages and inflation allows me to predict with certainty that inflation will occur. If the Federal Government sinks the economy into a depression all bets are off. Providing that a severe shrinkage of the economy does not happen, then inflation will happen, and prices of all goods and services will double quicky.
Randy Krise, CCIM is the Broker/Owner of Krise Commercial Group, Fort Myers, Florida.He may be reached at 239.633.8672 or firstname.lastname@example.org