THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Thursday, February 18, 2021

Minimum Wage and the Role of the State

     A few days ago in a “distributist” forum on FaceBook, someone posted a link to an article in Newsweek about fast food workers calling for a nation-wide strike to get a $15.00 minimum wage, “I Work at McDonald’s, Risking My Life Every Day. Don’t Thank Me. Pass a $15 Minimum Wage/Opinion.”

Chesterton opposed the wage system.


The Newsweek opinion piece made a number of assertions contradicting a study by a Princeton University economist, “What Minimum Wage Increases Did to McDonald’s Restaurants — and Their Employees.”  According to the Princeton economist, many company-owned stores (most franchise owners declined to respond, suggesting less positive results) did not suffer job losses . . . but the employees were no better off than before as the price level went up in response to the increased effective demand (basic economics).

The link, however, was posted in “Chestertonian Distributists.”  We commented that the philosophical problem we have is that the wage system is the antithesis of small ownership, which is what Chesterton was going for.

In response, one commentator declared that the government should “[t[ax businesses based on number of employees.  Knowing something of basic tax theory and principles, we responded to that.

The problem with taxing businesses based on the number of employees is it shifts away from the purpose of taxation (which is to fund government operations) to Keynesian “social engineering.”  This leaves the State in charge of the economy, which is not the goal of distributism as many people understand it.


Taxing businesses based on the number of employees also violates one of the basic principles of taxation: that taxes must be levied in accordance with the ability to pay.  A business with a large number of employees may be making a reasonable profit for a single owner and paying relatively low taxes because most revenue is going to pay the employees, a tax-deductible expense.  If taxes went up, the owner could easily end up owing taxes with no revenue to cover them.  That would mean firing workers until the company employed an affordable number.  Employees would not only not be better off or even break even as in the Princeton study.  They would go on welfare — if they were lucky.

Oliver Wendall Holmes


It is a legal aphorism that “the power to tax is the power to destroy,” and legislators must be very careful not to surrender to that temptation especially to gain political or personal ends — such as the votes that will presumably accrue to them for passing a wage increase.  As Justice Holmes declared, “The power to tax is NOT the power to destroy while this court is in session.” This is consistent with another principle of taxation that it must be fair.

There is also the problem that when the government controls or interferes in the economy (aside from enforcing contracts, prosecuting wrongdoers, and maintaining people as a last resort), it is effectively acting as the owner, and thereby abolishing private property.

As expanded capital ownership advocate Louis Kelso pointed out (as have [other] lawyers over the centuries), control and ownership are the same in all codes of law.  As Wesley Hohfeld noted in Fundamental Legal Conceptions, if A conveys all rights in an estate to B, but retains legal title, who is the real owner? B is. Title is meaningless without the rights that go along with it.  Socialists often claim that they do not abolish private property because they permit private individuals to retain legal title, but the community or the State controls it.  That is “private property” in name only; it is really common property.

The individual who thought businesses should be taxed based on the number of employees objected.  As he said (left unedited),

The purpose of government is the [sic] protect the people living under it. A government that fails to do that is illegitimate. Wage slavery is violence to the people forced to live under it, and if a government fails to address violence it is demonstrating its illegitimacy. I suppose some would argue that it is better for corporate interests to control the government, so as to avoid fascism. Some would argue that any action taken by the government is social engineering. And those people would be correct. I don’t see the difference between disincentivizing thieves who break into my house and disincentivizing businesses who fail to pay a just wage. As far as my initial suggestion, I believe some may take it as saying “large firms cannot exist”. Of course a large firm can exist, but to avoid taxation it would simply have to make its employees owners. Honestly, I feel I am discussing this with libertarians who larp [sic] as distributists.

Father Heinrich Pesch, S.J.


The most obvious problem here is the belief that if the government taxes a company based on the number of employees, it will not cease to do so if the employees are also owners.  Nor would it do anything to exempt from taxation employee-owned companies . . . since the company could simply accumulated retained earnings at a faster rate if the board of directors decides not to pay dividends.

We advocate making all dividends tax-deductible, which goes to the heart of the problem.  The only way a company could escape taxation (legitimately) would be to pay out all earnings as dividends.

The most troubling thing about the comment, however, was the assumption about the role of the State.  The commentator clearly took a different position. 

In Catholic social teaching, the role of the State is to care for the common good, that vast network of institutions within which people become more fully human. The State, as Fr. Heinrich Pesch, S.J., explained, is the “mediate” (indirect) cause of human welfare, not the immediate or direct cause.

Pope Leo XIII


Normally, the individual takes direct care of himself and his dependents.  Only in “extreme cases” as Leo XIII pointed out (Rerum Novarum, § 22), is the State to step in and care for people directly as an expedient, and then only so long as it is necessary.

To turn people into permanent dependents (slaves or children) of the State is an offense against human dignity.  The principle that the State is charged with the direct care of people is the fundamental principle of the “new things” as expressed by the “New Christian Prophet” Henri de Saint-Simon in his 1825 book, Le Nouveau Christianisme, and adopted as the basic theory of socialism.  It was condemned by the Church in the first social encyclical, Mirari Vos in 1832.

The bottom line here is that in our anxiety to right wrongs and establish charity and justice that we don’t throw the baby out with the bath.  You can’t establish justice for some by violting the rights of others.