The article discusses the effects of high property taxes on the level of investments in Baltimore. The exorbitant tax rates, 50% higher than the typical national rate, have led to a significant decline in employment and population. This increase in property tax rates is partly due to the ‘Curley effect, whereby developers are taxed heavily and the proceeds distributed to selected voting blocs in an effort to woo voters. However, the policy deterred investment in capital assets, increasing the level of unemployment in the city. Increasing the minimum wage would be the most effective way of dealing with Baltimore’s situation.
An increase in the minimum wage has various demerits. For instance, increasing the minimum wage makes it more expensive for small firms to hire employees and retain the existing ones, which may increase layoffs and decrease hiring rates. Additionally, such a move may reduce the profits received by business owners. In turn, some business may be shut down.
However, increasing the minimum wage acts as a surreptitious tax increase. More employees will receive an increase in their wages, thus more people will enter the taxable income bracket. Consequently, there will be more taxes collected at all levels of government. Additionally, the level of disposable income win the economy will increase, thus increasing the level of consumption, savings and investment. Whatever decision the people choose, whether it is increasing consumption, savings or investment, the will pay more taxes in form of sales and excise tax, income tax, property tax or capital gains tax.
This overall effect will be more revenue for the government from workers who remain employed. This extra revenue may be used to subsidize property taxes, thus further increasing investment and employment rates. Additionally, increasing the minimum wages increases labor productivity since employers will require the value for their money. The net effect will be an improvement in the economy, with high levels of investment, employment, labor productivity and per capita income, as well as improved quality of education, enhanced public safety and social and economic mobility.