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Upping Overtime
One Reason Businesses Are Hoarding Cash

Among the reasons that corporate America is holding onto its cash: uncertainty over potentially game-changing regulations like the White House’s proposed hike of the overtime threshold. Its Republican opponents and business leaders are up in arms as the Administration considers introducing a rule that would more than double the threshold—and might do so as early as this week, Politico reports:

By law, any salaried worker who earns below a threshold set by the Labor Department must receive overtime. The current threshold of $23,660 lies below the poverty line for a family four. The proposed rule is expected to raise that to somewhere between $45,000 and $52,000—closer to the median household income—greatly expanding the pool of Americans who qualify for overtime pay.

The overtime threshold is not indexed to inflation and has been updated only once since 1975. It covers 12 percent of salaried workers. Boosting the threshold to $50,440 would bring it back in line with the 1975 threshold, after inflation. By one estimate that would give somewhere between five to ten million workers a raise.

Not that we begrudge anybody any extra money, but it is important to remember that intervention in the form of what is being proposed also has negative effects on the economy. Doubling the overtime threshold would also slow investment, slow job growth, and intensify the pressure on business to automate low value-added functions.

America certainly does need a wage policy that is reflective of our current environment. Increasing the real, after-tax income of the American people, especially for those in the middle of the economy, ought to be the top domestic priority for our government. But raising wages by decree is counterproductive—the most effective way is to increase demand for labor. The way to increase demand for labor is to promote conditions which are most favorable to business development, especially those which are favorable to the development of small business.

But if the GOP and centrist Democrats simply dig in their heels and resist these regulations without presenting an alternative, integrated approach to raising Americans’ real wages, then the politics could turn ugly. Tens of millions of American families are still feeling squeezed after the recession, and stagnant wages are a big part of the problem.

The trouble is, the Obama Administration’s late-stage mania for high-impact administrative change, while the natural response of an ideologically committed administration to the collapse of its congressional support, is a serious factor in increasing the uncertainty that deters investment and job creation. The problems the administration intends to fix are getting worse because of the unintended consequences of its actions. That makes the job and wage situation worse—and intensifies the public pressure on the government to do something.

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  • JR

    Wait, so the only thing that was missing from eliminating poverty is a government decree??? Man, I’m glad we have a visionary Leader like Obama to try this for the first time in history.

  • Boritz

    “…the uncertainty that deters investment and job creation. ”

    I distinctly remember reading somewhere around here that high end tax cuts are the job killers. I doubt uncertainty has anything to do with it.

    • FriendlyGoat

      You’re right. You have read that high-end tax cuts are job killers. I wrote it. Again, and again and again.

      There is really NOTHING as patently ridiculous as the title and opening sentence of this article. In the tax-cut economy, TAI is looking for any ridiculous excuse to explain why tax cuts didn’t pass down to workers over the past many, many years. Aha, “businesses are afraid of uncertainty of Obama’s regulations”. Bullsh*t.


      • JR

        You can’t create prosperity by government decree. Simply telling businesses that they must transfer their money to your preferred constituency has been tried by politicians for thousands of years. It has always failed, is failing now, and will fail in the future. The answer is economic growth.

        • f1b0nacc1

          You are wasting your time with this one. He believes that you can decree prosperity, and that the only reason that we don’t is because the GOP hates the poor.

          • JR

            Me and FG have our disagreements, that’s for sure. But I don’t think our views are that dissimilar. I also don’t think cutting taxes on capital is a key to prosperity. I just don’t think that increasing the size of government, the frequency of government decrees etc etc etc is a ticket either. So the real question, and the real problem, is what are we gonna do, now that the favorite trick of the Republicans (tax cuts) and Democrats (more bureaucrats) have seemingly stopped working. Effed if I know…

          • FriendlyGoat

            Stop ANY future high-end income and estate tax cuts and sensibly reverse some of those already done. You are right that they “stopped working”. Probably the last ones that worked well were in the administration of JFK.

          • JR

            Sure. As long as we freeze the size of the federal government and make firing federal workers easier than building the Pyramids. Don’t agree with you on estate tax. The idea of working your whole life so that your children and grandchildren can have a better life than you did is one of the most powerful motivators in the human psyche. People simply will not tolerate any government that deprives them of their ability to provide for their families as THEY see fit, how much THEY see fit.

          • FriendlyGoat

            People have been “tolerating” estate tax for a long time. Most people have no where near the size of an estate that is affected. Passing dynastic wealth from generation to generation in a small-population aristocracy is FAR more likely to “deprive most PEOPLE of their ability to provide for their families” than taxing some of it. The government, at least, DOES hire people. The charities enabled by philanthropy BECAUSE OF income and estate taxes, DO hire people. Money in speculation piles does not hire people.

          • f1b0nacc1

            Reducing the size of government (through across-the-board regulation and a massive downsizing of government agencies and their handmaidens in private industry) would likely have a far more favorable impact than any change in tax policy to be sure, and I agree that this is a better way to go as a start. Reducing the outrageous corporate taxes in the US (among the highest in the world) would discourage the current practice of ‘parking money’ overseas, while a huge simplification of the tax code (a flat tax is my preferred choice) would act to reduce the sheltering of money in unproductive assets that only server to distort the economy.
            There is no one magic bullet, but the biggest problem is the dead hand of government (all layers, but particularly the feds) which stifles economic development. We agree, for instance, that a big part of the problem is how hard it is to fire a government employee. None of that is written in stone, a good first step would be to abolish most civil service ‘protections’, and expose these leeches to reality. Reduce the reach of the government at the same time, and move back to the limited role that the Founders intended for it. For the twits who think that Eisenhower-level taxes (which also included so many loopholes and deductions that there were never effectively paid in the first place at the levels they were set), I offer the following deal….I will agree to the taxes of say, 1959 if YOU agree to the regulatory burden of 1959.
            Surprisingly, I have few takers for that deal.

        • FriendlyGoat

          One reading of this article would indicate that this facet of wage and hour laws was properly in place in 1975 and since has been “transferred to the preferred constituency” of the incorporated business community (itself).

    • JR

      Yes it would be. We just need to plant the magic money trees to pay for it. I’m in favor of that. People of Nebraska are for free silver, so I am for free silver. We’ll figure out the details later!!!!

  • Jacksonian_Libertarian

    This is wrong, the major reason businesses and banks are holding on to cash, is that in deflationary “Great Depression 2.0” money is gaining value, while profitable opportunities in this moribund economy are few and more risky. The M3 money supply is unchanged from what it was 7 years ago, despite the Fed creating about a Trillion new dollars in supply every year. The M3 money supply includes all of the normal money supply measures plus the lending that is going on, so banks aren’t lending, businesses aren’t borrowing, and the consumer isn’t adding any new debt.

  • Blackbeard

    As with everything Obama does it’s all politics. Obama will propose something that sounds good to typical low-information voters, the Republicans will, Obama hopes and expects, reflexively oppose it without a real alternative and presto more votes for Hillary. The sad thing is the Republicans will probably, once again, fall right into it.

    In the end will this hurt economic growth and low income families? Irrelevant question.

  • Pait

    There are 2 obvious major errors in this article. The 1st is of logic: it does not present any mechanism by which companies base all their spending and investment decisions on this particular uncertainty, which is a rather minor aspect of the whole set of conditions that determine costs and future sales.

    The 2nd error is of fact: corporations have been sitting on cash since the real estate bubble burst some 7 years ago, it is counterfactual to attribute that to a possible decision that the Labor department started considering recently.

    Sorry, this post is nonsense. I suggest retraction.

  • David Nelson Black

    Obviously the new Obama overtime policy and businesses hoarding cash (which they have been doing increasingly for years) have nothing to do with each other.

    Any businessperson will tell you that.

    • stan

      The regulatory nightmare that is Obama is why businesses hoard cash. Obamacare, Dodd-Frank, the EPA monster, threats of carbon taxes, minimum wage pushes. The new overtime policy is just one more in a long line of brain dead, left-wing idiocy that businesses have to deal with.

  • stan

    The regulatory nightmare that is Obama is why businesses hoard cash.

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