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The New Populism in Congress

And what it means for business.

11:00 PM, Dec 25, 2006 • By IRWIN M. STELZER
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EARLY IN JANUARY victorious congressional Democrats will swarm into the offices from which they have evicted their Republican foes. Republicans who have lost their seats will find reasons to get work as Washington lobbyists, rather than return to the hometowns they have always said they love. Republicans who have retained their seats will be moving to the smaller offices to which they had consigned the Democrats when they controlled office assignments. And made to make do with shrunken staffs. I was about to say, "And now on to the serious business of governing," but that would diminish the importance that congressman attach to office and staff size.

Still, after unpacking, Congress will turn to legislating as a frightened business community braces itself for a flood of hostile legislation, and nerve-jangling investigations.

The president has already announced his support for an increase in the federal minimum wage from $5.15 per hour, the level set a decade ago, to $7.25 by the spring of 2009. Congress wants to catch up with the many states that have put in place minima that exceed the federal level. Democrats also want to catch the populist wave that is rising in America. Voters feel that the middle class, or the average worker, has not shared in the economic growth of recent years. Wages have not risen as fast as profits, and the recent spate of multi-million dollar Wall Street bonuses has caused many workers to figure that some financial high flyers make as much in an hour as they make in a year. Throw in tales of rigged corporate compensation through pervasive backdating of options, and you have a political atmosphere in which a rise from $5.15 an hour to $7.25 over almost two years doesn't sound particularly generous.

Diana Furchtgott-Roth, a labor market expert and colleague of mine at the Hudson Institute, reckons that the rise will directly affect 8 percent of America's 152 million workers: the 2 million who now earn the $5.15 hourly minimum, and another 11 million earning between $5.15 and $7.25 per hour. Add fringes, and the effective minimum cost faced by employers will come to about $8, meaning, says Furchtgott-Roth, that "those who produce under $8 just won't get hired." Since 60 percent of workers now earning the minimum are employed in the restaurant industry, I asked a leading operator of food franchises what the effect of the rise might be. He responded that he plans to accelerate the introduction of new labor-displacing technology. Not good news for the many students he otherwise would employ.

The Democrats will next turn to the voters' annoyance with rising healthcare costs, more and more of which are being passed from employers to employees. Never mind that the prescription drug bill pushed through by the president already subsidizes purchases to the tune of billions of dollars; voters think drug costs are too high and the Democrats think they know what to do about it. They will pass a bill giving the federal government the power to negotiate with the pharmaceutical companies to buy drugs in large volumes at knock-down prices. "Goodbye profits and goodbye research on new cures," say lobbyists for Big Pharma. But they seem less certain than they once were that they can kill the bill in the Senate, or failing that, persuade the president to veto it.

Then there is what the president won't get. He won't get an extension of his tax cuts, which don't expire until 2010. Democrats see those as gifts to the rich and any vote for renewal as ignoring the new populist groundswell. They are unimpressed with the argument that business and individuals need to plan investments now based on the tax code as it will be in 2010 and beyond, and want to go to the country as opponents of the super-rich, who are providing grist for the mill of the leftish press by snapping up multimillion flats and the modern art with which to decorate them, and by splashing out for the expensive cars, clothes, and bling that have sent high-end retailers' profits soaring this Christmas season. For those for whom high-end isn't high enough, we have reported gifts of $1 million worth of flight time on private jets and, for the wife who has everything, a $20,000 face lift.