CUMBERLAND — I love Maine. I grew up here, I work here, I have a home here – all of which, I believe, qualifies me as having a vested interest in seeing the state succeed.

As such, I was highly discouraged when I saw a graphic displayed in the July 5 edition of The Economist that had Maine colored dark maroon – the color the magazine assigned for an F grade for “Overall friendliness to small business.” This ranking must be fixed, and raising the minimum wage to $10.10 is, quite simply, not the way.

I do not care how demographically or geographically challenged a state is; there is no excuse for unfriendly business policies. Paraphrasing my father’s age-old advice, if all you have to offer as a state is apple picking, you better make your state the best apple picking region on planet Earth – every single apple picker and apple-related industry should be begging to start up in your state. If it takes a 0 percent sales tax rate, a 0 percent real estate tax rate, and a four-lane highway dedicated solely to transporting apples and related products out of the state, then so be it.

Maine is a gorgeous state with strong demand for summer-oriented real estate and phenomenal resources for outdoor sports such as hunting, fishing and skiing. While these industries are not of the North Dakota-oil-boom potential, we should foster them to the best of our ability.

When analyzing broad-based economic policy, it is easy to assume, as my high school economics teacher used to say, “ceteris paribus” – i.e., all other things held constant. In a free-market economy, the vast majority of market participants view the world through the lens of profit and loss; thus, virtually nothing is held constant.

Since the aggregate economy is made up of thousands of micro participants focused on profit and loss, I believe it is imperative to analyze broad-based economic policy – such as the minimum wage – through the eyes of its participants. With McDonald’s recently in the headlines, let’s analyze the impact of a minimum-wage hike on a McDonald’s franchise operator/small-business owner.

Consider that in 2013, McDonald’s Corp. turned 30 percent of its sales into operating profit – that is, profit after all expenses, but before interest expense and taxes – while its largest franchise operator, Arcos Dorados, turned only 12 percent of its sales into operating profit. In other words, 88 percent of revenue flows out the door before interest (if any) and taxes are paid.

Sixty-seven percent of revenue goes toward food and paper, occupancy and royalties – all of which are largely out of the operator’s control – while 21 percent of revenue funds payroll and benefits.

If 50 percent of the payroll and benefits budget is subject to the minimum wage, and the Maine minimum wage is raised 34.67 percent from $7.50 to $10.10, a Maine McDonald’s franchisee would see its operating profit fall to 8.36 percent of revenue. After a 35 percent tax rate, our franchisee would net 5.43 percent of revenue.

However, this not only assumes that the franchise can operate as efficiently as Arcos Dorados – a company with $3 billion more in revenue – but also that the owner has no debt to service – highly unlikely given hefty startup and real estate costs.

This is precisely the type of analysis that will take place all across the Maine economy, and by many businesses operating with far smaller operating margins than a McDonald’s franchisee. It is not a coincidence that both Maine and California operate with minimum-wage rates higher than the national average and that both states received an F ranking from The Economist for small-business friendliness.

As a state, we need to build a vibrant, self-fulfilling business environment that 1) fosters our current small-business base, 2) attracts out-of-state businesses, big and small, and 3) forges a high-functioning, highly regarded education system that is joined at the hip with the Maine business community.

Why not work toward attracting Caterpillar, Deere or Volkswagen to build manufacturing plants here? Why not work toward building a Maine “Silicon Valley” anchored by our very own Fairchild Semiconductor? The possibilities are endless, but policies such as the business-unfriendly minimum-wage hike stifle our state’s great potential.

— Special to the Press Herald

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