Saturday, July 08, 2006

Simplifying the Minimum Wage Debate

In a series of recent blog posts here and in comments left on other blogs, I have tried to draw attention to the fact that expanding the Earned Income Tax Credit (EITC) is a much more effective and equitable way of helping the working poor than raising the minimum wage. Most advocates of raising the minimum wage that I encounter have never heard of the EITC. Of those who have, many seem to believe that the minimum wage and the EITC can work in tandem to help the working poor, a belief that completely ignores the fact that over two thirds of those who earn minimum wage do not live in poverty and that many of the working poor already make quite a bit more than the minimum wage.

Among those who acknowledge the efficacy of the EITC over minimum wage laws, the issue then becomes one of funding. To wit, "Where's the money for an expansion of the EITC going to come from?" Ironically enough, advocates of raising the minimum wage conveniently ignore this issue when it is asked of them, relying upon empirical studies that suggest that raising the minimum wage does not place an undue burden upon employers. Some go even further, suggesting that raising the minimum wage would raise federal revenue from payroll taxes, once again ignoring the fact that someone has to pay for those tax increases. To those who suggest that taxing employers with the minimum wage is somehow more equitable than expanding the EITC, this once again ignores the fact that the benefits of this tax do not go to the working poor, but to teenagers and spouses of people who do not live in poverty. In this sense, these people should be in the same class as volunteers and interns who are willing to work for no pay whatsoever to gain work experience that they can then use to go out and get a better job.

In a recent comment left on my blog, an anonymous poster muddied the waters once again:
"Again you see many pundits promoting the EITC not realizing that many of the working poor don't file income taxes to begin with - so they don't access this 'benefit' - how do I know? Having worked in the division of food stamps/medicaid for the state I'm in, one form of income verification is your most recent tax return - many don't have one. So let's stop looking at how to help the poor from the viewpoint of middle class America, because we will never ever understand poverty. My clients wanted the cash - they wanted the money on their pay so they could survive in the present."
For the various reasons set forth above, the fact that many EITC benefits go unclaimed does not argue in favor of raising the minimum wage. Rather, what this indicates is that advocates of raising the minimum wage who are aware of the EITC are hurting the working poor by confusing them. Indeed, these people are exploiting the working poor for political gain.

For matters dealing with employment or labor law consult the services of a qualified employment lawyer or a workers compensation lawyer based on your specific legal needs.

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Blogger Karen McL said...

Hey thanks for the comment- and here's an answer to your question. *smile*

This is a toughie (and while I DO not claim to be en economist) - but here's goes:

First - why is it and either-or proposition? Why not Both?

The expansion of the EITC would go a long way towards making low income folks keep more of their $. (Though you don’t address the *sales* taxes paid on income when it is spent as also disproportionately affecting the poor.)

But under the current Fed Min Wage...they don't make enough to support a family (Thus the "Deep Poverty" rise...nor to keep up with the inflation.) And this limit effectively makes a "Dollar Cap" (logically speaking) on what they can earn under the current Fed Min wage. Thus, the ETIC applies to what is EARNed and even IF they kept ALL their money under the EITC (which if i read correctly is only 40% tax savings) - this is insufficient to get them out of this Poverty range.

And as to raising the Fed min wage being a *hardship* for employers...that is Always the argument (let the Free Market set wages...yadda yadda) - but then we'd be similar to countries with virtually "sweat-shop" labor conditions of "disposable employees" working for pennies-per-hour to increase and maximize employer profits. The fair wages are a cost of doing business and the theory is that working folks deserve this minimum to survive.

If there is to be a Fair Wage (and a Fed minimum) for working people then it must be adjusted periodically for such inflation and RAISED to meet these minimum conditions. (Congress sees fit to give itself such Cost of living increases!)

That these policies can ALSO help working poor folks with the ETIC does not preclude raising that Fed minimum.

And to where does the money come from...? Sheesh - where have you been on the issue of the TAX CUTS benefitting the top 1% of the wealthiest folks...and the Repeal of the Estate Taxes (also the weathiest folks) - to roll back these tax giveaways to the richest of the rich would provide much income to our treasury LOST to benefit the already super-wealthy. If it's matter of allocating $$ to meet a minimum standard for all folks on earning a reasonable income...GEE - we need to provide MORE *taxcuts and help* to the already Weathiest on the Planet? Please!

4:43 AM, July 09, 2006  
Anonymous Anonymous said...

I am surprised that most analyst of the minimum wage do not address the effect of it on the low skilled unemployed. I am especially concerned on its affect on young urban men.

It is obvious that the minimum wage law deprives these individuals employment opportunities.

How can we add this issue to the debate?

5:42 PM, October 27, 2007  

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