Tuesday, July 18, 2006

Young Philly Politics on the Minimum Wage vs. the Earned Income Tax Credit (EITC)

In my ongoing attempts to challenge various advocates of raising the minimum wage with my assertion that an expansion of the Earned Income Tax Credit (EITC) would be a much more efficient and equitable way of helping the working poor, I engaged some of the most well-informed people I have yet encountered on the blogosphere over at Young Philly Politics. I was particularly amused by the tongue-in-cheek commentary of "Price" who pointed out that my views on the EITC were contrary to what would be expected of a libertarian:
"Internet Esquire, let me congratulate you for having the courage to call yourself a libertarian while also supporting the EITC. It is after all income redistribution! I hope the boys still let you in the lodge or cement bunker or wherever you people socialize. Eewh! Socialize! Sorry I meant freely associate."
That's a pretty clean bust, and I'm sure that I'll have some 'splaining to do the next time that I "freely associate" with other libertarians whom I meet at the next Federalist Society banquet or barbecue. Those libertarians who know me well usually just dismiss my libertarian heresy as part of my penchant for playing the Devil's Advocate.

Speaking as a lifelong libertarian, I think that the EITC is an excellent way of protecting the most vulnerable segment of society from oppressive taxation. Indeed, given that the working poor spend most of their income on the necessities of life and are subject to all sorts of hidden taxes, I'd be very surprised to find that there is any income or wealth redistribution that actually occurs under the auspices of the EITC. To the extent that such income redistribution actually does occur, I think it can be justified by virtue of the fact that the EITC significantly reduces other forms of entitlement spending. In sum, while the EITC is not a perfect solution, it is a good solution, and the perfect is often the enemy of the good.

Earlier on in the discussion over at Young Philly Politics, "Price" pointed to some compelling statistics which indicated that raising the minimum wage in Pennsylvania would raise the income of quite a few low income households. I responded by pointing to a paper published by the United States Department of Health and Human Services which indicated that those who benefit from a raise in the minimum wage are offset by those who lose out. To wit:
[M]inimum wage hikes increased poverty exits but also increased the probability that previously non-poor families entered poverty. . . . Overall the tradeoffs created by minimum wage increases, more closely resemble income redistribution among low-income families than income redistribution from high-to-low-income families."
Astonishingly, Price had actually read that paper and pointed out that it was a literature review. He then went on to present and critique the original research. Even so, I don't think that he disproved my point; he simply watered it down to the point where it was unconvincing in that it didn't have the same force and effect that it would have had had it gone unchallenged.

In sum, after very careful consideration and review of the rebuttal set forth by "Price," I am still inclined to dismiss arguments in favor of the minimum wage as being red herrings. To wit, assuming that your objective is to help the working poor, the EITC is a much more effective and equitable way of doing so. The best that advocates of raising the minimum wage can prove is that modest increases in the minimum wage have no negative impact on the economy. Beyond these modest increases, there is a clear and measurable impact on the economy. Meanwhile, the EITC remains a very well kept secret, even among economists.

Before I responded to "Price," "deggeh" posted an eloquent and perspicuous exegesis of the many advantages that the EITC enjoys over the minimum wage, which you can find here. Shortly thereafter, the economic debate between "Price" and "deggeh" became too sophisticated for most laypersons to understand, so I saw very little benefit to my continuing to chime in on the discussion since my primary objective of introducing the EITC into this particular discussion had already been achieved.


Blogger HM2 Viking said...

I added your blog to my blogroll. Please stop by for another visit.

3:00 PM, July 18, 2006  
Blogger Pondering American said...

Cool blog, I needed someone like you on my blogroll. Stop by sometime

3:12 PM, July 18, 2006  

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