Tuesday, July 11, 2006

Why Is the Earned Income Tax Credit Such a Well Kept Secret?

The movement to raise minimum wage laws in the United States remains very newsworthy, and yet it is an issue that remains steeped in ignorance. On the one side are the vast majority of economists and libertarians who oppose minimum wage laws on general principle. On the other extreme are liberals who argue that people who work full time at minimum wage should not be living in poverty. Those who oppose minimum wage laws are characterized as greedy by their opposition, and those who favor them are characterized as misguided. Almost entirely missing from this ongoing debate is any mention of the Earned Income Tax Credit (EITC).

I recently performed a Google Web Search for "minimum wage" (in quotes), and my query returned no less than 29,400,00 search results. When I added the search term "EITC" (without quotes) to my query, it returned 126,000 search results; when I replaced the search term "EITC" with "earned income tax credit" (with the quotes), it returned 231,000 search results. On its own, "EITC" returned 1,060,000 search results, whereas "Earned Income Tax Credit" returned 1,740,000 search results, and there is apparently an overlap of about 383,000 search results for "EITC" and "Earned Income Tax Credit."

Using these numbers as a rough estimate, less than one percent of the people who are talking about raising the minimum wage are discussing the alternative of the EITC, and less than four percent of the people who discuss the EITC mention it as an alternative to the minimum wage. The numbers are even more stark for Google News Search and Google Blog Search. And when I ventured into the blogosphere to ask high profile bloggers how they would respond to the position that an expansion of the EITC would be a much more effective and equitable way of helping the working poor than raising the minimum wage, most of them had never even heard of the EITC. Quite a few of them contacted me by private e-mail to ask me to provide them with more information before they responded publicly.

This ignorance is not limited to the blogosphere. In fact, even among the most well-informed and well-educated scholars, the EITC remains a well-kept secret. To wit, according to Dr. Andrew Leigh of the Australian National University, "While Econlit contains over 2000 articles and books on minimum wages, and over 150 on Earned Income Tax Credits (EITCs), only 20 articles or books deal with the two topics together." This is where the problem begins and ends, as few people take the time to perform independent research on a topic. Even the most well-informed and well-educated person prefers to rely upon experts.

If you have a serious tax delinquency you may want to enlist the services of a tax attorney. Or if you are starting up talk to a Business lawyer to make sure you have a solid accounting system in place.

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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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Monday, June 26, 2006

The Problem with Minimum Wage Laws

I finally got a response from David Sirota's apologists over at the Working for Change website regarding (1) my suggestion that campaign contributions be taxed and (2) my claim that the Earned Income Tax Credit (EITC) is a more effective vehicle for helping the working poor than the minimum wage. Strangely enough, no opposition has yet surfaced to my proposal to tax campaign contributions. However, my assertion regarding the effectiveness of the EITC is being challenged by the age old question, "Where's the money going to come from?"

To be clear: The effectiveness of the EITC is not in doubt, and most people seem to agree that giving the working poor a break on their income taxes is a GoodThing(TM). However, the dialogue reaches an impasse when an advocate of the minimum wage asserts that a raise in the minimum wage would put more money in the hands of the working poor than the EITC ever could. Of course, this begs the same question that was asked of me, "Where's the money going to come from?"

In an article published on the Slate website on July 9, 2004, Steven Landsburg convincingly argued that there's less and less empirical evidence to suggest that raising the minimum wage will hurt minimum wage workers. Indeed, as a general rule, an increase in the minimum wage will be very effective at transferring wealth from employers to employees. However, the problems with this transfer of wealth are the facts that (1) over two-thirds of minimum wage workers are not living in poverty and (2) the financial burden of helping the working poor is placed on a very small group of people -- i.e., their employers.

"If you want to transfer income to the working poor, there are fairer and more honest ways to do it. The Earned Income Tax Credit, for example, accomplishes pretty much the same goals as the minimum wage but without concentrating the burden on a tiny minority. For that matter, the EITC also does a better job of helping the people you'd really want to help, as opposed to, say, middle-class teenagers working summer jobs. It's pretty hard to argue that a minimum-wage increase beats an EITC increase by any criterion. ┬ÂThe minimum wage is nothing but a huge off-the-books tax paid by a small group of people, with all the proceeds paid out . . . to another small group of people."


If you want to learn more about labor law check out the web for legal advice or if you feel like you have a case against a former employer the internet can help you find the best employment lawyer for your situation.

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