Friday, July 14, 2006

Minimum Wage versus the EITC

A couple of weeks ago I posted about raising the minimum wage (I'm for it), which elicited a response from "Internet Esquire" (David F. Prenatt, Jr.) asking, "How would you respond to the position that an expansion of the Earned Income Tax Credit would be a much more effective and equitable way of helping the working poor than raising the minimum wage?"

In Mr. Prenatt's own posting on the EITC, he says (in part) that: 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 [is] that ... the financial burden of helping the working poor is placed on a very small group of people -- i.e., their employers.
He also quotes a 2004 Slate article by Steven Landsburg that, "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."

These may each be good points if the only purpose behind a raise in the minimum wage is to "help the working poor." I think that is a part of it, but to me it is mainly a simple matter of fairness. The minimum wage has not kept pace with inflation - indeed, it hasn't even been raised one cent since 1997 - meaning that minimum wage workers are loosing pace with the economy each year that the minimum wage remains stagnant.

As to whether or not the "burden" of the minimum wage falling on a small group (their employers) is unfair, I ask, who better to pay the price than those who reap the economic benefit of their work? Why should this cost be born by all taxpayers (in the form of a tax credit) to the benefit of that small group of employers? The EITC doesn't just help low-income families; it is also a subsidy to those employers who do not pay a living wage.

I'm not knocking the EITC - I am in favor of helping both low-income families and small employers - but I don't see it as an argument for standing behind an inadequate minimum wage. I also don't see why Americans who work full time should have to turn to the tax code to lift them out of poverty when work won't do it. (Yes, I know not all minimum wage workers live in poverty, but a healthy percentage of them do.)

There's an old saying that "the best welfare program is a good job." I've never heard anybody say that "the best welfare program is a good tax credit."

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1 comment:

  1. Hello again Ken:

    I published a response to your most recent blog post, but Blogger doesn't seem to have created a link to it, so here it is.


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