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February 14, 2013 3:20 PM Minimum Wage Up, EITC Down

By Ed Kilgore

As Matt Yglesias, quoting—um—liberally from a 1998 article by Paul Krugman, notes today, the president’s call for a significant minimum wage hike (followed by indexing) is a continuation of a very old argument within and beyond the progressive ranks about the best way to create decent income levels for the working poor.

In ‘98, Krugman took the very common New Dem-ish position that higher minimum wages were inferior to enhancements of the Earned Income Tax Credit as a way to help the working poor achieve an acceptable standard of living, and suggested that those liberals who disagreed with him were motivated by political rather than economic factors:

Now to me, at least, the obvious question is, why take this route [of a higher minimum wage]? Why increase the cost of labor to employers so sharply, which…must pose a significant risk of pricing some workers out of the market, in order to give those workers so little extra income? Why not give them the money directly, say, via an increase in the tax credit?
One answer is political: What a shift from income supports to living wage legislation does is to move the costs of income redistribution off-budget. And this may be a smart move if you believe that America should do more for its working poor, but that if it comes down to spending money on-budget it won’t. Indeed, this is a popular view among economists who favor national minimum-wage increases: They will admit to their colleagues that such increases are not the best way to help the poor, but argue that it is the only politically feasible option.
But I suspect there is another, deeper issue here—namely, that even without political constraints, advocates of a living wage would not be satisfied with any plan that relies on after-market redistribution. They don’t want people to “have” a decent income, they want them to “earn” it, not be dependent on demeaning handouts.

In 1998, of course, most Republicans look much more fondly on the EITC than on the minimum wage, partly because Ronald Reagan was very fond of the credit, and also because it socialized the cost of subsidies for the working poor through the tax system instead of imposing them directly on a select group of employers.

A decade-and-a-half later, Republicans have gradually come to dislike the EITC— particularly in its refundable form—and are in the growing habit of calling it “welfare.” Indeed, the nasty little surprise conservatives are preparing for us when we all finally get around to “tax reform” is that they will launch a major assault on the EITC, which they increasingly associate with the “lucky duckies” who don’t pay federal income taxes.

Between that change in attitude and the return of deficit sensitivity (real or pretended) in the GOP, there’s not much of a political rationale for excessive reliance on the EITC, and thus, the traditional popularity of the minimum wage (which the public understands a lot better) has returned. As Yglesias says:

The reality is that I think a lot of the people, particularly politicians, who you’ll see touting higher minimum wages this week actually agree with Krugman but simply are taking the “politically feasible option” point more seriously than he did 15 years ago. That’s to say that if in his State of the Union response Marco Rubio had said “higher minimum wages are poorly targeted and potential job-killers, lets bring back the Making Work Pay Tax Credit and make it permanent” that the Obama administration would have been thrilled. But what actually happened is that Obama put a temporary Making Work Pay Tax Credit in the stimulus, then when it was expiring Republicans wouldn’t extend it so he did a payroll tax holiday, then when that expired Republicans wouldn’t extend that either. So having exhausted Krugman’s approach they’re now trying the other way, which almost certainly won’t happen either but at least gives the administration something new to talk about to advance their goal of helping poor people.

That about sums it up. It certainly is tidier that nowadays you got one party that is interested in different ways to prop up working-poor incomes and another that is actively opposed pretty much to all of them.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • Patricia Shannon on February 14, 2013 4:35 PM:

    If you think that an income tax credit that you only get after you file your income taxes for the previous year, is more useful to an immediate increase in income, you have never been poor. Your landlord and grocer aren't going to wait a year to get paid. Also, many people don't know about this credit, and wouldn't file income taxes because they don't make enough money to do so.

  • Josef K on February 14, 2013 4:36 PM:

    Indeed, the nasty little surprise conservatives are preparing for us when we all finally get around to “tax reform” is that they will launch a major assault on the EITC, which they increasingly associate with the “lucky duckies” who don’t pay federal income taxes.

    Speaking of such 'lucky duckies', we never did find out how little Mitt Romney paid in federal taxes the last 10 years did we?

  • bdop4 on February 14, 2013 5:13 PM:

    Spot on, Patricia Shannon.

    The EITC also neglects the obvious truth: minimum wage workers are grossly underpaid. $7.25/hour puts you in the poverty zone because so many businesses charge more for products and services in order to make their profits. These businesses claim they can pay for higher labor costs, but you know they won't open their books to prove it.

    Yes, small businesses may have to raise their prices, but not nearly as much as they claim.

  • bdop4 on February 14, 2013 5:15 PM:

    Correction: "These businesses claim they CAN'T pay for higher labor costs, but you know they won't open their books to prove it."

  • Tom on February 14, 2013 6:30 PM:

    The political calculus is changing as well. Lower income, poverty level voters were low turnout voters. That is changing. Look at Obama's proposals as building a political platform of easily understood issues that will motivate more voters to go to the polls in 2014. A raise in the minimum wage is much more real than the EITC credit. And I am still amazed that a whole bunch of GOP governors plan to run on a record of denying millions of poor people healthcare by not taking advantage of the Medicaid expansion. What would happen if poor people, young people, the working poor saw a good practical reason to vote?

  • Bill Peterson on February 14, 2013 8:00 PM:

    The number of man-hours a business needs to produce it's products or provides it's services is more or less fixed.

    The amount of money a person needs for minimal food and shelter is more or less fixed.

    If the business doesn't pay it's employees enough to cover food and shelter and the government makes up the difference it is not a subsidy for the worker it is a transfer of wealth from taxpayers to the business owner.

  • janinsanfran on February 14, 2013 11:51 PM:

    What poor people need is more money, not more over-complicated, epicycles to navigate. The EITC was always a travesty. Make employers pay what their workers need to live; strengthen unions; stop looking for half-assed work-arounds that only a policy wonk could love when what we need is economic justice.

  • mudwall jackson on February 15, 2013 2:42 AM:

    What poor people need is more money,

    no, what the poor need is better jobs, better education better training, a better economy so that they can make more money.

    "Bill Peterson on February 14, 2013 8:00 PM:

    The number of man-hours a business needs to produce it's products or provides it's services is more or less fixed.

    The amount of money a person needs for minimal food and shelter is more or less fixed.

    If the business doesn't pay it's employees enough to cover food and shelter and the government makes up the difference it is not a subsidy for the worker it is a transfer of wealth from taxpayers to the business owner."

    dude, involuntary servitude was abolished with the 13th amendment nearly 150 years ago. if your employer ain't paying you enough, find another job.

    as a business owner it's not my responsibility to pay a $50,000 annual wage for a job that produces $20,000 worth of work. and just for the record, that $50,000 wage gets multiplied by the cost of health insurance, paid vacation, myriad fringe benefits, social security and medicare, workers comp insurance and unemployment tax.

    your knowledge of economics is stunningly slim. profit is not guaranteed (and without one, a business and the jobs that it brings won't be around long). success is not guaranteed. if my business loses money, i'm responsible for my losses, not my employees. if my business goes under, i'm not just out of a job, i'm out my investment. take a look at five-year survival rates for new businesses. look at the bankruptcy statistics for your part of the country if you think running a business is some kind of sure shot at the easy life. yes certainly employees are a major factor in any successful business and they deserve to be benefit when their employer does well but remember the risk equation is not equal.

    and for the record, as a owner of a business, i support a higher minimum wage and i support unions. always have. always will.

  • Bill Peterson on February 15, 2013 12:55 PM:

    @ mudwall jackson

    Your post doesn't seem to have anything to do with what I wrote.