The Earned Income Tax Credit Subsidizes Low-Wage Employers, While the Minimum Wage Boosts Incomes for Everyone


I heard someone on KUOW yesterday argue that the minimum wage does not need to be raised because most people who earn it are high school kids working after school and summer jobs. I actually laughed out loud.
The argument I typically hear from conservatives against raising the minimum wage is that it causes prices to increase everywhere, so even though a person is getting paid more, they can still only afford what they could afford before.

I don't know if that's true and if it is, I don't know a good counter to it.
However, @2, since all their competitors have to also raise their minimum wages, this means market competition is still unaffected, other than them not earning 400 times the lowest worker's wages for playing golf 8 hours a day.

An increase in the minimum wage will result in more car sales, more home sales, fewer kids in poverty, and less crime.
I wonder if one reason they're so afraid of this is because it's going to force employers to pay all their low-to-middling employees more. When I started at my job at entry level, I made $11/hour (and I'm certain, seven years later, that they're still paying that little for entry level). It seems like it would be a trifle more difficult for my employer to justify paying that kind of wage to a college-educated, white collar worker if the national minimum wage is only two dollars less.
Oops. I didn't read below the cut before I posted. Sorry.
Also, wages are only a part of the cost of a widget/service. Even in sectors that have lots of minimum wage employees, wages only make up 20-30% of the total product cost (this may be less true for construction and completely service based industries, although even there, wages are only a part of the cost). So the price increase is actually much smaller than you might think at first.

For example, if McDonald's raised their wages from $8 to $10, the price of a Big Mac would only have to go up 5% or so to cover the increase in wages.

Furthermore, poor people spend 100% of their earned income, if not more. Every dollar goes back into the economy. In comparison, a guy making a million dollars a year is just going to save X extra dollars, and not increase his/her spending by a significant margin. The argument that tax breaks on the wealthy increases job creation is bullshit - demand increases job creation and higher wages increase demand.

If anything, the minimum wage should be raised to $15-20/hour which would still be a smaller gain, when indexed to inflation, than the top 20% has seen in the last 30 years.
In 1998, Paul Krugman argued that raising the minimum wage was a less efficient, but more politically feasible, method of getting more money to the working poor than the alternative of taxes + cash transfers. The GOP isn't wrong, per se, on the effects of raising the minimum wage, but they are immoral (IMHO) when they skip the taxes+transfer alternative.

The counter to that argument is that, while SOME small business owners may need to increase prices to compensate for an increase in wages, many will actually end up SAVING money, because employers experience less turnover, which benefits them in terms of reduced training expenses. It also allows the employer to hire more skilled workers, who in turn will be more motivated and therefore more productive, which in and of itself can offset wage increases.

In fact, according to a 2004 study conducted by the Fiscal Policy Institute, states with higher minimum wages actually saw significantly more small business growth than states with lower minimums.

The truth is that a higher minimum wage benefits the many: better-paid employees are happier, more productive and more loyal; have more disposable income to purchase more goods & services, thus stimulating economic growth; and pay more in taxes, thus helping to reduce government deficits as well as easing the tax burden on the rest of us - while negatively impacting relatively few.
Goldy, I appreciate your incisive framing of so many economic issues.

Also, even if prices raise the same way, the rich still become a little less rich as the inflation hits, and narrowing the gap between rich and poor still has big benefits. Whether you're pulling the rich down or pushing the poor up is largely a matter of perspective. Even in capitalism, concentrating money at the top isn't productive.

Even without worrying about inflationary effects, raising the minimum wage is a great way to tax the rich. And most of the 'entitlement spending' that the rich hate is there to subsidize business models that are hostile to the underclass employees they require.

(Remember, giving money to the poor (minorities) makes them lazy; giving money to the rich (whites) makes them more productive).
Great points... thanks!

I also think the GOP suggested the EITC not only because it's more beneficial to bosses than employees, but also because they are completely incapable of agreeing with anything Obama suggests.
That, and it continues to provide the GOP with a ready-made example of poor people being "takers", which of course, they just love. Seriously, I think sometimes the GOP would prefer that people remain poor, just so they can keep using them as an example to point at whenever they start in about government being "broken" or whatever.
Universal healthcare and rent controls would be much more effective poverty alleviation tools, but, oh well. I guess you take what you can.
The GOP suggestion to raise the EITC only proves what complete fucking disingenuous hypocrites they are. It's 180 degrees from their claim that we have to reduce government spending, cut entitlements, and make more Americans "buy in" to the system by taxing them.

And, what, you ask, does this mean? It means they're not the least bit interested in anything they talk about publicly. It's all a ruse in their mission of serving the Oligarchy and moving this country towards a permanent class system.
"An increase in the minimum wage will result in more car sales, more home sales, fewer kids in poverty, and less crime. "

Why not raise it to $20/hr then, if it's such a magic wand?
It should be raised that much. Higher even. $20/hour would be good.

Of course, you know that republicans will never, NEVER, let that happen. They need their cultists to live in continual fear and suffering or they'll never hold a political position ever again. The republican party is a house of cards built upon scapegoats. Republicans will do everything in their power to keep that house from collapsing and keep their white voters under their heel yet only one small step away from going completely bankrupt. Blame the black man for their problems. Because if they ever actually stood on the exact same footing as the black man, they'd realize their own leaders were the ones causing their problems... not their impoverished, impotent, black neighbors.
Do you really think the effect on unemployment would be negligible, assuming you don't care about inflation? There are millions, possibly tens of millions, of currently employed people in this country whose value-added, even before employer taxes, health care mandates, etc. etc. are tacked on, whose labor value-added simply doesn't amount to $20/hr.
and I apologize for using value added twice in the same sentence
Agreed with @14 - the EITC has always been a weird bit of policy for Republicans to be supporting. Personally I'm a bit antsy of it for two reasons;
a) it's a lump-sum payment (Advance EIC is no longer available), and people tend to manage their finances more poorly when it comes to unpredictable lump sum payments than when they're getting a steady income - sure, it helps a lot with large purchases like replacing a car or clearing a medical/school debt, but I suspect it also leads to many brief spending sprees as a lot of businesses market large purchases aggressively to people at the time of year when EITC comes out (ie. now). Its unpredictability is also a factor here; unless you're keeping very, very close watch on your total earned income for the year and looking up tax tables to figure out where you stand, people mostly don't even know how much EITC they're going to get.
b) It drives low-income people into the arms of the tax preparation industry, who are essentially being paid to give people access to benefits that they're legal entitled to. Tax prep with EITC tends to cost a lot because of the liability at the preparer's end. Tax credits essentially impose an extra burden of complexity that can become a form of taxation in itself upon people who may not be the best at navigating bureaucracy, and who may not have had the best educations in America, given what hereditary poverty in America is like.

See also c), fraud. Not that there's much of it out there, but there's so much room for Republicans to accuse low-income filers of fraud for claiming EITC! Hence the liability placed on preparers.

So I'm not convinced that EITC is free of downsides, to put it mildly.