On the Earned-Income Tax Credit

On the Surface

The debate over the living wage has gripped the nation for some time now, with large cities like Portland and New York pledging to implement minimum wages in excess of ten dollars. However, many overlook a superior alternative: the earned-income tax credit.

The Earned-Income Tax Credit (EITC)

The EITC is a tax credit for workers in families with low income. The amount that you are credited depends both on filing status and how much the worker has earned. Depending on this amount, and the number of dependents in the worker’s family, the worker either pays less federal tax or (less likely) gets a tax refund.

A Superior Alternative

Most workers who gain from an increase in the minimum wage do not live in poor families, or don’t work full-time. The EITC is much more target-effective because it raises the income of workers in low-income families. And since the cost of living differs between cities (a living wage in New York City would be around $33/hour for a single mother of two, while a living wage in Minneapolis for the same situation is around $23/hour), the EITC would more effectively ensure that a worker and her dependents receive enough income in earnest. Additionally, the EITC would have less effect on employment (even though employment effects would be insubstantial) as it’s paid through the federal government and not the employer.

There’s no reason to prolong the contentious debate over the minimum wage. The EITC offers a much more effective and uncontroversial solution.

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