Paycheck supplements make sense

I’ve got a new program to help workers earn enough to live comfortably when they work hard:… I’ve got a new program to help workers earn enough to live comfortably when they work hard: The government can supplement every low-income worker’s paycheck. I think that’s something we can all get behind. And here’s how they pay for it: a special tax on hiring low-income workers. That makes sense, right? In case you’re a liberal, I’ll answer for you: No, it doesn’t make any sense.

The first part sounds good, but won’t a tax on hiring low-income workers discourage people from hiring them and cause unemployment? Yes. Unfortunately, we have this program and it’s called the minimum wage.

Let’s say that your employer paid you $5 an hour, and then the government taxed him $2.25 an hour for every hour he employed you, and then sent you the $2.25 an hour. The effect is exactly the same as the government forcing him to pay $7.25 an hour, except with more postage.

Believe it or not, there are some employers for whom it is simply not profitable to hire additional workers at $7.25 dollar an hour. Less hard to believe, there are some people out there, for whatever reason you can imagine, whose labor is simply not worth $7.25 an hour to anybody. Therefore, the minimum wage will lead to less employment than would otherwise be the case.

This isn’t to say that the minimum wage doesn’t help anyone, or that boosting it will cause everyone to be laid off. But it will always cause some people to be laid off, and that’s not something we’re down with. But isn’t there a way we can help low-income workers without putting some out of work?

It’s called the Earned Income Tax Credit. What happens here is that the government, not the employer, supplements the worker’s paycheck out of the general tax fund, with a subsidy proportional to the worker’s income. Here’s how it works for a worker with two children:

If you make up to $11,340, you get a subsidy, a.k.a. money from the government, equal to 40 percent of your income. Your subsidy tops out at $4,536 when you earn between $11,340 and $14,810, and then declines at a rate of 21.06 percent per dollar you earn above $14,810 until it gives out. So, if you get paid $5.50 per hour, counting the EITC, you’re actually receiving $7.70 per hour for the first $11,340 you earn at your job.

This strategy is better than raising the minimum wage for two reasons:

First, the general tax fund, from which the EITC money comes, is progressive, meaning rich people pay much more, so the EITC directly redistributes income. The minimum wage, on the other hand, is a mandate born as a labor cost by the business regardless of its ability to pay. When most people think of minimum-wage-paying businesses, they think of big corporations like Qdoba – but you should also think of Veracruz. Isn’t it clear that Qdoba can soak up those labor costs easier than Veracruz? And to the extent a business passes the extra cost to customers as higher prices, those higher prices are born regardless of the customer’s income.

Second, with an anti-poverty program, we don’t want to accidentally help anyone who wouldn’t otherwise be poor. The EITC is indexed to income and number of dependents. The minimum wage isn’t indexed to anything. It’s like cleaning your glasses with a fire hose.

For example, when I was 16, I worked at Carmike Cinema and earned $5.60 per hour. If the minimum wage were $7.25 at the time, the government would be forcing Carmike to pay me an extra $1.65 an hour. But I lived with my lawyer mom and consultant dad at the time – why should the government force Carmike to augment the pocket money of 16-year-old Lewis Lehe? I was the archetype of an upper-middle class suburban teenager – I even listened to ska music.

On the point of accuracy, the minimum-wage supporters say the stupidest things. Here’s a clip from the liberal Economic Policy Institute: “Although households in the bottom 20 percent received only 5 percent of the national income, 38 percent of the benefits of a minimum wage increase to $7.25 would go to these workers.”

I guess I was supposed to read this and think, “Holy crap! 38 percent is really good!” Instead I thought “Are you kidding me?! That’s terrible!” That’s a good batting average, but what if only 38 percent of people who went to prison were criminals, or if Pennsylvania accidentally spent 62 percent of its road money building highways in Alabama?

If we’re going to have programs to help the poor, I don’t think it should be a point of contention whether the majority of the money actually goes to poor people. A better proportion would be, I don’t know