Michael Saltsman: Increase Earned Income Tax Credit Instead of Minimum Wage

Wednesday, 13 Aug 2014 06:38 AM

By Dan Weil

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President Barack Obama wants to raise the minimum wage, but the government would do better to expand the earned income tax credit (EITC) as proposed by Rep Paul Ryan, R-Wis., says Michael Saltsman, research director at the Employment Policies Institute.

Ryan's plan to expand the EITC would "boost take-home pay and fix a hole in the social safety net without hurting jobs," Saltsman writes in The Wall Street Journal.

Obama has proposed lifting the minimum wage to $10.10 from $7.25. But a Congressional Budget Office report from February estimated that Obama's plan would eliminate 500,000 jobs, Saltsman notes.

Editor's Note:
Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

Meanwhile, "the EITC, a refundable tax credit for low-income households that phases out as income rises, helps the working poor without imposing a harmful mandate on employers," he writes.

"But the EITC has one major weakness: under current law, the size of the credit is dramatically smaller for individuals and families without children. . . . Ryan's plan would close that gap," doubling the credit that childless adults receive as a percentage of their eligible income, Saltsman notes.

The way the EITC works now means "a single mother with two children who works part time for the federal minimum wage receives nearly $4,500 in additional income from the EITC. That's a 40 percent increase in take-home pay, bumping her hourly wage to $10.15 an hour from $7.25," he explains.

"But a single woman without children who works the same hours for the same wage takes home $265 in EITC benefits annually — a 2 percent increase in take-home pay."

Meanwhile, some small business owners say a minimum wage hike would hurt them.

Laurie Thomas, who owns Nice Ventures, a restaurant management company in San Francisco, is one. An increase would be "daunting" and likely push her prices up by at least 15 to 20 percent, Thomas tells CNNMoney. In addition, she says she might have to let some employees go.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

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