Mo’ Money Mo’ Problems
By: Jack Ruble
No one will disagree that living and working under minimal wage is difficult. The type of work associated with a minimal wage job is no walk in the park either, as many of those jobs are labor intensive. People with no education or access to higher paying jobs should be able to have access to more of the money they have worked for. However, this does not mean raising the minimum wage but in fact raising the Earned Income Tax Credit, or EITC.
The EITC is a initiative of the federal government to help low-income families get back a portion of their income back after taxes based on multiple variables. This credit is designed to give back a higher percentage of the money low-income families paid in taxes, but as they make more money, this percentage goes down. Marriage status and number of children affect the percentage and at which level of income this credit will affect. Since its founding in 1975, it’s the largest anti-poverty program in the United States. The only restriction with this credit is that the person receiving the credit most be working.
As the credit stands now families that have two or more children will receive 40 percent of their first $10,750 of their money. As soon as that families income exceeds $15,040 the credit is phased out at a rate of $0.2601 per marginal dollar. By the time the family earns $35,458 the credit no longer applies.
In 2008 and 2012 the Democratic Party platform included raising the minimum wage, which is $7.25 per hour as of 2009. Senator Tom Harkin of Iowa has proposed the idea of moving this number up to $9.80 per hour. With this increase, the amount of money low-income families will receive from the EITC will be severely limited. Although they will be making more money in gross income, they will be making less money after their tax credit than they would if the minimum wage wasn’t changed. If politicians really wanted to help the low-income working families they would seriously consider raising the rates of the EITC.
Raising the rates of the EITC not only gives back more money to working, low-income families but it also does not hurt their employers who hire workers at the minimum wage. An increased minimum wage of over $2.00 could have lasting effects on the economy as a whole. Employers will be forced to spend more on labor which can either increase the price of goods and services or increase unemployment.
Studies have shown that when low-income families receive slightly higher incomes, they tend to spend this money instead of saving it. However, the same study by the Federal Reserve Bank of Chicago found that when low-income families receive more money via tax credit they tend to save this money, allowing it to gain interest and help them achieve personal wealth.
Although many from the Democratic Party are calling for drastic changes in the minimum wage, they aren’t looking at alternative ways to help working low-income families. This lack of open-mindedness could have a deep impact on the economy as a whole and punish employers for hiring people at minimum wage jobs, which would crush those people’s way to work.