David Nicklaus’ latest column, “Tax credit would be better for workers than minimum wage hike,” is one well worth reading. In it, he talks about how those opposed to a minimum wage increase need to offer an alternative policy proposal instead of just saying no. Mr. Nicklaus suggests that Missouri create a state Earned Income Tax Credit (EITC) to supplement the federal credit and increase the incomes of the working poor.
Economists across the political spectrum have been recommending this for years. The Congressional Budget Office, David Neumark, and even Christina Romer find the EITC is a better policy option than the minimum wage for helping low-income households.
There a couple of reasons why the EITC is a better policy option than the minimum wage. First, it is specifically targeted to help low-income households. The minimum wage isn’t as well targeted. For example, a teen flipping burgers and making the minimum wage would benefit from a higher minimum wage even if both of her parents are surgeons. The EITC only goes to households making below a certain amount. Secondly, the EITC doesn’t increase labor costs. Increasing the minimum wage means employers will have to pay their employees more per hour. The EITC is a direct government benefit, so businesses won’t have those increased costs.
The EITC is not a perfect program. It makes a lot of improper payments , costing taxpayers billions. Also, its complicated nature makes it necessary for many people to hire professional tax preparers so that they can receive the credit.
Despite these drawbacks, the EITC is still a superior alternative to the minimum wage