The earned income tax credit has not been around nearly as long as the minimum wage. And let’s face it, the EITC is not as easy to get your mind around. Truth be told, many people are only vaguely aware of this federal and state credit.
But on the merits, the EITC stands out—and it deserves more attention as an alternative to a dramatically higher minimum wage.
A recent Empire Center report details the impact that the EITC already has in New York. In 2015, more than 1.8 million households—or nearly 20 percent of tax filers—received total federal EITC payments of $4.1 billion and another $1 billion in state EITC credits. In Monroe County, more than 50,000 filers make state EITC claims.
The EITC was created to ensure that full-time workers—especially those who are supporting families—do not live in poverty. The credit works as a negative income tax; when it exceeds the amount of tax owed, filers receive the difference as a refund.
In contrast to the minimum wage, the EITC does not produce losers as well as winners. A 2014 report by the nonpartisan Congressional Budget Office estimated that raising the federal minimum wage to $10.10 an hour from $7.25 would increase the earnings of more than 16.5 million low-wage workers and help lift 900,000 Americans above the poverty line—but also cost some 500,000 workers their jobs.
The minimum wage also covers many people—such as suburban teenagers—who truly do not need assistance. The CBO report estimated that less than 20 percent of the hike it studied would go to families with earnings below the poverty threshold.
The EITC is not perfect; it does more for households with children than for individuals and couples without children. And the credits could be even more generous than they are today.
There’s no reason, however, that improvements to the EITC cannot be made. For business owners who worry about the negative impact of a big minimum wage hike but want to help lower-income workers, it’s time to speak up on behalf of a stronger EITC.
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