Let the ‘Working Americans Credit’ Work
Riding the current wave of populist enthusiasm, state and local legislators across the country have sought dramatic localized minimum wage increases.
In Oregon, Governor Brown approved legislation increasing the state’s minimum wage to $14.50 (less in rural areas). Pennsylvania’s Governor Wolf is campaigning for a 40 percent minimum increase in the state. And New York Governor Andrew Cuomo’s Drive for $15 initiative has him traveling the state in an RV trying to drum up support for his $15 plan.
These minimum wage increases have unintended consequences that hurt the very people they intend to help by reducing the job opportunities that allow them to eventually earn much more than the minimum wage. There’s a better way of helping entry-level jobseekers: expanding the Earned Income Tax Credit, also known as the Working Americans Credit.
Minimum wage increases are not well-targeted to those who need assistance. There are 77 million hourly workers in the country, of whom 1.3 million – or less than 2 percent — earn the minimum wage. Most of these minimum wage employees are under the age of 25. In other words, they are entry-level employees earning entry-level wages. So raising the minimum wage for the very small group of non-young employees earning the minimum wage is a disproportionate response to the problem that would cut off career opportunities for young employees.
Economic research overwhelmingly proves this. The National Bureau of Economic Research concludes that the minimum wage increases in the late 2000s reduced the employment-to-population ratio by 0.7 of percentage point. And last December the Federal Reserve Bank of San Francisco found that recently enacted state and federal minimum wage hikes have cost the economy 100,000 to 200,000 jobs.
If the goal is truly to help entry-level employees, then the Working Americans Credit is the answer. The WAC is a tax credit for working Americans that encourages and rewards employment while providing additional economic benefit by offsetting payroll and income taxes. This allows workers to increase their net income without hurting employment opportunities due to rising employment costs. It provides a hand up to those who are trying but still struggling to make ends meet without giving them a free ride or penalizing employers.
Evidence shows it is far more targeted than the minimum wage. The IRS estimates that in 2014 almost 28 million U.S. employees and families received $66 billion in WAC payments, with an average payout of $2,400.
Unlike the minimum wage, there is bipartisan support from both President Obama and Speaker Ryan to expand the Working Americans Credit. Not only is it a good economic solution, it is a good political solution – one that could actually be achieved.
Government actions too often have unintended consequences that are the opposite of intended outcomes. Government should support the economy, not control it. Nowhere is this more evident than with the minimum wage, which threatens hundreds of thousands of job opportunities across the country. Government should help those who need it with the WAC and let others help themselves by keeping career pathways open. The solutions to economic problems must not become barriers of growth, but instead harness the power of capitalism while forging new paths forward toward economic prosperity for every American.
Scott Hantler is Millennial Outreach Director at Job Creators Network.