For all of the nerds like me who follow economic news, this summer provided us with a couple of intriguing additions to the U.S. minimum wage debate.
Both of the studies published analyzed the effects of the minimum wage hike which was underway in Seattle for the past few years.
One study, by the University of Washington, claimed in January of 2016, when the city raised the minimum wage from $11 to $13, low wage workers in Seattle saw decreases in employment and those who kept their jobs experienced a drop in hours.
The other paper, authored by economists at the University of California, Berkeley, claimed low wage workers did not experience any declines in employment or in hours worked, but this study only examined the restaurant industry in Seattle.
As could be expected, these new studies energized partisans on either side of the argument, as most went back to their usual talking points about the advantages and disadvantages of raising the minimum wage. These arguments have understandably grown stale as they are hashed out over and over again.
The good news though, is there is another public policy option that could accomplish the same goals of raising the minimum wage and both sides of the political aisle have actually discussed this option favorably.
The option in question deals with something called the earned-income tax credit, or EITC. According to the Tax Policy Center at the Brookings Institute, the EITC works as a subsidy for low-income earners and working families.
The refundable tax credit is set equal to a fixed percentage of earnings, and this credit amount will increase as the income increases, until it reaches the maximum credit point. Next, the credit amount will stay the same until wages increase to the point where workers reach the phase-out stage. At this point, the credit will start to decrease with each additional dollar of income until the credit is exhausted.
This unique design means recipients are encouraged to work so they will earn a larger credit with each increase in wages, up to a certain point. The EITC is also specifically aimed at working families with children, as those with children will receive a much larger subsidy than those without kids. The Tax Policy Center states this means that about 97 percent of benefits from the credit go to working families with children.
The credit itself was signed into law by former President Gerald Ford, a Republican, in 1975. According to the National Low Income Housing Coalition, the EITC was made into a permanent part of the tax code in 1978, and it underwent reforms and expansions in order to include more low wage workers in both 1986 and 1990.
The results over the years have been positive, with various studies showing it helps to supplement household purchases such as home repairs and necessities. One of the other main reasons the EITC has popularity on both sides of the political aisle is because it encourages work.
In a 2001 paper from the National Bureau of Economic Research, economists Joseph Hotz and John Karl Scholz cite that the stipulation for EITC recipients to have at least some form of income makes it more popular than some other welfare programs, such as the TANF.
In recent years, expanding the EITC was at the center of budget and poverty alleviation discussions between President Obama and Speaker of the House Paul Ryan.According to Politico, in February of 2016 both men spoke favorably of expanding the credit to the point where it would double for childless workers and for parents who do not live with their children.
With current budget discussions still underway in Washington, this could be a potentially significant win for bipartisanship at a time when the democratic and republican parties are finding it difficult to reach a common ground on any number of topics.
Despite the debates over minimum wage that were reignited this summer, there is a way for partisans to overcome this obstacle—by supporting the expansion of a policy which could help alleviate poverty and encourage work in the U.S.