One of the biggest surprises in President Obama's State of the Union Address was his call to raise the minimum wage to $9.00 an hour, and then index it to inflation, just like we do here in Washington State. Caught off guard, Republicans and their surrogates have been pushed onto the defensive, for example, this piece in the Wall Street Journal suggesting a hike in the Earned Income Tax Credit (EITC) instead:
If Mr. Obama is dead set on using the government to boost wages, the EITC is the place to start, as the evidence suggests that minimum wage increases have no appreciable impact on poverty.
The EITC was created in 1975 by President Ford as a small wage supplement for low-income families. Subsequent presidents of both parties (including President Obama in 2009) have expanded the tax credit, and 24 states even offer a credit of their own as a percentage of the federal credit.
Republicans have supported this tax credit because eligibility is based on working and earning income. Democrats hail the EITC because it's refundable, meaning that a low-wage family without any tax liability nevertheless can file a tax return and get a check from the government. In a state such as New York, a single parent raising two children on the minimum wage would see their annual wage of $15,080 jump to $21,886 with the EITC, for an effective hourly wage of $10.52.
Except for the part about the minimum wage having "no appreciable impact on poverty," everything the WSJ says is true. And I'm all for a substantial hike in the EITC. If all that the working poor get out of Obama's minimum wage proposal is bipartisan support for hiking the EITC, well, that's a victory in itself.
But... this effort to pitch the EITC as an alternative to a livable minimum wage makes one thing perfectly clear: The EITC is not a tax subsidy for low-wage workers; it's a tax subsidy for low-wage employers. Hiking the EITC instead of the minimum wage enables businesses to pay their workers poverty wages while taxpayers pick up the difference. Either improves the living standards of these workers. But let's not pretend the EITC isn't a tool for depressing wages.
And that's not just me hypothesizing. Earlier today I got an email from the Orwellian named anti-union faux-think tank The Center for Union Facts, warning that "unions benefit from minimum wage hikes":
Today the Center for Union Facts revealed new research demonstrating that many labor union collective bargaining agreements in the service, retail, and hospitality industries peg baseline wages to the federal minimum wage.
The data shows many unions benefit from mandated minimum wage hikes—even when none of their members make the minimum wage. This raises questions about the motivation behind the political support for minimum wage hikes, including the President’s recent proposal in the State of the Union.
What Republicans view as a flaw in the minimum wage is actually one of its biggest benefits: it pushes up wages for many other workers. And that's something we could use after several decades in which the purchasing power of the minimum wage has steadily declined, contributing to our ever-widening income gap.
If Democrats play their cards right Obama's minimum wage proposal should give Republicans fits, because the minimum wage is widely popular. For example, Washington State's inflation-indexed highest in the nation minimum wage was approved by voters via initiative, and Dino Rossi's high-profile support for slashing the wage for restaurant workers helped turn the tide against him in his 2008 gubernatorial rematch. As such a minimum wage battle is a tremendous opportunity for Democrats to do well by doing good.