8 ms·

We need to make the EITC (Earned Income Tax Credit) much more generous, removing the necessity for higher minimum wages to fix our demand issues. The EITC has

We need to make the EITC (Earned Income Tax Credit) much more generous, removing the necessity for higher minimum wages to fix our demand issues. The EITC has better knock-on effects in terms of increasing competition for labor and serves as an employment subsidy for many small businesses that would, otherwise, not employ anyone. Plus, it is much, much easier to get a "10,000ft view" of the employment/demand situation at the Federal level, as opposed to a hodge-podge of local initiatives. The EITC is a great tool for efficient re-distribution of resources to working Americans on the lower rungs of the economic ladder. It's efficient and we can turn the knobs to adjust it as necessary to fit our needs, such as not being as generous to teenagers that live in an existing household (something that minimum wage increases do not account for). The only downside to the EITC is the once-a-year aspect to the distribution. It would probably be wise for us to develop a more reliable distribution of the money so that it provides a more even boost to the worker's regular paycheck.

greedo 9y ago
EITC has a massive downside that you're ignoring. The ability of municipalities to act as laboratories in social policy is essential to effective governance. Seattle can raise their minimum wage far easier than having Congress change the Federal minimum wage. And then we can see how it works in Seattle. Expanding EITC has a huge affect, and is both harder to enact, and if needed, harder to rollback.
- davidw 9y ago
  The minimum wage affects both high school students looking for some extra cash, and people desperately trying to support a family. The latter is where an effective policy would concentrate its help. I'm not sure what the best answer is.
- TimJYoung 9y ago
  That's absolutely true for most new Federal economic/tax policies that are relatively untested. But, the EITC has been around since the mid-to-late 70s. We've got loads of data on its effects under all sorts of different economic scenarios, some of which are included here: http://www.epi.org/publication/ib370-earned-income-tax-credit-and-the-child-tax-credit-history-purpose-goals-and-effectiveness/ http://www.epi.org/publication/ib370-earned-income-tax-credi...
  - greedo 9y ago
    So Federal Income tax is a relatively old tax policy, weighing in at a hearty 104 years of age. And modifying it and understanding the ramifications of changes to the tax code is easy? We have a congressional shitstorm whenever either party wants to raise or lower taxes. And the old adage about getting three answers when you ask two economists what'll happen is still true, even discounting ideological baggage.
- humanrebar 9y ago
  I agree that federalism has important benefits we shouldn't ignore, but income tax schemes can be (and are) implemented at various levels of government.
  - edoceo 9y ago
    In Washington State, no personal income tax. Businesses pay tax on income but natural persons do not.
    - humanrebar 9y ago
      Then use a minimum income scheme instead. The point is that it's better to improve incomes by supplementing incomes, not by restricting other things.
bradleyjg 9y ago
The earned income tax credit is essentially a tax credit for low income parents. It isn't billed that way and it isn't technically limited to them, but if you look at the formula, for any tax filer with no children the maximum credit is $506. That's about twenty five cents an hour for a 2000 hour work year, 12.5 for a 4000 hour work year (i.e. for a two earner household). This peak credit is reached at $6,610-$8,270 for a single filer and $6,610-$13,820 for a married couple. It is phased out to zero by $14,880 and $20,430 respectively. Now maybe when you say we need to make the EITC much more generous you include as part of that fundamentally changing the nature of the program. But it is worth noting what it is and isn't today. And that's a refundable child tax credit, not a general negative income tax program.
- TimJYoung 9y ago
  Yes, that is what I meant by making it more generous.
neon_electro 9y ago
What's your opinion of a universal basic income?
- TimJYoung 9y ago
  I'm absolutely in favor of something like a UBI (it's very similar to the EITC), but I don't think there's any way to get there, both politically and fiscally, without means-testing.
Shivetya 9y ago
EITC encourages some negative behavior and should actually be axed or corrected. it is not hard to find stories of people only working part of the year so as not to void their EITC money. a better incentive is to raise the wages of all those earning below certain wage per hour with the money used to fund EITC. We all win this way, people working know they are going to have enough money, we don't have people sitting around with idle time which is not good for them or others and we have the community investing in others through their taxes directly benefit low wage earners regardless where they work. We also take a load off small shops who might be able to withstand a pricier market. there are really no negatives to boosting hourly income through taxes compared to just handing them money for earning less than X per year
- phil21 9y ago
  EITC should be axed for one simple reason: It allows people to be dishonest when it comes to social spending. EITC is never included, but it's a wealth transfer before any accounting is done so it's never really talked about. Welfare should be welfare. Taxes should be taxes. This constant cross-subsidization is insane, and at this point absolutely no one has any idea who is paying for what and how much.
  - dragonwriter 9y ago
    > It allows people to be dishonest when it comes to social spending. EITC is never included “Tax expenditures” are frequently included in analyses of social spending, and often broken out as a separate category. EITC is the headline example of the category. Your basic premise is false.
    - phil21 9y ago
      In professional analyses? Certainly. During election campaigns quoting the numbers spent on budget items? Almost never. I guess I did a poor job explaining what I meant. If you ask the common citizen what our welfare spending is, they will quote you back the number mentioned by CNN or Fox on the news. Those numbers rarely include anything but the headline budget numbers, and do not delve into items such as tax credits before any transfer payments are made.
mazelife 9y ago
> and serves as an employment subsidy for many small businesses that would, otherwise, not employ anyone It would serve as a generous subsidy to _any_ employer that doesn't want to pay a living wage. It's not clear to me why the federal government should be subsidizing the practices of companies like Walmart, who are already costing the government $6.2 billion in public assistance[1]. But that's effectively what an expanded EITC would do [2]. [1] https://www.forbes.com/sites/clareoconnor/2014/04/15/report-walmart-workers-cost-taxpayers-6-2-billion-in-public-assistance/#73792abe720b https://www.forbes.com/sites/clareoconnor/2014/04/15/report-... [2] http://www.princeton.edu/ceps/workingpapers/165rothstein.pdf http://www.princeton.edu/ceps/workingpapers/165rothstein.pdf
- TimJYoung 9y ago
  I'm not happy about providing subsidies to corporations, either, so if there's a way to prevent this, then I'm all for it. I just don't see how you could do it, so you're left with increasing corporate taxes, etc. as a remedy. I'm in favor of the minimum wage increases, in principle. I just think that increasing the minimum wage in all of the municipalities that need an increase is going to take too long, and that it's too broad in how it supplements incomes (the teenager issue mentioned already).

greedo 9y ago

EITC has a massive downside that you're ignoring. The ability of municipalities to act as laboratories in social policy is essential to effective governance. Seattle can raise their minimum wage far easier than having Congress change the Federal minimum wage. And then we can see how it works in Seattle. Expanding EITC has a huge affect, and is both harder to enact, and if needed, harder to rollback.

davidw 9y ago
The minimum wage affects both high school students looking for some extra cash, and people desperately trying to support a family. The latter is where an effective policy would concentrate its help. I'm not sure what the best answer is.
TimJYoung 9y ago
That's absolutely true for most new Federal economic/tax policies that are relatively untested. But, the EITC has been around since the mid-to-late 70s. We've got loads of data on its effects under all sorts of different economic scenarios, some of which are included here: http://www.epi.org/publication/ib370-earned-income-tax-credit-and-the-child-tax-credit-history-purpose-goals-and-effectiveness/ http://www.epi.org/publication/ib370-earned-income-tax-credi...
- greedo 9y ago
  So Federal Income tax is a relatively old tax policy, weighing in at a hearty 104 years of age. And modifying it and understanding the ramifications of changes to the tax code is easy? We have a congressional shitstorm whenever either party wants to raise or lower taxes. And the old adage about getting three answers when you ask two economists what'll happen is still true, even discounting ideological baggage.
humanrebar 9y ago
I agree that federalism has important benefits we shouldn't ignore, but income tax schemes can be (and are) implemented at various levels of government.
- edoceo 9y ago
  In Washington State, no personal income tax. Businesses pay tax on income but natural persons do not.
  - humanrebar 9y ago
    Then use a minimum income scheme instead. The point is that it's better to improve incomes by supplementing incomes, not by restricting other things.

bradleyjg 9y ago

The earned income tax credit is essentially a tax credit for low income parents. It isn't billed that way and it isn't technically limited to them, but if you look at the formula, for any tax filer with no children the maximum credit is $506. That's about twenty five cents an hour for a 2000 hour work year, 12.5 for a 4000 hour work year (i.e. for a two earner household). This peak credit is reached at $6,610-$8,270 for a single filer and $6,610-$13,820 for a married couple. It is phased out to zero by $14,880 and $20,430 respectively. Now maybe when you say we need to make the EITC much more generous you include as part of that fundamentally changing the nature of the program. But it is worth noting what it is and isn't today. And that's a refundable child tax credit, not a general negative income tax program.

TimJYoung 9y ago
Yes, that is what I meant by making it more generous.

neon_electro 9y ago

What's your opinion of a universal basic income?

TimJYoung 9y ago
I'm absolutely in favor of something like a UBI (it's very similar to the EITC), but I don't think there's any way to get there, both politically and fiscally, without means-testing.

Shivetya 9y ago

EITC encourages some negative behavior and should actually be axed or corrected. it is not hard to find stories of people only working part of the year so as not to void their EITC money. a better incentive is to raise the wages of all those earning below certain wage per hour with the money used to fund EITC. We all win this way, people working know they are going to have enough money, we don't have people sitting around with idle time which is not good for them or others and we have the community investing in others through their taxes directly benefit low wage earners regardless where they work. We also take a load off small shops who might be able to withstand a pricier market. there are really no negatives to boosting hourly income through taxes compared to just handing them money for earning less than X per year

phil21 9y ago
EITC should be axed for one simple reason: It allows people to be dishonest when it comes to social spending. EITC is never included, but it's a wealth transfer before any accounting is done so it's never really talked about. Welfare should be welfare. Taxes should be taxes. This constant cross-subsidization is insane, and at this point absolutely no one has any idea who is paying for what and how much.
- dragonwriter 9y ago
  > It allows people to be dishonest when it comes to social spending. EITC is never included “Tax expenditures” are frequently included in analyses of social spending, and often broken out as a separate category. EITC is the headline example of the category. Your basic premise is false.
  - phil21 9y ago
    In professional analyses? Certainly. During election campaigns quoting the numbers spent on budget items? Almost never. I guess I did a poor job explaining what I meant. If you ask the common citizen what our welfare spending is, they will quote you back the number mentioned by CNN or Fox on the news. Those numbers rarely include anything but the headline budget numbers, and do not delve into items such as tax credits before any transfer payments are made.

mazelife 9y ago

> and serves as an employment subsidy for many small businesses that would, otherwise, not employ anyone It would serve as a generous subsidy to _any_ employer that doesn't want to pay a living wage. It's not clear to me why the federal government should be subsidizing the practices of companies like Walmart, who are already costing the government $6.2 billion in public assistance[1]. But that's effectively what an expanded EITC would do [2]. [1] https://www.forbes.com/sites/clareoconnor/2014/04/15/report-walmart-workers-cost-taxpayers-6-2-billion-in-public-assistance/#73792abe720b https://www.forbes.com/sites/clareoconnor/2014/04/15/report-... [2] http://www.princeton.edu/ceps/workingpapers/165rothstein.pdf http://www.princeton.edu/ceps/workingpapers/165rothstein.pdf

TimJYoung 9y ago
I'm not happy about providing subsidies to corporations, either, so if there's a way to prevent this, then I'm all for it. I just don't see how you could do it, so you're left with increasing corporate taxes, etc. as a remedy. I'm in favor of the minimum wage increases, in principle. I just think that increasing the minimum wage in all of the municipalities that need an increase is going to take too long, and that it's too broad in how it supplements incomes (the teenager issue mentioned already).