Don’t blame the working poor for their low wages

Because the Earned Income Tax Credit benefits only wage earners who file taxes, it does not carry the stigma of assistance programs such as food stamps (Image from irs.gov.)

When politicians talk about “hard-earned” income going to taxes and welfare programs, it’s a form of flattery, a way of bowing to the moral character of potential campaign contributors who fancy themselves givers rather than takers. In fact, the wages of households receiving public assistance may be the most hard-earned of all.

“Nearly three-quarters (73 percent) of enrollees in America’s major public support programs are members of working families,” write the authors of “The High Public Cost of Low Wages,” a research brief released this month by the UC Berkeley Center for Labor Research and Education. (“Working families” have at least one member working at least 10 hours per week for at least 27 weeks per year.)

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Simply getting a job is not enough to achieve financial stability, as President Barack Obama implicitly pointed out in his State of the Union address in January.

The reason, write the Berkeley researchers, is that job earnings have not caught up with the cost of living for most Americans: “Inflation-adjusted wage growth from 2003 to 2013 was either flat or negative for the entire bottom 70 percent of the wage distribution.” As a result, “the taxpayers bear a significant portion of the hidden costs of low-wage work in America.” If you’re a high-income taxpayer, that last sentence is supposed to shift your anger from the person using food stamps at Walmart to Walmart itself.

The Berkeley research paper is a big-picture way of starting a conversation. Its definition of “working families,” for example, does not distinguish between full-time and part-time wage earners, though it seems likely that most of the latter would prefer to be full-time, and using employees only a few hours a week is just another form of keeping wages low. The authors state that 52 percent of all workers in the fast-food industry—notorious for unpredictable working hours—are enrolled in major public assistance programs, along with 48 percent of home care workers and 46 percent of child care workers.

Four major public assistance programs are examined in the report: the Earned Income Tax Credit (used by 28 million households, 74 percent of which are “working families”); Medicaid and the Children’s Health Insurance Program (used by 56 million households, with 61 percent “working”); food stamps (29 million households, with 36 percent “working”); and Temporary Aid to Needy Families (7 million, 32 percent “working”).

The Earned Income Tax Credit: inclusive, not stigmatizing

The EITC may have the broadest political support, partly because it has “tax credit” in the name and many do not consider it a welfare program. It’s really a sly alternative to a universal basic income, giving a little boost to those most affected by the stagnant-wage phenomenon.

As the Atlantic’s Alana Semuels explains, “the credit is a subsidy the federal government provides to those who work but earn very little. Single workers with one child can earn up to $38,511 and still be eligible; those who have three or more children and are married can make up to $52,427 and still be eligible. Some workers can receive as much as $6,143 in a single check.” (Twenty-five states have added their own EITCs to supplement the federal program—another way the U.S. is divided in half, and another way that it can matter a great deal what state you live in.)

Samuels writes that the EITC beneficiaries, who receive a check from the IRS rather than a strings-attached welfare payment, are able to escape, if only for a short time, the stigmatization associated with government assistance: “the ability to purchase small ‘treats’ around tax time had positive social associations, [researchers] found, allowing families to feel included in the same league as Americans who spend on dinner or trips without thinking twice about it. One mother told the researchers that she can usually provide her children with what they need, but not what they want. With the refund, she was able to take them to T.J. Maxx and let them pick out their own clothes.”

The dignity afforded by the EITC is in sharp contrast to the food stamp program, which regularly attracts the attention of legislators looking to make headlines by humiliating recipients—for example, requiring them to take drug tests or banning them from buying cookies or “seafood.” Though the Berkeley study mentioned above suggests that about one-third of households receiving food stamps do have wage earners, it’s too easy to erroneously dismiss recipients as people who “refuse to work.”

A raise in income eligibility for the federal EITC has been floated as a quick and simple way to address stagnant wages. President Obama has proposed an expansion to bring more childless workers into the program (currently, a childless adult is ineligible if he or she makes more than $14,500 a year). Republican congressman Paul Ryan has proposed a similar change, but where Obama would pay for the expansion by closing tax loopholes, Ryan would pay for it by reducing other government assistance programs.

Florida Sen. Marco Rubio, who announced this week that he’s running for the Republican presidential nomination, has suggested his own tweaks to the EITC, but because tax hikes are anathema to GOP primary voters, he faces pressure to pay for any expansion with cuts to public assistance elsewhere. (Days after his announcement, the “issues” page on his website is almost entirely about foreign policy. The only section on the economy begins, “Read my three part plan for healthcare in America after we get rid of Obamacare.”)

If there’s a moral argument against the EITC, it’s that it lets employers off the hook. Writing for America in February, former business executive Joseph J. Dunn argued that the program “has for years allowed Walmart and other businesses to pay poverty wages while paying shareholder dividends from multibillion dollar profits and paying executives multimillion dollar bonuses.” Certainly the EITC does not advance the cause of a just wage. In American politics, however, any acknowledgment that workers on the low end of the wage scale deserve some relief is a victory.

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Bill Mazzella
3 years 6 months ago
One owner of a company has decided to do something about it. It is because he is listening to people not getting paid of by the Koch brothers, McDonalds, Walmart etc. who foster non-living wages. He has started a policy whereby in three years all his employees will earn a minimum wage of $70,000 a year. He realizes that is necessary by listening to many people. Unlike McDonalds et alii who think that $15,000 a year is a living wage. Bravo to Dan Price. Not a bloviator but a doer. Maybe he will shame other heartless ceos to do likewise. http://www.nytimes.com/2015/04/14/business/owner-of-gravity-payments-a-credit-card-processor-is-setting-a-new-minimum-wage-70000-a-year.html?src=me&_r=0

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