Minimum Wage Up, EITC Down

As Matt Yglesias, quoting–um–liberally from a 1998 article by Paul Krugman, notes today, the president’s call for a significant minimum wage hike (followed by indexing) is a continuation of a very old argument within and beyond the progressive ranks about the best way to create decent income levels for the working poor.

In ’98, Krugman took the very common New Dem-ish position that higher minimum wages were inferior to enhancements of the Earned Income Tax Credit as a way to help the working poor achieve an acceptable standard of living, and suggested that those liberals who disagreed with him were motivated by political rather than economic factors:

Now to me, at least, the obvious question is, why take this route [of a higher minimum wage]? Why increase the cost of labor to employers so sharply, which…must pose a significant risk of pricing some workers out of the market, in order to give those workers so little extra income? Why not give them the money directly, say, via an increase in the tax credit?

One answer is political: What a shift from income supports to living wage legislation does is to move the costs of income redistribution off-budget. And this may be a smart move if you believe that America should do more for its working poor, but that if it comes down to spending money on-budget it won’t. Indeed, this is a popular view among economists who favor national minimum-wage increases: They will admit to their colleagues that such increases are not the best way to help the poor, but argue that it is the only politically feasible option.

But I suspect there is another, deeper issue here–namely, that even without political constraints, advocates of a living wage would not be satisfied with any plan that relies on after-market redistribution. They don’t want people to “have” a decent income, they want them to “earn” it, not be dependent on demeaning handouts.

In 1998, of course, most Republicans look much more fondly on the EITC than on the minimum wage, partly because Ronald Reagan was very fond of the credit, and also because it socialized the cost of subsidies for the working poor through the tax system instead of imposing them directly on a select group of employers.

A decade-and-a-half later, Republicans have gradually come to dislike the EITC– particularly in its refundable form–and are in the growing habit of calling it “welfare.” Indeed, the nasty little surprise conservatives are preparing for us when we all finally get around to “tax reform” is that they will launch a major assault on the EITC, which they increasingly associate with the “lucky duckies” who don’t pay federal income taxes.

Between that change in attitude and the return of deficit sensitivity (real or pretended) in the GOP, there’s not much of a political rationale for excessive reliance on the EITC, and thus, the traditional popularity of the minimum wage (which the public understands a lot better) has returned. As Yglesias says:

The reality is that I think a lot of the people, particularly politicians, who you’ll see touting higher minimum wages this week actually agree with Krugman but simply are taking the “politically feasible option” point more seriously than he did 15 years ago. That’s to say that if in his State of the Union response Marco Rubio had said “higher minimum wages are poorly targeted and potential job-killers, lets bring back the Making Work Pay Tax Credit and make it permanent” that the Obama administration would have been thrilled. But what actually happened is that Obama put a temporary Making Work Pay Tax Credit in the stimulus, then when it was expiring Republicans wouldn’t extend it so he did a payroll tax holiday, then when that expired Republicans wouldn’t extend that either. So having exhausted Krugman’s approach they’re now trying the other way, which almost certainly won’t happen either but at least gives the administration something new to talk about to advance their goal of helping poor people.

That about sums it up. It certainly is tidier that nowadays you got one party that is interested in different ways to prop up working-poor incomes and another that is actively opposed pretty much to all of them.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.