Assembly Speaker Sheldon Silver wants to raise the state’s minimum wage by 17 percent, to $8.50 an hour, and link it to inflation, guaranteeing more yearly increases. But there are much better ways to help the working poor — including one that Silver shares credit for: a refundable state tax credit.
The speaker says a higher minimum wage will help the poor without harming the economy. But much evidence suggests he’s wrong on both counts: The higher minimum wage would reduce job opportunities for the very people it’s supposed to help, even as the benefits flow mainly to households that aren’t poor.
What’s more, New York’s minimum wage is already much higher than the nominal $7.25 an hour. Silver and others pushing a minimum-wage hike ignore an important federal, state and city boost to low-income working households — the refundable Earned Income Tax Credit.
We’re often told that no one should have to support themselves on $15,000 a year. Thanks to the EITC, no one does.
The federal EITC dates to the mid-1970s; with bipartisan support, it’s been greatly expanded over time. New York state adopted its own EITC in 1994 and has raised it several times; it now provides a 30 percent add-on to the federal credit. Working families in the five boroughs also get a New York City EITC worth 5 percent of the federal one.
All this provides $4.5 billion a year in wage supplements to New York workers — $3.58 billion federal and $967 million state.
The EITC already addresses New York’s ostensibly inadequate wage floor by boosting the effective wages of low-income workers. Unlike the minimum wage, it does so without killing jobs and driving up the cost of hiring unskilled workers as well as wages across the board.
Consider a single parent with two children working full time and earning the current minimum wage of $7.25 an hour, or $15,080 a year. The federal and state EITC add $6,646.
That boosts yearly household to $21,726 — and makes the effective minimum wage $10.44. (The city EITC adds another $255, hiking the hourly wage to $10.56.)
And maximum EITC benefits, unlike the minimum wage, are targeted effectively to working families earning from $10,000 to $20,000 a year. The EITC is specifically designed to provide the greatest benefits to households with children — those with three or more children can get a maximum federal and state refund of $7,476 (with two children, $6,646; with one child, $4,022).
Married couples with children benefit slightly more; single individuals and childless couples get a smaller, but still important, benefit.
As income rises, EITC benefits phase down until eligibility ends at $49,078 for married filers with three children (and stops at lower amounts for households with fewer or no children).
Economists David Neumark and David Wascher, have compiled nearly 100 studies on the effects of minimum-wage hikes. Most studies show negative effects; as the authors conclude: “We are hard pressed to imagine a compelling argument for a higher minimum wage when it neither helps low-income families nor reduces poverty.”
They also note: “The EITC pursues much the same goals as suggested by the rhetoric if not the reality of minimum wages.”
A 2008 New York-specific study by Cornell’s Richard Burkhauser and American University’s Joseph Sabia predicted that 29,000 jobs would be lost if the state minimum wage rose to $8.25 hourly.
It’s odd to see Silver ignore the impact of the $4.5 billion in benefits delivered to low-income households by the EITC — when, after all, the Assembly shares in the credit for enacting it and maintaining it over the last 18 years.
Gov. Cuomo has indicated conceptual support for a minimum-wage increase, but without endorsing the speaker’s specific proposal. If he really cares about the job prospects of low-income workers, he should steer clear of it.
You simply can’t sweep the $4.5 billion in EITC benefits to New York’s low-income working households under the rug. The truth hurts, especially when it negates the noise of those who argue loudly for a well-intentioned but misguided minimum-wage increase.
Russell Sykes, a senior fellow at the Manhattan Institute’s Empire Center for New York State Policy, was an architect of New York’s 1994 EITC.