Don’t Raise the Minimum Wage: Trump Has a Better Plan Use the tax code to help working families afford child care. That’s a way to boost incomes without the unemployment side effect. By Michael Saltsman
http://www.wsj.com/articles/dont-raise-the-minimum-wage-trump-has-a-better-plan-1473895148
Donald Trump is no one’s idea of a traditional Republican, but his speech Tuesday showed the rank-and-file a better way to help workers at the bottom. Democrats pound the need to raise the minimum wage, which is a tricky political issue for the GOP. “Fight for $15” fits well on a protest sign, and it’s easy to paint opponents of a higher minimum wage as heartless, even though their economic reasoning is sound.
Speaking in a Philadelphia suburb, Mr. Trump proposed a new benefit: allowing families to deduct child-care expenses on their income taxes. For a single-parent household with no income-tax liability—the families that Democrats target with their minimum-wage message—this wouldn’t do much good. So Mr. Trump offered an alternative: an expansion of the Earned Income Tax Credit (EITC) to offset child-care expenses.
The EITC, signed into law by President Gerald Ford in 1975, has for decades been championed by Republican and Democratic presidents alike. The word “credit” is a misnomer; the policy is better described as a wage supplement for low-income employees, topping up their income on a sliding scale.
To be eligible for the EITC a person must hold a job and earn income. The size of the annual payment depends not on tax liability, but on how much the employee earns and how many children he or she has. Payments phase out gradually as income rises, to avoid the counterproductive “cliff” effect that characterizes other social-welfare programs.
Economists have found much to like about the policy: A 2008 study, supported in part by my organization and published in the Journal of Policy Analysis and Management, found that when the credit has been expanded in the past, employment of single mothers rose. So did their wages. Mr. Trump would build on this success by further expanding the credit to help cover eligible child-care expenses. The maximum supplement under his plan would be one-half the amount of the employee’s payroll taxes (i.e. FICA and Medicare). For married couples, the maximum would be calculated from the lower-earning spouse. CONTINUE AT SITE
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