Pair tax credits with higher minimum wage
- February 18, 2014 - 4:53 PM
Help workers with wages, tax credits
The minimum wage and state tax credits work together to boost our local economies and build ladders for low-wage workers to climb into the middle class. They are not “trade-offs,” as D.J. Tice argued in his Feb. 9 column (“There’s no pot of gold for the working poor”).
Those who work hard and play by the rules should be able to support themselves and their families. But that’s not the case today. Minnesota policymakers should take two important steps in that direction this year.
An increase in the minimum wage is well overdue. Minnesota is one of only four states with a minimum wage below federal standards. If the federal minimum wage had the same buying power today as in 1968, it would be $9.55. And if it had kept up with rising worker productivity during that period, it would be even higher at $18.61.
Increasing the minimum wage boosts our economy because more Minnesota workers will have income to spend on the basics, like groceries and rent. And while some people raise concerns that a higher minimum wage would reduce employment, the extensive research finds little negative impact.
Policymakers also should strengthen Minnesota’s state Earned Income Tax Credit, known as the Working Family Credit. Minnesota is one of 26 states that use a credit to promote work and offset a portion of the substantial taxes that lower-income families pay, including sales and property taxes.
The 2013 tax reform bill made important progress in making Minnesota’s tax system more based on taxpayers’ incomes. It also raised new revenues that balanced the budget and invested in opportunity and shared prosperity.
State tax credits and the minimum wage have their greatest success when they work together. The Working Family Credit works well for families with children, but not so well for low-wage workers who aren’t caring for children in their homes. These workers are eligible only at extremely low incomes, get much smaller tax credits, and are ineligible if they are younger than 25 or older than 65.
Another reason that the minimum wage and tax credits work better together is their timing. The Working Family Credit comes once a year as a tax refund, but workers are hard-pressed to meet their daily expenses if too much of their incomes come only once a year.
Let’s recognize that the minimum wage and tax credits are complementary, not competitors, in the effort to make work pay.
The writer is director of the Minnesota Budget Project.
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