GUEST COMMENTARY: To help poor, earned income tax credit better than minimum wage hike

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Once again, a movement is afoot for a big raise in Missouriís minimum wage, despite clear evidence that such increases fail to help many theyíre intended to benefit ó including heads of households who work full-time but donít earn enough to comfortably support their families.

Free markets are the greatest engine for wealth creation that the world has ever seen, but that doesnít mean there wonít be market failures, and that doesnít mean the poor wonít be among us. People who are physically limited or whose skills only qualify them for an entry-level job might not be able to earn enough to adequately support a family, and that should concern all of us.

But the best antipoverty program is a good job, and if we want an economic environment that maximizes employment, centralizing wage control is not the way to get there.

And thatís the problem with increasing the minimum wage. In many cases, raising the cost of labor to employers cuts off access to jobs from the people who need them the most, and it creates an obvious incentive for businesses to reduce their labor costs by reducing hours or eliminating jobs.

Thereís a reason that kiosks are becoming more common in restaurants; as labor costs grow, alternatives ó including buying and installing machines to provide customer service ó become more attractive.

And even if this were not happening, minimum wage increases are a very poor way of targeting help to struggling families. The vast majority of minimum wage workers live in households that are at or above 150 percent of the poverty line, and often those minimum wage workers are either young people currently in school or adults working part-time as supplemental wage earners in their families.

In fact, a study just released by the Show-Me Institute projects that if the state raises its minimum wage to $12 over the next few years, less than one-fifth of Missourians seeing that wage increase would be those actually living in poverty.

Hereís what our state should do to help heads of households who canít make it on their own despite the roaring economy ó who work full time but earn less than what they need to support a family: Missouri should pass an earned income tax credit.

A tax credit supplements the income of low-wage workers by returning the income taxes they have paid. The federal tax credit has been a feature of the tax code for decades, and it should be part of Missouriís tax system as well.

Precisely because the tax credit provides supplemental income without killing jobs, it has long had strong bipartisan support. Indeed, Ronald Regan supported it way back in 1986. And in 2013, Christina Romer, the former head of President Obamaís Council of Economic Advisors, said, ďA more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time.Ē

In fact, Missouriís conservative-dominated legislature almost passed a non-refundable tax credit for state income taxes in 2018. As things stand today, prospects are good that a similar proposal will make it to the governorís desk in 2019.

And while smaller than the federal governmentís refundable version of the credit, such a state tax credit would be far less harmful to job creation and better targeted than the minimum wage hikes that are currently being considered in the state.

We should all be able to rally around the idea that even as free markets are steadily raising our collective standard of living, there can and should be an economic backstop for lower-income workers. But we also need to focus on what will actually help those in need, and above all, we should avoid unintentionally hurting the needy with whatever policy proposal is put forward on their behalf.

Minimum wage increases sound good and feel good, but good intentions and good feelings arenít enough. To help the poor, the earned income tax credit is a better option.

Patrick Ishmael is director of government accountability at the Show-Me Institute, an organization that promotes market solutions for Missouri public policy. It is based in St. Louis.

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