Tax credits: A better way to help working poor

Members of 15 Now Tacoma joined Raise Up Tacoma, labor activists and union members June 30 for a rally in Tacoma supporting a $15 minimum wage.
Members of 15 Now Tacoma joined Raise Up Tacoma, labor activists and union members June 30 for a rally in Tacoma supporting a $15 minimum wage. Staff file, June 2015

Buried in the documents created for Tacoma’s Minimum Wage Task Force is a report that demolishes the case for a $15 minimum wage — and bolsters the case for a less sexy alternative, the earned income tax credit.

The mayor’s task force wound up conflicted over recommendations to phase in either a $12 or a $15 minimum wage. On Tuesday, the Tacoma City Council picked the $12 option; it will appear on the November ballot alongside an initiative that would recklessly hike the minimum to $15 by January.

The $12 proposition could be seen as pragmatic risk management.

It’s not likely voters will buy into an overnight jump from the current $9.47 to $15; we doubt most Tacomans are gullible enough to believe in the magic money promised by the Marxist-flavored 15 Now movement.

In reality, the sudden explosion in labor costs — coupled with potential criminal penalties for employers — would leave many of the city’s small businesses reeling. Their low-wage employees would suffer as much as anyone.

Putting a $12 option on the ballot offers extra insurance that the punitive $15 won’t pass.

But if the goal is relieving poverty, the minimum wage itself is a blunt instrument. The reason: Many, if not most, people who make low wages have comfortable household incomes.

That may sound counterintuitive, but a lot of low-income workers live under high-income roofs. An affluent 16-year-old breaking into the work force, for example, or a college student supported by his parents. Sometimes it’s a spouse working part-time, or doing nonprofit work by choice.

One study used by the mayor’s task force was an analysis from the Puget Sound Regional Council, “Summary Characteristics of Tacoma Residents by Wages.” Based on Census data, it estimated that 62 percent of the city’s minimum wage earners had family incomes of $55,000 or more. A full third — 33.3 percent — lived in homes pulling in $100,000 or more.

In the next tier of low-wage workers — those who earn up to $15 an hour — 73.1 percent had household incomes exceeding $55,000. Of those, 36 percent had family incomes of $100,000 or more.

Caveat: These were 2007 numbers. Still, they’re strong evidence that a hefty percentage of low-wage workers aren’t struggling in poverty.

But some of them are struggling in poverty. The federal earned income tax credit is designed to help them. The EITC is a kind of reverse income tax: Instead of writing checks to the IRS, low-income workers get checks to augment their wages. Washington State theoretically has a matching program, the Working Families Tax Rebate, but hasn’t funded it.

Expanding income tax credits makes far more sense than high minimum wages.

The EITC delivers the money exclusively to the poor, not the middle class. It doesn’t discourage job creation. It doesn’t impose disproportionate burdens on small businesses and charities, which tend to pay lower wages. It doesn’t disqualify poor families from food stamps and other means-tested welfare benefits.

What it lacks is sizzle. It has a low profile. No one chants, “EITC now!” It doesn’t buy the loyalty of unions and activist groups.

It’s merely the most effective and generous way to help the working poor.