Better Way: EITC

Posted on August 10, 2010

A new analysis claims that monthly rent payments remain out of reach for many low-income Pennsylvanians (“Group: Low-income housing in crisis,” July 30). Unfortunately, the poverty-reduction strategy most popular among legislators and advocates — raising state and federal minimum wages — is also one of the least effective.

New research from economists at the University of Alabama and East Carolina University found that 85 percent of poor families received no benefit from the most recent increase in the federal minimum wage.

Here’s why: Recent Census Bureau data show that the average family income of a minimum-wage earner is more than $48,000. The majority of minimum-wage earners don’t come from low-income families. Rather, they’re middle-class teens living with their parents, or married couples who both work. This means higher minimum wages don’t translate to bigger paychecks for poorer families that need them most.

A better option is the Earned Income Tax Credit (EITC). Targeted specifically at those with lower family incomes, an expansion of the EITC would have lifted 1.95 million Americans out of poverty — two-and-a-half times more Americans than were lifted out of poverty by the 40-percent federal minimum wage increase that took place between 2007 and 2009.

Michael Saltsman
Washington, D.C.
The writer is a research fellow at the Washington, D.C.-based Employment Policies Institute (epionline.org).