Employment Policies Institute Testifies in Harrisburg in Support of Earned Income Tax Credit
EITC, not minimum wage hikes, will have largest positive impact on low-skilled employees
Publication Date: March 2006
Topics: Minimum Wage
Washington D.C.–In a special hearing today before the Pennsylvania House Finance Committee, the Employment Policies Institute (EPI) will testify in support of developing a State Earned Income Tax Credit [EITC] as a better solution than a minimum wage hike to help the Commonwealth’s low-skilled employees.
According to a study jointly commissioned by the Washington, DC-based nonprofit EPI and the Harrisburg, PA-based Commonwealth Foundation, the current House proposal to raise Pennsylvania’s minimum wage could lead to a catastrophic $350 million hit on the Pennsylvania economy and the loss of 10,000 jobs. More than 30% of the lost jobs will be from those earning less than $25,000.
Not only do wage increases result in job loss and impose a heavy burden on the economy, but they are a blunt and ineffective means of assisting low-income employees because of the simple fact that most minimum wage earners aren’t poor. Only 10% of Pennsylvania’s minimum wage earners are the sole earner in a family with dependents. The EPI study also found that the average family income of minimum wage employees in Pennsylvania is nearly $50,000.
The success of the Federal EITC has already led 18 states and the District of Columbia to develop their own supplementary income tax credit. No other government program has been as effective in lifting families out of poverty. By designing a state EITC to supplement the federal program, many of Pennsylvania’s most needy full-time working families could effectively experience a wage increase to over $7.20 an hour without facing the threat of job loss.
Because an EITC takes into consideration total family income and can be crafted to offer additional credits for children, the benefits are better targeted to those truly in need.
Economists from the Federal Reserve and Michigan State University have found that EITC recipients increase their work output and enjoy higher earnings, leading them toward self-sufficiency.
“This is a rare policy-no-brainer,” said Mike Flynn, director of legislative affairs for EPI. “A state EITC will provide cash assistance directly to those who need it most. Better still, unlike a minimum wage increase, no one will lose their job.”