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Tuesday, July 13, 2004
A Modest Thought on the Minimum Wage

By Steven Taylor @ 3:20 pm

A post over at ProfessorBainbridge.com on the minimum wage reminded me of an idea that I meant to post a few weeks back when Kerry started talking about raising the minimum wage, so here it is:

If the concern is that those at the very, very bottom of the wage chain can’t survive, instead of forcing employers to cough up more money (and, by extension, customers of those businesses), why not set a certain level of income at which citizens are exempt from payroll taxes? It need not be only for the most minimum-level wage-earner, but could be a graduated scale from the bottom, and as one makes more, one begins paying a certain percentage. It would not only put more money in the pockets of low wage earners, it would also save employers money and theoretically lead to more hiring, rather than restricting it, as a minimum wage hike woud do.

I will grant that the EITC is supposed to fulfill this function to some degree, but those funds do not show up in the check of low-income workers each week (when it is most needed).

This idea not only has a potentially positive impact on employment, it takes the burden off of employers. Further, by letting citizens keep their cash, rather than sending it to the government only to have it sent back to them (minus the cost of the extraction and redistribution) it is a more efficient policy.

Filed under: The Economy
  • Blogged & Dangerous linked with A Progressive Payroll Tax?
  • Accidental Verbosity linked with More On Minimum Wage

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6 Comments»

  1. Makes sense here.

    Comment by Dave — Tuesday, July 13, 2004 @ 3:32 pm

  2. Steven,

    Looking at currently available tax data, 30% of households (not the best word to use - basically 30% of filings) either get back every cent or claim tax exempt. I would submit that what you suggest is already the case, just wasn’t planned.

    Comment by Joel Gaines — Tuesday, July 13, 2004 @ 3:47 pm

  3. It may well be-I would think, however, that instead of doing it via the EITC, it would be efficient to simply exempt them from payroll taxes.

    Comment by Steven — Tuesday, July 13, 2004 @ 3:51 pm

  4. Joel, I see where you are coming from, but this is a problem with the syntax of our tax system. Payroll taxes are the Soc. Sec. and Medicare taxes. You pay that from dollar 1.

    Comment by Ron — Tuesday, July 13, 2004 @ 3:53 pm

  5. Of course, the counter argument will be something along the lines of, “big deal, you’re talking about adding pennies to the wages of a group that needs dollars.”

    Naturally, the economically bereft are unlikely to consider that increasing the minimum wage substantially will result in the creation of fewer jobs (and probably loss of some that now exist)…but you can’t have everything, right (though, Lord knows, many politicians promise it)? So long as Washington gets its cut to “do good"…

    Comment by Jem — Tuesday, July 13, 2004 @ 4:00 pm

  6. I believe low-income employees do (or can?) receive an “advance” EITC credit on their regular paychecks, but I think you only get it if you have kids.

    Comment by Chris Lawrence — Tuesday, July 13, 2004 @ 4:04 pm

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