Column Highlights Need For EITC

Supporting Idea 4 from the Center’s new tax policy book Doing Better: Progressive Tax Reform for the American South, Todd Cherry, an associate professor of economics at Appalachian State University wrote an opinion piece in the Raleigh News and Observer in favor of a state Earned Income Tax Credit. The impetus for the article was the North Carolina legislature’s approval of increasing the minimum wage by $1. The article argues that an increased minimum wage does not always help those for which the increase was intended.

Keep in mind the goal of such legislation is to help working North Carolinians who have too little money to make ends meet. Raising the minimum wage helps too few of these people and misdirects much of the assistance to those not in need. The raise will benefit about 135,000 people, but more than half of them are teenagers and part-time workers. This means that half of the assistance from the raise goes to teenagers and part-time workers, the vast majority living in households well above the poverty line. It also means that well over half of the working poor in North Carolina do not benefit from the raise.

The article is straightforward and clear. Cherry highlights the benefits of the EITC over a minimum wage increase.

Raising the minimum wage also unfairly places the burden of poverty assistance on a subgroup of businesses and their customers. The raise is a hidden tax that disproportionately burdens these individuals who are often struggling themselves. This hidden tax can be substantial. An increase of $1 per hour translates to about $10,000 of additional annual labor costs for businesses with five full-time workers earning minimum wage, and a considerable part of that amount will inevitably be transferred to the customers.
The EITC reaches more people in need by not limiting assistance to those earning at or near minimum wage. It also provides more appropriate levels of assistance because it is proportionate to need. And the EITC distinguishes the 16-year-old from an upper-middle-class family who's working at the mall for extra spending money and the 33-year-old single parent working alongside that teenager.

The EITC spreads the burden of poverty assistance more broadly and fairly because assistance is funded by all taxpayers through income and sales taxes, and therefore the burden is assigned progressively through income and spending levels. With such broad support, a relatively small contribution from each person would lead to much more help to many more people.

It is apparent that the Center’s new tax policy book is getting attention throughout the South. This article supports one of its main ideas and implies, like the center, that Southern states can be more effective with low-income tax relief.