Can the Earned Income Tax Credit Help Close the Income Gap?

On a recent episode of GPS, Fareed Zakaria made a convincing argument that the (EITC) “Earned income tax credit is a more efficient way to help the working poor.”  While expanding the EITC doesn’t come without a cost, this seems more likely to gain bipartisan support.  Fareed suggested this would be paid for by closing tax loopholes for big businesses, which may seem like a good idea, but we know this is never going to happen.

In my post Minimum Wage or Paycheck Anchor, I make the argument that minimum wage laws simply enable employers to pay wages below the poverty level.  Effectively the government has defined what constitutes an “adequate wage” so if it doesn’t happen to be a living wage, then it’s up to the government to make up the difference through entitlements.  We have set the bar for employers lower than what an  untethered market would bear.  Minimum wages laws keep low wages from rising while skilled jobs (not under the restraints created by the law) are free to rise with market forces.  The result is an ever widening income gap.

My fellow conservatives are looking at the problem the wrong way.  Instead of opposing raising the minimum wage, they should just oppose the minimum wage.  Instead of opposing more entitlements, they should oppose measures that create the need for more entitlements.  But most of all they should oppose subsidizing inefficient businesses, who have grown to expect the government to pay an ever growing portion of their labor cost through entitlements.

Any short-term fix will require some adjustment, whether to minimum wage or the EITC, but it won’t be “fixed” until the cost of labor is born by the employer alone and not shared with the taxpayer.