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The public policy blog of the American Enterprise Institute
“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter,” Democratic political consultant James Carville said back during the Clinton administration. “But now I want to come back as the bond market. You can intimidate everybody.”
If that position is filled when Carville passes on, returning as the Congressional Budget Office would be a solid alternative. Thanks to the CBO’s new economic-impact analysis of sharply raising the federal minimum wage to $10.10, it’s doubtful Washington Republicans would vote for the centerpiece of President Obama’s anti-inequality agenda. From Potomac Research Group’s morning note: “A minimum wage hike is dead in Congress; there’s no chance it could pass the House.”
The agency’s synthesis of existing research concluded raising the minimum would lift nearly a million Americans out of poverty – but also cost a half million jobs. And of the 16.5 million workers who would get a pay raise totaling $31 billion, just a fifth of the increased income would go to families with earnings below the poverty threshold. “Raising the minimum wage probably reduces employment,” the CBO explains. “In the long term, that reduction in the workforce lowers the nation’s output and income a little … .”
To folks on the right, those potential trade-offs strongly argue against raising the minimum wage, especially during a depressed labor market. Now the CBO could be wrong about the employment impact, of course. Team Obama argues it is and will likely continue to push hard for the policy. Additional economic research will surely be produced, giving ammo to both sides. And the debate will continue. No rush, the poor aren’t going anywhere.
But why continue the debate? In its report, the CBO notes that in contrast to a minimum wage hike, “an increase in the [Earned Income Tax Credit] would go almost entirely to lower-income families.” So there you go. More bank for the billions of bucks. Let’s expand the EITC, especially to offer more support to childless workers. And then on top of that, add a wage subsidy. AEI’s Mike Strain:
If you earn $7.25 per hour, for every hour you work the government would cut you a check for 3 bucks. Easy as pie. Around 1.8 million hourly-wage workers over the age of 24 earned at or below the federal minimum wage in 2012. Let’s take the most generous case and assume that all of them worked full-time and lived in working-class households. With a wage subsidy of $3 per hour, we’re talking an annual federal expenditure of $11 billion.
The typical Democratic response to this idea is that while conservative wonks like the idea of wage subsidies, Republican pols not so much. Yet Senator Marco Rubio, who may well run for the GOP presidential nomination, has made wage subsidies one of key element of his anti-poverty agenda. The policy window may be opening here for an effective, anti-poverty idea that both Democrats and Republicans could (should) favor.
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