Newsletter Archive

December 29, 2006

Tax Credits, the Minimum Wage, and Inflation

Elaine Maag

Two primary wage-support policies help low-income families: the minimum wage and targeted tax credits. Since 1997, when Congress last raised the minimum wage, the real value of the minimum wage has fallen about 20 percent because of inflation, while the earned income tax credit (EITC) and child credit have been expanded. This brief illustrates how current tax rules interact with the minimum wage and considers whether increased tax credits could substitute for minimum-wage increases for those earning the federal minimum wage. The analysis shows that increasing tax credits enough to substitute for raising the minimum wage is probably infeasible because of both the cost and the high marginal tax rates required. A more direct route to helping low-wage workers is to raise the minimum wage and index it to inflation.

Read the Complete Policy Brief

First Tuesday Forum: Increasing the Minimum Wage: Implications and Effects

January 2, 2007
Noon to 1:30 pm
At the Urban Institute - 2100 M Street, NW, 5th Floor

Panelists:

• Jared Bernstein, director, Living Standards program, Economic Policy Institute
• Harry J. Holzer, professor of public policy and associate dean, Georgetown Public Policy Institute; former chief economist, U.S. Department of Labor
• Elaine Maag, research associate, Income and Benefits Policy Center, Urban Institute
• Eugene Steuerle, senior fellow, Urban Institute (moderator)
• William Wascher, assistant director, Division of Research and Statistics, Board of Governors of the Federal Reserve System

When the 110th Congress is sworn in January 4, a top priority will be raising the minimum wage. Incoming House Speaker Nancy Pelosi has vowed to introduce such a bill within the first 100 hours of business.

Key questions for the panelists:

• How should policymakers decide whether -- or how much -- to raise the minimum wage?
• Who would benefit from a higher minimum wage? Who would be harmed?
• Are there tax policy options that would help low-wage workers?

Seating is limited. To RSVP, e-mail Public Affairs or call (202) 261-5709. To register online, click here. Lunch is available at 11:45. The forum begins promptly at noon.

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