As an alternative to raising the minimum wage, how about we give small businesses that pay livable wages tax credits? We should reward the many great American businesses that pay livable wages.
These businesses would be more profitable, and this approach would reduce the need for social programs.
Workers being able to provide for their needs would be the ultimate social program—no government involvement required.
The Earned Income Tax Credit (EITC) is a social program designed to benefit low- to moderate-income working individuals and families, particularly those with children. EITC aims to reduce poverty, incentivize work, stimulate the economy, and reduce income inequality. To qualify, individuals must meet income thresholds, have a valid Social Security number, and meet other criteria.
President Ford (R) signed the program into law in 1975. President Reagan (R), President George HW Bush (R), and President Clinton (D) significantly expanded it. President Reagan (R) said EITC was “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”
Studies find:
“EITC has substantial positive effects in incentivizing single parents to go to work.”
“EITC lifts substantially more children out of poverty than any other government program or category of programs.”
The downside to EITC? It’s a social program. Rather than individuals receiving enough money from their work, taxpayers funnel money through the government to pay those who qualify.
Another relevant point is that 99.9% of American businesses are small businesses. Further, small businesses employ 46% of American workers. Last, small businesses create just under two-thirds of new jobs.
We need to kindle growth in small businesses to drive growth in American business.
Let’s combine these concepts. Why wouldn’t we incentivize small American businesses to pay workers higher wages as an alternative to a social program?
Working individuals and/or families file claims to qualify for EITC benefits. To secure the benefit, an individual needs to verify their employment income for the tax year. EITC support varies based on income and the number of dependents.
To rephrase the above: working people who don’t make enough money from their labor get additional money from the rest of the American people through taxpayer subsidies.
Though this approach reduces poverty, you should ask why you contribute to other people’s income rather than their employer. A good follow-up question might be—how do we incentivize employers to pay well enough that workers wouldn’t qualify for the benefit?
Many great employers pay good wages, reducing the need nationwide for social programs. Why wouldn’t we give these employers tax credits to reward them for paying livable wages to their employees? To receive the tax credits, businesses would prove through their tax filings that they paid individuals a sufficient salary to provide for their needs. Those businesses that paid these wages would have a reduced tax burden and be more competitive in their operations.
Key takeaways:
When companies pay a wage sufficient for workers to provide for themselves, these companies should receive a tax credit. As a result, these companies would become more competitive. This approach would additionally reduce the need for taxpayer-funded social programs.
If companies pay wages below this threshold, the company wouldn’t qualify for the tax credit. These companies would be less competitive. Less competitive businesses fail, so businesses would strongly desire to pay livable wages.
We need to make the incentive lucrative to keep our businesses strong. We should reduce the tax burden for small businesses that pay livable wages by 10% across the board and target specific industries with even more significant tax breaks. This approach would incentivize businesses to pay wages sufficient to enable workers to provide for themselves and reduce the national need for poverty programs.
A couple of critiques of this proposal: It would disproportionately impact retail and food service industries as they have a high percentage of low earners. Further, it poses a tax revenue reduction for the government. We should address both.
First, we should provide a more significant tax credit to retail and food service businesses. These businesses might need a 25% tax break to incentivize paying higher wages. Further, we need to phase in the tax credit over time. This design would give businesses more time to adjust to the higher cost of paying livable wages.
Second, the posed tax revenue reduction would be offset by cuts to social programs. The necessity for social programs rose out of workers receiving low wages. We need to proportionally reduce funding for social programs based on the reduction in need for these programs.
Workers being able to provide for their needs would be the ultimate social program—no government involvement required.
There is no simple solution to enabling families to provide for their needs. However, the free market doesn’t lift everyone out of poverty, and relying on raising the minimum wage results in political gridlock.
We need to find alternatives.
This approach has challenges, but it achieves the goal of paying workers livable wages so they can support themselves and their families.
It promotes competition and innovation as small businesses that receive the tax credits are more successful.
It reduces the burden on the taxpayer as small businesses are incentivized to pay wages above the poverty level, thereby reducing the need for social programs.
Thanks for considering my perspective.
May God bless the United States of America.
Earned Income Tax Credit and Small Business Taxes