10 Tweets on How NOT to Spend Your Tax Return — Which Gets Better Results: $15 minimum wage or Increased EIC?

Increasing the minimum wage is all the rage these days. Several locations have already enacted laws to raise the minimum was to $15 over the next few years. Last year, Warren Buffet wrote an article published in the Wall Street Journal. In this article, he suggested that increasing the EIC — Earned Income Tax Credits — is a better option than increasing the minimum wage. Here’s a snippet:

In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity.

That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.

The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC), which currently goes to millions of low-income workers. Payments to eligible workers diminish as their earnings increase. But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check.

I often hang on every word that Mr. Buffett utters, and I understand his point-of-view here and agree with his projection, increasing the minimum wage will likely increase unemployment. However, the alternative which Buffett proposes — increasing people’s tax returns — will likely only result in increased consumption of beauty products, clothes, etc. Okay, maybe Buffett just wants to stimulate the economy. Maybe I’m a stick-in-the-mud, but I would rather see people invest their money for their future.

Whether it’s an increased minimum wage or increased EICs, putting more money in people’s pockets, especially as a lump sum tax return which many people treat as “found money,” will probably only provide us with more tweets like these:

Photo credit: Traveloscopy

Add Comment