A hike in the federal minimum wage is bottled up in Congress despite the labor-organized street protests by fast-food workers. They demand $15 an hour — without having to boost their productivity.
It’s easier to ask politicians for a raise than asking your boss. The boss knows whether you’re worth it or not. But politicians are just looking for ways to buy votes with other people’s money.
Now a Plan B has emerged that liberals think some conservatives will fall for: Subsidize paychecks with taxpayer money. Specifically, liberals want to expand the fraud-ridden Earned Income Tax Credit (EITC) program.
Even The Washington Post is cowed by the reports that a half-million jobs could be lost if the minimum wage goes up. In an editorial, The Post writers concede, “There’s a risk that a $15-per-hour wage would force employers to hire fewer workers, or lay off some, or even to close marginally profitable stores.” But their alternative is for government to pay workers the extra money that their employers cannot or will not pay, courtesy of the EITC.
New reports surface every day to confirm that a major workplace changeover is happening due to government policies: restaurants replacing order takers, cashiers, waiters and waitresses with self-serve kiosks and computer tablets at your table.
Restaurateurs have seen state and local governments pushed into raising their minimum wages, whether it happens nationally or not. Throw in the fact that Obamacare forces them to pay thousands more per worker unless they schedule employees for fewer than 30 hours a week. And the Obama-appointed National Labor Relations Board is issuing edicts aimed to force all franchise operations into nationwide collective bargaining with unions.
Pushing back, White Castle, McDonald’s, Burger King, Arby’s, KFC, Subway, Chili’s, Applebee’s, Panera Bread and other chains are all in some stage of the transition to more machines and fewer workers. Business is booming for companies that sell automation systems that offer better reliability, lower costs, no time off and no back talk. A new firm announced there’s now even a machine that not only takes your order but custom-cooks a hamburger to your personal specifications — untouched by human hands.
The restaurants are following the trend that replaced bank tellers with ATMs, closed book stores due to online sellers and rendered many travel agents obsolete with Internet booking systems.
Rather than urging people to improve their job skills and urging government to quit discouraging job creation, the left’s response is government subsidies for workers. Crony capitalism for the masses.
The Washington Post editorial argues that “government is better positioned to provide them [higher wages] than profit-making corporations. The Earned Income Tax Credit needs to be expanded, and doing so could provide much of the relief the protesters are demanding, without the attendant negative side effects.”
No negative side effects? The EITC already costs taxpayers over $56 billion a year to subsidize low-income paychecks with up to $6,000 per year per recipient. The IRS’s inspector general reports that 22 percent to 26 percent of those payments are fraudulent or improper. In dollar terms, the IG says that’s a loss of between $13.2 billion to $15.6 billion. Cheaters simply file a claim with the IRS, and it pays off better than any slot machine.
Coupled with EITC is an enlarged Child Tax Credit program that pays billions more. An estimated $4.2 billion of these payments annually go to illegal aliens, who sometimes list hundreds of children as living at one street address. Over 8,000 IRS checks went to one single bank account.
Yet the EITC has Republican supporters in addition to universal worship by Democrats. The program’s earlier version was praised by Ronald Reagan, but it’s grown immensely since then. The core problems are its constant expansion of payments and eligibility, the ease of defrauding the government, the near-total absence of eligibility checking and the fact that there is no limit on how many years people can collect EITC payments.
The EITC is our biggest welfare program, even though advocates get angry when it’s labeled welfare (since recipients must have some income of their own to qualify for the subsidy).
With no time limits, recipients get trapped, because EITC payments phase out as income rises, so the marginal tax rate grabs away their improved earnings. A household making $25,000 a year effectively faces a 31 percent federal income tax rate if they earn more, plus Social Security and Medicare taxes that claim almost another 8 percent. Those who want to escape the EITC have little incentive since Uncle Sam is confiscating almost 40 percent of their added earnings.
Expanding the EITC will only enlarge this trap and increase the number of people who fall into it.
Despite the pitfalls, we can expect a push to expand the EITC. It won’t improve the economy, it won’t fix poverty, and it will make things worse. Until we create incentives for people to prepare for better jobs and to work harder, a bigger EITC is no antidote to escaping poverty. Beware the politicians who will soon be promoting this as a Plan B, a Plan A or under any other name.
• Ernest Istook is a former Republican congressman from Oklahoma. Get his free email newsletter by signing up at eepurl.com/JPojD.
Please read our comment policy before commenting.