Cartoon: The Minimum Wage Versus The Earned Income Tax Credit

[spoiler]
The cartoon shows two people arguing, a young woman with her hair in a ponytail, and an older man wearing a suit.

PANEL 1
WOMAN: We need to help low-income workers, we should raise the minimum wage!
MAN (thoughtfully): The minimum wage is inefficient. To really help low income workers, you’d have to raise the Earned Income Tax Credit.

PANEL 2
WOMAN (enthused): Sounds good! Let’s raise the Earned Income Tax Credit.
MAN (angry): NEVER! That would increase government spending!

PANEL 3
WOMAN: But you just said…
MAN: What a shame there’s no policy that helps low-income workers without government spending.

PANEL 4
WOMAN (annoyed): You mean, like raising the minimum wage?
MAN (enthused): Hey, you know what poor people really need? Tax cuts for millionaires!

SMALL ADDITIONAL PANEL AT END
WOMAN (enthused): We should raise both the minimum wage and the tax credit!
MAN: Give me a sec to work out why I’m against that.[/spoiler]

This entry posted in Cartooning & comics, Economics and the like, Minimum Wage. Bookmark the permalink. 

28 Responses to Cartoon: The Minimum Wage Versus The Earned Income Tax Credit

  1. 1
    nobody.really says:

    Great message blah blah blah.

    Now talk about the style. It’s evocative of both early Peanuts and the Mr. Moneybags from the Monopoly game. Moreover, it seems different than a lot of your prior stuff. It really fits the current strip — both in evoking the image of Mr. Moneybags, and in the pedestrian sense that short, wide characters fit the space beneath the text.

    Plus, they’re cuter than bugs’ ears.

  2. 2
    Ampersand says:

    Thanks! I’m really happy with how the drawing came out in this one.

  3. 3
    gin-and-whiskey says:

    I think you should make the mini-panel at the very end (which you often seem to use) feature the hereville pigs. Just because.

  4. 4
    JutGory says:

    nobody.really:

    Great message blah blah blah.

    Not sure I agree with you there. I like the drawings, but I don’t follow the message.

    Frame 1: he says the minimum wage is “inefficient.” I am not sure what is meant, unless he is using it in some sort of technical sense. If it is not being used in some technical sense, I have never seen “efficiency” used as an argument against the minimum wage. Arguments against the minimum wage are typically that they are ineffective, if not counter-productive.

    Frame 2: he complains about the EITC, but HE IS THE ONE THAT BROUGHT IT UP (in Frame 1)! This bugs me because he is clearly goal-post shifting and risks making arguments against EITC and minimum wage laws look like strawman arguments.

    Frame 3: I don’t understand what he is saying. If he is supposed to be a parody of a conservative, he is not a very good one. Lowering regulations is a typical conservative proposal. By lowering the expenses that government regulations impose on business, businesses are able to profit more easily and that benefit to the economy benefits those with low-income.

    Frame 4: Again, he sounds like a liberal who is trying to pose as a conservative. conservatives don’t want tax breaks for millionaires; they want tax breaks for everyone. (Except that lots of liberals seem to think that tax cuts constitute government spending.)

    Mini-Frame: There does not seem to be a punch-line here. What does he need a “sec” for? It should take him no time at all to explain why he is against it.

    Like I said, I liked the art, but the thread of the dialogue didn’t work for me.

    -Jut

  5. 5
    nobody.really says:

    Frame 1: he says the minimum wage is “inefficient.” I am not sure what is meant….

    Classical economic theory says that market forces will drive prices to efficient levels in which (for the labor market) the market-clearing wage reflects both the most an employer would be willing to pay for an extra hour of labor and the least an employee would accept to provide the extra hour of labor. Minimum wage laws preclude transactions at less than the established price – presumptively precluding certain voluntary transactions between employers and employees.

    Or that’s what some people say to oppose the minimum wage.

    Frame 2: he complains about the EITC, but HE IS THE ONE THAT BROUGHT IT UP….

    Conservative Faction A opposes the minimum wage on the grounds that it is less efficient than the EITC. Conservative Faction B opposes the minimum wage, but opposes the EITC more on the grounds that it increases government spending. Amp shows both types of arguments coming from the same person, illustrating the frustration liberals feel trying to negotiate for policies to subsidize the working class, and encountering mutually-inconsistent objections.

    Frame 3: I don’t understand what he is saying.

    This continues the dynamic from Frame 2. The two conservative factions have different preferences as between the minimum wage and the EITC — but both factions prefer INACTION most of all. By doggedly refusing to engage with each other, they help bog down the discussion.

    Frame 4: Again, he sounds like a liberal who is trying to pose as a conservative. conservatives don’t want tax breaks for millionaires; they want tax breaks for everyone.

    This is unclear. In the Fiscal Cliff deal, Obama opposed raising the payroll tax (which affects salaries but not capital gains), but the final deal increased that tax. It appears that the Republicans insisted on this provision.

    In any event, conservatives often propose tax breaks – structured to provide disproportionate benefit to the affluent. People earning minimum wage or getting the EITC don’t pay a lot of income tax, so “tax breaks for everyone” generally isn’t much of a break for them.

    Mini-Frame: There does not seem to be a punch-line here. What does he need a “sec” for? It should take him no time at all to explain why he is against it.

    Evaluating a proposal to raise both the minimum wage and the EITC would force Factions A and B to engage with each other – something they’re loathe to do.

    Great message blah blah blah.

    Not sure I agree with you there.

    Well, can we at least agree on the “blah blah blah” part?

  6. 6
    gin-and-whiskey says:

    Evaluating a proposal to raise both the minimum wage and the EITC would force Factions A and B to engage with each other – something they’re loath to do

    .
    Unlike liberals, who are comfortably in agreement on major issues without those messy internal inconsistencies, debates, or failure of disparate groups to engage? Liberals: Because We’re Just Better! ;)

    Really though, Amp’s older links touches on a research paper that suggests these are based less on economic analyses and more on moral issues. There’s a fundamental debate between positive and negative liberty, for example, which really has a lot to do with whether people tend to believe the minimum wage is appropriate.

    I think you’re looking at twou groups of people. Some are more rationally conservative (they oppose the EITC) and some are more morally conservative (they oppose the minimum wage.)

  7. 7
    Ampersand says:

    I don’t think we’re talking about “different Republicans.” I think we’re talking about the same Republicans. A few months ago, after President Obama suggested raising the minimum wage to $9 in the SOTU, there was a sudden rush of conservatives praising the EITC as an alternative, so much so that Patrick Brennan in the National Review wrote “Conservatives rightly praise the EITC, especially right now as an alternative to a higher minimum wage.”

    In fact, I don’t believe you could get Republicans to favor the EITC at all; as far as I know, every single Republican in Congress recently voted against continuing an expansion of the EITC. The last time there was any significant conservative support for the EITC was during the 1980s, and in recent years conservatives have been vocally objecting to the way that the tax code allows poor people not to pay any federal income tax – a problem that could only be corrected by huge reducing or eliminating the EITC.

    So the cartoon is not saying that some conservatives support the EITC, others oppose it; it is saying that many conservatives will opportunistically praise the EITC as a tool for opposing the minimum wage, but in fact those same conservatives will either never support or actively oppose the EITC when it counts.

  8. 8
    kate says:

    Hi Amp, love it and agree with you explanation in #7. It might be more effective if, in panel two, he said “But 47% of people already don’t pay any taxes!”

  9. 9
    Varusz says:

    Another way of looking at the minimum wage:

    Small increases probably don’t do anything to the economy. They don’t do much for the worker either, but maybe politicians can get some praise.

    Large increases, at a certain point, are a kind of hidden form of redistribution (similar to taxing and spending), because you can not only lose your money via taxes, you can lose it via inflation. As an extreme example, raising the minimum wage to $250 per hour would pretty quickly inflate the currency. If the clerk behind the McDonald’s counter is making that wage, it’s pretty clear that you are soon going to have to be paying more than a buck or two for a cheeseburger.

  10. 10
    Ben Lehman says:

    Small min wage increase matter more than you think, in terms of daily life.

    Over the long run, minimum wage causes inflation, yes. Which is why the EITC is better mathematically. But EITC expansion is politically nonviable, whereas minimum wage expansion is fairly viable particularly at a state or local level.

  11. 11
    gin-and-whiskey says:

    EITC transfers the general social goal “help the poor…” to the general social budget “…by using the taxes that we all have to get, pay, and divide.”

    Minimum wage transfers the broad social goal of “help the poor…” to the MUCH MUCH more limited category of “…by demanding more of the employers who are currently paying the minimum wage.”

    That makes no sense. It’s not as if “minimum wage employers” are necessarily more likely to be taking advantage of their employees–Certainly there are a lot of people working for $10/hour who believe they’re being abused.

    So morally speaking, the EITC is a lot better IMO because the beneficiaries and the payees are more related. I don’t suggest abolishing the minimum wage (it’s still better than some alternatives) but I think it’s important to keep track of the moral issue.

  12. 12
    Ben Lehman says:

    gin-and-whiskey: Wait you don’t know that, like, there’s a huge swathe of the labor market (electricians and plumbers, say) who get paid in multiples of minimum wage? i.e. “minimum wage x5” or “x10” or whatever? There are.

  13. 13
    Ampersand says:

    G&W, keep in mind that part of the EITC is in effect a subsidy to low-wage employers, because it enables them to get better workers for less money, and thus encourages them to lower wages. The EITC is still a net benefit for poor workers, but part of the tax money is effectively paid to low-wage employers. Having an effective minimum wage counteracts this effect of the EITC.

    The two policies are best seen as complimentary policies, not alternatives to each other.

  14. 14
    Charles S says:

    Also, the minimum wage is well known to have a positive pressure on non-minimum low wages, so the $10/hour person makes a better wage because of the minimum wage (unless they are in some shitty $2.13/hour plus tips service job).

    Employers paying minimum and near minimum wages are directly profiting from paying shitty wages, so it makes sense that they would be the ones to profit less (or raise prices and spread the cost around) from bettering the conditions of their laborers.

    Lastly, this:

    It’s not as if “minimum wage employers” are necessarily more likely to be taking advantage of their employees–Certainly there are a lot of people working for $10/hour who believe they’re being abused.

    is presented as though it were an argument with supporting evidence, but it contains no actual supporting evidence. The idea that because people being paid low wages that aren’t minimum wages are getting exploited, therefore people who would be getting paid sub-minimum wages if employers could get away with it aren’t being exploited more, is just gibberish. It is rather obviously possible for some people to be being exploited and for others to be being exploited more, or for some members of one class to be being exploited and more members of a lower class to also be being exploited. This is so obvious it shouldn’t need statement, but your gesture at an argument depends on it being false.

  15. 15
    Charles S says:

    Neat side note: a 10% minimum wage increase is estimated to produce ~0.4% inflation. We are currently running 0.5% below the Fed’s inflation target (and we’d actually be better off running above the Fed’s inflation target, particularly as the result of growth promoting efforts). Low wage workers spend basically all their wages, so increasing wages has a stimulative effect on the economy during a recession.

    So now would be a really good time to raise the Federal minimum wage by 10% (or more).

  16. 16
    gin-and-whiskey says:

    Ben Lehman says:
    May 5, 2013 at 8:21 pm

    gin-and-whiskey: Wait you don’t know that, like, there’s a huge swathe of the labor market (electricians and plumbers, say) who get paid in multiples of minimum wage? i.e. “minimum wage x5″ or “x10″ or whatever? There are.

    I swear I’m not asking this in a snarky way, but how is that relevant to this issue? People who are making substantial multiples of minimum wage aren’t what we’re talking about here, are they?

    Ampersand says:
    May 5, 2013 at 8:54 pm
    G&W, keep in mind that part of the EITC is in effect a subsidy to low-wage employers, because it enables them to get better workers for less money, and thus encourages them to lower wages.

    I’m not sure I agree with that. First of all, not everyone gets it to the same degree: your eligibility for the EITC has much more to do with your NON-employment status (marriage and kids) than with your absolute wage. It’s much less of a “quality control” correlation than it is simply a way to help make sure that folks don’t refuse to work.

    Second, at the low end of the wage pool there’s a lot of compression, especially in times of high unemployment. You won’t get substantially different applicants for an $8/hour job versus a $7.25/hour job.

    Charles S says:
    May 5, 2013 at 10:05 pm

    Also, the minimum wage is well known to have a positive pressure on non-minimum low wages, so the $10/hour person makes a better wage because of the minimum wage (unless they are in some shitty $2.13/hour plus tips service job).

    Sure. I don’t think we should abolish the minimum wage; I just think that we need to be cautious about raising it.

    Employers paying minimum and near minimum wages are directly profiting from paying shitty wages,

    Not unless they’re UNDERPAYING.

    You and I may have a fundamental disagreement here: It seems pretty clear to me that there are some jobs which just aren’t worth that much to have done, and I’m not willing to ask folks to pretend that they’re worth more (or specifically design them to be worth more) just so that the employees can feel better about themselves.

    Similarly, there are some employees who simply aren’t worth much at the jobs where they work (perhaps they’d be worth more somewhere else.) Whether you’re talking about lack of specific skills (eager college intern who knows jack-shit about the business and mostly gets in the way) or lack of need for skills due to the base nature of the job (“put the label on the envelope. Repeat.”) or lack of personal ability (can’t read, can’t write, doesn’t have good social or professional skills, has no useful training, and is unwilling/unable to do physical labor) there are certainly MATCHES of jobs and people which do and should result in minimum wage and which are not, in any way, exploitative.

    And you make it sound like “profit” is a bad thing. If you have a employee, you’re supposed to profit from them. That’s why you have employees.

    See above

    (or raise prices and spread the cost around)

    Why is this a good thing? Then you’re transferring the cost to a MUCH more limited set of customers, who–in many instances–may well be the people you’re trying to help. (Wal-Mart isn’t a great employer. Wal-Mart is also a very useful store if you’re not rich. Etc.)

    from bettering the conditions of their laborers.

    On an individual basis, it’s almost impossible to get people to do things which go against their self-interest. If you raise the minimum, then folks will generally work around it: they’re expect the employees to work harder (and will select for the hard workers, since they are now paying more). If you make health care mandatory for full timers, they’ll just start hiring part timers, and so on.

    I mean, seriously: you can’t really think that employers will pay a 13% raise right away, and an additional 12% (for a total of 25%) in a year, and NOT change their employment habits to suit? You better be pretty damn sure that there’s a lot of inappropriate profit floating around.

    The minimum wage is a bit like a union: It’s a good thing if you look at AFTER you’ve selected for the class of “employees,” and if you limit the analysis TO those employees. It’s no so great if you look at the overall scheme.

  17. 17
    Charles S says:

    “just so that the employees can feel better about themselves. ”

    By which you mean be able to eat food, pay rent, etc. All of which it really makes sense to frame as a self-esteem issue.

  18. 18
    Robert says:

    I think that what G&W was getting at was that employees in that category (those whose work isn’t worth much to others, for whatever reason) are going to need some kind of external support in order to be able to buy food, pay rent, etc.

    They’re either going to need a welfare benefit from the government (EITC or the like) or private charity, or an artificial prop to their wage. The value of their labor on the market, in and of itself, is insufficient to support them in a manner to which their neighbors can live with themselves to witness, so they’re going to get a handout one way or the other.

    The handout via an artificial prop to wages has the unique feature of being somewhat of a salve to the self-worth of the recipients. They aren’t getting a handout! They have a job! What G&W is saying is that the (real) benefit that this provides, isn’t worth the disproportionate targeting of the cost of the wage hike. We all pay for the EITC, but its McDonalds shareholders who pay for the wage hike, but we all get the benefit of those folks getting a higher wage.

  19. 19
    Charles S says:

    Actually, G&W isn’t saying it isn’t worth it. He explicitly said it is worth it, just we should keep in mind the moral wrong we are committing by limiting the freedom of WalMart and McDs to pay starvation wages.

  20. 20
    gin-and-whiskey says:

    Charles,

    I’m not disagreeing about whether we should help poor people; I’m disagreeing about the appropriate method for helping poor people.

    So I’d appreciate it if you could stop, ya know, framing me as making some sort of pro-starvation argument. It’s obnoxious.

  21. 21
    JutGory says:

    Charles S.:

    By which you mean be able to eat food, pay rent, etc. All of which it really makes sense to frame as a self-esteem issue.

    What often gets left out of this discussion are the minimum wage workers who don’t need to pay for rent: unskilled teenagers with no work history. As some have suggested, there are people whose labor is not worth the minimum wage and I would contend that teenagers looking for an after-school job and some extra spending money make up a large percentage of that group.

    The food and rent argument does not work for that group.

    But, hiking the minimum wage may price them out of the labor market, as the unemployment rate for teenagers was reported to be close to 25% last summer (and was probably even higher for minorities). Unskilled laborers cannot compete with skilled (or experienced) laborers at that price. And, this is particularly damaging for poorer families because, if their children are not able to afford college, the ability to build a work history is vitally important.

    -Jut

  22. 22
    gin-and-whiskey says:

    Obtaining food requires:
    1) you make money and buy your own food;
    2) someone else in your family makes money and buys you food;
    3) The government provides you with food (or gives you money to buy food.)

    Minimum wage addresses only #1. And there are more than three options, of course; those are just the most basic and most common ones and don’t include things like “grow your own.”

    Rent is similar: you can find a place on the market on your own dime, or stay with someone else, or attempt to get subsidized housing, or attempt to get in a subsidy program and use the subsidy on the market, and so on.

    So, suggesting that a minimum wage increase is primarily about food/rent ignores the reality that there are many solutions to providing food/rent, only one of which is “earn money to pay for it yourself.”

  23. 23
    Robert says:

    True, there are other solutions – but to say that there are many solutions is to ignore the reality that to many people, methods of acquiring food and rent that do not involve working for a living are morally odious, at least in certain contexts.

    For example, I have a friend and coworker who has quite severe health impediments, cerebral palsy just for openers. She basically lives in a power wheel chair. Everything she does in a professional context takes about triple the normal spoon ratio. Nonetheless, she is a writer and editor, supports herself, bought her own house, etc. Nobody in the world would think ill of her for ceasing to make an effort to earn her own food and rent; if she went on disability (which she could do just by relaxing) I would not lose an ounce of respect for her.

    I have another acquaintance who is an able-bodied 23-year old. She suffers from some mild depression and anxiety, which seem to be controlled fairly well by medication. She is trying to get on SSDI so that she can just drink and party and have boyfriends pick up any cash slack in her lifestyle desires. With the obvious caveat, that I cannot see into her inner sanctum where, perhaps, she really is struggling with titanic demons and is more disabled than I could possibly know – I find this absolutely contemptible, and I have no desire to be her friend.

    So yes, there is more than one way to make rent – but there is also a judgment call about whether the person making the rent is pulling their own weight, or is a legitimate object of aid, or is a slacker. What we’re willing to pay for depends immensely on the perceived and actual distribution of these character traits in the people under discussion.

  24. 24
    Ampersand says:

    So, suggesting that a minimum wage increase is primarily about food/rent ignores the reality that there are many solutions to providing food/rent, only one of which is “earn money to pay for it yourself.”

    Yes, but life has many necessary expenses. Food and rent, yes. Bus fare, also, or maybe car repairs, or bike repairs. Clothing. Computer and internet (makes job hunting far more efficient, plus many jobs require computer skills). Phone bills. Medicine. Water. Gas. Etc, etc, etc..

    The government could subsidize each of those things (and many others) individually. But although there are some items it makes sense for the government to directly subsidize, on the whole an individual consumer will be able to decide exactly how much money to budget for each needed purchase much more efficiently than the government can.

    Both the minimum wage and the EITC take advantage of that efficiency by letting the person being aided be in charge of deciding how to allocate the money.

  25. 25
    gin-and-whiskey says:

    Ampersand says:
    Both the minimum wage and the EITC take advantage of that efficiency by letting the person being aided be in charge of deciding how to allocate the money.

    Sure! It’d be inefficient otherwise. Though of course, there are also other inefficiencies, because people don’t necessarily spend their money where we want them to.

  26. 26
    Robert says:

    People not spending their money where I would like them to is not inefficiency.

    If the money was charity from me, whether tax-based or freely contributed, then you might speak of efficiency in terms of how satisfied I am with the uses to which my charitable dollar was spent…but that would be a political question, not an economic one.

    Economically, it’s efficient if the dude spends his money in the way that makes him happiest. Whether he’s buying Albanian hashish, Ayn Rand novels on tape, phone sex minutes, cotton sheets or Taco Bell gift cards, if he’s optimizing for his own utility, then he’s efficient.

  27. 27
    gin-and-whiskey says:

    Sure. But as a result of our relatively complex society, lack of quality universal education, and high level of stratification, we end up with a lot of people making decisions in a heavily bounded space. The decisions may be efficient in that space, but they aren’t efficient in the larger context.

    In order to optimize for utility, you have to rationally understand the costs and benefits or you can’t make an accurate decision. You might THINK you’re optimizing, but you’d be wrong.

    To use a good example, a lot of poor people make non-ideal decisions about higher education, presumably because the process is relatively complex and their information is limited or inaccurate. And it turns out that you can get much improved outcomes just by doing things like “taking them to campuses and explaining how things work.” That doesn’t change their desire to get utility; it just improves their base knowledge of how to attain it.

  28. 28
    Robert says:

    That’s a different phenomena. All decisions are made with imperfect information, and there’s always some data which, had you but known it, would have produced a “better” decision. Efficiency in terms of personal utility is always bounded by the individual’s knowledge and (knowledge being infinite) no decision would be efficient if we accept “needed more data” as a flaw. What more data produces is a new set of knowledge for the individual, which changes their utility function(s).

    What you are describing as “the larger context” is the social utility, to others, of particular decisions being made or not made. And there, you are cherry picking “better”. To you, it’s better for the people to go to a campus and see their options. Is it better for the woman who owns the rag-picking factory in town and who depends on a steady supply of laborers unaware that there are more lucrative career paths? Arguably, that woman sucks and should die, so we don’t care about her utility function – but it’s there nonetheless.

    It’s perfectly possible to want people to have access to better information (or at least, different information – better is so very very personal) but to accept that whatever decisions they make with whatever information they possessed was the decision that was best for them; it just requires humility. There was a reason Kirk went around spouting off about the Prime Directive…we cannot control better or worse. We can provide different, sometimes, but better or worse will be in the perception and judgment of someone whose inner life we do not have access to.