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Earned Income Tax & Minimum Wage conflicting purposes

March 7, 2013

Cascade-PolicyTestimony Regarding SB 326 and SB 507
by Steve Buckstein
Cascade Policy Institute

Cascade is supportive of any legislation that allows people to keep more of their own income, as these bills do. When the tax burden is diminished or eliminated, people are incentivized to work harder. This benefits both individual workers as well as the broader community.

However, if your goal is to help raise people out of poverty and lower unemployment, you should be aware that the Earned Income Tax Credit (EITC) works at cross-purposes with the state’s high minimum wage law, which punishes employers for trying to offer jobs to entry-level workers.

The contrast between the two approaches was quantified in a study published last year by economists Joseph Sabia and Robert Nielsen, which found a 1% reduction in state poverty rates associated with each 1% increase in a state’s EITC. Yet, a 2007 study by Mr. Sabia found that single mothers were made worse off by increases in the minimum wage: Their employment dropped by 6% for each 10% hike in the minimum wage.

I understand that you will consider SB 326 and SB 507 as stand-alone measures, while Oregon voters have said that they want a high minimum wage. But the two approaches are in conflict, and the committee would do well to address the punitive effects of minimum wage laws in the future.

  
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Bob Clark March 7, 2013

Real leaders would try to soften the rigidness of Oregon’s current minimum wage law, as to do otherwise is to do something a political opportunist would take advantage of. Ordinary folks probably subconsciously look at the minimum wage like they do tipping at say a restaurant. Convention is to tip the waitress, departing empathy towards their service and hard work. But tipping is voluntary as it should be as service is not always of convention as some waitressing service is of a minimal nature (frequently, by design).
So, real leadership would try to instill the minimum wage on a voluntary basis, rather than dictating it down in one-size-fits-all labor law.

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