The Earned Income Tax Credit and the Minimum Wage

The earned income tax credit (EITC) targets poverty better than a minimum wage, says Ben Gitis, a policy analyst at the American Action Forum.

The EITC was passed in 1975. A low-income, working family receives a credit based on a fixed percentage of earnings. As earnings increase, the credit also increases, reaching a maximum value that depends upon the number of children in the family. If a family’s tax liability is smaller than their EITC, the family still receives the full value of the EITC.

The EITC developed in response to proposals in the 1960s and 1970s that aimed to help the poor but did not include strong work requirements. The EITC is only available for working families and targets poverty much more effectively than does the minimum wage.

The average family earnings for an EITC worker are $24,017, compared to a minimum wage worker’s average family earnings of $48,860.
The average number of hours worked by a person receiving EITC is 35 hours, compared to 24.2 for a minimum wage employee.
More than 58 percent of EITC workers are in poverty. Only 5.3 percent of those receiving the minimum wage are actually in poverty.
And the EITC has a much greater reach. In 2012, 11.6 percent of all workers received the EITC, whereas only 1.6 percent of employees earned at or below the minimum wage.

A minimum wage increase would do little to help poverty.

In 2012, only 1 percent of people in families with incomes below the federal poverty line earned at or below $9 per hour, and only 1.3 percent earned at or below $10.10 per hour.
Moreover, only 1.8 percent earned at or below $15 per hour.
Had the minimum wage been raised in 2012, even up to $15, it would not have helped more than 98 percent of people actually in poverty.

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