EITC: The Way Out of Destructive Economic Carousel

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I recently wrote an op-ed in The Hill in support of the Earned Income Tax Credit (EITC) – a program that supplements incomes of the working poor through the tax code. Eligible EITC recipients receive government assistance to supplement their wages. As their income from work rises, their government assistance declines. However, the decline is never so steep that it reduces their total income.

Unfortunately, not all government assistance programs succeed in putting people on a path to financial independence. In fact, many welfare program can actually punish people who work because even a slight increase in income may result in a severe decrease in government benefits. Workers who receive such benefits may want to work more or accept promotions, but earning a bigger paycheck doesn’t make sense as they would lose the government assistance they need to care for their families. It’s common for such workers to decline promotions when offered or request reduced hours when their wages increase. Otherwise, they lose government assistance and are worse off. It’s happened at our company.

This isn’t a criticism of employees who need this assistance. They’re making a rational economic decision. Nor is it a criticism of the intent behind current welfare programs. Rather it’s a criticism of how these programs are structured.

The EITC, on the other hand, is an assistance program that encourages success and financial independence. According to the IRS, the EITC has already lifted an estimated 6.5 million people out of poverty, 3.3 million of whom were children. It’s a broadly appealing program that finds support among a politically diverse universe of individuals including President Obama, Warren Buffet, and Congressman Paul Ryan.

So, I’m also a fan of the EITC. Steve Doocey from Fox and Friends thought enough of my column on the EITC to interview me. But, MediaMatters noticed and felt compelled to get both political and personal by running an article attacking Fox News and me.

The MediaMatters piece starts by criticizing me because I have opposed large, government mandated minimum wage increases that compel employers to eliminate jobs and cut workers hours. But, the minimum wage was the subject of neither my op-ed nor my interview. Far from opposing a livable wage, the point was that I support giving workers the opportunity to make more money by earning more and accepting promotions when offered.

Expanding the EITC would actually make it easier for people to earn more (by working more) when proponents succeed in raising the minimum wage (as they have recently at both the state and municipal level). It certainly wouldn’t stop people from advocating for a higher minimum wage. A new white paper by the National Bureau of Economic Research states that “the optimal policy combines a generous EITC with a high minimum wage.” That sounds like both common sense and common ground. No matter what the minimum wage is, don’t we all – except perhaps MediaMatters -- want people to make more if they work more?

MediaMatters next goes into a discussion of single moms and whether welfare programs as currently structured discourage work. Let me be clear. I wasn’t suggesting that the current welfare system discourages work. I was stating it as a fact. The economic incentive in the current system is unequivocal: You make more if you work less. As such, it’s economically irrational to work more. This can unintentionally trap people in poverty and government dependence. The EITC addresses this perverse incentive without reducing benefits for workers who need them. Why would MediaMatters think that’s a bad thing?

MediaMatters ends with a questionable analysis of whether our industry pays employees an amount sufficient to help them rise from poverty. Perhaps Media Matters might instead take a moment from their political war to consider the effect the government’s current assistance system can have on the working poor and those who provide them with jobs.

Let’s take a look at that. The government makes welfare benefits available up to a certain level of income and then the benefits abruptly terminate. As businesses attempt to promote workers or give them raises (voluntarily or through minimum wage increases), some workers decline the promotions or request fewer hours rather than losing needed benefits. Outlets such as MediaMatters then criticize businesses for not paying them enough. Even MediaMatters must know that’s absurd.

The EITC is the way out of this destructive economic carousel. It rewards those who work hard and dream big. It encourages workers to move up the ladder of success rather than forcing them to either stay on the bottom rung or lose their benefits. In other words, it provides needed benefits, values work, and rewards the dignity and self-respect that come with earned success.

MediaMatters seems to have a vendetta against Fox News. I get that, but misinformed and misdirected vitriol only serve to stifle legitimate debate. Perhaps that's the goal. I hope not. Rather, while we may disagree about how to get there (free markets versus government controls), I hope everyone's true desire is to reduce poverty and expand opportunity for all Americans.

The EITC is helping millions of Americans lift themselves out of poverty and could help millions more. Maybe that’s something we should all just think about. 

Andy Puzder is the chief executive officer of CKE Restaurants. He is an economic adviser to the Trump campaign. His Twitter handle is @AndyPuzder, and you can read his blog at andy.puzder.com.

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