The Corner

Capital Matters

Josh Hawley’s Wage Proposal

Axios has the details. Basically, for the next three years, workers making less than $16.50 an hour (rising with inflation) would receive a refundable tax credit worth one-half of the difference between their hourly wages and that number, up to 40 hours per week. So someone making $10 an hour would get a credit worth $3.25 an hour.

In my writing on the minimum wage, Ive often made the point that if we want workers to be paid more, we should do that with taxpayer dollars — not by killing jobs, interfering with the contracts between workers and their employers, and driving up prices for customers as well. Hawleys idea is one way of doing this.

There are some legitimate concerns about the plan too, though:

  • Hawley says this will cost $200 billion. Thats not a necessarily a deal-breaker for trying out a temporary program — its about $600 for every person in the country, and maybe 5 percent of the typical pre-COVID annual federal budget — but if this becomes permanent it will need to be paid for.
  • The credit would be sent out once per quarter, basically a windfall for low-wage workers every three months. Id prefer injecting the money into workers paychecks or paying it once a month, which would make for smoother household budgeting.
  • Because the credit is worth half of the difference between $16.50 and the workers wage, a worker who gets a $1-an-hour raise will lose 50 cents an hour from the tax credit. Thats a very high marginal tax rate, and these workers will often lose other government benefits as well when theyre paid more.
  • Employers could cut wages to capture part of the credit. More people will be willing to take a job at any given wage if the government is going to chip in extra; this means the supply of labor goes up and the price (i.e., the wage) goes down.

You could address many of these problems by requiring employers to pay more and then giving them, rather than the workers, a tax credit worth some percentage of the rise in pay. For those who want to dive into the weeds, its interesting to compare the Hawley proposal with David Neumarks Higher Wages Tax Credit.


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