In the State of the Union speech, President Barack Obama called for an increase in the minimum wage from $7.25 an hour to $10.10 an hour. President Obama and other Democrats believe that raising the minimum wage will lift American families out of poverty. Recent polling shows that Americans overwhelmingly support a minimum wage hike.
Meanwhile, Republicans are generally opposed to the proposal. Senator Minority Leader Mitch McConnell says raising the minimum wage will destroy jobs. Research from economists David Neumark and William Wascher done over two decades does show a loss of jobs after a minimum wage increase. Economists Joseph J. Sabia and Richard V. Burkhauser found in a recent study that only 11.3% of all minimum wage earners are classified as poor. The minimum wage is a terrible weapon to combat poverty and is harmful to employment. It places the burdens on business, is poorly targeted, and makes it harder for young people and other low skilled workers to enter the workforce. There needs to be a better way to help people escape the clutches of extreme poverty.
One such idea is a guaranteed minimum income for those who cannot be claimed as dependents on someone else’s tax return. One of the ideas to implement such a program is a Negative Income Tax. For example, the government would set an income threshold per month and would pay the difference of the amount earned and that threshold. For example, if the threshold was $1600 per month and a person only makes $1000 per month, that person would receive a check for $600. There would be a form similar to a W-2 filed by employers every month that would show how much that person made. It would replace the minimum wage and most cash welfare benefits. It would streamline anti-poverty efforts and better target resources to those who need them. Finally, it would provide an incentive for employment because the amount is set low as not to let someone get rich, but provide just enough to meet their basic needs.
This is not an idea confined to the political left. The American Revolutionary Thomas Paine advocated a “Citizen’s Dividend” in his 1795 essay Agrarian Justice. The concept of the Negative Income Tax itself was proposed by Nobel Prize winning economist Milton Friedman as a way to eliminate the bureaucracy of the welfare state. Free market economist Friedrich Hayek also supported something similar to guaranteed minimum income. Recently, Matt Zwolinski wrote “The Libertarian Case For A Basic Income” on the Cato Institute hosted Libertarianism.org.
Combatting poverty has been a major focus of the American people and its government for 50 years. It’s time to try a new approach, while at the same time encouraging employment and giving all Americans a true safety net for the first time in history.