July 25, 2005

July 25, 2005 | Commentary on Taxes

How to really help the poor

Everyone agrees we should do everything we can to help poor Americans earn more. But one of the worst ways for Congress to attempt to do that is, paradoxically, one of the most popular: raising the minimum wage.

There are several reasons why minimum-wage hikes don't achieve all their objectives:

  • Most workers who earn the minimum wage - generally teenagers - don't come from low-income households. Indeed, the average household income for such a worker is $45,000 a year, and many workers with incomes close to the minimum wage come from households earning more than $80,000 annually.

  • Minimum-wage jobs are nearly always entry-level positions, usually filled by new workers who, as they gain experience and become more productive, see their incomes rise without government help. About two out of every three workers hired at the minimum wage, in fact, are earning more within a year.

  • Minimum-wage hikes increase labor costs, prompting businesses to create fewer entry-level positions. Employers forced to pay more to new workers naturally prefer to hire more experienced workers who require less training. Who loses out? Ironically, less-skilled workers who are poor.

Such workers are no better served by calls to retain the estate tax because this tax directly undermines job creation. The federal estate tax alone is responsible for the loss of 170,000 to 250,000 potential jobs each year, Heritage Foundation economists estimate. This additional employment never appears in the economy because the investments that would have brought higher employment aren't made.

The estate tax also dampens wage growth. Workers are more productive when they have new tools, machines and factories, and increased productivity boosts wages and salaries. And let's face it: The estate tax is un-American. It strikes many people as a clear contradiction to a central promise of American life - that if you work hard, save and live prudently, you will be assured the enjoyment of your economically virtuous life.

Congress can best help low-income workers by leaving the minimum wage alone and permanently repealing the estate tax.

William W. Beach is director of the Center for Data Analysis at the Heritage Foundation, a conservative think tank in Washington.

About the Author

William W. Beach Director, Center for Data Analysis and Lazof Family Fellow
Center for Data Analysis

Related Issues: Taxes

First appeared in the USA Today