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A wage to live on: An employee earning the bare minimum in New York takes home enough money to raise a family

2019-09-01

With New York City’s minimum wage going to $15 per hour, 1.4 million workers will be getting a raise by the end of this year.

But the unprecedented news, which few people appreciate or even understand, is that when that happens, the city’s minimum-wage workers with children will be making as much as $27 per hour, when you factor in Earned Income Tax Credit (EITC) and Child Tax Credit. Those programs match each new dollar earned, magnifying the impact of a rising wage floor.

With that support, even part-time minimum wage workers with kids can at least attempt to take care of their families in this very expensive city on a minimum wage. This is a very big deal, one that hasn’t gotten the attention it deserves.

New York City is by far the largest jurisdiction with this high a minimum wage in effect, joining a handful of California cities and Seattle. The rest of New York State, California, Connecticut, Maryland, Massachusetts, Illinois, New Jersey, Washington D.C. and a few other cities are scheduled to match that rate in coming years.

For decades, inflation stripped the minimum wage of its value, with policies like the EITC largely just making up a bit of that loss for families with children. The federal minimum wage remains has been stalled for decades at an unconscionably low $7.25 (and $2.13 for tipped workers).

In fact, the last few years, when a few cities and states have acted, mark the first time that any minimum wage workers with families are making more on an hourly basis than they did 50 years ago, when the value of the federal minimum wage hit its all-time high when adjusted for inflation.

Even better, the new New York City minimum wage is not delivering a marginal bump above that level, but as much as double its 1968 peak for the lowest-paid workers with kids — and as much as four times the wage rate compared to 1940 just after the federal minimum wage was first introduced.

The public and even many activists underestimate what a radical shift for the lowest-wage workers this represents. Smart grassroots organizing in multiple battles at the federal and state level have just now come together, adding up incrementally to life-altering changes when brought together in people’s lives.

The increasing divergence between the rising minimum wage in Democratic states versus stagnation in Republican states also undercuts rhetoric that Democrats have somehow abandoned workers’ issues.

Notably, all of the states that have voted Democratic in every presidential election since 1992, the “Blue Wall” states (representing roughly one-third of the U.S. population) have raised their minimum wages above the federal level. As those states raise their wage floors towards $15 per hour, the impact will be even greater, as the numbers from New York City reflect.

Compare that to consistent Republican-voting states, where no state legislature has raised the minimum wage in years (although a few have seen it raised by ballot initiative), and many have prohibited local governments from raising them as well.

Symbolic of this split is Democratic-leaning St. Louis voting to raise its minimum wage to $11 for 2018, only to see the Republican-leaning Missouri legislature lower it back down to $7.70. In turn, voters in a ballot initiative last November overturned the Republican legislature and raised the statewide minimum wage to $12.

The success of that ballot initiative highlights the kinds of local activism that step-by-step overcame the decades-long stagnation in the minimum wage.

After hitting a peak in 1968, rapid inflation in the 1970s would erode the minimum wage’s value. Congress failed to raise the amount to compensate so that by 2001, the Wall Street Journal published an article on “How Minimum Wage Lost Its Status as a Tool of Social Progress.”

But campaigns in Santa Fe, San Francisco and other cities followed by successful statewide initiative campaigns, particularly in Nevada and Florida in 2004, kickstarted a watershed moment where, as one analyst noted, “politicians realized the issue was a ‘winner.’”

In 2012, the “Fight for 15” slogan consolidated a national movement for a $15 minimum wage, backed by among others the Service Employees International Union as a key sponsor. In 2013, the tiny city of SEA-TAC became the first jurisdiction to pass a $15 minimum wage, rapidly followed by the cities of San Francisco and Seattle, then by New York, California and other states.

What has accelerated the mini-revolution is that even as the minimum wage had stagnated at the federal level, the EITC, first introduced in the 1970s, has become a steadily larger income support program for low-wage workers, rising from under $5 billion annually in 1984 to well over $63 billion annually in 2017, reaching more than 25 million tax filers.

While the initial EITC passed in 1975 gave low-wage workers with at least one child a tax credit amounting to just 10% of their wages, Bill Clinton made a massive expansion of the EITC a cornerstone of his 1993 economic relief package, and amendments in Obama’s 2009 recovery package added an additional bump in the EITC credit for families with three children, creating an income supplement up to 45% of their first $14,290 in wages.

The Child Tax Credit, born as part of the 1997 GOP tax bill, was initially unavailable to the lowest-income families, but during negotiations for the Bush tax cuts in 2001, the CTC was doubled and made partially refundable for families, phasing in as a 15% supplement to wages much like the EITC.

Negotiations in the 2017 Trump tax bill expanded the maximum refundable CTC to $1,400 per child, so a family with three children making $30,500 per year gains an additional $4200 in income from the CTC — a major additional income transfer.

Some progressive policy advocates like Josh Mound writing in The New Republic have worried that the EITC and CTC may encourage people to take jobs at lower wages, knowing wage supplements will top up their pay. But a higher minimum wage, as other researchers note, restricts any downward pressure on wage gains, preventing employers from capturing the value of the EITC credit.

So, the minimum wage and EITC not only both benefit low-wage workers but address problems that one or the other policy by itself might leave.

Amidst a presidential campaign where Democrats are talking about an economy skewed against low-income Americans, a new reality has emerged over the last few decades. Local and state legislative efforts have created a radically better economic situation for low-wage workers than a generation ago.

But we still can and must improve it even more.

The EITC still provides too little support for workers without kids, and it starts phasing out rapidly, meaning a single parent with two or more kids starts deducting 21 cents from their income for every dollar they earn above $18,600. On top of regressive Social Security and Medicare taxes and other benefit losses, this is a punishing tax rate on new wages earned above that threshold that can be catastrophic when rent and other benefits get denied as income increases.

Bills by multiple congressional leaders would increase credits for single workers and extend the phaseout period significantly; Sen. Kamala Harris’s legislation, a centerpiece of her presidential campaign, delays the phaseout until a single parent earns at least $80,000 per year.

Others are proposing a “job guarantee,” where the government promises a job to any person who can’t find a private sector alternative, a move that would ensure all the unemployed benefit from the higher minimum wage and the EITC/CTC wage supplements. In at least one poll, a full 56% of the public supports a job-guarantee program, including 48% of Republicans. Sen. Cory Booker and others in Congress have already introduced legislation to pilot such programs around the country.

With a $15 minimum wage and EITC/CTC, even a part-time job guarantee would become a viable safety net for working families.

This is incremental radicalism, each policy step not only improving people’s lives but reinforcing the success of other policies to do the same.

Newman, a writer and professor at CUNY, is a long-time labor advocate, former labor organizer and labor lawyer and former associate counsel at the Brennan Center.