> From: Robert Cherry <[EMAIL PROTECTED]>
> Subject: [PEN-L:11464] Re: Child tax credit
> My own assessment is that the EIC was thought by small businesses
> (chambers of commerce) as an ALTERNATIVE to minimum wage increases and
> probably had some expectation that it would increase labor supplies and,
> thereby lower pressures on wages in less skilled service occupations.
Certainly a business would prefer an EIC to
a minimum wage, but this doesn't mean there
is anything wrong with an EITC, nor that its
existence owes anything to business support.
> Second, probably a majority of two-children families which receive the
> EIC are in the $19,000-$25,000 range. Indeed, a family with two dependent
> children and adjusted gross income equal to $20,000 is still receiving an
> EIC equal to about $2000. Thus, the argument that the EIC should
> distinguish between those who receive the child credit and those who should
> not is problematic.
Right, but only the Repubs say this.
> Third, this could interestingly offset some of the work disincentives
> inherent in the EIC. For families above $16,000 there is a quite high
> implicit tax rate: 21% loss of EIC, 7.65% social security, and 15
> percent federal. Thus, without state or local taxes, these households face
> a 44 percent marginal tax rate on each dollar earned. It is even higher if
> they are also qualifying for other means tested programs like foodstamps,
> health care, and/or housing subsidies. This is quite high considering that
> work involves commuting expenses and for most of these families day care
> issues. I would expect that for households in this income range with two
> wage earners, it becomes quite rational for one (the wife?) to reduce paid
> employment. Therefore, I would expect that if these families in the
> $16,000 to $19,000 range know they would receive an additional $1000 for the
> two children they have if they could raise their adjusted gross income above
> $19,000 that they would seek more paid employment. (Isn't neoclassical
> analysis wonderful!)
You don't need NC analysis to justify the EIC if you are able
to conclude it simply raises low incomes.
The Marxist notion of the labor market would seem to argue
in favor of an EITC, as far as the latter goes, in the following
sense:
If you think capital can get all the low-wage labor it wants
for a given wage, and if you think firms compete for such labor,
then there is a supply curve for such labor which is horizontal
and a downward-sloping demand curve. An EITC or wage supplement
or kiddie-tax credit shifts it down. The flatter the supply curve,
the less the wage effect, but the greater the positive employment
effect, while the steeper the supply curve, the converse holds (more
wage increase, less employment gain). Either outcome would seem
beneficial for low-wage workers. Only if the demand schedule is
vertical (e.g., demand is unresponsive to labor costs) is the EITC
'eaten' by the employer. If you think employers will simply reduce
their wages by the amount of the wage subsidy, you have to explain
why they didn't do so in the first place. If you say they want to
"reproduce labor power," you have to say why an individual employer
would be public-spirited in this class-defined way when his
individual incentives dictate otherwise.
All efforts in Marxist education will be received with interest, if
not without skepticism.
Cheers,
MBS
"People say I'm arrogant, but I know better."
-- John Sununu
===================================================
Max B. Sawicky Economic Policy Institute
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http://epn.org/sawicky
Opinions above do not necessarily reflect the views
of anyone associated with the Economic Policy
Institute other than this writer.
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