Updated December 2017
Over the past few years we've been hearing a great deal about raising the minimum wage. Obviously, these higher earnings will have several positive and negative impacts on workers' net income as follows:
Over the past few years we've been hearing a great deal about raising the minimum wage. Obviously, these higher earnings will have several positive and negative impacts on workers' net income as follows:
1.) Supplemental
Nutrition Assistance Program (SNAP) benefits will fall.
2.) payroll and income
taxes may fall or rise depending on the state of residence and whether higher
payroll and state income taxes are offset by increases in federal- and
state-earned income tax credits (EITC) and child tax credits (CTC).
A study by the Tax Policy Center analyzes the
impact of higher minimum by looking at a hypothetical case; a single mother
with two children under the age of 10. She earns the state minimum wage
and works full-time for 40 hours per week. She pays $600 in monthly rent
and gets SNAP benefits. She also pays both income and payroll taxes and
qualifies for refundable tax credits. Here is the Tax Policy Center's
analysis showing the impact of increasing minimum wage for each of the eight
states on the hypothetical recipient's income, taxes, SNAP benefits and net
income:
Obviously, in each state,
the hypothetical mother's income would increase by between $170 (South Carolina) and $867 per month
(California) as shown in light blue. Her SNAP benefits as shown in medium
blue would decrease by between $62 and $270 (South Carolina and Ohio
respectively) and her income taxes would increase by between $90 and $340
(Alabama and Oregon respectively). This would leave her with a net take
home income increase of between $120 and $390 (South Carolina and California
respectively) thanks to higher minimum wage levels. The authors'
calculations show that this hypothetical worker in California would see 55 percent
of her wage increase eaten up by lower SNAP benefits and higher payroll and
income taxes and a worker in the same situation in Colorado would see 78
percent of her higher wages eaten up by lower SNAP benefits and higher payroll
and income taxes.
If you wish, you can
calculate how much a family's benefits from safety-net programs and how much
state and federal income and payroll taxes will change using the Urban
Institute's Net Income Change Calculator that you can find here.
While most of America's
lowest paid workers would benefit from raised minimum wages, there is no doubt
that these proposed increases will result in far lower net take-home pay than
these earners are likely expecting.
Posts
The minimum wage has gained momentum among policymakers as a way to alleviate rising wage and income inequality. Much of the debate over this policy centers on whether raising the minimum wage causes job loss, as well as the potential magnitude of those losses. Recent research shows conflicting evidence on both sides of the issue. In general, the evidence suggests that it is appropriate to weigh the cost of potential job losses from a higher minimum wage against the benefits of wage increases for other workers.
ReplyDeleteAll raising the minimum wage does is lower the purchasing power of the dollar. It take a few years for the system to adapt but when it does everyone's purchasing power is lowered everyone gets poorer. The folk that make slightly more then the new min feel it first and the most. But all will see a decline in their quality of life as the dollar will not buy as much.
ReplyDeleteby the same logic no one should get pay raises ever. the above is more propeganda than economic theory.
DeleteIf the FED didn't have a mandate to create inflation to help cope with the national debt, no one would need raises the cost of goods naturally go down or up based on supply and demand. The current system is so messed nothing works the way it should. So yes if things worked correctly no one should get raises as they wouldn't be needed.
DeleteIf this were true, the dollar's purchase power would not have changed since 2009.
Delete