Billionaire investor Warren Buffett got it part right when he spoke up in favor of increasing the Earned Income Tax Credit on a recent CNBC interview.
Buffett, whose MidAmerican Energy recently acquired NV Energy, argues that the EITC is the most direct way to help America’s working poor. It’s a better approach, he says, than raising the minimum wage.
What Buffett overlooks is that someone receiving an EITC “usually does not recoup benefits from a tax credit until he or she files an income tax return the following year,” says Max Sawicky, an economist at the Economic Policy Institute. An increase in the minimum wage, on the other hand, “is received in real time, in each paycheck.”
And while an increase in the minimum wage is unlikely to ever be reversed, there is always a significant chance that a tax benefit will be phased out at some point—hitting low-income workers with a tax increase.
Here’s a thought for Buffett to consider: why not raise both the minimum wage and the EITC? The EITC raises the after-tax wages of eligible workers and the minimum wage puts a floor under the wages of workers ineligible for the EITC.
And if Buffett really wants to help lift up America’s workers, here’s a third way: promote fair labor laws and help strengthen unions. When unions are strong, workers make more money.