A simple 1-2 punch to give working Mainers a raise

September 5, 2014 by

Increasing Maine’s earned income tax credit and raising the state’s minimum wage would go a long way toward making work pay for Maine’s families today and lay the foundation for a stronger economy tomorrow, according to new report from the Center on Budget and Policy Priorities.

With wages for the typical Maine worker still well below pre-recession levels and no signs of growth in sight, lawmakers should act immediately when they arrive in Augusta in January to deliver a 1-2 punch that will give Maine workers a much-needed raise.

Punch 1: Raise Maine’s minimum wage

Minimum wage EITC 9-5-2014Maine’s minimum wage is $7.50—25 cents higher than the federal minimum but still lower than it was forty years ago, after adjusting for the purchasing power of the dollar. The outgoing legislature passed a bill to increase it incrementally to $9 per hour by 2015 but failed to override Governor LePage’s veto. Next year, Maine lawmakers should follow President Obama’s proposal and raise the state’s minimum wage to $10.10 an hour and index it to rise with inflation. No man or woman who works full-time should live in poverty, and this increase in the minimum wage would ensure that full-time workers earn at least $20,000 per year instead of the $15,000 guaranteed by the current $7.50 minimum.

Don’t believe the baseless argument from minimum wage opponents who claim that only teenagers make the minimum wage so they’d be the only ones getting a raise. Research at the national level has shown that the vast majority of those who would benefit are over age 20. The majority of them are women, and over two-fifths have at least some college education. In fact, a minimum wage increase would actually raise wages for the entire bottom fifth of the wage distribution.

Punch 2: Increase Maine’s earned income tax credit and make it refundable

The federal earned income tax credit increases take-home income for working families all across the US and helps lift millions of kids out of poverty. It also promotes work since it’s only available to men and women—mostly parents—who work. While Maine is one of 25 states that has its own version of the credit in its state tax code, ours is one of the smallest in the nation. It only amounts to 5% of the federal EITC and more importantly it is not refundable.

According to Maine Revenue Services, Maine’s EITC will provide a total of $937,000 in tax relief to 18,000 low- and moderate-income Mainers this year. That’s about $52, on average, for the families that benefit from it. Contrast that with the 100,000 Maine families who benefit from the refundable federal EITC, and receive an average annual benefit of more than $1,800.

By doubling Maine’s EITC and making it refundable, 100,000 working families in Maine would get an average tax benefit (tax cut or refundable credit) of $180 per year. For most of those families, that would be larger than the tax credit they received Governor LePage’s 2011 tax cut, and at much lower cost to the state budget and other taxpayers. Doubling the EITC and making it refundable would reduce income tax revenue by about $17 million per year (1.2%). Compare that with the $178 million (11%) cost of the 2011 income tax cut, the benefits of which flowed mostly to Maine taxpayers with more than $86,000 in annual income.

The Minimum Wage and EITC are Complementary

CBPP’s new report thoroughly explains why the EITC and minimum wage are complementary policies that work well together, so go read their analysis to get the whole story. But the basic gist is that because EITC and the minimum wage  reach slightly different but overlapping populations of low-income working men and women, they help spread the cost of making work pay for low-income families among employers, taxpayers, and consumers. They also provide benefits at different times: the EITC is a lump-sum annual benefit while the minimum wage affects every paycheck. And since both put money in pockets of those who will spend it to feed, house, clothe, and otherwise support themselves and their families, all of us will benefit as Maine’s economy expands and the children who benefit grow up to live productive lives.

Increasing and improving both the state’s minimum wage and EITC: a 1-2 punch that will be a winning combination for Maine’s working families.

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