Post-tax policies can help the working poor

WASHINGTON — Extracting more money from evil, exploitative capitalists has become a rallying cry for much of the grass-roots left. In the meantime, though, it’s largely ignoring other important policies for lifting Americans out of poverty.

In a recent column I urged progressives to more seriously grapple with the cumulative effects of policies that make workers more expensive to hire. More than doubling the federal minimum wage to $15, for example, would risk pricing a lot of people out of work. Especially in low-cost-of-living areas such as Mississippi, where half of all jobs pay less than $14.22.

In other words, well-intended, feel-good policies can sometimes backfire, hurting the people you’re trying to help.

This humble suggestion generated a lot — like, a lot — of hate mail, along with a good follow-up question: What, then, should progressives who want to help the working poor devote their energy to?

Regarding the minimum wage, there are useful tools available to help set pay according to local costs of living. MIT’s Living Wage Calculator is used by some public officials and companies to determine reasonable wage floors. The average living wage for a single person in Mississippi, for instance, is $10.30.

More important, lots of the other antipoverty tools deserve more love from the left — in particular what might be called “post-tax” policies.

“Pre-tax” policies — such as the minimum wage, overtime and fringe-benefit requirements — help raise workers’ paychecks, with employers, and sometimes workers themselves, generally footing the bill.

“Post-tax” policies, by contrast, involve redistribution of income and wealth through the tax code and social safety net. Think: the earned-income tax credit, food stamps, housing vouchers, health insurance subsidies. They are about boosting living standards on the back-end, with the taxpayers paying.

Relative to other rich countries, the United States relies very little on these post-tax tools.

If you look at America’s income inequality before taxes and transfers, it’s not great — but it’s still about on par with France, Germany and Finland. If you look at income distribution after taking into account tax and transfer payments, we suddenly become the second-most-unequal developed economy in the world, behind Mexico.

In other words, high inequality in the United States says more about our taxing and spending choices than our paychecks.

There have been quiet efforts to expand some of these post-tax anti-poverty policies. This year alone, earned-income tax credits have been added or expanded in six states, according to the Center on Budget and Policy Priorities. But all these changes were done legislatively, rather than through well-advertised ballot initiatives. They get much less press coverage and popular organizing relative to, say, the Fight for 15.

At a conference last fall, I asked Jason Furman, then chair of President Barack Obama’s Council of Economic Advisers, about the country’s reliance on pre-tax vs. post-tax measures to help boost economic security. He said he favored using both kinds of tools, as do I. But he also noted a remarkable disparity in progressive enthusiasm for the two approaches, especially relative to payoffs.

During Obama’s tenure, the White House oversaw an expansion of overtime protections that was expected to put an extra $1.2 billion into workers’ pockets. It also helped pass tax-code changes that put an additional $28 billion in the pockets of low- and moderate-income families. Guess which inspired more attaboys?

“The amount of the incoming we got on the overtime rule in the White House was I would say about 10,000 times as much as the amount of incoming we got on the earned-income tax credit and refundability of the child tax credit,” Furman said.

Maybe boosting paychecks is just inherently easier to understand than complicated tax-code changes.

Or maybe extracting more money from Big Business has greater political appeal to an increasingly anti-corporate base than does extracting it from taxpayers.

Whatever the reason, the dearth of excitement for these post-tax policies is a strategic mistake. Programs such as the earned-income tax credit and food stamps, if well-designed, complement the minimum wage. They can do things that the minimum wage can’t, such as grow more generous for larger families. Critically, they also don’t raise the cost of employees, which means the well-heeled business lobby is less likely to fight them.

Post-tax policies can distort labor markets too, of course — especially if they result in benefit “cliffs” that discourage people from working more. That’s where smart design comes into play.

But every policy has limitations, which is why those on the left would do well to consider every tool at their disposal. Bleeding hearts are often helped by hard heads.