by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Douglas Holtz-Eakin thinks that his policy idea, which he calls the “Poverty Reduction Opportunity” or PRO wage, could replace not only the federal minimum wage, but also the system of tax credits intended to aid poor Americans.
Holtz-Eakin is the president of the right-leaning American Action Forum think tank, a former director of the Congressional Budget Office and a former economic adviser to the McCain 2008 presidential campaign. He says he got the idea a few months ago when President Obama “was running around talking about the minimum wage, which I think is a terrible antipoverty policy.”
The minimum wage is problematic, says Holtz-Eakin, because it harms job creation and isn’t narrowly targeted to benefit poor people. The Earned Income Tax Credit — the biggest federal antipoverty program, one generally recognized to encourage work — doesn’t help low-income single men and women without children. It’s also rife with mismanagement, with up to a quarter of payments made in error.
The PRO wage, spelled out in a research paper released Wednesday morning, would work by setting a target income for families that would place their household out of poverty if all income-earners in the family worked full time. The federal poverty line varies by family size.
Then, the government would simply augment their wages by as much as needed to ensure they met that target income.
So if a business only paid $5 an hour, a single worker with two children would receive a subsidy of $4.90 to earn a total wage of $9.90, putting him over the poverty line. The subsidy would come with his paycheck, with the employer simply remitting less in taxes to finance the disbursement.
The idea is that the wage would be targeted solely at poor workers and would not discourage work or job creation.
“There’s some less-than-perfect features” to the idea, Holtz-Eakin acknowledges, “but this is not a world full of perfections.”