Donald Trump's child care plan has been widely misrepresented in the media, as my colleague Carrie Lukas has shown.
It is being portrayed as pandering to swing state women by departing from conservative principles. This morning, Michael Saltsman, research director of the business-supported Employment Policies Institute, joins Carrie in explaining that the plan is actually quite different from progressive proposals.
Democrats propose raising the minimum wage (which inevitably results in more unemployment) as a way to help people do better and paint opponents as heartless.
Trump is putting forward an alternative: an expansion of the Earned Income Tax Credit (EITC). Although signed into law by Gerald Ford, the idea of raising the EITC raises red flags for some of us. First of all, as Saltsman explains, it is a misnomer. It's not a credit on a tax bill: it is a supplement for low-income people.
But people who don't hold down a job are not eligible. The supplement depends on what the person earns and how many children there are. It is phased out if the employee earns more, but gradually to avoid a "cliff" effect. While people like me are turned off by calling a supplement a credit, Saltsman explains why raising the EITC is less harmful to job seekers and the economy as a whole than raising the minimum wage.
Economists have found much to like about the policy: A 2008 study, supported in part by my organization and published in the Journal of Policy Analysis and Management, found that when the credit has been expanded in the past, employment of single mothers rose. So did their wages.
Mr. Trump would build on this success by further expanding the credit to help cover eligible child-care expenses. The maximum supplement under his plan would be one-half the amount of the employee’s payroll taxes (i.e. FICA and Medicare). For married couples, the maximum would be calculated from the lower-earning spouse.
Because it boosts pay through the tax code rather than a mandate on employers, the EITC is a pro-work alternative to raising the minimum wage. Consider the math in Pennsylvania, where Mr. Trump delivered his speech: The state’s minimum wage is $7.25, or $15,080 a year. For a single parent with two children who is working full time, the federal EITC would be roughly $5,550. In other words, it increases this parent’s gross pay by a third. This creates an effective hourly wage (before other safety-net benefits are included) of $9.92 an hour.
Mr. Trump would add up to $575 to this transfer payment, calculated as half of the $1,150 that the employee had deducted in payroll taxes. This would bump the effective hourly pay up to $10.19 an hour. That’s similar to the current minimum wage in deep-blue states like Massachusetts ($10) and Connecticut ($9.60). It’s also consistent with the $10.10 figure that President Obama championed as recently as 2014.
But it should be noted that an editorial on the same page with the Saltsman article blasts the Trump plan, claiming that Trump and Hillary Clinton are in a "child-care bidding war." It makes come compelling points, including this one:
This subsidy race is politically lamentable. Republicans are focusing on redistributing income rather than growing it, which should be their best argument this year. They are also conceding that the federal government should pick favorites in the tax code, which hurts the GOP’s credibility for nixing handouts for, say, Elon Musk. And none of this will cure what really feeds parental anxiety, which is the meager income gains in the Obama economy.
Even so, expanding the EITC is a heck of a lot less harmful than raising the minimum wage.
One benefit of the Trump plan is that it encourages people to work and doesn't set a minimum wage that would mean that many at the bottom rung of the ladder can't find work and thus never acquire the skills to move up.