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Written by: Eugene Steuerle
A variety of statistics—ranging from wealth distribution and income gains to educational attainment and marital status—demonstrate that America’s working class has not proportionately shared in the benefits of a growing economy for a long time. If either political party, or both, genuinely want to reverse these long-term trends, they need a revitalized opportunity agenda specifically aimed at supporting work itself.
The most effective and specifically targeted approach to assisting low- and moderate-income working households would involve a substantial expansion of work subsidies into a universal basic wage subsidy (UBW). A UBW provides a subsidy that is universally available and, unlike many of the current backdoor efforts at industrial policy, empowers individual workers, consumers, and business leaders to decide where and when funds will be allocated. Low-wage nurses in Albuquerque, NM, will neither be excluded nor prioritized over motorcycle assembly workers in York, PA.
The current Earned Income Tax Credit (EITC) serves as a foundation for a Universal Basic Wage (UBW). My TPC colleague, Len Burman, defined one type of UBW as a universal EITC, complete with its own set of benefits and eligibility rules. Regardless of the type of plan initially implemented, I suggest that support for low and moderate-wage workers become a long-term national priority and be adjusted over time as the economy grows, akin to how Social Security has been increased over time to increase the living standards for the elderly. Low-wage workers have been overlooked in government policy for decades—that’s one reason for their current unrest—and it’s going to take more than a one-time fix, especially in an already overcommitted budget, to give them greater priority.
As a means-tested program, the current EITC has a very limited reach. Additionally, the EITC phases out at modest income levels and is based on total family income rather than individual income. With a few exceptions, it is available only to low-income households with children and primarily benefits single heads of household. This effectively limits eligibility and benefits for childless single workers and married couples with two earners, regardless of whether they have children or not.
For many moderate-income workers, additional earnings further limit access not only to the EITC but also to individual subsidies for healthcare, food, cash welfare, and housing. These phaseouts generate hundreds of billions of dollars in marriage penalties imposed on numerous working-class earners who marry or consider marrying someone with a low income. Essentially, their combined income disqualifies them from the benefits they would have received had they remained single.
Marriage penalties in EITC and the tax code more generally create inequities for low-income individuals and disproportionately affect Black couples. A UBW would tackle many of these issues. Like much of Social Security, eligibility would depend on an individual’s circumstances rather than those of a couple. Consequently, it would eliminate the EITC marriage penalties and allow married individuals to access some of the same benefits available to other adults who live together. A phaseout at income levels where marriage bonuses become prevalent can be used to avoid giving a work subsidy to low-wage partners of high-income individuals.
While the UBW wouldn't completely replace other government support programs, such as Disability and Unemployment Insurance for individuals with limited capacity to work, it would decrease reliance on such assistance. In other words, it would lessen the incentives to remain unemployed or outside the labor force.
A universal basic wage subsidy offers a significantly better method to address the lack of wage increases for the working class compared to alternatives like tariffs or industrial policy. While much remains to be explored in refining and implementing a UBW, one thing is clear: if policymakers aim to restore economic security for many workers, the best path forward is to directly support work itself.
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