Warren Buffett’s solution to income inequality could work
Warren Buffett is worried about the widening income gap in the U.S.
And the Oracle of Omaha sees a way to solve it.
But it’s not by making a big boost in the minimum wage, like those pushing for $15/hour. He calls that a jobs-killer.
Nor is more education going to be the panacea. He feels while that may help, there would still be too many people without the tools to compete in a fast-moving economy.
Instead, Buffett is calling for an expansion of the current Earned Income Tax Credit (EITC).
Writing an op-ed in the Wall Street Journal, the CEO of Berkshire Hathaway (BRK-A) argues the EITC rewards work and pushes people to improve their skills but doesn’t disrupt market forces.
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Yahoo Finance Senior Columnist Michael Santoli says Buffett is onto something because the EITC delivers a lot of bang for the buck.
“The Earned Income Tax Credit is about 2% of the federal budget, $70 billion, it’s not a lot of money,” he explains. “It’s about $2400 to the average family that receives it. It’s probably hard to have that kind of impact in the private sector when we really don’t have the prospect of a $15 minimum wage anyway.”
Santoli adds interestingly, Buffett is also making a proposal that includes elements both political parties don’t like.
“I’m going to be interested in both sides’ political response on this,” he says. “Democrats are wedded to the idea that private companies should pay a higher minimum wage. And Republicans are wedded to the idea that government shouldn’t be part of the solution.”
Yahoo Editor-in-Chief Andy Serwer can certainly understand Buffett’s thinking here.
“Raising the minimum wage is not performance-based, you’re basically just giving to everyone--poor performers, good performers, they all just get it--whereas the Earned Income Tax Credit rewards people who do more and more work,” he notes. “So one is more market-based than the other, and you can see a business person really wanting that as opposed to a politician saying just dole out money.”
And Serwer adds when Buffett speaks, politicians listen.
“Of course he has sway,” Serwer notes. “He’s perceived as a Democrat, primarily, so the Republicans can probably dismiss him a little bit which is unfortunate because it really can be and is, and should be, a bipartisan issue.”
However, Santoli points out another legendary figure could give a boost to Buffett’s EITC proposal.
“Ronald Reagan loved the Earned Income Tax Credit,” he notes. “He’s on record for saying that. And that’s going to be thrown out here.”
Still, Yahoo Finance’s Lauren Lyster thinks it could be a tough sell.
“It’s a little bit more difficult to rally the troops around an expansion of the Earned Income Tax Credit versus raising the minimum wage,” she argues. “It’s a more simple idea.”
But Serwer has an idea to overcome that.
“They need to call it the ‘EITC’ and put it on a sign,” he jokes.
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