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2 ways to help workers without a minimum wage hike

Rick Newman
STAMFORD, CT - APRIL 08: Activists chant for higher wages outside a McDonald's restaurant on April 8, 2014 in Stamford, Connecticut. Demonstrations were organized across the state by Connecticut Working Families to bring attention to minumum wages paid by fast food chains and Wal-Mart stores. (Photo by John Moore/Getty Images)

President Obama continues to push for a hike in the minimum wage, but two other ideas for helping low-wage workers may have a better chance of passing Congress. And if such a bill were to land on Obama’s desk, he might have little choice but to sign it.

Congressional Republicans — often derided as the “party of no” — have stood firmly against Obama’s proposal to raise the federal minimum wage from $7.25 to $10.10. That has left Obama with just the option of raising the minimum wage for federal contractors, which he can do on his own authority.

But Republicans now have a couple of plausible ideas for helping the working poor without triggering the objections associated with a minimum-wage hike. Rep. Paul Ryan of Wisconsin, chairman of the House Budget Committee, recently unveiled a “discussion draft” in which he proposed expanding the earned-income tax credit (EITC) to several million Americans who could use extra money in their pockets. The EITC is popular with both parties because it helps the needy while encouraging work, with government subsidies increasing the more workers earn, up to a point. The EITC costs taxpayers about $60 billion a year, but it helps the economy overall because workers with more money in their pockets tend to spend it, boosting growth.

The EITC mostly helps working parents with kids, and Ryan wants to expand it to include more working adults without kids. Subsidy levels could be set at whatever level Congress chooses, based on how many people legislators hope to reach. The net effect might be similar to raising the minimum wage, except taxpayers would cover the tab, rather than businesses. And there would be no controversy about businesses cutting back on hiring to offset the added cost of labor, as there is with the minimum wage.

Ryan’s idea is similar to one backed by Obama himself, who has proposed an EITC expansion that would bring an extra 13.5 million Americans into the program, on top of the 32 million already helped by it. Obama’s plan would double the cost of the EITC, to $120 billion, which he’d pay for by eliminating other tax breaks that mostly benefit the wealthy.

Cooperation? Well...

Since Ryan’s call for an expansion of the EITC is similar to Obama’s, you might think the two would cooperate on a bipartisan bill that would help struggling Americans, and soon. Uh, er, um — well, not really. Ryan has lumped his idea with others far less palatable to Democrats, and each side is reluctant to grant the other a legislative accomplishment they can trumpet while campaigning for the November midterm elections. So the idea merely simmers, with each side taking credit for it.

Another alternative to a minimum-wage hike comes from Douglas Holtz-Eakin, president of the American Action Forum think tank and a longtime Republican economic adviser. Under Eakin’s plan for a “poverty reduction opportunity” wage, the government would set a target wage for workers, based on the size of their families and other factors, then pay a subsidy to those whose pay falls below the target. The goal would be to bump every worker’s pay up to the target wage, at a minimum. Again, policymakers would decide how generous (and therefore how costly) to make the program.

Unlike the EITC, which accrues to workers just once a year — when they file taxes — the PRO wage subsidy would be a real-time supplement to every paycheck. Holtz-Eakin estimates the cost at about $17 billion for a modest version that would help about 4.6 million families, and $35 billion for a more generous plan that would help about 6.8 million families. Taxpayers would foot the bill, though Congress could stipulate other funding sources or enact spending cuts and/or tax hikes to help cover the cost.

There are flaws in these plans, but each is a fairly pragmatic effort to help the needy. Congress could start drafting bills and work to overcome the flaws, or simply pass a measure and fix what needs fixing in the future. Washington, at the moment, doesn’t work that way, however. Political brinkmanship dominates everything, and legislators seem far more concerned with zinging opponents and raising reelection funds than with passing laws that benefit the country.

If the Republicans win the Senate in this year’s midterms, however, the calculus could change. If Republicans control both houses of Congress, voters will expect them to get something done other than simply harassing Obama. The president, for his part, would be hard-pressed to veto bills that help the downtrodden, especially since he has made similar proposals himself. Voters might actually matter for a few shining moments — and each party can let the other claim a modest victory.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.