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Warren Buffett sees a smarter fix for inequality than raising the minimum wage

Nicole Sinclair
Markets Correspondent
There's an even better solution to poverty than a $15 minimum wage

The debate over minimum wage is intensifying as more and more cities across the US roll out higher minimum wage laws.

For some folks, it may be surprising to hear that Warren Buffett does not favor raising the minimum wage as a way to close America's widening wealth gap. In an op-ed for the Wall Street Journal in 2015, Buffett wrote that raising the minimum wage would distort our market system.

“I may wish to have all jobs pay at least $15 an hour,” Buffett wrote. "But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills."

The Earned Income Tax Credit

Buffett instead has promoted what he sees as a better answer: an expansion of the Earned Income Tax Credit (EITC), which currently goes to millions of low-income workers.

“Payments to eligible workers diminish as their earnings increase," he explained. "But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check."

For Buffett, the EITC is a better solution because it's about more than just money.

"In essence, the EITC rewards work and provides an incentive for workers to improve their skills," he continued. "Equally important, it does not distort market forces, thereby maximizing employment.”

Buffett added that the plan needs improvement, including reducing fraud, shifting payments to monthly installments from annual, and increasing dollar amounts for those earning the least.

These debates will 'forever continue'

The discrepancy between the haves and have-nots is not a new issue. And Buffett acknowledges that it won't go away any time soon.

“Though the pie to be shared by the next generation will be far larger than today’s, how it will be divided will remain fiercely contentious,” Buffett said in his annual letter to shareholders. “Just as is now the case, there will be struggles for the increased output of goods and services between those people in their productive years and retirees, between the healthy and the infirm, between the inheritors and the Horatio Algers, between investors and workers and, in particular, between those with talents that are valued highly by the marketplace and the equally decent hard-working Americans who lack the skills the market prizes."

"Clashes of that sort have forever been with us – and will forever continue," he added. "Congress will be the battlefield; money and votes will be the weapons. Lobbying will remain a growth industry.”

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