An Hourly-Wage-Based Earned Income Tax Credit: Implications For Workers, Employers, And Taxpayers

Abstract

What is the best way to compensate low-paid workers?  A “generous” minimum wage may cause substantial unemployment and serious dislocations.  The current combination of a modest minimum wage plus the annual-income-based earned income tax credit is, in some cases, a disincentive to work.  An hourly-wage-based earned income tax credit, on the other hand, may be the most efficient and effective way to compensate the low-wage worker.