ILR School

Federal Minimum Wage, Tax-Transfer Earnings Supplements, and Poverty

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[Excerpt] This report focuses on the impact of minimum wage and tax-transfer earnings supplements for workers of different family types. It does so through illustrating how the minimum wage and federal tax-transfer policies affect the income of a minimum wage worker who works full-time, full-year in four different family types: a single childless worker; a worker supporting a married couple; a single mother with two children; and a married couple with two children. These family types are chosen to highlight the different treatment federal tax-transfer policies have on workers of different family types. They were not chosen as representative of most minimum wage workers. The illustrations show the impact of policies on two childless workers—one married, one not. They also show the impact of two workers with children—one married, one not. The report highlights how policies differ between families with children, and families without children. This report supplements these illustrations with some background on policies, as well as some policy considerations that apply generally to debates on the minimum wage and tax-transfer policies. Full-year, full-time work at the minimum wage is not common. In 2012, 32% of workers earning the minimum wage worked full-time. Again, the illustrations were not chosen to be representative of most minimum wage workers. Full-time, full-year work was chosen for illustrative purposes. Additionally, the income produced by full-time, full year work at the minimum wage is an important policy benchmark, as it reflects the federally-determined minimum income for someone with full-time involvement in the labor force. This report • describes current law minimum wage and tax-transfer earnings supplement policies; • provides the illustrations of gross earnings and net income (after taxes and SNAP benefits) for full-time full-year minimum wage workers at both the current minimum wage ($7.25 per hour) and the proposed $10.10 minimum wage; and • discusses some of the policy implications of addressing poverty through both the minimum wage and federally-funded earnings supplements.

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federal minimum wage; tax-transfer earnings; poverty


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