Mr. Trump proposed a new benefit [as an alternative to an increase in the minimum wage]: allowing families to deduct child-care expenses on their income taxes. For a single-parent household with no income-tax liability—the families that Democrats target with their minimum-wage message—this [proposal alone] wouldn’t do much good. So Mr. Trump offered an alternative: an expansion of the Earned Income Tax Credit (EITC) to offset child-care expenses.
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To be eligible for the EITC a person must hold a job and earn income. The size of the annual payment depends not on tax liability, but on how much the employee earns and how many children he or she has. Payments phase out gradually as income rises, to avoid the counterproductive “cliff” effect that characterizes other social-welfare programs.
Economists have found much to like about the policy: A 2008 study, ..., found that when the [EITC] credit has been expanded in the past, employment of single mothers rose. So did their wages. Mr. Trump would build on this success by further expanding the credit to help cover eligible child-care expenses. ...
Because it boosts pay through the tax code rather than a mandate on employers, the EITC is a pro-work alternative to raising the minimum wage. Consider the math in Pennsylvania, where Mr. Trump delivered his speech: The state’s minimum wage is $7.25, or $15,080 a year. For a single parent with two children who is working full time, the federal EITC would be roughly $5,550. In other words, it increases this parent’s gross pay by a third. This creates an effective hourly wage (before other safety-net benefits are included) of $9.92 an hour.
Mr. Trump would add up to $575 to this transfer payment, calculated as half of the $1,150 that the employee had deducted in payroll taxes. This would bump the effective hourly pay up to $10.19 an hour. That’s similar to the current minimum wage in deep-blue states like Massachusetts ($10) and Connecticut ($9.60). It’s also consistent with the $10.10 figure that President Obama championed as recently as 2014.
