The Congressional Budget Office has released a study that purports to analyze the effects of raising the federal minimum wage from $5.15 to $7.25 per hour. The study, which was prepared in response to a request from Sen. Charles Grassley, compares the effects of the raise in the federal minimum wage on poor families with the alternative policy of raising the Earned Income Tax Credit.
If the policy objective is helping the working poor, the EITC is attractive because it is better targeted toward that purpose. CBO says 80% of minimum wage workers are not poor.
But the EITC has at least two significant political defects. First, it is a federal budget expenditure (which adds to the fiscal deficit) rather than an employer mandate (which to Congress is “free”). Second, under the new PAYGO rules established by the leadership of the 110th Congress, an increase in the EITC would require a compensating reduction in expenditures or a tax increase. An increase in the federal minimum wage requires neither.
In any case, a careful reading of the CBO report indicates that it is an unreliable guide to the effects of raising the federal minimum wage. It violates the objectivity standards of the federal Information Quality Act. CBO is exempt from these standards.