Career Testing
Career Testing
Career Testing
SALARIES / MAY. 04, 2014
version 3, draft 3

Warren Buffett: Raise Earned Income Tax Credit Instead of Minimum Wage

The minimum wage continues to be one of the most widely debated issues in the United States today. One group argues that raising the minimum wage will diminish the gap between the rich and poor, while the other side purports that an increase in the minimum wage will cause job losses because it’ll hurt the unskilled, uneducated, youth, immigrants and non-union workers.

What does Warren Buffett, chairman and CEO of Berkshire Hathaway, think about the matter? Well, he just doesn’t have a clear answer because he has thought about it for half a century and still can’t quite come to a conclusion.

“In economics you always have to say 'and then what?' And the real question is: are more people going to be better off if it is raised," he told CNN in an interview Thursday.

He conceded that the current federal minimum wage of $7.25 per hour isn’t a living wage and he would endorse substantially hiking it if it wouldn’t lead to job losses. According to Buffett, that isn’t necessarily the case.

“You do lose some employment as you increase the minimum wage, if you didn't I would be for having it $15 an hour,” stated Buffett.

Buffett clarified that he’s not opposed to giving the minimum wage a boost, but instead noted that it would be better to increase the earned income tax credit (EITC) to address poverty.

A lot of conservative economists, including Stephen Moore, economic analyst for the Wall Street Journal and the Heritage Foundation, have presented the case over the past several months that a remedy to lifting the poor out of poverty would be to hike the EITC because it encourages people to work by adding a credit on wages.

“I know that if you raise the earned income tax credit significantly, that would definitely help people who've gotten the short stick in life," Buffett added. “I'm not rich because somebody is poor. But some people are poor because the system does not reward particular skills. Some of them have very limited skills in terms of what it brings them in a market system.”

Wages in America

Whether it’s agreed that Americans are paid enough or not, it was reported that American workers are not making as much as they used to if one were to use the inflation calculator provided by the Bureau of Labor Statistics (BLS). In 1968, the minimum wage was $1.68, but in today’s dollars that would be $10.74.

“And of course the official government inflation numbers have been heavily manipulated to make inflation look much lower than it actually is, so the number for today should actually be substantially higher than $10.74,” wrote Michael Snyder of the Economic Collapse Blog.

Federal Reserve; Wage Inflation

According to economic analysis by a group of high-profile economists, such as Alan Krueger, who chaired President Barack Obama’s council of economic advisers, wage inflation could soon jump because short-term unemployment is slowly diminishing. This could cause the Federal Reserve to hike interest rates earlier than forecasted.

Fed Chair Janet Yellen has already dismissed the notion. “I think it’s premature, frankly, to jump to that conclusion,” she said in response to a question following a major a speech to reporters in New York last week.

Consumer Indebtedness

A paucity of wages keeping up with inflation can also be found in data related to debt. It was reported earlier this month that the total personal debt is more than $16 trillion and according to the Fed, a growing number of American consumers are getting more into debt by taking out additional auto and student loans as well as borrowing money from credit cards.

In February, consumer borrowing rose by $16.5 billion, up from $13.5 billion in March. Auto and student loans increased $18.9 billion, while credit card fell by $2.4 billion. This has caused the consumer borrowing total to reach an astronomical $3.13 trillion.

A January report published by the Corporation for Enterprise Development concluded that nearly half of American households are living paycheck to paycheck. Forty-four percent of Americans are liquid-asset poor and this means that a significant number of Americans have less than three months’ worth of savings, which doesn’t bode well in the event of an emergency or unforeseen incident and low wages.

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