FAMILY Act
CAP’s Shilpa Phadke on the push for nationwide paid leave, as the House takes up its first-ever hearing on the FAMILY Act — PLUS: a deep-dive with EPI’s Ben Zipperer on why expanding the Earned Income Tax Credit should go hand-in-hand with raising the minimum wage. Subscribe to Off-Kilter on iTunes.
As we near the 27th anniversary of the Family and Medical Leave Act, or FMLA — coming up on February 5th — the push for nationwide paid family leave is ramping up big-time. Next week, the House of Representatives will hold its first-ever hearing on the FAMILY Act, the main piece of legislation Democrats have been pushing to create nationwide paid family and medical leave. To get caught up on what the FAMILY Act would do, how conservative proposals framed as paid leave alternatives compare, and where the debate over paid leave is headed, Rebecca sat down with Shilpa Phadke, Vice President of the Women’s Initiative at the Center for American Progress and a former White House and hill staffer.
Later in the show: After decades of rising income inequality and wage stagnation, the problem of inadequate wages for middle- and lower-income workers has only increased in urgency. Discussions of possible remedies have centered on expanding two existing policies: the Earned Income Tax Credit (EITC) and the minimum wage. Both the EITC and the minimum wage have been found to be incredibly successful at improving the lives of low-income families. Often the discussion of these two wage-boosting policies sets them up as a false choice, however — as alternatives of which we need to choose just one. But as our next guest, Ben Zipperer, an economist at the Economic Policy Institute, argues in a new paper with Jesse Rothstein of Berkeley, embracing both policies is the best way to improve low-wage workers’ economic conditions.
This week’s guests:
Shilpa Phadke, vice president of the women’s initiative, Center for American Progress (@shilpaphadke)
Ben Zipperer, economist, Economic Policy Institute (@benzipperer)
For more on this week’s topics:
- Read up on the FAMILY Act; why “not all paid leave proposals are created equal”; and the cost of inaction on paid leave
- Read Ben Zipperer and Jesse Rothstein’s recent paper, “The EITC and Minimum Wage Work Together To Reduce Poverty and Raise Incomes”
This week’s transcript:
♪ I work and get paid like minimum wage
sights to hit the class by the end of the day
hot from downtown into the hood where I stay
the only place I can afford ’cause my block ain’t saved
I spend most of my time working, trying to bring in…. ♪
REBECCA VALLAS (HOST): Welcome to Off-Kilter, powered by the Center for American Progress Action Fund. I’m Rebecca Vallas.
This week on Off-Kilter, I talk with Ben Zipperer, an economist at the Economic Policy Institute, or EPI, for a deep dove into the two highest-profile policies for boosting workers’ incomes: Raising the minimum wage and expanding the Earned Income Tax Credit, or EITC. And importantly, why embracing both together, rather than viewing them as an either or, is the best way to improve workers’ economic situations. He talks about some of his new research on exactly that point.
But first, as we near the 27th anniversary of the Family and Medical Leave Act, or FMLA, the push for nationwide paid family leave is ramping up big time. Next week, the House of Representatives will hold its first-ever hearing on the FAMILY Act, the main piece of legislation Democrats have been pushing to create nationwide paid family and medical leave in the U.S. To get caught up on what the FAMILY Act would do, how conservative proposals framed as paid leave alternatives compare, and where the debate over paid leave is headed, I sat down with Shilpa Phadke. She’s the vice president of the Women’s Initiative at the Center for American Progress and a former White House and hill staffer. Let’s take a listen.
Shilpa, thanks so much for taking the time to come on the show.
SHILPA PHADKE: Thank you for having me.
VALLAS: So, a lot going on right now when it comes to paid leave. Kind of a lot of conversation, a lot of debate, a lot of urgency that folks are feeling. And we’re finally, as I mentioned up top, starting to actually see some real movement in the Democratic-controlled House. But before we get to the politics about this, before we get into kind of where things are likely to head in the next few weeks, because there is going to be a lot of activity and stuff to watch, I’d love to back up and actually talk with you about sort of the basics.
PHADKE: Yeah.
VALLAS: Why we need this policy? What’s missing in our current policy landscape that you and others are working to solve?
PHADKE: Yeah. So, paid leave, comprehensive paid family leave, has been an issue for a very long time. You know, the FMLA or unpaid leave passed. We’re getting close to the 27th anniversary. But our country is a complete outlier to not even have paid maternity leave as so many other countries do. There’s a great documentary called Zero Weeks, which people should watch, which really talks about America, you know, American exceptionalism [chuckles] in not the best way. And really, paid leave is about people, right? It’s about being able to care for the people you love in situations you can plan for, like the joy of welcoming a new baby, but also those situations you can’t plan for, whether your spouse or parent gets sick, or your child gets sick, and being able to have time off, paid time off, to care for your loved ones. That’s what it’s about at the heart. And I think the conversation now is really who has the privilege in this country to do that?
And so, we have 19 percent of people have access right now in this country to some form of paid family leave. It’s like less than one in five. And I think it’s an issue that’s becoming increasingly important because states are recognizing this and are passing bills. And it’s really exciting to see California and Massachusetts and Oregon and New Jersey and now D.C. pass comprehensive paid leave. But it really shouldn’t matter where you live, right? You shouldn’t have to win the zip code lottery or the boss lottery to have the right to time, paid time off to care for people when they’re sick.
VALLAS: You mentioned that this is another example of American exceptionalism, not the good kind, right?
PHADKE: Yeah.
VALLAS: But the stat that often gets sort of trumpeted is that we’re the only developed country not to have paid leave, right?
PHADKE: Mmhmm.
VALLAS: We’re like hanging out with Papua New Guinea, right, in the global rankings, which is not where we would want to be when it comes to social policy. But you were talking about the sort of inequity in who’s able to access it now. Obviously, it’s incredibly few workers. We’re talking about fewer than one in five workers as it is overall. But it’s really heavily lower-income folks who don’t have access, right?
PHADKE: Yeah. And if you look over the last even five or six years into who has access, the numbers for high-wage workers are moving, right? So, I think in 2014, around 22 percent of high-wage workers have access. And today, it’s closer to 34 percent, almost a 12 percent increase. But for low-wage workers, that same time, it was about 4 percent of low-wage workers had access to paid leave. And, you know, many years later, we’re at 6 percent. So, high-wage workers have jumped almost 12 percent in terms of access, but low-wage workers are barely shifting. And so, we have over 100 million workers in this country who are being left, who are just left behind.
VALLAS: So, one of the conversations that sometimes happens in the context of paid leave is that, as much as you said, and first and foremost, it importantly, is really about people and about families, there’s also a piece of this that actually is about broader benefits, right? Whether it’s sometimes folks like you, advocates for paid family leave talk about how it’s good for business. Is that just a talking point, or is there actually research there that tells us that that’s true?
PHADKE: Yeah. I mean, for big businesses, we know the cost of retaining a worker is very expensive. And so, you see paid leave used for high-wage workers as a perk. I remember seeing a list in a women’s magazine that talked about the top perks for women. And it was like yoga, free lunch, paid leave. And so, it’s seen as this nice-to-have perk as opposed to a real workplace standard that every worker deserves. And so, we know for big business, they’re using it as a perk. But it is, it really helps their bottom line in terms of the retention, the retention rates. And we’ve seen that over time.
For small businesses who can’t afford to pay out that benefit, paid leave is really, really challenging. If you’re a small family-operated business, you have workers that are like your family that you want to care for, but you have no mechanism to cover, right? It’s not like if you’re a giant employer and you can shift people around and some people work overtime, you use this as an opportunity to retrain or give folks new skills. If you’re a six, seven, eight-person company, it’s really hard to make that up. But you really care so much about that employee. And so, for small businesses, having a national policy is critical.
VALLAS: So, all of this takes us then to the proposals that are on the table right now to actually provide paid family leave — and I should say paid family and medical leave — in a significant way. We’re talking a lot about needing to take time off from work because of the birth of a child. But a really, really important part of this is also caring for a loved one with a disability or an illness or yourself, right, if that’s something that you end up encountering, as you noted. And I want to add that in just because that’s often kind of a left out of the overview of what we’re talking about here. But the big proposal that is currently moving through Congress that’s actually going to get its first hearing next week, we just learned, in the House, it’s called the FAMILY Act. This is something you’ve played a big role in over the years, including in helping to draft. What is the FAMILY Act? How would it work? How would it solve this problem?
PHADKE: So, the FAMILY Act is really modeled now after so many successful state and local programs. It’s a social insurance program where everyone has a stake. Employers and employees pay in as little as a cup of coffee a week, and when they need to take leave, they can. It’s 12 weeks of comprehensive leave for the birth or adoption of a new child, to take care of yourself if you’re sick, or to care give. And so, the policy is really exciting that it’s moving finally through this House. We have, as you said, a hearing in the Ways and Means Committee next week where we’ll continue to make the case. The bill has bipartisan support, over 200 co-sponsors. And we’re really at a position now to see this move at a national level.
And so, I think what’s really exciting about the bill is that there’s an understanding that the need for leave is comprehensive. It’s good for moms. It’s good for infants. We love that about the policy. But it’s also really important that people, especially those in the sandwich generation, can take time to care for their aging parents, for their adult children, for their loved ones. And often, I say it’s great to have the time, and it’s really important to have that bonding time with an infant. We know that that results in higher vaccination rates and better breastfeeding attachment, and moms are healthier when they go back to work. But what about the situations you can’t plan for? What about a five-year-old that has cancer? You know, most of the conservative proposals are really focused on that parental leave piece, and I think we’re really trying to match a policy with what people really need.
VALLAS: Well, and you’re actually predicting exactly where I want to take this conversation, because a big part of the sort of moment that paid leave is having right now is we’re watching Republicans in Congress agreeing that we need paid leave, right?
PHADKE: Yeah.
VALLAS: It’s like they’re finally there, right? This is not a partisan conversation arguing about whether we should do this. Everyone seems to be there. And in fact, Republicans have been coming out with their own proposals. We’ve seen them from multiple different Senators. We’ve seen Trump actually come out with his own paid leave proposal. But they would handle the policy very differently than the FAMILY Act.
PHADKE: Yeah.
VALLAS: And there’s been a lot of surface-level commentary making it seem as though all of these different approaches are great!
PHADKE: Right.
VALLAS: You and others advocating for the FAMILY Act have done some pretty close analysis of these various proposals, and I’d really love to walk through them with you to ask the question, do these conservative proposals measure up? Would they be adequate paid leave? And if not, what are those shortcomings? So, your team, the Women’s Initiative at the Center for American Progress, actually put out an analysis called Not All Paid Leave Proposals Are Created Equal, which I think kinda helps to give a spoiler of where you’re headed. But talk about some of those proposals, what they would do, who they would help, but who they would leave behind.
PHADKE: Right. So, many proposals start with the premise of who needs the time to care. And they’re very focused on parental leave only. So, mom and dads around the new birth. And we think that really doesn’t speak to the caregiving challenges that this country has and the needs it has. So, at first, it’s a question about who’s eligible and who gets covered? The second, I think harder, piece with conservatives coming to the table is around how we’re going to pay for it. You know, there’s a lot of oh, it’s so great. We should make some resources available. But we’re going to cut other programs to do it. And to me, that is just the most insulting part of these, of many of these plans. Whether it’s looking, as the early Trump administration proposal did, to do paid leave around UI or to come up with a paid leave benefit by cutting Social Security or cutting from the child tax credit.
The idea that the richest country in the world can’t afford to give parents and families the time to care without robbing and stealing from other critical programs is ridiculous to me. And so, I think that is the common thread among each of these conservative programs, is it cuts people out, and it creates a false choice for families: choosing between your retirement and caring for a loved one, choosing between a child tax credit and caring for a loved one. And it doesn’t seem to acknowledge some of the stats that we went over earlier about the differences between low-wage and high-wage workers and access.
VALLAS: Yeah, and I want to call out some of these proposals in particular because they’ve actually gotten a substantial amount of coverage, of interest. They’re probably going to come up in this hearing next week as well. And these are really being marketed by conservatives as alternatives to the FAMILY Act. And some of them have like Orwellian names, right?
PHADKE: [laughs]
VALLAS: They always do, right? I mean, people know what’s coming. The New Parents Act of 2019, the Child Rearing and Development Leave Empowerment Act, which spells, of course, “cradle.” Then you’ve got President Trump with his plan that he’s put out in various budgets of his every year, all of which would pay for it by slashing unemployment insurance and kind of piggybacking on that system. And some of the folks who’ve proposed these various approaches, we’ve got Senator Rubio, we’ve got Ernst, we’ve got Lee, right? So, kind of big names in the Republican Party taking this on. What’s going on here? If these are crappy policies — just to be, you know, maybe a little crass, but that’s my summary of what you just said, what I heard you say — if these are effectively crappy policies compared to the FAMILY Act, is this just Republicans realizing that they have to have some answer on this because the American people want it so much?
PHADKE: Yes! Yeah, paid leave is incredibly popular. And when you talk about it with small businesses, employers, everyday people, they want it. And so, and that’s not partisan. It’s not political. Caregiving is universal, and the need for care is universal. You know, when you’re in the hospital, nobody knows if you’re a Republican or you’re a Democrat, right? And so, I think the need has hit this peak where people want it. They’ve seen these policies work in states around the country, and the question is, what’s taking Congress so long to pass this bill and to pass real, meaningful, comprehensive caregiving legislation? And so, it’s not a question of if. It’s really just a question of how now. And what does this policy look like, and do we create policies that actually capture the full needs of families without making them face impossible choices? But I think it shows, it really exemplifies the work of the movement here in really being hard instead of ask and pushing for this. And this is something that has taken decades to get to this place that we are at now.
VALLAS: So, you mentioned that people have been watching this play out in the states and that there’s been a lot of visibility around state paid leave policies in a way that’s really kind of created this groundswell of support. And this effectively, I think it’s starting to feel like a mandate for this to be done at the federal level, particularly now that we’re seeing it show up across the aisle in the way that we were just talking about. What are some of the lessons that we can take away from the state experience, and how does that inform what good federal policy looks like?
PHADKE: It’s a great question. So, this is something I say to lawmakers all the time, especially these conservative plans that are trying to recreate a paid leave proposal. We have evidence. We know what works. The states are passing comprehensive paid leave. No state has passed, you know, oh, we’re only going to take care of a new parent proposal, or oh, we’re going to pay for paid leave by slashing some other program. That’s not what’s working at the state level. And it seems silly to me to try to recreate something when we already have a body of evidence, and we know what works.
Things that we’ve learned, just in terms of benefits, right, I think I mentioned earlier. We know the benefits on vaccination rates and breastfeeding attachment. But in California, we’ve recently seen paid family leave contributing to a decrease in nursing home usage, 11 percent. And so, evidence is really coming. And that evidence from states like California who have really improved their policy over time is reflected in more progressive policies that we see in Massachusetts and Washington State and Oregon, where we’re including a more progressive wage replacement rate. And so, I think that’s something that we’ll see Congress try to tackle instead of a flat rate of what you get for your wages, understanding that it’s really hard for low-income workers to take paid leave if they’re not receiving close to full salary. And so, how do you have a more progressive wage replacement rate?
We’re seeing really great innovations on chosen family and rethinking what the American family looks like and making sure that policies that aren’t sort of your typical nuclear family are covered. We’re seeing great moves on things like job protection, because we know if your job is not protected, you’re not going to take the leave. So, there’s been a lot of great lessons that I think we will see in this debate this year in Congress surface.
VALLAS: And are any of the things that you just mentioned trickling up as ideas for further building on and improving the existing FAMILY Act? Which is something that has, as you mentioned, a lot of support, but which I suspect the hearing next week is going to discuss not just what it looks like now, but also what it could look like.
PHADKE: Yeah, I think that’s right. I mean, when the FAMILY Act was first written many years ago, we haven’t had as many states online, and we didn’t have as much evidence as to what the policy would need to look like. And so, I think there will be a robust discussion of making sure that low-wage workers can benefit from a policy. So, things like job protection and wage replacement rates are incredibly important. That we really are thoughtful about what types of families we want to cover, and that we don’t want to leave people behind, regardless of their family structure and how they define their family. And so, we’re going to really see, I think, strong conversations about a lot of those issues raised over the coming weeks.
VALLAS: So, as you look ahead to these coming weeks where there is likely to be this much activity, and the hearing is a big part of it. A lot of folks are going to be organizing around that FMLA anniversary that you mentioned as well. What is it that you think we’re likely to actually see in this moment? Is this about Democrats laying down markers, hoping for the next president to take this up? Are we likely to see some other path to actually seeing this become law?
PHADKE: Yeah, I think it’s not surprising that the Senate has not taken action on numerous bills, including many bills that the House has passed that are critical for women’s economic security and families’ economic security. So, I think we can say with some assurance that there is not really a path forward in this Congress, in this Senate for comprehensive leave. But the path in the House seems clear. And so, I think the goal is to get a really strong bill passed the House so that, with a new president potentially, and a new Congress, this bill could move rather quickly.
VALLAS: One of the other things that’s been incredibly exciting, you talked about the movement really doing the work to get us here, right? Some of it is just about the raw popularity of this policy, right, across party lines, not in a partisan way. You see that when you look at the polls: it’s not just Democrats who say they want it. It’s independents, it’s Republicans, right, overwhelmingly. But there’s this incredibly robust and growing grassroots movement underway, which we’re going to see a lot from in the coming weeks, I think, really pushing for and mounting a national call for this policy. Talk a little bit about that grassroots movement.
PHADKE: Yeah. So, I mean, it’s really started in the states with groups like Family Values at Work that have been driving some of these wins with partners across the states and lots of groups invested in that. And we’re at a point where we’re really excited, the Center for American Progress, was excited to be part of a new campaign, Paid Leave for All, which is a new collaborative with groups that have on-the-ground presence and have been doing this work for a long time, like Family Values at Work and Moms Rising, folks like Caring Across Generations, Black Women’s Roundtable, Poder Latinx, of course, the National Partnership for Women and Families and many others that are coming together to say now is the time, and we’re going to build on our collective power and really use this moment to push for this bill. And so, the raw power of those groups and the many, many members of the campaign broadly are coming together. And so, you’ll see some of that activity around the FMLA anniversary on February 5th.
And I think one of the things that I do want to mention that makes the campaign really unique is the accountability mechanism to workers and those that will benefit. And so, one of the unique pieces of the campaign is that we have a worker advisory council, and those workers are actually going to be in town in early February to get on the hill. And so, that we’re not going to represent those workers. We’re going to have the workers there themselves tell their stories and talk about what types of legislation would impact them. And I think that’s a really smart way for us to make sure that D.C. groups are really being held accountable by those who will benefit.
VALLAS: So, the last thing I want to raise about paid leave — and then there’s actually a few other things, while you’re here, that I would love to pick your brain on in the women’s space — over and over and over again, we, and I feel like this is front of mind for a lot of us watching these primary debates, right? Now, we’re not going to talk about candidates because of the legal lines. And yeah, no one’s more frustrated about that than I am, right? But it is where it is. But the theme kind of throughout all the debates, as usual, has been how do we pay for it, right?
PHADKE: Mmhmm.
VALLAS: You don’t hear the moderators ever asking that about the tax law.
PHADKE: [laughs]
VALLAS: You don’t hear them asking that, right, about tax cuts for millionaires and billionaires who are putting boats inside their boats. But you hear them ask, and this is the same across the sort of media sphere broadly, how do we pay for it, is the refrain every time we have serious conversation about a progressive priority, no matter how popular it is, no matter how urgently needed it is, no matter how many people are suffering ill health and lost wages and all the other things, right, that caused this to be really kind of a policy crisis moment. How do we pay for it? You and your team at the Center for American Progress has asked a different question. And that question is, what is the cost of inaction?
PHADKE: Right.
VALLAS: Which I’m a lot more interested in, frankly. And you guys have done some really incredible analysis. I want to give a shout-out to one of your colleagues, Sarah Jane Glynn, who’s a brilliant sort of women’s economist. And she actually recently crunched some numbers to answer that question. So, talk to me a little bit about the cost of inaction.
PHADKE: Yeah. We really wanted to flip the debate a little bit. And I think the notion that everything is so expensive we can’t do it really disregards the truth of what families are facing every day. And so, we wanted to really just remind everyone that there is a cost of inaction, that families are facing decreased wages every year that we do not pass comprehensive paid family leave, and some childcare access is also part of that. But we just re-crunched the numbers, and families are losing $22.5 billion. I’ll say it again. $22.5 billion in wages.
VALLAS: Every year. That’s an annual figure.
PHADKE: Every year because of the lack of these policies. So, to just reset the narrative on what does it mean to be able to afford a policy and really try to center it on workers and their families? And what does it mean to them to not have it?
VALLAS: Now for anyone who’s wondering, well, wait a second, how do you make the jump from lack of paid leave to lost wages, maybe explain that piece because it might not be readily clear.
PHADKE: Sure. So, what happens when you are faced with the impossible choice of having to care for a sick loved one. Let’s just say your spouse is sick and needs caregiving. And you want to keep working, and you don’t have the opportunity. And unpaid leave is limited and doesn’t really cut it. You end up leaving the labor force over and over again. And for women, they face a disproportionate amount of caregiving. And so, every time you’re leaving the labor force, you’re losing money. That’s, you know, and that accumulates over your lifetime. And so, when we talk about things like the gender wage gap, right, we know that one of the contributions to inequity in wages over your lifetime is because of the caregiving challenges that women face in addition to discrimination and other pieces. And so, something like paid family leave will not only help women stay in the labor force, and families, but it’s really critical to the overall economic security of families and for generations.
VALLAS: And it’s in ways that have incredibly long-term repercussions too, right?
PHADKE: Yeah.
VALLAS: People might be thinking, OK, makes sense. You lose some wages in the short term because you’ve had to leave the labor force. But part of what this analysis finds, and part of why that figure, that $22.5 billion in lost wages every single year figure, which really does bear repeating, is so striking and so large is because of that long-term impact that, particularly women, but that people face and feel for years after they’ve had to leave the labor force because of those cumulative effects.
PHADKE: Yep.
VALLAS: So, Shilpa, putting paid leave aside for a moment, and good luck to you in these coming weeks. And I’m excited to see this hearing. And we will see where things go from here. Few other things that are on my mind that, if you don’t mind sticking around, I would love to talk to you about. We just saw the third Women’s March this past weekend, and it was streets of D.C. were full. Streets of many other cities were full. And it has a lot of people asking the question, so, I want to put this question to you: How are women feeling right now about the current administration? What were we hearing from the Women’s March? What was the message?
PHADKE: Yeah. Awful, I think, is how most women in America are feeling. I think they are sick and tired of a president that pretends to care about women, but unleashes policies every day that hurt women and their families, whether it’s access to abortion or even now contraception, access to healthcare more broadly. We know that women face preexisting conditions more than men, right? When we talk about issues like maternal health, paid leave, childcare, the wage gap, this administration has done literally nothing to move women ahead. And so, I think women understand that, and they’re not going to be fooled by sort of lip service and superficial [laughing] Ivanka Trump narrative on this. It’s been a long three years, and I think women are tired, and they’re fed up. The racism, the misogyny, the really, hatred for women of color. I think folks are done. And so, women are agents of change, right? They’re not just voting, but they’re mobilizing their communities. They are marching. They are resisting. And I think we’re just going to see more of that around the country.
VALLAS: And just to ask the sort of million-dollar question that I think a lot of other people are asking in this moment, and particularly as the Democratic primary heats up. Again, without being able to get into individual candidates, but sort of at a threshold level, what are women looking for in November’s election? What, aside from paid leave, are their top priorities that they’re looking for a candidate to prioritize?
PHADKE: Yeah. I mean, women care about their families. They care about making sure their families have an opportunity to thrive and do well. And so, of course, they’re focused on economic issues. So, paid leave and access to childcare are some of those. But issues like the minimum wage, right? Two thirds of women are minimum-wage workers. Access to student debt. I think it’s around that same number. Women bear the majority of the student debt overload. Access to healthcare, prescription drugs. I mean, women care about issues that everyone care about, but they also see that gendered impact. And I think the hostility that conservatives are really pushing around issues like abortion, for example, really, really speak to the anxiety that women feel in a country that when often, lawmakers don’t take women’s issues seriously, that they don’t really see a role for women in moving this country forward and thriving. And so, I think all of the Democratic candidates have done a great job in talking about that difference and the difference in policies and rhetoric and symbolism that we will see.
VALLAS: Well, a lot to watch in the coming weeks, both obviously, on the electoral front, but in particular on the policy front as all eyes are remaining on impeachment. This is going to be a really important debate to continue to watch, and I appreciate everything that you and your colleagues are doing to try to champion paid leave. And I’m excited to see where things go from here. I’ve been speaking with Shilpa Phadke. She’s the vice president of the Women’s Initiative and a former White House and hill staffer working on these issues. Shilpa, thank you so much for taking the time to come on the show.
PHADKE: Thank you for having me.
VALLAS: Don’t go away. More Off-Kilter after the break. I’m Rebecca Vallas. [hip hop music break]
You’re listening to Off-Kilter. I’m Rebecca Vallas. After decades of rising income inequality and wage stagnation, the problem of inadequate wages from middle- and lower-income workers has only increased in urgency. Discussions of possible remedies have centered on expanding two existing policies: the Earned Income Tax Credit, or EITC, and of course, the minimum wage. Both the EITC and the minimum wage have been found to be incredibly successful at improving the lives of low-income families. Often, the discussion of these two wage boosting policies, however, sets them up as a false choice, as alternatives of which we need to choose just one. But my next guest, Ben Zipperer, an economist at the Economic Policy Institute, or EPI, argues in a new paper with Jesse Rothstein of Berkeley, that embracing both policies is the best way to improve low-wage workers’ economic conditions.
Ben, thanks so much for taking the time to come on Off-Kilter.
BEN ZIPPERER: Thanks for having me on.
VALLAS: So, we talk a lot on this show, and have in recent months talked a lot on this show, about the minimum wage and the urgent need to raise what has really kind of withered to become a poverty-level minimum wage, particularly at the federal level. We’ve also talked a lot recently about another tax credit that gets a fair amount of attention in the poverty debate, and that’s the child tax credit. But it’s been a while since we delved all that deeply into the EITC. So, before getting into your research with Jesse Rothstein in any real detail, I would love to sort of back up and have you provide a little bit of an explainer or refresher on the Earned Income Tax Credit, how it works.
ZIPPERER: Yeah, that’s a great way to start. So, the Earned Income Tax Credit, sometimes called the EITC or EIC, it is one of the major elements of U.S. tax policy that lifts families out of poverty or raises incomes at the bottom, basically. We kind of have, as you and your listeners know, kind of big tax policies that do this kind of like redistribution are the child tax credit, like you mentioned, or Social Security. And the EITC is another big one. It affects, I think, the kind of latest data maybe from 2018 or 2019 is 20, 22 million working families and individuals received the credit. And the credit is about, on average, it’s something like $3,000, $3,200 a year. So, we’re not talking about the biggest amount of money, but we’re also, at the same time, we’re talking about a very sizable increase for low-wage families or families who are earning little income. So, that’s kind of like how important it is overall. And there’s a lot of research on this topic linking EITC to improving outcomes for families like children’s educational outcomes, maternal and child health, basically because families have more money if they receive this credit. Which kind of gets us to how families actually receive the credit.
So, when you file your taxes, you’re eligible for different kinds of tax credits, different kinds of deductions, and the Earned Income Tax Credit is one. And families are eligible for this credit if they work. And if they work, the credit increases in the amount that they work. So, if you earn $10,000 a year, you’ll get a certain amount of credit. Or if you earn $15,000 a year, you’ll get even a larger credit. And then after a certain time period, usually around $20,000 a year, the credit starts to phase out. And depending on your family structure, the credit kind of vanishes to zero when you hit somewhere around $40,000 a year or something like that, depending on your family structure.
VALLAS: And I’m going to jump in and just say, for anyone who’s trying to sort of picture this, the classic way that people usually will explain or illustrate that the EITC is with this kind of famous trapezoid shape. So, what you’re describing, I feel like every time I try to explain EITC, I become like a human trapezoid, right? But that’s kind of the shape that you’re describing with that phase in and that phase out.
ZIPPERER: Yeah. So, if you’ve kind of got it graphically, like display how much the EITC would be for a given family, basically, would be zero. You wouldn’t get anything if you don’t work. But if then if you start to work, you start getting more Earned Income Tax Credit. And the idea being it’s encouraging people to work. That’s kind of like the motivation on one hand. And maybe some critics of that motivation point that, oh, U.S. policy, we try not to give money to people who don’t work. And this is the way our political system has hashed this out, is that we’re rewarding people who work. So, you get more money, kind of ramps up. Then it kind of flattens out. That’s kind of like the top of the trapezoid that you’re talking about. And then as you earn more and more money at your job throughout the year, the Earned Income Tax Credit starts to decline. The value of it starts to decline and kind of go down to zero. So, that’s the other side of the trapezoid.
VALLAS: And one other thing that feels important to note as you’re giving this really helpful explainer of how the EITC works and kind of how it interacts with work as work increases for a family, is that one of the populations that is pretty much left behind — I don’t think that’s an overstatement — by this particular tax credit is workers who don’t have dependent kids. Some people call them childless workers. A lot of these people actually have kids, but they can’t claim them as their dependents. And those folks are pretty much missed by this credit or get a very small credit compared to that average you were describing, which is for families with kids, right?
ZIPPERER: Absolutely. I think that this is one of the main problems with the Earned Income Tax Credit. So, the Earned Income Tax Credit, depending on how much you make, it increases the number, increases in value, the number of children that you have. So, for example, if you’re making about $15,000 a year, if you have you know — I don’t know the exact numbers offhand — but if you have one child, the credit’s going to be somewhere between $3,000 and $4,000. But if you have three children and you’re still earning about $15,000 a year, that credit is going to be more than $6,000 a year. So, that’s good for families who have more children, that the credit increases.
But for families that don’t have any children, so, for example, if you’re like a single adult, you don’t have any children, but you earn about $10,000 a year, you’re going to get a very small Earned Income Tax Credit, probably less than $1,000 a year. If you earn, for example, the minimum wage at your job and you’re a single adult and you work full-time, full year, a year minimum wage, and it’s like the federal minimum wage of $7.25, you’re essentially going to get very little to no Earned Income Tax Credit. If you earn $20,000 a year, you’re completely phased out. So, for single adults who don’t have any kids, the EITC essentially doesn’t exist. There’s a very narrow range of single adults who earn just the right amount to actually earn any Earned Income Tax Credit. And as a result, the Earned Income Tax Credit really doesn’t benefit those families or those adults and really doesn’t actually help lift them out of poverty.
VALLAS: So, now on the flip side, I mentioned that the minimum wage is another one of the big policies that obviously gets talked about when the goal at hand is boosting family incomes and boosting workers’ incomes. So, just a quick refresher on the minimum wage. I think most people are probably more familiar with that than they are maybe with the EITC because that gets a little bit more complicated. But the minimum wage, obviously, established by the Fair Labor Standards Act. That was back in 1938. That was the first time we ever actually, as a nation, set a floor for the amount that workers can be paid on an hourly basis. Certain populations are still left out of that wage floor by the Fair Labor Standards Act, and we’ve talked a lot about that on this show over the years. Most notably actually, workers with disabilities can be paid subminimum wages. Tipped workers are also left out. And those are big gaps that a lot of folks, particularly progressives, have been working to plug.
But back to you, Ben. There’s been a lot of research over the years on the minimum wage, and most notably, some really important research from one of the leading economists in this space, Arin Dube, who actually put out new research just last year telling us what happens to workers’ economic situations when we raise the minimum wage. So, help us remember, what’s the connection there between the minimum wage and poverty?
ZIPPERER: Right. So, like you said, the minimum wage is a floor on — It’s the lowest amount, whatever the minimum wage is. You know, whether you’re faced with a federal, national minimum wage or maybe state or local minimum wages that are applicable, those minimum wages are the minimum that an employer can pay you per hour. And there are exceptions to that, like you mentioned, that tipped workers maybe have a much lower minimum wage depending on where they live. Many disabled workers and some in the agricultural industry and some self-employed workers, the minimum wage doesn’t apply to them. But for whom the minimum wage applies, employers aren’t allowed to pay you less per hour. Now, that’s for your hourly wage. And what we were talking about before with the Earned Income Tax Credit, is we were talking about annual earnings. So, you’re eligible or not eligible for the Earned Income Tax Credit based on your annual earnings. Whereas the minimum wage applies to your hourly earnings. And so, that’s important because both of these policies, Earned Income Tax Credit and also the minimum wage, raising them or expanding them really do reduce poverty or increase people’s total income that they receive throughout the year, but they do it in different ways.
So, the minimum wage actually affects your daily or your weekly — however you’re paid — take home pay. And because of that, when you raise the minimum wage, research has found that it does significantly reduce the number of families in poverty because it is raising the wages of low-wage workers. And that increases the amount of money that they earn throughout the year. The Earned Income Tax Credit kind of gets at that problem a different way. It looks at what people have earned over the year. And if it is low enough, but they’re still working, it provides them with a tax credit that increases their payment that increases their total income.
VALLAS: And the research that I think is so important to note on the minimum wage side in particular, because there has been, I think, so much incredible debate, particularly at the federal level in the last several months in this new Congress comes from Arin Dube. And I wanted to give a plug to that just because for anyone kind of wondering, what would the impact of raising the federal minimum wage be, Arin Dube finds that a $12 minimum wage, if it had been effect in 2017, and that may sound, people may be going, “Oh, $12. I thought we were talking about 15.” Well, if you actually think about it in real terms, $12 in 2017 was actually not that different, in real terms, than the proposal to phase up to a $15 minimum wage, which is what folks are currently talking about. But that that $12 minimum wage in 2017 would have raised more than six million people out of poverty. So, huge impacts from both of these policies, to just to sort of get that out there as part of this foundation. But Ben —
ZIPPERER: I have to interrupt you. I know we shouldn’t harp too much about the minimum wage, but I just want to point out that yes, that there is a lot of controversy about the minimum wage in the public arena. But actually within academic scholarship and research on the minimum wage, there’s not as much controversy as you would think. [chuckles] And in fact, not only did the work of Arin Dube that you’re talking about emphasize that the minimum wage does reduce poverty by raising people’s wages and increasing their total income, if you were to look — and Arin Dube does this in his paper — if you were to look at basically all the research on minimum wage that’s been published about poverty, it essentially agrees, in the sense that the minimum wage does, on average, reduce poverty by raising people’s income. But there’s really not that much academic controversy about that among people who actually study this for a living. But there is a lot more controversy in the public debate.
VALLAS: I really appreciate that, because that is, and that’s just such an important thing for people to kind of keep in mind, given that the talking points, the message out there on the conservative side of the aisle is so incredibly shrill and often sort of drowns out the facts where you know, there is no controversy among folks who study this for a living. I like how you put that.
So, now, back to the piece of your paper with Jesse Rothstein that sort of, I think, is so incredibly timely. Each of these policies — the Earned Income Tax Credit, the minimum wage — each of them kind of comes with a primary critique. And people are probably familiar with the main critique of the minimum wage, and it gets very connected to the scaremongering I was just talking about among conservatives. And that is that it reduces employment. The line by the Paul Ryans of the world is, you know, “Oh my god! It will kill jobs,” right? You hear that from employers, too sometimes. And it sort of rises to a fever pitch every time the words, “Raise the minimum wage” form on someone’s lips, it seems. In the case of the EITC, the parallel concern by critics is that it doesn’t just subsidize low wages, but that it potentially results in employers quote-unquote “capturing” some of that EITC by reducing wages. And that’s probably a critique that listeners are less familiar with because it is kind of a little bit more technical. So, would love for you to kind of explain both of those critiques, but particularly that EITC wage capture worry that some people have.
ZIPPERER: Yeah, sure. So, the minimum wage critique that you mentioned and that I’m sure a lot of people are familiar with is that, you raise the minimum wage. That makes it more expensive for employers to hire workers. So, employers are gonna hire fewer workers. So, you’re hurting the people that you’re trying to help. That’s the kind of scare story that people use to attack the minimum wage. And I think it’s important to understand that, OK, maybe that could happen in theory, but really that seems to only happen in theory. And that the research, in my view, is very clear on this, that if you were to just look at research published over the last 20 to 25 years on the minimum wage, it is one of the most well-studied topics in economics. And the average employment effects of the minimum wage are basically small to nonexistent. And I think that’s confirmed by the best research that also finds that the minimum wage has very little effect on the employment opportunities of low-wage workers, and in fact, simply raises their wages, and as a result, reduces poverty of low-income families. However, that critique is has a lot of political staying power, even if it’s not actually that pervasive in the academic research. And so, people often point to the EITC as that is actually what we should do to help families because according to the critique, minimum wage is bad. So, let’s look at other things like the EITC.
And so, the EITC, like you mentioned, it also has a downside. I think this downside is a little more realistic than the downside that’s brought up about the minimum wage. And the downside of the EITC is that it is designed to encourage people to work, you know. That if you increase the EITC, as people work a little more, they get a higher EITC. And as a result, it encourages them to work a little more so that, because they can actually earn the EITC to supplement their low earnings. Because it encourages them to work, the EITC does seem to increase the number of people working. And as a result, employers are able to lower wages, hourly wages a little bit because they have a bigger pool of workers to choose from. So, EITC increases people’s willingness to work. That means that people are going to work for a little bit less than they would otherwise. So, the EITC can put a little bit of downward pressure on hourly wages. Now, people who earn the EITC that they make up for that because the EITC, at the end of the year, will make them more than whole. On the other hand, you know, we talked about childless adults. They’re essentially not eligible for the EITC or very little EITC. And as a result, the EITC, by lowering or putting downward pressure on wages a little bit, puts downward pressure on their wages. So, that’s kind of a negative aspect of the EITC, that the EITC can put downward pressure on hourly wages.
Which brings us back to the minimum wage. And that’s kind of the subject of our paper, is that instead of viewing these as different policies that are completely separate, and maybe the minimum wage is bad, so you should go for the EITC, they actually interact with each other in very helpful ways. So, if you raise the minimum wage, if you have a very strong minimum wage, that counteracts any of the downward pressure that the EITC is putting on wages. And because of that, these policies are best seen as complements for one of each other. They make each other work a lot better than they would if you just have them in isolation.
VALLAS: Well, and that to me, in terms of takeaways from your research — and it’s not the first time to look at this, but it is the most recent and really kind of helpfully surveys a lot of the literature that’s on target here — but that takeaway ends up being that combining those two policies — raising the minimum wage and expanding the EITC — really ends up being the best way to improve workers’ economic situations. Because, if I’m understanding you correctly, each of them sort of offsets the potential employment and wage effects of the other, meaning that together, they have the potential to have the most powerful effect, rather than, as they often get talked about, being some kind of a choice of one way to boost wages versus another.
ZIPPERER: Yeah, absolutely. And I think there’s another aspect is that these policies are actually targeting two different things, you know, and that’s good. Our labor market isn’t simply about how much money you earn over the year. It’s also about how much money you earn when you’re actually working: your take-home pay by the hour, by the week, however you get paid. And the Earned Income Tax Credit really targets like how much you’ve earned over the year or how much your family has earned over the year. And that’s important, and we should target that. But we also need to target how much you make per hour, because there’s an important moral component to that. And there’s an important component is that you need the money then. You need the money right now. You need the money to pay rent. It can’t wait till the end of the year to have an Earned Income Tax Credit and then pay your landlord after that.
VALLAS: And, you know, just I think I would be remiss if I didn’t note, that is actually part of why some in the public policy space have started to propose, and in some cases actually started to pilot, what some people call periodic payments of tax credits like the EITC, trying to play with how often do people get a portion of that tax credit throughout the year so that it isn’t all that lump sum at tax time, like you’re describing. But that’s still kind of a very new idea that’s being tested. And there are really some important benefits to getting that lump sum at tax time or at least a portion of it as well, given that we’ve seen how important it can be for sort of a form of forced savings in some cases, or in others, it helps families catch up on bills or afford school supplies for their kids or whatever that kind of sizeable expense might be that they otherwise wouldn’t be able to afford at one time. So, just a little side note on the periodic payments piece.
But Ben, I think I’m also taking away from what you’re saying that it’s important for us not just to be thinking about raising the minimum wage and expanding the EITC in tandem, but that there’s a very specific way that we also need to be boosting the EITC, making it work better so that these policies can work hand-in-hand. And that is expanding the EITC for that group of workers who’s currently being left behind: Those workers who aren’t claiming children as tax dependents.
ZIPPERER: Absolutely. I mean, not only do they just not benefit from the credit whatsoever, I mean, essentially very few single adults actually get a credit, adults without children, and what credit they get is very small. So, that simply just should be changed. And I think that both nationally for the federal EITC and then also states have their, many states have their own EITC. Anything that we could do to actually expand the coverage of the EITC and raise the value for single adults would be beneficial just from that tax payment. But it would also be beneficial for those adults because that helps counteract, again, some of the downward wage pressure that the EITC puts on all low-wage workers, not just those who are eligible.
VALLAS: So that they end up getting to be better off as well, right?
ZIPPERER: Exactly.
VALLAS: To sort of connect those dots. So, then the last kind of thing on my mind here, as we think about where this conversation goes, particularly in this presidential primary year, lots and lots of discussion of a universal basic income, perhaps more than we’ve seen and at a sort of a higher pitch than in quite some time. And so, folks may be listening and thinking to themselves, how do these policies all potentially fit together? And is there a way that they fit with some kind of a UBI, or do we need to be thinking about that as an alternative as well? What are your thoughts on that?
ZIPPERER: Yeah, I think that’s very insightful. I mean, when we talk about UBI, universal basic income, the Earned Income Tax Credit is kind of like a very light UBI that has not all of the same aspects, but some pretty similar ones. And I think it’s worth talking about their differences, but also talking about actually how similar they are. But just to be clear, if you’re wondering what the effects of a UBI would be on our society, a very minor way to get at that is what are the effects of the Earned Income Tax Credit, which is not the same as the UBI, but has many of the same elements or is kind of likely a model for how a UBI might actually happen in reality in the United States.
So, the reason why the Earned Income Tax Credit is not like the UBI is that well, you know, first of all, its eligibility depends on your family structure and your income. So, UBI, the way it’s classically brought up, is that it is a flat payment for everybody in society. Now, so, just to pick that a part a bit, the EITC is different than that, but it’s actually not that different. So, the main difference in the EITC and the UBI is that EITC, you have to work some in order to actually be eligible, and you have to have a particular family type and particular income range. And so, UBI, if you’re thinking about this as the EITC trapezoid again, UBI kind of like replaces the first part of that trapezoid, and it’s just a flat payment. Like if you don’t work at all, you still get $6,000, $10,000, $30,000, whatever the UBI amount is. And if you get $15,000 in annual income a year, you’re still going to get the same UBI amount instead of being phased in as the EITC is.
The other difference, but it’s really not that much of a difference, is that the EITC is phased out. So, the more that you earn after a certain threshold, the smaller the EITC credit is. And UBI wouldn’t be phased out. But actually, when we think about it, if we’re going to figure out a way to kind of fund the UBI, let’s say through progressive taxes, we make people pay more the more their income is to fund an actual UBI as part of our Social Security, as part of our tax policy system. That would effectively phase out the EITC for those people, phase out the UBI for those people. Because even though upper-income workers would receive the UBI, they’re going to be taxed increasingly for the UBI And that’s kind of like the EITC. I don’t know if that makes sense, but the EITC phases out based on your pretax earnings. But if you were to tax progressively higher-income people to pay for the UBI, that effectively looks like an EITC.
VALLAS: Well, it’s interesting to think about and then gives us certainly, food for thought for how you can look at the research on the EITC and then think a little bit about what the effects of UBI could be. Although of course, we’ve got pilots underway in a few places like Mississippi testing limited forms of it. You know, important to note obviously, the devil would be in the details and whether other programs would still exist or whether they would be collapsed to try to pay for it. Definitely something conservatives have had their eyes on for some time hearing progressives in certain circles talk about UBIs, whether that’s the Supplemental Security Income for folks with disabilities and seniors or whether that’s food stamps or whether that’s housing assistance or Medicaid, all things, I know, certainly keep me up at night when I think about the prospects of a UBI design and the questions we would have to answer for what it would look like in tandem with the rest of our policy structure. But certainly interesting to think about, particularly given how much attention it’s getting right now and the timeliness given this this EITC research.
I’ve been speaking with Ben Zipperer. He’s an economist at the Economic Policy Institute, and he has a recent paper, a new paper, with Jesse Rothstein over at Berkeley that you can, of course, find on our nerdy syllabus page. Lots more, including trapezoids to dig into if you want to learn more about the EITC and why it needs to go hand-in-hand with raising the minimum wage. Ben, thanks so much for taking the time to join the show and to unpack all of this really technical but really important research.
ZIPPERER: Oh, thanks for talking about it. I was happy to be a part of the discussion.
VALLAS: And that does it for this week’s episode of Off-Kilter, powered by the Center for American Progress Action Fund. I’m your host Rebecca Vallas. The show is produced each week by Will Urquhart and Alison Young, and our transcripts are courtesy of Cheryl Green. Find us on Facebook and Twitter @OffKilterShow, and you can find us on the airwaves on the Progressive Voices Network and the We Act Radio Network or anytime as a podcast on iTunes. See you next week.
♪ I want freedom (freedom)
Freedom (freedom)
Now, I don’t know where it’s at
But it’s calling me back
I feel my spirit is revealing,
And now we just trynta get freedom (freedom)
What we talkin’ bout…. ♪
