Raising the minimum wage isn’t the best way to help the working poor, according to Warren Buffett.
The billionaire investor told CNBC’s Becky Quick Monday morning that the Earned Income Tax Credit -- a tax break for low-income Americans aimed at encouraging work -- would actually be the most direct way to help America’s working poor with fewest negative side effects.
“The Earned Income Tax Credit I think is much clearer," Buffett said. "That puts more money in the pockets of people earning low wages and that’s what I’d like to see."
President Barack Obama urged reforming the EITC in his State of the Union address earlier this year. The IRS claims the tax break helped lift 6.6 million people out of poverty in 2011, the most recent year for which full data is available, according to the Associated Press. Currently the credit does significantly more for families with children. Obama’s proposal would expand the EITC for workers without kids.
A July study from the Center on Budget and Policy Priorities estimated that expanding the EITC by lowering the age of eligibility for childless workers would lift an additional 300,000 Americans out of poverty.
Obama has proposed raising the federal minimum wage from $7.25 to $10.10 an hour as one way to lift Americans out of poverty. While some research shows that a minimum wage hike would boost the economy and eventually create jobs, some argue that a minimum wage hike would discourage businesses from hiring workers because of increased payroll costs. Buffett noted in his interview with CNBC that “there’s tradeoffs on the minimum wage and you can do all these studies but they don’t know.”
Changes to the EITC likely wouldn’t affect employers’ hiring decisions since it won't raise wages. Additionally, any expansion of the tax credit would be sure to go only to the working poor, while some of the beneficiaries of an increased minimum wage would be teenagers and others simply working minimum wage jobs for extra cash.
“(The EITC) doesn’t distort the market system in any great way,” Buffett said.