So what happens now that California has decreed a $15 minimum wage? This letter to the WSJ points out the tax consequences.
Your editorial “California Inequality Act” (March 30) doesn’t address the tax implications of going from a $10- to a $15-an-hour minimum wage, which are very significant. For a family of four with both spouses making the minimum wage, their federal tax will increase from $4,106 to $7,219, payroll tax will increase from $2,579 to $3,869, their earned-income tax credit (EITC) will be reduced from $596 to zero,
California state taxes will increase from zero to $379, and the $2,400 food-stamp credit will be lost. Of the $20,800 increase in income in going from $10 to $15 an hour, $7,778 will be diverted to the government, which doesn’t include loss of other income-dependent government welfare programs and added costs due to the resulting inflation. Over one third of the wage increase will flow to the government in the form of increased taxes and reduced benefits.
A far better way to help low-income workers would be to increase the EITC, which wouldn’t cause a loss of jobs or increase inflation, both of which disproportionally impact the poor.