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The Higher Wages Tax Credit

In this chapter, author David Neumark proposes a Higher Wages Tax Credit (HWTC) to partially offset the costs imposed by minimum wage increases on firms that employ low-skilled labor. Following a minimum wage increase, the HWTC would provide a tax credit of 50% of the difference between the prior minimum wage and the new minimum wage, for each hour of labor employed; the credit would phase out at wages higher than the minimum wage, and as wage inflation erodes the real cost of higher nominal minimum wages.

Introduction: The Need to Expand Economic Opportunity

The pursuit of economic opportunity for all Americans is as important to the health of the country’s economy as it is to the strength of its democracy. The promise that hard work and determination will yield economic success is a central American ideal, but it has been called into question as secular economic forces and institutional changes have reshaped the American economy and had an uneven impact on Americans’ ability to prosper.