Credit where taxes are due

IN RECENT years tax credits for the poorly paid have become a big part of the welfare systems of America and Britain. Nearly a quarter of Americans are eligible for the Earned Income Tax Credit (EITC), which can boost the income of workers with big families by over $6,000 a year by reducing their taxes. In Britain similar credits account for 14% of all welfare spending.

The credits have critics. Left-wing activists have long complained that although the tax credits are paid to the poor, it is really “corporate welfare queens” such as McDonald’s and Walmart that benefit, since the credits allow them to pay lower wages. Now politicians on the right are joining in. David Cameron, Britain’s prime minister, has hinted that tax credits might be next for the chop in his government’s austerity drive.

Wage subsidies had been politically popular because they help the poor while still encouraging work. But politicians like Mr Cameron wonder whether the same objective could be achieved at less cost to taxpayers by raising the minimum wage that firms must pay workers. The hitch, of course, is that a higher minimum wage might dent employment. Tax...

from The Economist: Finance and economics http://ift.tt/1gcMuFF