Even with a Modest Increase in the Minimum Wage, It’s Time to Consider a Guaranteed Income for Working Families

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July 1, 2021
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As the District begins to recover economically from the COVID-19 pandemic, families earning the minimum wage are also getting a slight boost as the District increased its minimum wage from $15 to $15.20 per hour as of July 1, based on the rate of inflation. While workers will see a little extra money in their paychecks, the full raise excludes tipped workers, who suffered huge financial hardship during the pandemic. District lawmakers overturned a ballot initiative in 2018 that would have guaranteed tipped workers one fair wage.

Recognizing the District’s minimum wage is one of the strongest in the country, it is still not enough to live on. Providing a fair wage is essential to meeting the needs of working families. While increasing the minimum wage particularly benefits single parents, especially single mothers, most of whom are black and brown, the gap between take-home pay from a minimum-wage job and the amount that families need to cover their basics is significant.

Successful social services, such as housing vouchers and food and nutrition programs, have proven to be effective at helping families make ends meet. Unfortunately, these programs can be intentionally hard to access, resulting in far fewer people taking advantage of available support than the number who are eligible.

How then might we build on previous efforts to meet the needs of working families? One idea that some are considering is some form of guaranteed income. This provides direct cash payments to families, similar to one limited component of the American Rescue Plan passed in March. Because of the way federally funded social programs are regulated, however, increased income would make families ineligible for other benefits. As we explore options for supporting working families, we must ensure that potential solutions don’t result in a loss of benefits for working people. Our goal should be to move beyond the promises of a threadbare social safety net, to consider what all families need to build and enjoy the life they want and deserve.

Even a $15 Minimum Wage Isn’t Enough – and Disproportionately Hurts Black and Latinx Families

When the DC Council voted in 2016 to increase the minimum wage to $15 per hour, they required the Office of the Chief Financial Officer to study the possibility of providing a basic income in the District. “Approaches and Strategies for Providing a Minimum Income in the District of Columbia” was the resulting report, exploring the pros and cons of such a policy. That report found that a single parent with one child would need to earn roughly $31.79 per hour – more than twice the District’s minimum wage even after the increase—to meet their basic needs and pay their federal and local taxes without public social safety net assistance. A single parent with two children would need an hourly wage of $46.58 to pay their bills and taxes.

Those earning minimum wage in the District are disproportionately people of color. Black workers were one-and-a-half more times more likely than workers overall to benefit from increasing the minimum wage. About one-third of the District’s workforce is Black, yet constitute nearly half of the workers who benefited from increasing the minimum wage. Similarly, about one-tenth of District workers are Latinx yet they were nearly one-quarter of the workers who benefited from increasing the District minimum wage. Given this disparity, it is clear that closing the liveable wage gap is not just a matter of economic justice, but racial justice too. Whose work we value affects the quality of life we afford our families, and for too long our policies have undervalued the skilled work that Black and brown families perform.

Current Benefits Aren’t Always Accessible

One reason to consider supplementing benefits with a guaranteed income for families is because current safety net programs are often difficult to access. For instance, while housing is a major cost driver in household budgets and (as of 2019) one in three District children live in households paying more than one-third of their income on housing), few District families receive housing support. Only 7.4% of the District households live in public housing or receive housing vouchers. Even families with a clear financial need may not have access to this support in practice. Only 23% of families in the District who receive Temporary Assistance for Needy Families (TANF) also received housing support during FY 2015 even though their incomes were low enough to qualify them. Only 5.4% of the District households receive TANF or local cash assistance. TANF itself has a policy that creates a perverse disincentive for families to save – despite the stability that savings can offer a family – because if you have more than $2,000 in savings you are no longer eligible for TANF benefits.

Federal and state benefits for families receiving low (or no) wages have been hard fought and won, providing important support including child care subsidies, public health insurance, and nutrition supports such as SNAP and WIC. Yet even these effective services have been eroded over time, or limited in scope by conservative policy makers seeking to block or roll back economically and racially just policies. The difficulty many families face in accessing these programs is a barrier erected to limit their effectiveness. Just because a family is eligible for a particular benefit does not mean they actually receive it.

This is true even with some local benefits like the DC Health Care Alliance which provides healthcare to low-income families, regardless of their immigration status. This is an effective and needed program but barriers to access remain in place, such as requiring participants to recertify their eligibility every six months, instead of once a year, despite years of campaigning to reduce or eliminate them, resulting in many participants being kicked out of a program they still need.

Federal Funding Impacts State Actions

For a state or local government trying to close the gap between current wages and economic support versus what families need, one major concern is the effect of increased family income on eligibility for federal funding. Programs like Medicaid, Healthy Families, SNAP, WIC, and TANF are largely federally funded, so if families’ incomes increase they likely will no longer meet federal eligibility requirements for those programs. For individual families, cash transfers may be subject to federal income taxes. The District’s 2018 report, “Approaches and Strategies for Providing a Minimum Income in the District of Columbia,” proposed using “locally-provided refundable tax credits to provide low-income workers with minimum income cash payments that would probably not be subject to federal taxation or impact eligibility for needs-tested federal subsidies.” That would likely mend some of the holes in the social safety net, but people who would not otherwise need to file taxes – particularly those who face logistic, linguistic, or other challenges in doing so – may still be left behind. To make a policy like this more inclusive, strong community outreach efforts should be included to make sure no one misses out on the benefits they are entitled to.

The new–and currently temporary–federal Child Tax Credit just passed by Congress follows this path, ensuring that eligible families receive needed financial support without it affecting their eligibility for other benefits. However, those who didn’t file taxes in 2019 or 2020 still need to fill out a form at childtaxcredit.gov to receive the benefit, and they must know to take that extra step and have the ability to do so. This is not a universal program, but it is the most ambitious expansion of the social safety net since the Great Society.

Finding New Ways for Working Families to Thrive

If the minimum wage isn’t enough for working families to cover their basics, and many state and federal benefits remain difficult to access, how can we better support residents struggling to make ends meet? Some have suggested giving families money directly to meet their basic needs. There are several possible approaches:

  • Universal basic income, where everyone gets a payment regardless of private income or assets
  • Guaranteed minimum income, which raises households’ income to a particular threshold, so for each additional dollar of earnings the minimum income cash benefit would be reduced
  • Earned Income Tax Credit, which may enable individuals and families with low to no income to receive a greater tax refund from the IRS
  • Negative income tax, which allocates a tax credit to tax filers whose income falls below a particular threshold

The goals and intentions behind who is proposing these ideas and why matter greatly. On the left are proposals that build on current supports offered to families. On the right are proposals that would reduce or eliminate the social safety net, providing guaranteed income but at the expense of access to other programs, essentially cutting benefits. A conservative model could actually amount to a redistribution of money upward, with families who need the most support receiving significantly reduced benefits while families who don’t need support getting additional funds. While it’s beneficial to boost working families’ incomes, eliminating existing social services such as access to health care or nutrition supports, would only exacerbate the current crisis.

In recent years, we’ve seen more examples of programs that give families cash directly, such as federal payments during the COVID-19 pandemic; city-run programs; and Thrive East of the River–a cash transfer program piloted through a collaboration among Martha’s Table, Bread for the City, 11th Street Bridge Park, and Far Southeast Family Strengthening Collaborative. These initiatives speak to the promising benefits of greater and more generous support for families. We know that over half of people used part of their COVID-19 relief payments for food, with utilities, household supplies, paying down debts, rent, vehicle payments, and mortgages being the next biggest uses. An added benefit of giving residents who are struggling to make ends meet the resources they need is boosting local economies, because residents who earn low incomes tend to spend money in their immediate community.

Over the coming months we’ll be exploring some of the lessons learned from these programs and implications for how the District can better ensure that all families are able to meet their children’s basic needs.

 

Rachel Metz  Rachel Metz is DC Action’s Research and Data Manager