THE MONTGOMERY County Council took a sensible step in a benign direction in agreeing last week to create a local earned-income tax credit for the working poor. Critics called the credit a poor substitute for the alternative -- a selective doubling of the minimum wage. But the wage proposal had the huge shortcoming: Its likely effect would have been to drive business and jobs out of the county. The vote last week was partly a lesson in federalism; there are limits to what a local government can do on its own to combat broad economic trends. The after-tax difference between the two proposals was also much less than it appeared. Much of the nominal wage gain would have been lost, in that its beneficiaries would have suffered a reduction in the federal earned-income tax credit.
It's a serious national problem that many full-time, year-round workers earn too little to keep a family of average size above the federal poverty threshold. A locality that can afford it is to be commended for trying to close the gap. The council, at County Executive Douglas Duncan's behest, approved what may be the nation's first local earned-income tax credit, atop the state's, which piggybacks in turn on the federal one. The credits are basically wage supplements administered through the tax code. Several other forms of increased assistance were approved by the council as well.
The wage proposal was to apply to all companies doing business with or receiving subsidies from the county. But even as it was being proposed it had to be watered down, lest it discourage prospective development. Nor was it worth what it sounded, in that the poor face extremely high marginal tax rates that are the byproducts of public generosity.
A full-time, year-round minimum-wage worker now makes about $10,700 a year. If he or she has two or more children, the federal earned-income tax credit takes that to about $14,500. But the credit declines as wages rise; at a doubled wage of about $21,500 a year, the credit would be about $2,000 less, the worker would owe additional Social Security taxes, and other benefits -- from possible food stamps and child-care subsidies to the state earned income tax credit -- would also be reduced.
It's important to keep a floor under wages, and those in Montgomery who made the original proposal deserve credit for having forced to the forefront an issue too often neglected. The county now has an instrument that it can make more generous in the future if it sees the need. It's a pretty good result without the inefficiencies and risks of the notion it replaced.