The Many Problems with New York’s Proposed Minimum Wage Reimbursement Credit

March 25, 2013. This was to have been the year New York caught up with the 19 other states and the District of Columbia with a minimum wage above the $7.25 an hour federal level. Minimum wage legislation that passed the Assembly also would have indexed the minimum wage in future years—as 10 other states do—so that inflation would not steadily erode its purchasing power. However, the agreement reached over the weekend in Albany falls far short. It increases the minimum wage to $8.00 an hour on the last day of 2013, to $8.75 a year later, and to $9.00 an hour on the last day of 2015, but it leaves out indexation and treats tipped workers inadequately.

But the overall minimum wage package is even worse – a lot worse because of an ill conceived and poorly drafted tax break that has been added to the mix.

Despite a complete absence of compelling evidence regarding any need or justification, Albany is poised to enact a “minimum wage reimbursement credit” that flies in the face of sound tax policy, good labor market practice, or common sense. One step forward, four steps backward.

The minimum wage tax credit is part EE in the budget package’s revenue bill (S2609D/A3009D). In the first year (2014) in which the new minimum wage of $8.00 an hour would be in effect, the tax credit would pay employers for all of the increase for any workers between the age of 16 and 19 that they pay at the $8.00 an hour level. In the second year (2015), it would pay employers $1.31 for such teenage workers paid at the $8.75 level, and for the years 2016-2018, it would pay employers $1.35 an hour for such teenage workers paid at the $9.00 an hour level. A very perverse part of the tax credit is that the employer only gets the credit if the employee is paid exactly the minimum wage.

This takes income polarization and policies that deprive workers of fair pay and a decent living to new heights–we’re about to become the first state to make a minimum wage a maximum wage at the same time! Michigan and Wisconsin move over—New York wants to officially discourage pay increases. Think about it—starting in 2016, New York will reward employers up to $2,808 per teenage worker for keeping wages flat for three years ($2,808 is the $1.35 hourly tax credit times 40 hours a week times 52 weeks).

There are numerous other ways the new tax credit merely falls well short in the sound policy and common sense department:

1. While this credit was conceived as a way to limit the impact of the increased minimum wage on small business, the proposed legislation:

  • is available to all employers including giant corporations such as Walmart and McDonalds, and
  • even makes the credit available to Verizon and other public utilities (Article 9 of the Tax Law); banks (Article 32); and insurance companies (Article 33).

2.  Unlike the New York Youth Works tax credit, the new Minimum Wage Reimbursement Credit (MWRC) for employing students between the ages of 16 and 19 at the minimum wage:

  • is open-ended as to cost, whereas the cost of the Youth Works program is capped at $25 million for the first two years, and at $6 million in subsequent years,
  • does not require participating employers to agree to the disclosure of  their participation or disclosure of the magnitude of the credits that they receive,
  • has a much weaker prohibition on the “gaming” of the system to benefit from the credits available.  (The new MWRC’s only safeguard in this regard is that “An employer shall not discharge an employee and hire an eligible employee solely for the purpose of qualifying for this credit.” At the very least, credits should not be available to employers for hiring teenagers for positions previously filled by adults.)

3.  The proponents of this credit argued that it was necessary so that small businesses would not be “forced” by the increased minimum wage to reduce the number of students that they hire for summer and other seasonal jobs; BUT the proposed legislation:

  • gives a credit to businesses that pay the minimum wage to students for jobs for which it previously paid more than the minimum wage,
  • for students employed at the minimum wage rate, would give an employer a credit (ranging from 75 cents to $1.35 an hour) even if students hired in 2013 to fill those same positions were paid more than $7.25 or even $8.00 or $9.00 an hour.

4.  The bill creates an incentive to hire students between the ages of 16 and 19 rather than older individuals or non-students. Although 90 percent of the lowest-wage New York workers are 20 years of age or older, this new tax credit will dangle $1,560 to $2,808 out in front of employers  for every adult worker they manage to substitute with a student between the ages of 16 and 19.

Legislation like this new tax credit is proof there are worse things than a late budget.