Vermont doesn’t need more low-wage jobs

Thousands of Vermonters work at jobs that don’t pay enough to meet their families’ basic needs. That leaves Vermont taxpayers paying tens of millions of dollars to pick up the slack left by employers who pay so little that hard working men and women have to turn to public assistance. So, before the Legislature approves more tax breaks ostensibly designed to induce employers to create new jobs, it should require that those jobs pay at least enough to keep workers off public assistance.

Otherwise, state taxpayers will be paying twice: once for the tax credit to create the jobs, and again annually to help more low-wage working families make ends meet. Subsidizing the creation of more low-wage Vermont jobs drives up state spending, reduces state revenues, and only aggravates the structural budget problems Montpelier says it wants to solve.

The true cost of low-wage work in Vermont is documented in a new report by the University of California Berkeley Center for Labor Research and Education. It shows that 55 percent of federal and 54 percent of state funds for Vermont public assistance go to working families. This includes such help as Temporary Assistance to Needy Families (Reach-Up); food stamps (3SquaresVT); federal Earned Income Tax Credit (EITC); Medicaid; and Children’s Health Insurance Program (CHIP).

The annual cost for Medicaid/CHIP, Reach-Up, food stamps, and EITC for Vermont working families was $372 million ¹, the report found. Of that, $285 million was covered with federal funds, and $87 million came from state funding. Vermont’s state earned income tax credit, which goes mainly to working families, costs another $27 million.

The Berkeley report came out just as the Vermont Legislature was struggling to balance the state budget and also looking for ways to promote economic development. Gov. Peter Shumlin proposed a change to one of the state’s tax credit programs—Vermont Economic Growth Incentive (VEGI)—to lower the wage employers would be required to pay to qualify for the tax break. VEGI-eligible jobs now must pay at least 60 percent more than the state minimum wage of $9.15 an hour. That means a job has to pay at least $14.64 an hour to qualify for a VEGI tax credit this year.

The governor wants to lower the hourly rate to $13, which is half the amount two working adults, without kids, need to earn to meet their basic living expenses.

In light of the report, even 60 percent above minimum wage appears too low to justify a tax subsidy. A single mother with one child and working full time at $14.64 an hour in 2014 would qualify for a federal and state earned income tax credits totaling about $1,700. A single parent with two children and working full-time at that wage would qualify for almost $3,700 in income tax credits. In other words, more taxpayer subsidies for jobs that don’t pay enough for people to meet their needs and build a future.

Work ought to enable people to support themselves and their families. While it’s not illegal for employers to pay low wages as long as they pay at least the minimum wage, it would be a mistake for the state to reward employers who fail to pay enough for their workers to support their families without public assistance. Vermont should aim higher.

1. The amounts cited in the report are based on 2010-12 Current Population Survey data and other federal administrative data and adjusted to 2013 dollars.[↩]