$15 minimum wage would increase joblessness but reduce poverty, CBO says

Hiking the federal minimum wage to $15 an hour would lift pay for millions of impoverished American families and add to the nation’s red ink and the number of unemployed, the Congressional Budget Office estimates. 

The federal deficit would increase by about $54 billion over 10 years under a Democratic proposal to gradually lift the federal minimum wage from to $15. That’s largely due to the higher wages paid to workers, such as those caring for the elderly, that would contribute to an increase in federal spending, according to a report released Monday by the nonpartisan federal agency.

Democrats are pushing to include the higher minimum wage as part of their $1.9 trillion COVID-19 relief plan. The current baseline wage of $7.25 has not budged in nearly 12 years, the longest span without a raise since the U.S. adopted a federal minimum wage in 1938.  The high number of low-wage workers with little to no savings set aside from their paychecks has left many in dire straits once the pandemic hit, bringing with it recession and double-digit unemployment. 

Companies, including Amazon, as well as some cities and states across the country, have already mandated or are on their way to mandating a $15 minimum, but the campaign up until recently has been a non-starter on Capitol Hill.

Currently, 29 states and Washington, D.C., have minimum wages above the federal minimum.

House committees this week will begin crafting minimum wage legislation along the lines of what President Joe Biden has requested, but it’s unclear whether the $15 an hour proposal will make it into the final stimulus measure. The bill is expected to include another round of direct payments to Americans, an expansion of the child tax credit, and aid to states and local governments.

The decision on the minimum wage will be an early test for Mr. Biden as he seeks to build public support for his larger proposal and navigate differences within his own party about how far the COVID-19 legislation should go. Voices on the left, such as Senator Bernie Sanders of Vermont, an independent and author of the $15 wage legislation, want Democrats to fight now for the pay increase. But some moderates are wary, fearing the impact on small businesses during the pandemic.

The CBO cites several positive and negative effects from raising the minimum wage. In the plus column, the number of people living in poverty would fall by about 900,000 once the $15 wage is fully in place in 2025. On the other hand, the number of people working would decline by about 1.4 million.

“Inflated” projections

The left-leaning Economic Policy Institute took issue with the CBO’s projection of significant job loss, saying its own analysis has found the impact on employment to be negligible. “We believe that the CBO’s assumptions on the scale of job-loss are just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate,” EPI stated. 

Representative Bobby Scott, the Democratic chair of the House Education and Labor Committee, said the report strengthens the case for including the $15 minimum wage in the COVID-19 relief bill. He emphasized the report projects 17 million workers making below the minimum wage would see a pay increase once the requirement is in place. An additional 10 million workers making slightly more than the proposed minimum could also see a boost in pay, he said.

“At a time when many of our essential workers are still not being paid enough to provide for themselves and their families, we must do everything in our power to give these workers a long-overdue raise,” Scott said.

But lawmakers worried about the ability of small businesses to pay the higher minimum wage will undoubtedly point to the job losses the CBO said would occur. Business groups such as the U.S. Chamber of Commerce said they can support efforts to increase the minimum wage, but cite $15 as too high.

White House press secretary Jen Psaki said Mr. Biden remains “firmly committed” to a $15 minimum wage. But Psaki also noted that the Senate parliamentarian has the final say on whether the minimum wage hike survives in the final package. The fast-track process that Democrats are using does not allow changes to spending or taxes that are “merely incidental” to a larger policy purpose. 

Child tax credit

Also Monday, Democratic lawmakers unveiled legislation to permanently expand the child tax credit, with backers saying that Democratic leadership has agreed to include their legislation for one year as part of the COVID-19 relief measure.

Under the legislation, the value of the child tax credit would become fully refundable and would be expanded from $2,000 to $3,000 for children ages 6 though 17, and from $2,000 to $3,600 for children below the age of 6.

“If we don’t act now, we’ll miss a historic opportunity to give millions of children a brighter future,” said Representative Suzan DelBenea, a Washington Democrat.

Democratic lawmakers are also pushing for payments to be made on a monthly basis rather than in an annual lump sum.

“If we can land men on the moon, then we can get a monthly check out to folks,” said Democratic Representative Rosa DeLauro of Connecticut, the chair of the House Appropriations Committee.

Who will get stimulus payments?

Perhaps the biggest question in the COVID-19 relief bill is who will get another round of stimulus payments, as fewer may be qualified this go round. In December, lawmakers approved $600 checks for individuals making up to $75,000 a year and $1,200 for couples making up to $150,000, with payments phased out for higher incomes.

Many lawmakers have called for the next round of government checks to be more specifically targeted to those whose incomes have been harmed by the pandemic.

Psaki said the terms of the relief payments were still being debated.

“There is a discussion right now about what that threshold will look like. A conclusion has not been finalized,” Psaki said. “His view is that a nurse, a teacher, a firefighter who’s making $60,000 shouldn’t be left without any support or relief either.”

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