CBO Report Says $15 Minimum Wage Would Reduce Poverty But Cost Jobs

An estimated 27 million workers would see raises, though there would be 1.4 million fewer jobs.

A new report from the Congressional Budget Office may complicate Democrats’ effort to push their $15 per hour minimum wage bill through the Senate without any help from Republicans.

The CBO report released Monday estimates that 27 million workers would benefit from the law by 2025, the year in which the minimum wage would hit $15. Seventeen million of those people would see raises because their pay would be less than $15, while another 10 million would see increases even though their pay would already be higher.

As a result of the increases, nearly 1 million fewer Americans would be living in poverty, the CBO said.

But on Capitol Hill, those estimates may be overshadowed by another projection: that there would be 1.4 million fewer jobs by 2025, equating to a 0.9% drop in employment, as a result of the mandated increases. The CBO says the higher wage floor would raise prices for consumers and encourage employers to automate more work, leading to fewer jobs.

Some progressive economists were quick to say the report’s estimates on job losses were too high. The left-leaning Economic Policy Institute released an analysis of the report saying those assumptions “are just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate.”

The report said that the boost in income for the poorest families would still be greater than the losses suffered by those same families as a result of the drop in employment, with a net increase in wages over a decade of $333 billion. But the estimated job losses may turn off moderate Democrats who were already cool on backing the legislation, known as the Raise the Wage Act.

Republicans quickly held up the report as evidence the Democratic plan was a job-killer. “Why in the world would Congress vote to reduce employment when so many Americans are desperate to get back to work?” Rep. Virginia Foxx (N.C.), ranking Republican on the House Committee on Education and Labor, said in a statement.

The CBO’s analysis also found that raising the minimum wage would increase the federal budget deficit by $54 billion over the next 10 years. The impact on the budget would be complex. More wages would lead to more revenue in the form of payroll taxes, as well as less reliance on government programs like food stamps. But it would also lead to higher costs for the government through unemployment insurance and health care spending.

Sen. Bernie Sanders (I-Vt.) has been among the biggest boosters for a $15 minimum wage.
Sen. Bernie Sanders (I-Vt.) has been among the biggest boosters for a $15 minimum wage.
Pool via Getty Images

Senate Budget Committee Chairman Sen. Bernie Sanders (I-Vt.) — one of the biggest national advocates for raising the wage — grumbled about the report’s estimates, saying he finds it “hard to believe” that increasing the wage would increase the deficit by so much.

That said, it may be to Sanders’ benefit that the CBO found such a significant budgetary impact — even though the numbers aren’t politically in Democrats’ favor.

With only a 50-seat majority in the Senate, and with Vice President Kamala Harris as the tie-breaking vote, Democrats are pushing this COVID-19 relief package through a process called budget reconciliation, which allows them to pass some legislation with no GOP votes.

Senate rules, however, mandate that reconciliation bills must directly and substantially impact the budget in a way that’s not just “merely incidental” to the policy. The bills also cannot increase the deficit outside a specified window over the next 10 years — in this case, that threshold is set at $1.9 trillion.

Democrats can now make the case that raising the minimum wage does have a significant budgetary impact. Now, they just have to argue that the impact is not just “incidental” to the policy.

Ultimately, the fight will go to the Senate parliamentarian, who is the official interpreter of the Senate rules. Democrats will have to make the case that their primary intention with increasing the minimum wage is to impact government spending and revenue; for example, they can make the case that the intention of the bill is to reduce how much the federal government pays into programs for the very poor by raising people out of poverty, and so on.

But it’s a very real possibility that the parliamentarian could come back and say that those impacts are not the actual intent of a policy that’s primarily a mandate on private businesses to increase pay. Democrats will also have to offset the long-term deficit projections with other revenues.

In many ways, Democrats expected all this. There has long been internal skepticism among Senate Budget Committee staff about the push to get minimum wage through the reconciliation process, as with many of Democrats’ more ambitious policy proposals. They have to establish new legal precedents, and that’s always going to be a bigger challenge.

There was also concern that the CBO score would not be in Democrats’ favor. One Senate aide said the CBO score, while disappointing in some respects, was what the committee was expecting.

“This is what we needed to start making our case,” the aide said.

Publicly, however, Sanders has been characteristically gung-ho about the push, repeatedly brushing off most concerns about the limitations of reconciliation.

“Bernie believes we should raise the minimum wage to $15 an hour, and as the chairman of the Budget Committee, he believes it can pass through reconciliation and we turn to people like Bill Dauster who also believes that,” another Senate aide familiar with budget discussions said, naming Sanders’ newly hired Budget Committee counsel who has publicly argued that raising the minimum wage would directly impact the budget and should pass muster with Senate rules.

Already, party leaders have tempered expectations around the minimum wage. President Joe Biden himself said over the weekend that he didn’t think it would “survive” Senate rules. White House press secretary Jen Psaki added that they deferred to the Senate parliamentarian.

“We should not assume this is a done deal but [that] it’s an uphill battle,” one Biden administration aide told HuffPost.

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