Raising the federal minimum wage to $15 an hour would lift nearly 1 million people out of poverty but would leave even more people without any job at all, the Congressional Budget Office said in a new analysis Monday that deals another blow to President Biden’s demand for a wage hike in the next coronavirus relief bill.
A higher federal standard also would raise costs for Americans and for the federal government itself, as Medicare, Medicaid and Obamacare pay more to lower-wage health workers, CBO said, though fewer people would be on welfare. The deficit would take a $54 billion hit over the next decade.
The analysis comes as congressional Democrats begin writing the details of Mr. Biden’s coronavirus relief package, with the $15 minimum wage perhaps the most controversial part of the new president’s wish list.
Sen. Bernard Sanders, the Vermont independent who serves as Democrats’ chairman on the Budget Committee and who is the chief proponent of the $15 wage, was dismayed by the report, saying he found the soaring deficit calculation “hard to understand.”
He also said there’s no way Congress can approve the $15 rate if it needs Republican support, so he said the policy will have to be tucked into a coronavirus package passed through the budget process, which can circumvent a filibuster, dispensing with the need for bipartisanship.
“The only way to increase the minimum wage to $15 an hour now is to pass it with 51 votes through budget reconciliation,” Mr. Sanders said.
It was Mr. Sanders’ proposal that the CBO analyzed.
He calls for raising the federal wage from its current $7.25 rate to $9.50 on June 1, moving to $11 on June 1, 2022, $12.50 a year later, $14 in 2024, and $15 in June 2025. After that, it would be raised automatically to keep pace with wage inflation.
CBO said job losses would accumulate over the years, and by 2025 1.4 million fewer people would be working, thanks to the increase. Half of those would be unemployed and looking for jobs, but half would have left the labor force altogether, the analysts said.
“Young, less educated people would account for a disproportionate share of those reductions in employment,” CBO said.
But the flip side is that 17 million people who would be making less than $15 an hour would see their income raised, as would another 10 million who would be making just above the minimum rate, CBO said. The better wages would lift 900,000 people out of poverty by 2025.
Left-leaning economists cheered that news, saying low-wage workers have earned better pay.
“In short, given which parts of the workforce have economically suffered the most from the pandemic, it seems more than appropriate to include a minimum wage increase in any relief and rescue package,” wrote Josh Bivens and other analysts at the Economic Policy Institute.
The institute also doubted the CBO job loss projections, calling them “just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate.”
Mr. Sanders, meanwhile, said the CBO’s deficit projection was out of whack, saying the office found a much smaller dent two years ago.
What is clear, though, is that raising the minimum wage would have a serious budget effect. Mr. Sanders said that boosts Democrats’ argument that it’s proper to tuck a wage increase into the coronavirus bill, which must fit within narrow budget rules to be considered under protections against a filibuster.
That process is known as “reconciliation.”
“What that means is that we can clearly raise the minimum wage to $15 an hour under the rules of reconciliation,” Mr. Sanders said.
While the federal minimum wage is $7.25, most states have a higher wage, up to $14 an hour in California.
In many cases, cities have gone even higher. The District of Columbia has a $15 wage rate, for example.
CBO’s analysis underscored the depths of the federal government’s reach into America’s economy.
Programs such as Medicare, Medicaid and Obamacare dominate health spending in the U.S., and raising the minimum wage would increase costs to the programs because it would mean having to pay more for some health services.
Social Security spending would increase about $15 billion over a decade because inflation would increase, lifting the average benefit check, CBO said.
And the analysts said governments would have to pay about $31 billion more for unemployment benefits “because more workers would be unemployed.”
But there would be fewer people using government programs such as food stamps, which would cut about $10 billion in spending from those programs over a decade.
Fewer people would be claiming some tax credits for the working poor, saving billions there, too, the CBO said.