CBO says $15 minimum wage would increase deficit $54B

The nonpartisan Congressional Budget Office (CBO) on Monday said that raising the federal minimum wage to $15 per hour by 2025 would add $54 billion over 10 years to the budget deficit and lift 900,000 people out of poverty, but lead to 1.4 million lost jobs.

The deficit finding is of particular note because Democrats would like to use budgetary rules to pass a minimum wage hike as part of a budget reconciliation package, a process that can not be filibustered. 

With the use of such rules, Democrats could advance the budgetary bill through the Senate even if every GOP senator objects, as long as Democrats stick together. 

A Senate provision known as the Byrd Rule bars policies from being included in a budget reconciliation package unless they are found to have a direct budgetary effect.

Previous estimates had found raising the federal minimum wage to $15 per hour would not add as much to the deficit. 

As a result, the new finding could make it easier for Democrats to meet the Byrd Rule and include the hike in a budget reconciliation package. 

Provisions must also be found under Byrd to not be merely incidental to the budget, and it is less clear whether the minimum wage hike would meet that hurdle. The score pointed to another potential snag as well. The minimum wage hike increases deficits beyond the 10-year budget window, another possible Byrd Rule violation.

“Let’s be clear. We are never going to get 10 Republicans to increase the minimum wage through ‘regular order,’ ” Senate Budget Committee Chairman Bernie Sanders (I-Vt.), a staunch advocate of the $15 minimum wage, said.

“The only way to increase the minimum wage to $15 an hour now is to pass it with 51 votes through budget reconciliation,” he added.

It’s not clear Democrats have 50 votes in the Senate to raise the minimum wage to $15 per hour, even with reconciliation.

Sen. Joe Manchin (D-W.Va.) has signaled opposition to the idea, saying $11 is a more appropriate figure. Senate Democrats just last week sidestepped a vote on the matter during a process known as the Senate vote-a-rama.

Sanders expressed both optimism that the CBO score would aid in clearing a hurdle to passing the policy without GOP support but also raised skepticism over the overall findings.

“I find it hard to understand how the CBO concluded that raising the minimum wage would increase the deficit by $54 billion,” he said. Sanders has argued that the increase would save the government money, a finding echoed by studies from left-leaning think tanks in recent weeks.

“The good news, however, is that from a Byrd Rule perspective, the CBO has demonstrated that increasing the minimum wage would have a direct and substantial impact on the federal budget,” he added.

But President Biden has cast doubt on whether it can meet stringent Byrd Rule requirements, and suggested it could be done later, in which case some of the CBO’s more negative findings could make it more politically difficult to advance.

“I don’t think it’s going to survive,” Biden told CBS Evening News in a Friday interview that aired in its entirety Sunday. “My guess is it will not be in it.”

While the estimate also laid out significant social benefits, such as lifting 900,000 people out of poverty, it would also reduce employment by 1.4 million, bolstering a key Republican argument against increasing the wage.

It would bolster take-home pay for 27 million low-wage workers by $509 billion, but shave $175 billion off wages for those who lose jobs, leaving a net benefit of $333 billion in wage increases over a decade.

Progressives noted that the bottom line was a boost for the working poor at a relatively low cost to the government.

“CBO finds that the benefits to low-wage workers far outweigh the costs,” said Heidi Shierholz, senior economist at the left-leaning Economic Policy Institute.

Shierholz argued there was reason to be skeptical of the report’s more dire findings, which did not use the “dynamic scoring” approach Democrats have pushed. That approach takes into account changes a policy has on gross domestic product, which can have broad implications for the government’s tax revenues and its spending on social support policies.

The CBO said the new estimate, which is over 700 times higher than its previous $76 million estimate, was based on more recent economic projections and techniques it developed in the past two years. The previous estimate was made well before the COVID-19 pandemic ravaged the economy.

“The estimates in this report include behavioral effects on the budget in a broad set of federal programs and in revenues,” CBO said, reflecting newer modeling techniques.

Part of the change was due to the fact that while both versions of the bill set a 2025 target to reach $15, the previous version of the bill would have been more gradual, starting last January.

The estimate found the costs would primarily pop up in the latter half of the decade, after the minimum wage was phased in, as increased wages began to increase the costs of goods and services, such as health care work.

The overall cost of the bill increases another $16 billion, reaching $70 billion when interest payments are taken into account.

Updated at 1:57 p.m.