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Senate Democratic leaders explore tax penalties on corporations paying below $15 an hour

The tax provisions represent a backdoor attempt to raise worker pay after the Senate’s parliamentarian ruled out the wage hike.

Sen. Charles E. Schumer (D-N.Y.), left, accompanied by Sens. Bernie Sanders (I-Vt.), second from right, and Ron Wyden (D-Ore.), right, speaks at a news conference following a Senate policy luncheon on Capitol Hill in Washington in 2017. (Andrew Harnik/AP)

Senate Majority Leader Charles E. Schumer (D-N.Y.) is exploring the idea of adding tax penalties for corporations that pay less than $15 an hour to President Biden’s covid relief stimulus package, according to two congressional aides who spoke on the condition of anonymity to share private deliberations.

The plan represents a backup proposal to Democrats’ efforts to increase the federal minimum wage to $15 an hour — a provision the Senate’s parliamentarian ruled out on Thursday evening.

The parliamentarian said the minimum wage hike was not permissible under the rules of budget reconciliation, the procedure Democrats are using to pass Biden’s $1.9 trillion stimulus plan. But budget experts believe the tax penalties on corporations likely would be approved under the rules of that process.

Minimum-wage increase imperiled in covid relief bill by Senate official’s ruling

After the parliamentarian’s ruling, Senate Finance Committee Chairman Ron Wyden (D-Ore.) and Senate Budget Chair Bernie Sanders (I-Vt.) called for adding the tax changes into the stimulus package after it is passed by the House. It is unclear how many Senate Democrats would support the backdoor approach.

White House National Economic Council Director Brian Deese said in a Friday interview on CNBC that the administration will consult with congressional leaders on the best path forward about the minimum wage.

With their narrow majority, Democrats could choose to overrule the Senate parliamentarian to pass the $15 an hour minimum wage hike. But White House Chief of Staff Ron Klain has ruled out that approach, as have centrist Senate Democrats.

Key questions about how the backup plan would work remain unsettled. In a statement, Wyden said his plan would impose a 5 percent penalty on the payrolls of “big corporations” if any workers earned below a “certain amount.” The statement did not define big corporations nor the level of the wages that would trigger the penalty. Wyden also called for tax credits equal to up to 25 percent of wages for small businesses that pay their workers higher wages. The penalties and credits would aim to encourage firms to adopt higher wage floors.

House Speaker Nancy Pelosi (D-Calif.) said Thursday night that the $15 an hour minimum wage will be included in the stimulus package, which is expected to be passed through the House as soon as Friday evening.

“While conversations are continuing, I believe this ‘plan B’ provides us a path to move forward and get this done through the reconciliation process,” Wyden said. “Workers have not gotten a federal pay raise in more than a decade. We can’t continue to have millions of workers — workers who are disproportionately, people of color, women and essential workers like fast food workers and home health aides — earning starvation wages.”

Only 20 percent of minimum wage workers in Oregon are employed by firms with more than 500 employees, according to Arindrajit Dube, a professor of economics at the University of Massachusetts at Amherst. Dube analyzed how the potential plan would affect Oregon because he currently has a data-sharing agreement with the state.

“You can pay a sufficiently punitive tax to make sure everyone pays a $15 an hour minimum wage,” Dube said. “But most low-wage workers don’t work for megacorporations. This is not a substitute for a broad-based minimum wage increase.”

Congressional Republicans immediately panned the suggestion as a tax increase on small businesses. House Minority Leader Kevin McCarthy (R-Calif.) called the idea “stupid.” Rep. Kevin Brady (R-Tex.), the ranking Republican on the House Ways and Means Committee, said it would punish companies who hire younger and low-income workers.

“Makes no sense at all,” Brady said.

Meanwhile, other Democrats tried digging in to fight for the $15-per-hour minimum wage. Rep. Pramila Jayapal (D-Wash.), chair of the Congressional Progressive Caucus, said she spoke to Sanders and supports including penalties and tax incentives. But she also said that Democrats should not give up on the $15 an hour minimum wage hike. She noted the Parliamentarian’s views were solely an “advisory opinion.”

“I don’t think we can go back to voters and say, ‘Look, I know … we promised it, but because of an unelected parliamentarian who gave us a ruling, we couldn’t do it.’ Nobody’s going to buy that,” Jayapal said. “Democrats are just going to have to make a choice about using, really going to the mat and really using every lever of power that we have to govern for the majority of the American people.”

Rep. Alexandria Ocasio-Cortez (D-N.Y.) also told reporters that Democrats should be willing to consider abolishing the filibuster. “I don’t want to ignore the tax being a factor, I also know that a tax break is just not a replacement for a $15 minimum wage,” she told reporters.

G. William Hoagland, former staff director of the Senate Budget Committee, said the tax penalties would be very likely to survive the “Byrd rule” that prevented the wage hike from being included in the Senate bill.

“But it all depends on how CBO would score it on if it has a budgetary impact. I can see it as a tax — it would work,” Hoagland said.

Some economists expressed concern the backup plan would reach far fewer lower-wage workers than a flat increase in the minimum wage. Ernie Tedeschi, an economist who served in the Treasury Department, also expressed concern the provision could encourage outsourcing to cheaper labor abroad.

“I worry the marginal impact of focusing just on large corporations, while politically appealing, may make this less impactful,” Tedeschi said. “This is an interesting way to target the minimum wage to just the largest businesses, and the research has suggested larger businesses are better able to absorb the costs of a higher minimum wage. But this will not reach nearly as many people.”