$15 Minimum Wage Would Increase Deficit, Reduce Jobs and Cut Poverty: CBO
The Congressional Budget Office on Monday released its analysis of the effects of raising the minimum wage to $15, providing both supporters and detractors with fresh ammunition in the battle over the measure, which some Democrats hope to include in President Biden’s $1.9 trillion Covid relief bill.
The CBO said that raising the minimum wage to $15 per hour would increase the federal deficit by $54 billion over a 10-year period. The analysis assumes that the wage increase would occur incrementally, beginning at the end of March and phasing in over four years, reaching the full $15 in June of 2025. The increase in the deficit would be driven by higher prices for goods and services purchased by the federal government, as well as increased spending in some programs, such as unemployment insurance. Higher interest payments would add another $16 billion to the cost, the CBO said, for a total of $70 billion.
The minimum wage hike would also lead to the loss of 1.4 million jobs, according to the CBO analysis, while lifting about 900,000 people out of poverty. Total wages for those directly affected by the increase would rise by $333 billion over the 10-year period, the difference between higher pay (a total of $509 billion) and reduced employment (a loss of $175 billion).
CBO score could open door to including wage hike in relief bill: The CBO analysis could bolster the effort to include the minimum wage hike in the Biden relief package. The chances of it making it into the final legislation have been clouded because any measure in a reconciliation bill must be directly related to budgetary matters. Biden told CBS News on Friday that he didn’t think the wage hike would survive and was preparing for “a separate negotiation” on it.
The CBO score means that the provision would have a measurable impact on the budget over time, potentially meeting the requirement for a reconciliation bill.
Senate Budget Committee Chairman Bernie Sanders (I-VT), who wrote the measure, expressed doubts about the CBO analysis, but also said it could help. “I find it hard to understand how the CBO concluded that raising the minimum wage would increase the deficit by $54 billion," Sanders said. “The good news, however, is that … the CBO has demonstrated that increasing the minimum wage would have a direct and substantial impact on the federal budget,” he added. “What that means is that we can clearly raise the minimum wage to $15 an hour under the rules of reconciliation.”
Sanders also said this weekend that in his view the reconciliation bill was the only way Democrats were going to be able to pass a minimum wage hike. “Let's be clear. We will never get 10 votes from Senate Republicans to pass a $15 an hour minimum wage,” he tweeted. “The ONLY way we can do it now with 51 votes is through the reconciliation process.”
Could bolster critics, too: The projected job losses in CBO’s analysis will no doubt be deployed to reinforce the argument that the minimum wage hike will harm the economy. Referring to “the radical Democrat legislation,” Rep. Virginia Foxx (R-NC) said the CBO analysis paints “a dire picture for workers and small businesses.”
The CBO’s conclusions about job losses have their own critics, though. William Spriggs, chief economist at the AFL-CIO, told reporters Monday that while his organization doesn’t usually “like to yell at the referees,” in this case, “the CBO has stepped outside its bounds.” Charging that the group has “no clear systemic research” to justify its analysis, Spriggs said the CBO is claiming a high degree of certainty on an issue marked by enormous uncertainty. “The CBO is kind of, out of whole cloth, making those claims,” he said.
Democrats to Propose $3,600 Child Benefit
Democrats are proposing to expand the Child Tax Credit to provide as much as $3,600 per child to millions of families as part of President Biden’s $1.9 trillion Covid relief package.
The legislation would provide $3,600 for each child younger than 6, and $3,000 for each child between the ages of 6 and 17, to be paid out monthly, starting in July. The benefit would phase out for individuals earning more than $75,000 per year and couples earning more than $150,000.
Rep. Richard Neal (D-MA), chairman of the Ways and Means Committee, released the proposal Monday. “The pandemic is driving families deeper and deeper into poverty, and it's devastating. We are making the Child Tax Credit more generous, more accessible, and by paying it out monthly, this money is going to be the difference in a roof over someone's head or food on their table," Neal said in a statement.
Big reduction in poverty: According to researchers at Columbia University, the legislation would cut child poverty in the U.S. by as much as 54%, with more than 5 million children being lifted out of poverty, The Washington Post’s Jeff Stein reported.
Following stimulus payment model: The payments would be sent by the IRS and directly deposited into recipients’ bank accounts, similar to the way stimulus payments have been handled. Qualifying parents would receive $250 or $300 per month per child, depending on age. The payments would be made regardless of existing tax obligations.
The plan would also reportedly include a “safe harbor” provision that would allow those sent benefits in error to avoid being force to pay them back.
Currently, the Child Tax Credit provides up to $2,000 per child under the age of 17, and is not paid in monthly installments.
Is Biden’s Covid Relief Plan Too Big? Debate Sparked by Summers Rages On
Another prominent economist is warning that President Joe Biden’s $1.9 trillion Covid relief plan is too large, adding his voice to that of Larry Summers, the former Treasury Secretary under President Bill Clinton and top economic adviser for President Barack Obama, who sparked a vigorous debate on the issue with an an op-ed for The Washington Post last week warning that Biden’s plan was risky.
Olivier Blanchard, the former chief economist at the International Monetary Fund and past president of the American Economic Association, says he agrees with Summers, suggesting that Biden’s plan may be nearly $1 trillion more that what’s needed and could overheat the economy.
“I am known as a dove,” Blanchard wrote as part of a series of tweets over the weekend. “I believe that the absolute priority is to protect people and firms affected by covid. Still, I agree with Summers. The 1.9 trillion program could overheat the economy so badly as to be counterproductive. Protection can be achieved with less.”
The case against a $1.9 trillion package: As we told you last week, Summers argued that Biden’s big plan comes with a couple of big risks. First, because the plan calls for spending several times more than is needed to fill the hole left in the economy by the coronavirus recession — at least based on official estimates —it might overheat the economy and produce a rise in inflation. That could prove problematic because fiscal and monetary policymakers may not respond quickly enough to the inflationary pressures.
Second, spending on the scale Biden proposes might reduce the political appetite for other much-needed public investments in areas including infrastructure — the second phase of Biden’s two-part proposal. “After resolving the coronavirus crisis, how will political and economic space be found for the public investments that should be the nation’s highest priority?” Summers asked. “Is the thinking that deficits can prudently be expanded longer and further? Or that new revenue will be raised? If so, will this be politically feasible?”
Critics say Summers is way off base: Summers’ piece generated a strong backlash. Economists at the White House and elsewhere pushed back on various parts of his argument, suggesting that Biden package should be seen as disaster relief and not as traditional stimulus, that the hole in the economy might be far deeper than official estimates indicate and that fears about inflation are unwarranted or even downright weird given recent trends and the Fed’s ability to raise interest rates to snuff out pricing pressures. On balance, critics argue, the risks of doing too little remain substantially higher than those from doing too much.
Treasury Secretary Janet Yellen acknowledged in television interviews on Sunday that rising inflation would be a risk with the $1.9 trillion package, but said the policymakers have the tools to deal with that problem if it arises. "I've spent many years studying inflation and worrying about inflation, and I can tell you, we have the tools to deal with that risk if it materializes," she said. "But we face a huge economic challenge here and tremendous suffering in the country. We've got to address that. That's the biggest risk."
Summers responded to many of the criticisms in a new Washington Post piece on Sunday, arguing that he would support a plan the size of Biden’s, or even larger, if it focused on long-term national needs and was “directed at promoting sustainable and inclusive economic growth for the remainder of the decade and beyond, not simply supporting incomes this year and next.” He also expressed some doubt that the Federal Reserve could tamp down any surge in inflation without causing a recession.
Blanchard also expanded on his concerns in a new a new podcast interview with Econofact, a nonpartisan publication of Tufts University, saying that his guess as to the proper size of a relief package now is $1 trillion:
“I worry that if we spend 1.9 trillion, then we are going to increase demand by so much that we'll get overheating. The economy will not be able to actually increase production enough to satisfy that demand. And then we may get inflation, but not just one or 2% more than now, but substantially more. We may force the Fed to react by adjusting rates up, in order to slow down the economy and acting faster and stronger than they really want to and I think we should avoid that. So I'm all in favor of a big package, but my big package number is closer to 1 trillion, not 1.9.”
The bottom line: Summers said in his original piece last week that “much of the policy discussion has not fully reckoned with the magnitude of what is being debated.” His piece certainly changed that, sparking days of back and forth among economists and others. Check out the News and Views links below for much more on the debate.
Number of the Day: Trump’s Election Lie Cost Taxpayers $519 Million and Counting
Former President Trump’s insistence that the election was stolen from him, culminating in the riot at the Capitol on January 6, has forced federal, state and local governments to respond in a number of ways, and according to an analysis by The Washington Post this weekend, the cost of that response comes to more than half a billion dollars.
“The expenditures include legal fees prompted by dozens of fruitless lawsuits, enhanced security in response to death threats against poll workers, and costly repairs needed after the Jan. 6 insurrection at the Capitol,” the Post said. “That attack triggered the expensive massing of thousands of National Guard troops on the streets of Washington amid fears of additional extremist violence.”
Most of the documented expenses so far are related to the movement of security forces to Washington, but there are numerous other costs as well, including court costs, revised safety protocols and the diversion of resources away from fighting the coronavirus pandemic. Ultimately, “the true costs may never be known,” the Post said.
- The Debate Over Who Deserves a Stimulus Check, Explained – Jerusalem Demsas, Vox
- The Risks of Going Too Big on Stimulus Are Real — but Going Too Small Could Be Riskier – Emily Stewart, Vox
- Who Should Get a $1,400 Check? – Claudia Sahm
- Fighting Covid Is Like Fighting a War – Paul Krugman, New York Times
- Who Spent Their Last Stimulus Checks? – Raj Chetty, John N. Friedman and Michael Stepner, New York Times
- Savvy Washington Insiders Strike Again – Ryan Cooper, The Week
- If Biden Goes Big Now, He May Have to Go Small Later – Tyler Cowen, Bloomberg
- The Biden Stimulus vs. the Bond Market – Mike Bird, Wall Street Journal
Ultra-Long U.S. Treasuries Are an Ultra-Long Shot – James Clark, Bloomberg
- Inflation and the Biden stimulus – Jean-Pierre Landau, VoxEU.org
- Don’t Spend Your Covid-19 Stimulus Check – Teresa Ghilarducci, Bloomberg
- Trump's Tax Cut Was Very Good to the $200,000 to $1 Million Set – Justin Fox, Bloomberg
- Why the U.S. Needs the Romney Family Plan – Ross Douthat, New York Times
- Mitt Romney's Child Benefit Is a Challenge to Both Parties – Matthew Walther, The Week
- Full Employment – David Leonhardt, New York Times