$15 Minimum Wage Would Cost Jobs, but Cut Poverty: CBO

By Yuval Rosenberg

$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.

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