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Budget Reconciliation and a Business-Crippling Minimum Wage Increase

01/26/2021

Before taking office, President Joe Biden rolled out a proposed COVID-19 relief proposal that includes some long-held priorities of so-called “progressive” Democrats. One of those priorities is a $15 per hour minimum wage. Democrats hope to get enough Republican support in the Senate to advance the proposal through regular order, but they’re not ruling out the use of budget reconciliation to pass a COVID-19 bill if they fail to get many Republicans on board.

Budget reconciliation is a special, fast-track legislative process tied to a budget resolution that instructs specific committees to produce legislation tied directly to revenues, outlays, and/or the statutory limit on the debt held by the public. The process begins with the passage of a budget resolution with reconciliation instructions to committees to make changes based on certain dollar amounts.

Legislation that is produced from this process is given privilege in the Senate. This means the normal 60-vote cloture threshold to limit debate does not apply. Budget reconciliation cannot be used to make changes to Social Security. Policy changes that do not directly impact revenues and outlays will result in the legislation losing its privileged status in the Senate. This is known as the “Byrd Rule,” named after Sen. Robert Byrd (D-W.Va.). The Byrd Rule isn’t only Senate precedent; it’s an actual statute.

Budget reconciliation was used twice in the House in 2017 during the 115th Congress. The first use was for the American Health Care Act, which stalled in the Senate. The second was for the Tax Cuts and Jobs Act, which was passed and signed into law. Prior to 2017, the process was used to pass the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the Health Care and Education Reconciliation Act of 2010.

Currently, the federal minimum wage under the Fair Labor Standards Act is $7.25 per hour. In 2017, only 2.3 percent of workers earned the minimum wage or less, about half of whom are between the ages of 16 and 24. These are mostly young and low-skill individuals who need to develop job skills while in high school or college before a career.

The Congressional Budget Office (CBO) has produced a median estimate for a phased increase in the federal minimum wage to $15 per hour. The CBO concluded that an estimated 1.3 million workers would be jobless in five years as a result. On the high end of the CBO’s estimates, as many as 3.7 million workers would be jobless in five years.

Even in good economic times, a minimum wage increase of this scale is a bad idea. A 2017 paper found that Seattle’s gradual increase in the minimum wage to $15 began hurting workers around $13. “[T]he second wage increase to $13 reduced hours worked in low-wage jobs by 6-7 percent, while hourly wages in such jobs increased by 3 percent. Consequently, total payroll for such jobs decreased, implying that the Ordinance lowered the amount paid to workers in low-wage jobs by an average of $74 per month per job in 2016.”

At a time when businesses are trying to recover from the severe economic impact of COVID-19, imposing a massive mandate such as a $15 minimum wage will cause the recovery to slow down. Although this is being framed as helping workers, they workers will be negatively impacted if businesses have to cut hours or layoff workers because they can’t afford the mandate.

Based on a reading of the statutes governing budget reconciliation and the fact that the minimum wage doesn’t directly impact federal spending, amending the Fair Labor Standards Act is an extraneous matter that should be stripped out of a reconciliation bill, right? Well, House Budget Committee Chairman John Yarmuth (D-Ky.) recently said that House Democrats would try to include an increase in the minimum wage in the reconciliation bill.

Could an increase in the minimum wage come out in the Senate when the bill takes a “Byrd bath” to strip out extraneous provisions? Yarmuth said it’s “a stretch” that the Senate would keep it in but added, “[T]hat decision is made by the parliamentarian, so we’ll see.”

It’s true that the Senate parliamentarian would make recommendations on what needs to come out of a bill governed under the rules of budget reconciliation. However, as James Wallner of the R Street Institute has said, the parliamentarian ultimately has no power. The individual who serves in this role can only give advice. Ultimately, the presiding officer of the Senate makes a determination.

Bill Dauster, a former high-ranking staffer for Sen. Harry Reid (D-Nevada), recently argued that there’s enough of a budgetary impact to include the $15 minimum wage in a reconciliation bill. In 2019, the House passed the Raise the Wage Act. The CBO projected a $76 million increase in federal outlays between 2019 and 2029 if the bill became law because of the impact on some federal workers’ wages.

However, Dauster also argued that even if an increase in the minimum wage to $15 was determined to have an incidental budgetary impact and determined by the Senate parliamentarian to be ineligible for inclusion, Senate Democrats could still keep it in the reconciliation bill.

“In the end, this is a call the Constitution gives the vice president or, in her absence, the Senate’s president pro tempore to make.” Dauster wrote in Roll Call. “Vice President Kamala Harris or, in her absence, President Pro Tempore Patrick J. Leahy are empowered to make this call.” Republicans could raise a point of order and force a vote on whether or not to include such a provision in a reconciliation bill. If they don’t have 51 votes to remove the provision, it would stay in the bill.

The concerns about the elimination of the filibuster are definitely valid, but the reality is that Democrats don’t necessarily need to eliminate the filibuster to get big parts of what they want. All they need to do is manipulate the process by ignoring the Senate parliamentarian’s advice.