As President Biden and Democrats kept pushing the absurd idea of increasing the minimum wage during a pandemic that has already adversely affected the service industry, the Congressional Budget Office delivered a needed reality check.
Democrats, led by Biden, would more than double the federal minimum wage, from its current $7.25 per hour to $15 per hour between now and 2025.
Conceptually, allowing politicians to determine the floor at which individuals must be paid, rather than the fair value determined by market forces, is a bad idea. But at a time when so many people are already out of work, it is a catastrophe. Such a dramatic increase would lead to massive job losses and higher costs to consumers.
The CBO has provided some sobering estimates to support this view. Were Democrats to succeed in passing their minimum wage hike, which would likely require an extraordinary expansion of the Senate budget reconciliation power, it would reduce employment by an average estimate of 1.4 million workers, or as high as 2.7 million under some scenarios.
In addition, a rise in the minimum wage would be inflationary. The CBO found that “the largest price increases, relative to the average increase, would be for goods or services whose production required a larger-than-average share of low-wage work, such as food prepared in restaurants.”
Restaurants are already fighting for their lives after a year of lockdowns and capacity limits, so clearly, this is not the right way. If Biden succeeds, they will be forced to raise prices just when they need to entice customers to return to dining.
Beyond price increases, the CBO predicts that this dramatic proposed minimum wage hike would be a further strain on already rising healthcare costs. It would sharply raise labor costs for those employed in the home care and nursing care industries. This, in turn, would increase the cost of Medicare, Medicaid, and Obamacare.
Taken together, the CBO projects that these and other cost increases will increase the deficit by $54 billion over the next decade. However, the CBO notes that this is understating the deficit effects because it does not take into account the increase in interest rates that would result from the higher costs in the bill. The interest changes would add an additional $16 billion to deficits.
Moreover, the CBO did not account for any reduction in growth that would result from the minimum wage increase.
When Republicans tried to repeal Obamacare, Democrats leaned heavily on CBO estimates to make the case against eliminating the law. Thus, they should not now get away with simply dismissing the implications of this dire warning.
Socialist Sen. Bernie Sanders, one of the main proponents of the $15 minimum wage, unsurprisingly attempted to do just that, instead citing the left-wing Economic Policy Institute’s estimates. More absurdly, Sanders tried to claim this was good news because it showed that the bill had an impact on the deficit and thus could be passed with a simple majority in the Senate through the parliamentary maneuver known as reconciliation.
But there is a difference between a provision that is primarily budgetary (such as taxes or spending) and a massive policy and regulatory change that happens to have incidental budgetary implications. This is precisely why Republicans failed to roll back Obamacare regulations using reconciliation, despite those regulations’ massive spending implications.
Doubling the federal minimum wage to $15 an hour was always a bad idea. The CBO has now helped quantify how destructive it would be.
