First 100: How the Congressional Budget Office May Determine Wages for 32 Million Workers

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Monica Herndon/Tampa Bay Times via AP

First100-020121

A Fight for $15 protest in St. Petersburg, Florida. The fate of the minimum wage may come down to the Congressional Budget Office.

It’s February 1, 2021 and welcome to First 100. You can sign up to have First 100 delivered to your email by clicking here.

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The Chief

Yesterday, ten Republican Senators took their shot at weakening Joe Biden’s American Rescue Plan, proposing a smaller bill and seeking a meeting with the President. The Republican proposal would maintain vaccine funding from Biden’s bill, but reduce eligibility for direct payments, cut the proposed federal boost to unemployment from $400 to $300 and limit the extension to June (from September), remove state and local fiscal aid and a host of other measures, and generally skimp everywhere. It would cost around $600 billion, less than one-third of Biden’s plan.

Biden is humoring the Senators by inviting them to the White House for a meeting, but I doubt much comes of it. Senate Democrats are uninterested in negotiating down needed relief, wary of how this played out in 2009, with a too-small stimulus and big midterm losses. Nobody is choking on the $1.9 trillion number thus far, and no fetish is being made of bipartisanship.

Bernie Sanders says Democrats have the votes to pass Biden’s bill without Republican support, using a process he would manage called budget reconciliation. Republicans acknowledge that, even if their bill gets passed, Democrats can advance more in reconciliation. The House is kicking off that process today, and the Senate will as early as tomorrow. But there’s one critical element to the reconciliation process that will determine whether millions of Americans will get a raise at work. And that in large part will come down to a group of economists in the Congressional Budget Office.

Read all of our First 100 Reports

Briefly, the reconciliation process works this way: both chambers of Congress pass a budget resolution, with instructions to various committees. The committees go back and write a bill, under some broad guidelines in the budget resolution that will match what Biden wants in his American Rescue Plan (namely, a $1.9 trillion bill). Because it’s a budget bill, everything in it has to have a significant budgetary impact. That’s true of almost all of the relief bill, which is largely just spending on various items.

However, there’s one element of Biden’s plan that, at first glance, might not seem budgetary. He wants to raise the minimum wage to $15 an hour by 2025, in line with a bill Sanders and others released in January. The bill would increase wages for 32 million Americans. But will it survive the Byrd rule, named for former Democratic Senator Robert Byrd, which dictates whether measures have enough budget impact to make it through reconciliation?

The Congressional Budget Office has the role of “scoring” legislation for its budgetary impact. What CBO says doesn’t necessarily dictate to the Senate parliamentarian whether a bill can be accomplished in reconciliation. But it doesn’t hurt to show a big number at CBO.

When CBO scored the Raise the Wage Act (the $15/hour minimum wage bill) in 2019, it showed almost no budget impact, with spending over the 10-year budget window of just $76 million. That’s because it only assessed the impact of the federal government having to pay more money to workers and contractors that it directly employs.

However there’s a significant ancillary impact on the federal budget from raising the minimum wage, in two ways. First, when people make more money they become less reliant (at least under current eligibility restrictions) on federal safety-net programs, like Medicaid or SNAP (food stamps). Second, higher wages means more tax revenue, both in federal withholding and in payroll taxes that go to Social Security and Medicare.

The combination of these measures make the minimum wage hike not at all incidental to the budget. The Berkeley Labor Center estimates that workers who would receive a wage increase in this bill receive $107 billion per year in safety net support. That wouldn’t be the budget impact—you have to factor in whether some of that spending is state money, and whether some safety net spending would continue, and the impact of tax revenue. There are also other workers not considered in CBO’s initial score, like the 3 million home healthcare workers paid out of Medicaid funds.

But there’s apparently a study coming soon that does all these calculations, finding that there’s a federal budget savings to raising the minimum wage of $65 billion per year.

There’s a big difference between spending $76 million over ten years, what CBO found in 2019, and saving $650 billion-plus, the 10-year budget impact of the minimum wage hike. Now, CBO has to provide another score. And they’re being pressured to consider the full budget impact. That score should come out this week. If the score shows the full impact, that will be powerful evidence to give to the Senate parliamentarian to allow the minimum wage hike to stay in the reconciliation bill.

So think about it; the salaries of 32 million workers may depend on whether economists in an office in D.C. decide to use a particular economic model to assess legislation.

CBO is in a somewhat unique position. The CBO director, Phil Swagel, was hired by Republicans, after they fired his predecessor for not giving them a good enough score on Obamacare repeal. But Democrats are in charge of both houses of Congress. CBO directors serve four-year terms, from midterm to midterm, and it doesn’t happen often—just twice since CBO’s establishment—that party control changes over in the middle of a term. In theory, Democrats could remove the Republican-appointed CBO director and install their own; the budget committees would make that recommendation. In practice that hasn’t happened before, for a new party to sweep out the old party’s CBO director midterm.

It’s not likely to happen; Swagel has been a pretty straight shooter. CBO’s score on Medicare for All, showing major savings on national health expenditures, was actually pretty pleasing to progressives. But the minimum wage score provides a test case. Progressive economists disagree with CBO’s model on the subject. CBO has an opportunity to change that. Not only would it allow Democrats to pass a minimum wage increase through reconciliation, it would give them up to $650 billion in headroom to add additional fiscal measures to the bill.

Biden really wants the minimum wage increase. The potential budget savings helps quiet rumblings about “too big” a stimulus, and would offer a lot of flexibility in reconciliation. That makes the CBO decision enormous. We’ll know this week.

Rescind the Rescission

Late last night the Biden White House sent a message to Congress taking back proposed budget “rescissions” made under the Trump administration. Trump made the rescission request to close out his hissy fit over the COVID relief/omnibus appropriations bill in December. There were $27.4 billion in proposed cuts, which Congress was never going to agree to. But the money would have been stuck in limbo for 45 days until Congress got around to disposing of it. Biden did Congress the favor of taking back the proposed cuts.

As I mentioned when Trump took this action, one of the proposed cuts was for a grant to state and local law enforcement. So for the record: Trump tried to defund the police, and Biden restored the funding. (And avoided $27 billion more in mostly ideological cuts.)

Appearances

I was on Left, Right and Center on KCRW last Friday discussing vaccines, executive action, immigration, GameStop and more. Listen here.

I was on Rolling Stone’s Useful Idiots podcast with Matt Taibbi and Katie Halper discussing a bunch of stuff. Watch here.

What Day of Biden’s Presidency Is It?

Day 13. The aforementioned meeting between President Biden and 10 Senate Republicans takes place today.

Today I Learned

• The Myanmar coup is Biden’s first big foreign policy challenge. (Axios)
• A lot of progressive personnel at the sub-cabinet level of the Biden administration. (HuffPost)
• Where incoming SEC chair Gary Gensler might go on GameStop. (New York Times)
• Robinhood is a classic anything-goes fintech, making Biden’s attempt to place fintech fans at other bank regulators so dangerous. (The Intercept)
• Elizabeth Kolbert on Biden’s moves on climate. (New Yorker)
• The Biden facemask order on public transportation begins. (Bloomberg)
• The Defense Production Act order to continue producing meat in dangerous meatpacking plants is still intact. (Politico)
• Expect more public defenders and other nontraditional nominees for the federal bench. (NBC News)