Increasing The Federal Minimum Wage During The Pandemic

Raise the Wage Act of 2021, also known as S.53 was introduced by Sen. B. Sanders on the 26th of January, at the 117th Congress. A bill to provide for increases in the Federal minimum wage, and other purposes. It seeks to amend the Fair Labor Standards Act of 1938 (29 U.S.C. 206(a)(1)) to payments summarised as 

  • $9.50/hour, on the initial day;
  • $11.00/hour, effective 1 year after initial day;
  • $12.50/hour, effective 2 years after initial day;
  • $14.00/hour, effective 3 years after initial day;
  • $15.00/hour, effective 4 years after initial day;

The base minimum for tipped employees would be summarily amended to 

$4.95/hour at commencement and increased yearly by either $2.00 or an amount rounded up to the nearest multiple of $0.05, that will result in an equivalent amount of the general minimum wage, whichever is the lesser of the 2 options.

The bill also goes ahead to recommend minimum wages for new hires who are younger than 20, and individuals with disabilities. This infers a gradual increase in the federal minimum wage to $15 per hour. This would imply a gradual increase leading up to a more than 100% increase in the current minimum wage.

This increase would be highly beneficial to low-income earners, as this would enable them to afford housing and other necessities. Furthermore, it will affect the income eligibility of families made of low-income earners. As shown in an analysis by consulting giant, Novogradac, a two-person family earning the new minimum wage would be able to earn up to 60% and more of the Area Median Income (AMI) and be ineligible for LIHTC, which is a low-income housing tax credit. It further mentions that there are many areas in the country – up to 96% – where low-income earners would not qualify for, using the current minimum wage, and this would not change, even when the $15/hour minimum wage comes into full effect, with the proposed increase in the minimum wage, as they will have incomes above 80% AMI. 

The same analysis further states that a four-person household having 2 individuals earning the minimum wage would also be ineligible for the ‘lower than 60% limit for AMI’, in as many as 83% of states in the country, as their incomes are projected to be above 80% AMI.

It is important to mention that this would remain true, if the eligibility requirements for LIHTC and HUD are not modified, allowing affordable rental housing to only be available to the underemployed and unemployed.

The Congressional Budget Office, CBO, is also in agreement that the new minimum wage would affect workers, lifting close to a million people out of poverty. It goes further to analyze that it would also result in the loss of over a million jobs and that net pay for those affected by the new wage, could go as high as $333 billion in about 10 years after the enactment of the bill – an increased labor cost for firms – and this would directly affect the budget deficit. As expected, it estimates an increase in prices for goods and services and talks about an increased spending on some programs – federally financed health care – and reduced spending of others. This report, as compiled by CBO is different from the picture painted by Senator Sanders, that his bill would provide savings for taxpayers, move workers out of public assistance programs which would, in turn, reduce the deficit.

The sponsor of the House version of the bill, Education and Labor Committee Chair, Bobby Scott, says that the CBO report builds the case to gradually increase the minimum wage, through the COVID-19 stimulus package and that this increase will function as a direct stimulus for struggling families with low-income earners.

The last time Congress sought to increase the minimum wage was in 2007, as this has always been a priority to the democratic party. President Biden looked to include the new minimum wage proposal in his relief package. He, however, states this might not be possible as the republican party would not vote to pass such. Democrats believe that they will be able to pass this bill using budget reconciliation, while using the same tactics to pass President Biden’s relief stimulus package, thereby going over Republican votes. This will be a bit reaching as it would require all democrats to vote to pass it, and at the moment, not all are in support of $15 per hour

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