HR Policy Association

New Proposal Could Provide Path to Raise the Minimum Wage with Only 51 Senate Votes

Published on: March 26, 2021

Authors: D. Mark Wilson

Topics: Employment Law, Jobs, Skills and Training

Two UC Berkeley economists have proposed avoiding the Senate filibuster by using the tax code to penalize employers that do not pay their employees $15 per hour and to provide a refundable tax credit for low wage workers using the penalty revenue.

Avoiding a filibuster:  Supporters of the minimum wage increase were frustrated by a Senate parliamentarian ruling that the mandate could not be included in budget reconciliation, which requires only a majority for Senate passage.  Budget reconciliation is limited by law to tax and spending matters exclusively.

The proposal has two parts:

  • A new refundable tax credit for low paid workers equal to the gap between their current hourly pay and an aspirational living wage (e.g., $15); and

  • A new employer payroll tax assessed on the pay gap generated by each employer to provide revenue for the refundable tax credit.

Phased in:  The amount of the payroll tax and refundable credit could be phased in over a number of years, similar to proposals to raise the minimum wage.

Employers would be encouraged to immediately include the new credit directly in workers’ paychecks, rather than paying out the refundable credit to workers the following year when taxes are filed.  Or, they could simply increase their workers’ pay to avoid the tax.

Outlook:  According to the report, “this political moment requires designing policy through taxes and transfers,” but the GOP would certainly challenge the proposal under the Senate’s budget reconciliation rules (Byrd Rule).  At that point, the Senate parliamentarian would make the decision.