Democrats pursue tax penalty for companies paying low wages

Top Senate Democrats are pushing the White House to consider a tax penalty on large companies unless they pay workers $15 per hour, as they scramble to replace the loss of a minimum-wage increase from Joe Biden’s $1.9tn stimulus bill.

The last-minute change being sought by senior members of Biden’s party highlights the unrest among progressive Democrats over the expected lack of any provision forcing companies to pay higher salaries in the fiscal package.

The issue is emerging as a flashpoint among Democrats as the stimulus bill, which is Biden’s top legislative priority, moves to the Senate after being passed on Saturday morning by the US House of Representatives.

The push for a penalty on big employers that fail to pay high enough wages is being led by Ron Wyden, the chair of the Senate finance committee, and Bernie Sanders, the chair of the Senate budget committee.

It developed after Democrats’ hopes of securing a straight minimum wage increase in the stimulus bill, which is included in the House legislation, were dashed in a Thursday night ruling by Elizabeth MacDonough, the so-called Senate parliamentarian who advises on procedure in the upper chamber.

She said the measure did not qualify as a budgetary provision that could be approved by a simple majority of lawmakers, which Democrats are counting on to circumvent Republican opposition.

“The American people elected Democrats to get things done, and they aren’t going to accept ‘process’ as an excuse for failing to deliver on an overwhelmingly popular policy,” Wyden said on Friday.

“We couldn’t get in the front door or the back door, so we’ll try to go through the window,” he added. Wyden specifically said his plan would impose a 5 per cent tax on total payroll for large companies that failed to offer sufficient pay, while offering tax incentives but no penalty for small businesses to lift their wages.

The move represents a way for Democrats to minimise the disappointment among progressive lawmakers for the failure to pass a regular increase in the federal minimum wage, which has been stuck at $7.25 per hour since 2009. But the political prospects of Wyden’s plan are highly uncertain and the White House has been cool to it so far. Jen Psaki, the White House press secretary, said on Friday they had not reviewed it. “Where we are now is we are looking for the best pathways to increase the minimum wage moving forward,” she said.

Many economists, policy experts and activists who have championed an increase in the minimum wage have warned that Wyden’s plan is a poor substitute.

“It is understandable that Senate Democrats would explore alternatives to the minimum wage to raise pay for low-wage workers. However, the measures are limited in scope,” said Molly Kinder, a fellow in the Metropolitan policy programme at the Brookings Institution.

Kinder said the focus on large companies would “exclude most low-wage workers”, including “home health aides, nursing home staff and hospital janitors” on the front lines of the Covid-19 pandemic response, and might incentivise companies to outsource work to contractors. In addition, many of the largest US companies have already announced plans to pay at least $15 per hour wages, so even for the largest employers the impact might be relatively limited.

We couldn’t get in the front door or the back door, so we’ll try to go through the window

According to a list assembled by the Economic Policy Institute, a left-leaning think-tank, Amazon, Walmart and Starbucks are already implementing a $15 minimum wage. Some activists worried that the tax plan could also be a distraction from an even more aggressive legislative push. While some US states and cities have already moved to increase their own minimum wages to $15 over time, others such as Pennsylvania, Georgia and Wisconsin are still stuck at the federal minimum.

Terrysa Guerra, political director at United for Respect, a campaign group for retail workers, said “workaround proposals to penalise corporations” were a “creative political manoeuvre”, but worried that it could “lead us away from the urgent priority of passing a bill that would start the process of raising the minimum wage to $15 per hour”.

But some progressive Democratic lawmakers suggested they might still insist on the Wyden proposal even if it was second best. That could complicate the path to final passage of the stimulus package. If there are changes to the legislation in the Senate, it will have to return to the House for a new vote.

Alexandria Ocasio-Cortez, the Democratic congresswoman from New York, on Friday said the proposal was “certainly not a replacement for a $15 minimum wage” but Sanders was “doing the right thing by trying to include something”.

$7.25


Federal hourly minimum wage, which has not risen since 2009

A potential tax penalty is, however, likely to elicit even fiercer opposition among Republicans to the stimulus legislation, and resistance from some business groups.

Sean Kennedy from the National Restaurant Association, said: “There is no industry that is going to be more vulnerable in 2021 than restaurants. Continuing to push an increase to the minimum wage and elimination of the tip credit as part of this stimulus bill will only force restaurants to close and more jobs to be lost.”

And in a tweet on Friday, Jason Furman, the Harvard University economist and former adviser to President Barack Obama, warned that the Wyden plan, above all, was untested.

“This is a really big, complicated, brand new proposal. It is possible that it works. It is also possible that another tax version works. But I would be extremely nervous about trying out a brand new idea like this with virtually no vetting,” he said.