Budget Deficit Will Increase by $54 Billion If Congress Enacts $15 Minimum Wage: CBO

February 8, 2021 Updated: February 9, 2021

The Congressional Budget Office (CBO) released a report this month that shows an increased budget deficit of $54 billion if the minimum wage is increased to $15 nationally, which it says will result in higher unemployment and higher prices for goods and services.

“If enacted at the end of March 2021, the Raise the Wage Act of 2021 would raise the federal minimum wage, in annual increments, to $15 per hour by June 2025 and then adjust it to increase at the same rate as median hourly wages… the cumulative budget deficit over the 2021–2031 period would increase by $54 billion.”

House Democrats in the Education and Labor Committee first introduced S. 53 in 2019, and Democrats on Jan. 26 reintroduced the bill, which seeks to gradually raise the national minimum wage from $7. 25 to $15 by 2025.

Senate Democrats passed a budget resolution Friday, getting one step closer to approving President Joe Biden’s $1.9 trillion CCP virus stimulus package by a simple majority, called reconciliation, a process which does not require Republican votes.

During the debate on the budget resolution, senators offered changes to the budget resolution and Republican Senator Joni Ernst (R-Iowa) filed an amendment prohibiting the increase in the federal minimum wage during the pandemic, which passed unanimously.

“A $15 federal minimum wage would be devastating for our hardest-hit small businesses at a time when they can least afford it,” said Ernst on the Senate floor.

“We should not have a one-size-fits-all policy set by Washington politicians,” she said. “We all support higher wages, but a $15 federal minimum wage would be counterproductive.”

joni ernst
Sen. Joni Ernst (R-Iowa) speaks to members of the media after the weekly Senate Republican Policy Luncheon at Hart Senate Office Building on Capitol Hill in Washington on Sept. 9, 2020. (Alex Wong/Getty Images)

However, Democrats are adamant that they want to see a universal increase to the minimum wage after the pandemic regardless of the cost to the federal deficit. The Chair of the Senate Budget Committee, Senator Bernie Sanders (D-Vt.) responded to the CBO report, saying changes to the minimum wage will only be possible by bypassing GOP approval using the “budget reconciliation” process.

“We are never going to get 10 Republicans to increase the minimum wage through ‘regular order.’ The only way to increase the minimum wage to $15 an hour now is to pass it with 51 votes through budget reconciliation,” said Sanders in a press statement Monday.

The CBO report projected that an estimated million people would be “lifted” out of poverty with an increase in the minimum wage, but the report also found that the change would result in the loss of 1.4 million jobs.

“The good news, however, is that from a Byrd Rule perspective, the CBO has demonstrated that increasing the minimum wage would have a direct and substantial impact on the federal budget,” said Sanders.

“What that means is that we can clearly raise the minimum wage to $15 an hour under the rules of reconciliation,” added Sanders.

Sanders, who has been one of the most vocal lawmakers for an increase in the universal minimum wage questioned the findings in the CBO report.

“I find it hard to understand how the CBO concluded that raising the minimum wage would increase the deficit by $54 billion. Two years ago, CBO concluded that $15 minimum wage would increase the deficit by less than $1 million over ten years,” he said

CBO’s estimates oppose Sanders’s view that his bill would provide overall savings for taxpayers and eventually reduce the deficit by lifting workers out of public assistance programs.

“Under the bill, Medicaid spending would increase because the effects of increases in the price of health care services and increases in enrollment by people who would be jobless as a result of the minimum-wage increase would outweigh the effects of decreases in enrollment by people with higher income,” the report finds.

Education and Labor Committee ranking member Rep. Virginia Foxx (R-N.C.) said in a statement that the CBO report confirms that the mandatory minimum wage increase would destroy jobs, calling the Sanders-led bill “misguided.”

“This is the exact opposite of what our country needs. During the COVID-19 pandemic, Congress should be focused on creating jobs and protecting small businesses, not destroying them with this misguided legislation,” said Foxx.