History shows how Democrats can still get their minimum wage increase: a bipartisan deal

  • Democrats don’t have the votes in their own caucus to raise the minimum wage to $15.
  • The last two minimum-wage hikes were passed through bipartisan horse trading. It’s time to try that.
  • If the hike isn’t as big as Democrats want, they can always go for another one later.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit the Business section of Insider for more stories.

For now, Democrats are not going to pass a minimum wage increase over Republican objections.

The path towards a minimum wage hike as part of the COVID relief package was always narrow. Democrats hold 50 seats in the Senate — a bare-minimum majority when you count the vice president’s tie-breaking vote — but Senate rules around the filibuster means most legislation needs 60 votes to pass.

The big exception to the filibuster block is legislation moved through the budget reconciliation process, which Democrats are using to pass the coronavirus relief bill currently being debated. But budget reconciliation involves its own arcane set of rules that require the provisions of such bills to be sufficiently related to the federal budget. The Senate parliamentarian, essentially the rules keeper for the chamber, has ruled a minimum wage increase doesn’t qualify as sufficiently budget related, so it can’t be included in the package.

While senators could overrule the parliamentarian, there doesn’t appear to be the will to do that among the Democratic caucus. That unwillingness may be closely related to another issue: Some Democratic senators oppose the minimum wage increase proposal as it’s currently conceived, meaning there aren’t 50 votes to pass it even if it could move through reconciliation. In other words, Senate rules aren’t the most important limiting factor here — it’s the lack of a majority of senators in favor of the policy.

One possible path forward is for Democrats to adjust the wage proposal so that it can command the support of all Democrats (for example, West Virginia Sen. Joe Manchin, who opposes raising the minimum wage to $15, is already on record in support of raising it to $11) and then to adjust Senate procedure so the policy can be passed with a simple majority.

But it’s also worth noting that the last two minimum wage increases — enacted in 1996 and 2007 — were passed by overwhelming bipartisan margins as part of larger legislative compromises. These increases were popular among the American public, and Republicans acquiesced to support them in part so they wouldn’t have to go into elections explaining why they opposed them. Republicans were also won over by provisions that provided tax relief to small businesses that would be impacted by the requirement to pay higher wages.

It’s going to be a few months before Democrats will even have a chance to try again on the minimum wage through reconciliation. They might as well spend this time trying to get a bipartisan agreement, like they did the last two times.

How to get to yes on the minimum wage

A key question for Democrats is what they could offer in pursuit of a compromise. With interest rates low and the government continuing to have plenty of capacity to borrow, they should not be shy about offering tax cut or business support policies that would also increase the deficit in exchange for a minimum wage increase. This is a positive trade for workers.

That said, tax-cut policies would not necessarily have to be new policies. There are significant provisions of the 2017 tax reform law and the 2020 coronavirus relief laws that are set to sunset by the end of 2022. Congress periodically passes “tax extender” laws in order to push back the expiration deadline on nominally temporary tax rules. A minimum-wage increase could be attached to one of these bills.

A compromise on the “tip credit” provision is probably also necessary to achieve passage. While the current federal minimum wage is $7.25 per hour, employees who receive tips can earn a base wage as low as $2.13 per hour. The current Democratic proposal would abolish the tip credit, raising all workers’ minimum wage to $15, before tips. This proposal has drawn objection from Republicans and also from independent Maine Sen. Angus King, who is a member of the Democratic caucus. King says he worries about how such a sharp increase would affect restaurant employment, especially at a time when the industry has been battered by the pandemic.

The idea behind a tip credit is to ensure that all workers earn at least the minimum wage, when counting tips as part of their labor income. A compromise could involve an increase from $2.13, but not all the way to the new full minimum wage, plus enforcement measures to require employers to demonstrate their tipped workers are in fact earning above the full minimum wage when tips are included.

Don’t give exceptions to small business

What Democrats should not do is agree to provisions that create loopholes in the minimum wage based on the characteristics of the employer. This would lead to many employees continuing to earn less than the headline minimum wage, and to businesses and industries engaging in inefficient restructuring to skirt minimum wage rules.

This was a key flash point in the 1996 fight over the minimum wage. Republicans proposed to exempt small businesses with less than $500,000 of annual sales from the increase. But if you allow some employers to pay less, you will tend to see the exempted employers take over low-wage industries and a surprisingly large number of employees falling through the cracks and continuing to earn wages below the putative minimum.

Small-business exemptions can induce large businesses to reorganize their operations, using contracting or franchising arrangements so their employees are nominally employed by “small” employers. Besides, large employers already tend to pay more than small ones, even for equivalent jobs; the primary benefit to workers from a minimum wage increase comes from requiring small employers to pay better, and so exempting them significantly undermines the point of raising the minimum wage.

The “Plan B” that was briefly considered by Democrats last week was effectively a way to rebuild this exemption-laden scheme through the tax code. Large employers would have paid tax penalties for paying employees too little, while small ones would have been given tax benefits for agreeing to pay more. Such an approach would have excessively advantaged small employers at the expense of large ones — despite the fact that large employers already tend to pay better — while leaving many workers continuing to earn less than the target wage. It is good that Democrats have abandoned this approach.

Get what you can get now. Go for more later

Sen. Joe Manchin is one of the Democrats who opposes the proposal for a $15 minimum wage by 2025, but he supports raising it to $11 in two years. The proposal that Democrats wanted to get in the COVID relief package included a gradual year-by-year increase so that minimum hit $15 over five years. This idea included… an $11 minimum wage in 2022.

Republican proposals on the minimum wage are also in this ballpark. Sens. Mitt Romney and Tom Cotton have proposed a gradual increase to $10 (coupled with immigration-enforcement measures); Sen. Josh Hawley has proposed a wage-subsidy scheme that is ill-designed in certain ways, but that would have the practical effect of ensuring workers earn at least $11.88 per hour after accounting for the subsidy.

The minimum wage level that could achieve a 1996- or 2007-style bipartisan coalition is likely a lot lower than $15, but the minimum wage for 2022 and 2023 would already be a lot lower than $15 even among the current proposal to eventually raise the minimum wage to $15. Democrats could seek that partial deal now, tout it as a success, watch how the labor market responds during the recovery from the coronavirus, and seek further increases — both nationally and at the state and local levels — in future campaigns and future legislative sessions.

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