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Democrats Shelve Minimum Wage Tax to Speed Work on Stimulus

Bloomberg logo Bloomberg 3/1/2021 Steven T. Dennis and Erik Wasson

(Bloomberg) -- Senate Democrats are jettisoning a proposal to use the tax code to penalize corporations that don’t raise the minimum wage for their lowest-paid workers in an effort to keep President Joe Biden’s broader stimulus plan on track for quick passage, according to two people familiar with the matter.

Democrats were left seeking alternatives after the Senate parliamentarian ruled Thursday that raising the federal minimum wage to $15 an hour as part of the $1.9 trillion pandemic relief legislation failed to qualify under fast-track budget rules that Democrats are using to pass the stimulus without Republican support.

The Senate could begin consideration of the stimulus measure as soon as Wednesday — with final votes as soon as late Thursday — pending full Democratic support and sign off from the parliamentarian.

Senate Finance Committee Chairman Ron Wyden and Budget Committee Chairman Bernie Sanders proposed tax penalties on big companies that pay low wages along with incentives for smaller companies as an alternative. But it became clear over the weekend that getting all 50 Senate Democrats to agree on specific language would risk missing the March 14 deadline for extending expiring supplemental unemployment benefits, said one of the people, who spoke on condition of anonymity to describe private discussions.

The decision removes a major complication in the Senate and could speed approval of the rest of the package in the chamber. In addition to getting the backing of all 50 senators who caucus with Democrats, the tax language also would have had to pass muster with the parliamentarian, the House and the administration and be signed by Biden -- all in a two-week period.

Still, dropping the minimum wage increase from the stimulus could create other headaches for both Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi.

In the House, the stimulus legislation with the $15 an hour minimum wage narrowly passed on Saturday by 219 to 212, without any Republican support. Pelosi lost two moderate Democrats on that vote, and she can’t afford many more defections.

Read More: Biden, Yellen Back Fast Senate Stimulus Action to Boost Economy

Pelosi said Friday she’s “absolutely” confident she could pass a stimulus bill without a minimum-wage provision in it, but that remains to be seen.

a person taking a selfie in a room: House Expected To Vote On $1.9 Trillion Covid-19 Relief Bill © Bloomberg House Expected To Vote On $1.9 Trillion Covid-19 Relief Bill

Nancy Pelosi on Feb. 26.

Photographer: Sarah Silbiger/Bloomberg

Progressives in the chamber have made the minimum wage hike a signature issue as they angle to set the party’s future direction. Although there hasn’t been an explicit threat to scuttle the broader stimulus bill, which includes the extra unemployment benefits and $1,400 direct payments to many Americans, the conflict is bound to increase tension between the two wings of the party with Biden in the middle.

Progressive lawmakers on Monday sent Biden and Vice President Kamala Harris a letter organized by Representative Ro Khanna demanding that they set aside the parliamentarian’s ruling and include a minimum-wage increase in the Covid-19 relief package.

New York Representative Alexandria Ocasio-Cortez, the leader of a group of young, vocal progressives, signed the letter and is among those urging Senate Democrats to get rid of a rule that gives the minority power to block most legislation.

“Really our options right now, at least our immediate options on this specific issue, is to do something about this parliamentary obstacle or abolish the filibuster,” she said on Friday.

The White House has said Vice President Kamala Harris, in her role as president of the Senate, won’t overrule the parliamentarian’s decision. And a few Democrats, including West Virginia Senator Joe Manchin, have said they are opposed to overturning Senate rules.

Expectations of the stimulus plan’s passage helped propel U.S. equities to record highs last month, and any major setbacks could unsettle investors. While some economic indicators have picked up, legislative delays would disrupt help going to millions of Americans still out of work thanks to the pandemic.

The last time Congress voted to increase the minimum wage was in 2007, when a measure phasing in a hike from $5.15 an hour to $7.25 was attached to a war funding bill by Pelosi and signed by President George W. Bush. Since then, many states have raised their wage standard above the federal minimum.

There are other possible avenues for Democrats to try, including attaching vetted language to Biden’s “Build Back Better” package later this year, which is also likely to move via the fast-track budget rules. Otherwise, they would need to find 10 Republicans to agree to advance a wage hike. Republicans blocked a $10.10 minimum wage in 2014.

Read more: Democrats Shelve Tax Penalty Aimed at Raising Minimum Wage

But even that may be a difficult road to take. Manchin said last week that he could back $11 an hour, phased in over two years and then indexed to inflation. Arizona Senator Kyrsten Sinema has also expressed opposition to increasing the wage to $15 an hour, but so far has not outlined what she would support. Montana Senator Jon Tester said he is in favor of a different phase-in, but thinks a compromise can be found.

a close up of Kyrsten Sinema wearing glasses: Senate Transportation Subcommittee Hearing On Global Aviation And Infectious Disease © Bloomberg Senate Transportation Subcommittee Hearing On Global Aviation And Infectious Disease

Kyrsten Sinema

Photographer: Stefani Reynolds/Bloomberg

Biden so far is hinting that it may be time to move on from the minimum-wage fight for now, given the urgency of the pandemic. Fighting for it once the economy is in better shape may make the increase an easier sell to pro-business moderates.

“We have no time to waste,” Biden said Saturday. “If we act now, decisively, quickly and boldly, we can finally get ahead of this virus, we can finally get our economy moving again.”

Close Biden ally Senator Chris Coons of Delaware on Sunday reinforced that message when asked about the nascent tax proposal.

“This isn’t the last bill we will adopt this year. There may be several other chances for us to move a minimum wage bill. But I look forward to hearing from Senators Sanders and Wyden this week,” he said on CNN.

(Updates with timing of Senate consideration in third paragraph)

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