Democrats are reportedly considering a tax on businesses that don’t pay $15 wages as an alternative to directly raising the federal minimum wage. This step could be needed because of a possible procedural roadblock which prevents the left from directly mandating $15 minimum wage per hour in Joe Biden’s proposed stimulus package.
According to MarketWatch:
“To get around a procedural roadblock in the Senate — the so-called Byrd rule — one idea reportedly under consideration has been taxing companies that don’t pay a higher wage, rather than a straight increase as Congress has done in the past. Several experts think a simple increase would be ruled out of order.”
Regardless, this tax would likely have identical effects to a minimum wage increase. It would reduce jobs, increase automation, and crush small businesses. It is disappointing that Democrats are pushing such a radical, contractionary agenda, especially during an economic downturn when businesses are already struggling to stay afloat.
A recent report from the Employment Policies Institute (EPI) found that a nationwide mandate for a $15 minimum wage would cost the U.S. economy two million jobs over the long term. This Democrat tax would have nearly the same effects.
Out of the two million jobs that would be lost to a $15 minimum wage, 900,000 of the job losses will be concentrated in restaurants, bars and other food services. Notably, these sectors are ones hit hardest during the pandemic. Even so, Democrats are certainly not letting a crisis go to waste.
The EPI analysis found that the weight of these job losses will be felt by young workers and women. Other sources have found disproportionate negative effects on ex-convicts, Black/Hispanic workers, and less-skilled/less-experienced workers. This policy would hurt the very people Democrats claim to champion.
A minimum wage increase will also speed up automation. As Economists Grace Lordan of the London School of Economics and David Neumark of UC Irvine explain in their study: “Based on data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers.”
While this tax is only being considered, and may not appear in proposed legislation, Democrats have pushed similar tax increases in the past. In 2019, House Democrats passed a bill which imposed a 95 percent excise tax on sales of drugs which companies refused to sell for the “government price.”
As noted by The Congressional Budget Office, this tax is used by the government to enforce price controls on manufacturers:
“If manufacturers did not enter into negotiations or agree to prices by specified dates or if they did not meet other conditions, they would be subject to an excise tax of up to 95 percent of the sales of those drugs.”
It is not inconceivable that Democrats would again take the route of heavily taxing businesses. In this case, they could force employers to pay $15 per hour by imposing a heavy tax on the difference between the wage an employer offers and the $15 per hour wage.
At a time when businesses are struggling to stay open and unemployment is pervasive, implementing a policy which would strain businesses and cause further unemployment could be devastating.