US minimum wage hike ‘would increase deficit by $54bn over a decade’

12 Feb 21

US president Joe Biden’s plan to raise the minimum wage in the US would lift nearly one million people out of poverty, but would also result in a large increase to the budget deficit, a government agency has said.

The new president’s Raise the Wage Act of 2021 would increase the federal minimum wage incrementally from $7.25 to $15 per hour by June 2025, after which it would increase at the same rate as median hourly wages.

The Congressional Budget Office has released a report claiming the move would result in higher pay for between 17 million and 27 million workers, and the number of people in poverty would be reduced by 900,000.

But the report also claimed 1.4 million people would lose their jobs, and increased unemployment payments would contribute to an increase in the federal budget deficit.

These increased payments, although partly counteracted by reduced spending on schemes such as food stamps, along with inflation, would lead to a $54bn rise in the cumulative budget deficit between 2021 and 2031, according to the CBO.

Deficit increases would be comparatively lower before 2025, the report stated.

Senator Bernie Sanders, a longstanding proponent of a higher minimum wage, said he found the CBO’s deficit estimate “hard to understand”, given reports from other institutions had found the move would “in fact amount to a significant reduction in the deficit”.

He said the report had made it easier to pass the law through the senate, though, due to a rule that allows matters affecting the deficit in the long term to be passed by a simple majority, perhaps relying on a tie-breaking vote by vice president Kamala Harris, rather than a 60% vote.

“I look forward to working with my colleagues in the House and the senate to end the crisis of starvation wages in America and raise the minimum wage to a living wage of at least $15 an hour,” Sanders said.

Several states have already passed legislation to raise their minimum wages to this level, but in 21 states it remains $7.25 an hour, having last been changed in 2009.

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