Senate Democrats are racing to finalize a new tax provision that would penalize large companies that pay low wages. The move comes after Senate Parliamentarian Elizabeth MacDonough ruled Thursday night that a $15 minimum wage hike cannot be included in the Senate COVID relief package, which is currently being pushed through the chamber through a process known as budget reconciliation.
The plan being drafted by aides to Senate Finance Committee chair Ron Wyden of Oregon — in close consultation with Senate Budget Chair Bernie Sanders of Vermont — would impose a 5% payroll tax penalty on "very large" companies that do not pay workers a certain amount. That amount is still unclear: Wyden favors $15 an hour, but is currently seeking feedback from fellow Democrats on that figure and on exactly which companies would face the penalties.
"Everyone in the caucus is envisioning 'very large' companies – think Walmart, Amazon," a Senate Democratic aide told CBS News.
Under the proposal, which Senate Democrats hope to finish crafting by early next week, smaller businesses that raise their workers' wages would be eligible for income tax credits equal to 25% of wages — up to $10,00 per employer to year — tax incentives to increase wages.
"Basically we're having the stick approach for the very big companies at the top, and the carrot approach for the smallest of small businesses to try to encourage them to raise wages on their own," the aide said.
Democratic aides, anticipating an adverse ruling from the Senate parliamentarian, began quietly working on the "Plan B" proposal several weeks ago. The tax penalties would apply not only to large companies that pay their own employees low wages, but also to those that hire contractors – such as security guards – who earn low wages for work they do on premises.
House Speaker Nancy Pelosi on Friday stressed the importance of the minimum wage hike, saying at a press conference that "we will not rest until we pass the $15 minimum wage."
The new push comes one day after Sanders announced that he would introduce an amendment to the COVID relief package to "take tax deductions away from large, profitable corporations that don't pay workers at least $15 an hour and to provide small businesses with the incentives they need to raise wages."
The White House acknowledged the new effort Friday without endorsing or rejecting it. "We haven't reviewed the measure. We are certainly aware… But we have not reviewed and we don't have a final conclusion on that proposal," White House Press Secretary Jen Psaki told reporters aboard Air Force One.
House Ways and Means Chairman Richard Neal, whose House COVID relief bill does contain a $15 federal minimum wage hike, was also reluctant to weigh in. "I hesitate to, you know, to say anything until they decide on a strategy. I don't want to be perceived as second guessing what they're doing," Neal said Friday.
Jason Furman, who served as chair of President Obama's Council of Economic Advisers, sounded a note of caution, tweeting "this is a really big, complicated, brand new proposal. It is *possible* that it works. It is also *possible* that another tax version works. But I would be extremely nervous about trying out a brand new idea like this with virtually no vetting."
House progressives were more enthusiastic about the tax proposal, but cautioned that it was no substitution for a true minimum wage increase. "I'm very supportive of doing whatever we can, but at the end of the day we promised a $15 minimum wage, so if that $15 min wage isn't in this package, we are going to have to figure out a way to get it through and if that means reforming the filibuster, then we should reform the filibuster," Congresswoman Pramila Jayapal (D-WA) told reporters.
This tax measure, which would be included in the $1.9 trillion COVID relief bill, would have to win the support of two moderate Democrats – West Virginia's Joe Manchin and Arizona's Kyrsten Sinema – who opposed including an across-the-board $15 minimum wage in the COVID relief bill.
Republicans are likely to balk at any proposal that involves imposing new taxes, even if those penalties would only apply to the nation's largest companies. On Friday, House Minority Leader Kevin McCarthy called the proposal "stupid," and Senator Pat Toomey of Pennsylvania slammed it as "wealth redistribution and social engineering. It is a bad idea."
Democratic Congresswoman Alexandria Ocasio-Cortez told reporters on Friday that the inclusion of a minimum wage hike had "smoothed over the negotiation on this process" for progressives in the House.
"I think that Senator Sanders is doing the right thing by trying to include something, last minute, because the fact of the matter is that these negotiations, the entire negotiations of this package, for a lot of people, were predicated on the $15 minimum wage," Ocasio-Cortez said.
Ocasio-Cortez also challenged Democratic Senator Joe Manchin of West Virginia, who has expressed opposition to raising the minimum wage to $15 and has instead suggested that it be raised to $11 per hour.
"His own constituents, West Virginians, want a $15 minimum wage. So I don't even see what kind of leg he's standing on here where the majority of his own state doesn't agree with him," Ocasio-Cortez said. A February poll by the One Fair Wage Coalition, a group which supports a minimum wage hike, found that 63% of West Virginians support raising the minimum wage by 2025.
Raising the minimum wage is widely popular across the country, with a 2019 poll by the Pew Research Center showing that 67% of Americans support raising the minimum wage to $15. It even has support in some red states, as demonstrated by a ballot initiative in Florida to increase the minimum wage increase to $15 by 2026, which passed with support from more than 60% of voters in the last election.
Some Republicans have taken note of the public support for a minimum wage hike. On Friday, Republican Senator Josh Hawley of Missouri announced a proposal to require companies with revenues of $1 billion or more to pay their employees $15 per hour.
Under Hawley's plan, small business employees who earn less than $15 per hour would qualify for a "Blue Collar Bonus" in the form of an automatic tax credit. "Mega-corporations can afford to pay their workers $15 an hour, and it's long past time they do so," Hawley said, "but this should not come at the expense of small businesses already struggling to make it.
Sarah Ewall-Wice contributed reporting.
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