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Hawley Offers Minimum Wage Bump Alternative to Democrats’ Plan

Posted on Feb. 25, 2021

If Democrats’ efforts to include a $15-per-hour minimum wage proposal in their $1.9 trillion COVID-19 relief budget reconciliation bill fail the Byrd rule, a new tax-centric proposal from the other side of the aisle might do the trick.

The Senate parliamentarian has yet to make a decision on whether the Democrats’ minimum wage proposal passes muster with the Senate’s Byrd rule, which imposes limitations on the types of provisions that can be included in the bill. That rule prohibits the inclusion of “extraneous” provisions, which include proposals for which the effect on revenue or spending is “merely incidental” to the underlying policy.

In the meantime, Sen. Josh Hawley, R-Mo., announced a de facto minimum wage increase proposal of his own February 24 — one that relies on advanceable tax credits, which he dubbed the “Blue-Collar Bonus.”

The Rundown

Hawley’s proposal would create an advanceable tax credit for 50 percent of the difference between a worker’s hourly wage rate and the median wage, which would be set at $16.50 and indexed to inflation. The advanceable tax credits would be automatically distributed quarterly, using new data that would be collected as part of employers’ quarterly payroll tax reporting obligations.

The program is intended as a tool for economic recovery and would sunset after three years. The credit would also phase out at the median wage and be limited to 40 hours per week.

According to Hawley, the benefit of the proposal is that it would increase wages without an added burden on businesses.

“It’s time we give blue-collar workers some respect and a pay raise. This plan would deliver meaningful relief for families and working Americans through higher pay while incentivizing and promoting work,” he said in a statement.

One handicap with the proposal, however, is that while an eligible worker might not be penalized for working additional hours under the proposal, it undermines the value of a direct increase in a worker’s hourly wage rate, Garrett Watson of the Tax Foundation told Tax Notes.

Watson offered a hypothetical scenario of an employee earning $10 per hour who under Hawley’s proposal would receive a $3.25 tax credit per hour, for a combined $13.25-per-hour pay rate. If that employee receives a pay raise up to $11 per hour, her hourly credit shrinks from $3.25 to $2.75, resulting in a combined pay of $13.75 per hour.

“This is a 50 percent implicit marginal tax rate, as a $1-per-hour increase in compensation before the credit yields a $0.50-per-hour increase after the phaseout,” Watson explained. That in turn could motivate employers to offer non-wage compensation to avoid the high marginal tax rate on the increased hourly wage rate, he observed.

As described, Hawley’s proposal would be more likely to survive Byrd rule scrutiny, Watson added, noting that the tax credit vehicle is budget-related and that its effects on the budget wouldn’t be merely incidental.

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

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