February 4, 2021

Minimum Wage and Reconciliation

Marty Paone, Rich Meade

President Biden’s American Rescue Plan calls for raising the minimum wage to $15 per hour. Since Congress is likely to pass the American Rescue Plan through the legislative process known as budget reconciliation, there are some challenges to including an increase in the minimum wage in a budget reconciliation bill.

The Senate has as part of its standing rules the so-called “Byrd Rule” which limits “extraneous” provisions from being included in budget reconciliation bills. There is a five-prong test to define what is an extraneous provision and a provision only needs to meet one of the prongs to be ruled out of order.

The Byrd Rule is a surgical point of order, which means if a provision is found in violation of the Byrd Rule it is simply stricken from the bill rather than halting the bill’s consideration like many other points of order would do.

The challenge for a minimum wage increase is that the bill to raise the minimum wage passed by the House in the last Congress was scored by the Congressional Budget Office (CBO) as not having any direct effect on budgetary outlays. One of the prongs of the Byrd Rule is that a provision is considered extraneous if it does not produce any budgetary outlays.

Additionally, even if the Budget Chairmen were to direct the CBO to use “dynamic scoring” to take into account the feedback effects of a policy throughout the economy (e.g., estimating higher tax payments due to higher wages), those savings may not be great enough to overcome another prong of the Byrd Rule which states the budgetary effects of a provision cannot be incidental to the overall policy.

It should be noted that Bill Dauster is returning to the Senate Budget Committee as its Chief Counsel. Bill is a strong proponent of increasing the minimum wage and recently wrote an op-ed opining that it is possible to increase the minimum wage through budget reconciliation.

It is likely that the Senate Parliamentarian, who makes the assessment on Byrd Rule points of order and advises the Chair on how to rule on them, will view the budgetary impact of a minimum wage increase as being incidental. While the Parliamentarian advises the Chair, the Chair can choose to not listen to that advice albeit that rarely happens.