CBO: Minimum Wage Hike Will Increase Deficit

40 percent wage increase will hike deficit by $5 billion over 10 years

March 26, 2014

President Barack Obama’s proposal to raise the minimum wage to $10.10 per hour will cost the private sector $15 billion and increase the deficit by $5 billion over the next 10 years, according to a Congressional Budget Office report released Wednesday.

Private employers will lose $15 billion through higher wages for workers and smaller tax breaks for reinvesting money into a company, a move the CBO said "mostly affects small- to medium-sized businesses."

State, local, and federal governments will spend $1 billion more on higher wages and prices over the next ten years. Those cost increases are ten times higher than the thresholds set forth in the Unfunded Mandates Reform Act, which calls on government agencies to avoid deficit increases.

The nonpartisan office found that the Senate’s minimum wage bill would drive up prices the government must pay for goods and services, while also leading to lost tax revenue.

"It would affect the federal budget directly by increasing the wages that the federal government paid to a small number of hourly employees and indirectly by boosting the prices of some goods and services purchased by the government," the report said. "Federal spending and taxes would also be indirectly affected by increases in income for some people and reductions in income for others."

A February report from the CBO estimated that the increase will eliminate 500,000 and job losses could be as high as one million as the bill takes effect. Those job losses could produce larger spending on unemployment benefits and other safety net expenditures, while lowering income and payroll taxes from the newly unemployed.

The 40 percent wage hike under consideration in the Senate mirrors the executive order issued by Obama in February, which mandated a $10.10 wage for federal contractors.

"Let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty and raise the federal minimum wage to $9 an hour," he said in his State of the Union address.

The CBO said Obama’s gesture was largely symbolic.

"Fewer than 4,000 workers are employed by the federal government at hourly rates below $10.10," the report says.