Question

On April 22, 2019, CBO published a cost estimate for House Bill 582, Raise the Wage Act. You can obtain a copy of the report here. Read the report and answer the following questions.

(1) In your own word, why does raising the federal minimum wage DIRECTLY affect the federal budget?

(2) Would the proposed policy have an impact on mandatory spending, and why? If yes, by how much does it change the projected federal deficit associated with mandatory spending over the 2020-2029 period?

(3) Would the proposed policy have an impact on discretionary spending, and why? If yes, by how much does it change the projected federal deficit associated with discretionary spending over the 2020-2029 period?

(4) Why would the proposed policy impose “intergovernmental and private-sector mandates”? What are the estimated annual costs of the policy to subnational governments and private-sector organizations respectively? As the report states, spending for the Postal Service is classified as off-budget. The distinction between on-budget and off-budget programs is rather superficial. In your answer, please consider the overall federal budget including both on-budget and off-budget components.

Answer 1

1. The federal minimum wage was established in 1938, as part of the Fair Labor Standards Act (FLSA), to help ensure that all work would be fairly rewarded and that regular employment would provide a decent quality of life. In theory, Congress makes periodic amendments to the FLSA, increasing the federal minimum wage so that even the lowest-paid jobs in the economy still pay enough for workers to meet their needs, and helping ensure that low-wage workers benefit from economywide improvements in productivity, wages, and living standards.

2.In the projections, the federal budget deficit reaches $896 billion in 2019 and exceeds $1 trillion each year beginning in 2022—reflecting large primary deficits (deficits excluding net interest payments) and rising interest rates. Cumulative deficits from the end of 2018 through 2029 are projected to equal $12.7 trillion.

3.projected increase in interest rates over the coming decade would boost the interest costs on federal debt and contribute significantly to rising debt as a share of GDP. But even if the average interest rate on federal debt remained at its relatively low 2019 level (instead of rising as projected), the primary deficits projected in our baseline would push up debt as a share of GDP over the next decade. If the average interest rate did not change, primary deficits would have to average less than 1.0 percent of GDP—significantly less than the 1.7 percent that we project they would average under current law—to keep debt from rising as a share of GDP.