By Kristina Peterson, Richard Rubin and Eric Morath 

WASHINGTON -- Senate Democrats began preparing a backup plan Friday for raising the minimum wage at some large companies as part of their coronavirus relief package, after the chamber's parliamentarian ruled out including a broader increase.

Backed by Senate Majority Leader Chuck Schumer (D., N.Y.), two committee chairmen are working on a new, more limited proposal that would use the tax system to prod employers to raise wages.

The plan would impose tax penalties on large companies that aren't paying the higher wage Democrats seek and create tax incentives for small companies to do so. Democrats hope the chamber's parliamentarian would allow them to include the modified plan in the coronavirus relief package.

The tax plan is being developed by Senate Budget Committee Chairman Bernie Sanders (I., Vt.) and Senate Finance Committee Chairman Ron Wyden (D., Ore.), and they haven't finalized the details.

Mr. Wyden said Friday the proposal would impose a 5% penalty on the total payroll of a large corporation if it pays any workers below a certain amount, which he didn't specify, with the penalty increasing over time. The plan would also provide small businesses that pay their employees higher wages with an income tax credit equal to 25% of wages, capped at $10,000 per employer a year.

But Mr. Wyden didn't specify how large a company would have to be before it would face the tax, or how small it would have to be to get the credit.

"I've been working on a 'plan B' that would make big companies pay for mistreating their workers," Mr. Wyden said in a statement Friday of the effort to increase the minimum wage.

Mr. Sanders has said he is working on pushing companies to pay $15 an hour through a tax plan.

Mr. Schumer is looking at adding the tax measure to the coronavirus bill, according to a senior Democratic aide.

Some large employers, including Amazon.com Inc. and Costco Wholesale Corp., have already pay at least $15 an hour, while others, such as Walmart Inc., haven't.

Employers would have to decide whether they would fare better by raising wages to avoid the tax or by paying it. That decision would depend on the tax, the wage target and the cost of bringing the fraction of employees below that level up to it.

The Retail Industry Leaders Association, which represents large companies, called Mr. Wyden's proposal a terrible idea. Republicans criticized the proposal as a tax increase that would harm businesses and reduce employment.

"It seems ludicrous to tax people for a job-killing measure," said Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. "Makes no sense at all."

White House press secretary Jen Psaki said the Biden administration had not yet reviewed the tax proposal. "We are looking for the best ways to increase the minimum wage," she told reporters.

The impact of the tax proposal would depend on some of the still unspecified details, including whether the penalties apply to a handful of very large corporations or to a broader set of businesses.

It also might have relatively little impact in some sectors such as fast-food, which are dominated by a franchise model. In those areas, the larger companies such as McDonald's Corp. aren't always the employers. Instead, the franchisees tend to be smaller and regionally based, meaning that they may be able to keep wages near current levels without facing a tax increase.

Jonathan Meer, an economist at Texas A&M University, said the proposal would incentivize large companies to outsource low-wage work.

The plan appears to be a "really complicated, Rube-Goldberg-like attempted solution to a pretty simple problem," he said.

The tax proposal might also be unclear for workers and could be easily reversed by future congresses, said Ben Zipperer, an economist at the Economic Policy Institute, a liberal-leaning think tank.

"If small businesses are exempted, then it means many low-wage workers won't see a pay increase," he said. "Larger firms, in general, already pay more than small businesses."

To advance, the tax proposal would first have to secure the approval of all 50 members of the Senate Democratic caucus, who are using a process tied to the budget known as reconciliation to enable them to pass the $1.9 trillion aid bill with just a simple majority, rather than the 60 votes most bills need. That would enable them to pass the legislation without GOP support, so long as they don't lose any votes among their own ranks in the evenly-divided Senate.

Using the reconciliation process requires that measures be closely tied to the budget. The Senate parliamentarian on Thursday ruled that Democrats' initial proposal to raise the federal minimum wage to $15 an hour over four years didn't comply with those rules.

It was unclear Friday how centrist Democratic senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, who opposed including a broad $15 increase in the package, would view the tax proposal. Mr. Manchin's office declined to comment and Ms. Sinema's office didn't immediately respond to a request for comment.

Even if Senate Democrats were to unite around the proposal, progressive House Democrats said Friday that the tax proposal would be insufficient and that they would still press for a federal 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 minimum wage isn't in this package, we are going to have to figure out a way to get it through, " Rep. Pramila Jayapal (D., Wash.), chairwoman of the Congressional Progressive Caucus, told reporters Friday.

She declined to say how she would vote on the coronavirus relief package if it included the tax proposal but not the broader increase in the federal minimum wage.

(END) Dow Jones Newswires

February 26, 2021 23:08 ET (04:08 GMT)