A Missed Recurring Revenue Opportunity on the Budget – Raising the Minimum Wage

Stephen Herzenberg |

This is the third in a series of blog posts assessing the 2016-17 budget and the budget negotiation process from PBPC and its allies.

A consensus exists that raising Pennsylvania’s minimum wage to $10.10 per hour would generate at least tens of millions of dollars for the state budget and possibly as much as $225 million (more on the different estimates at the end of this blog). If the minimum wage were indexed for inflation, as legislative salaries already are, this would be recurring revenue. The annual boost to the minimum wage would continue to put more money in the pocket of working families each year, driving up their buying power, growing the economy, and increasing state tax collections.

And yet, despite Gov. Wolf’s strong support for the increase, legislative leaders did not agree to raising the minimum wage in this year’s budget. A missed opportunity, plain and simple.

Since the new budget only partly solves the state’s structural deficit, however, the state will need to find new sources of revenue again next year. That means lawmakers get a chance to rectify their mistake as part of producing a genuinely balanced budget next year. Before November, members of the PA House and the 25 Senators up for re-election should be encouraged to state their support for raising the minimum wage to help the budget and the middle class

By now, most Pennsylvanians have heard the basic facts on a minimum wage increase to $10.10. It would benefit nearly 1.3 million Pennsylvanians (that’s according to KRC, but also according to the Independent Fiscal Office, p. 22 counting workers just above $10.10 that would likely get a bump).

Nearly nine out of every 10 of the workers who benefit would be over 20, nearly six in 10  female. The increase would disproportionately benefit both minorities and rural Pennsylvanians: nearly three quarters of workers who would benefit are white. Sixty percent of the total increase in income would go to families earning $60,000 or less and 84% to families with incomes less than $100,000.

In a growing number of cities and states, the minimum wage already exceeds $10.10 per hour. Elected officials in those places got the message that it’s time to raise America’s pay. It’s past time for Pennsylvania lawmakers to do the same.

(With regard to the benefits to the state budget from hiking the minimum wage, some of these benefits result from increases in state sales and income tax collections because incomes and buying power rise. The Wolf Administration puts the increase in tax collections at $60 million [Governor’s Executive Budget, p. A1-12], the IFO $10 million to $40 million, and we estimate them at $121.5 million. The IFO estimates are lower partly because they leave out the boost to the wages and incomes – and hence to state sales and income taxes paid – of workers earning $10.10 to $11.15. We think that’s too cautious. In addition, our estimate is the only one that takes into consideration the savings for the state because some Medicaid recipients’ incomes would rise into the range covered by “Medicaid expansion,” within which the federal government pays more of the cost. We estimate this as another $104 million for a total of $225 million.)