Washington Insider-- Monday

New Minimum Wage Initiative Opposed

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

USDA's Vilsack Stays Mum On CCC Use For Climate Programs

USDA Secretary Tom Vilsack held his first briefing with reporters after taking the helm at USDA, talking about climate change goals for the Biden administration. But Vilsack stayed silent on the key issue of how he would pursue climate and conservation policy, including a timeline for setting up an ag carbon bank, but he said he would be working with Capitol Hill on those topics.

He also did not indicate if he believes he has authority to tap the Commodity Credit Corporation (CCC) for an ag carbon bank. “If there is congressional authority that we need or additional appropriations we need, we ought to be advocating for that. Over the course of the next several months, I'm sure that we will be doing a little bit of all of that,” he said.

He will meet with the USDA climate team today and discuss further the efforts that would involve USDA.

He did note that China “seems to be living up to its responsibilities” relative to the Phase One commitments, but cautioned that “at any point in time, because of the complex nature of the China-U.S. relationship, things can happen that might affect those purchases.

Mostly Static Food Price Outlook

USDA did not alter its major food price inflation outlook in its forecast issued Thursday from levels in January, still forecasting overall food price inflation for 2021 2% to 3% overall, with food away from home (restaurant) prices also expected to rise 2% to 3%.

That would put overall food price inflation for 2021 in line with the 20-year average of 2.4% while the restaurant price rise the past 20 years has been 2.8%.

Food at home (grocery store) prices are looked to up be 1% to 2% in 2021, below the 20-year average of 2%, but well below the 2020 pandemic-influenced rise of 3.5% level. Both restaurant and overall food prices rose 3.4% in 2020.

Within the categories of food at the grocery store, USDA only adjusted its forecasts for fats and oils, now putting it at 1% to 2%, and sugar and sweets at 1.5% to 2.5%. That marks a sizable jump for fats and oils as USDA in January saw those prices unchanged — a range of down 0.5% to up 0.5%, while sugar and sweets were expected to rise 1% to 2% in last month's forecast.

But these mostly static forecasts may not remain that way as USDA cautioned “uncertainty about the effect of the pandemic on food prices remains largely unresolved.”

Whether their forecasts remain closer to the 20-year averages in 2021 than the levels seen in 2020 remains to be seen. But they are still elevated from the period leading up to the pandemic where food price increases at the grocery store were less than 1% in 2018 and 2019 and actually declined from the prior year in 2016 and 2017.

Washington Insider: New Minimum Wage Initiative Opposed

Bloomberg is reporting this week that a fresh initiative in the U.S. Senate to put a tax penalty on big companies as a way of forcing higher minimum wages is prompting a skeptical reaction among some economists including a top adviser to former President Barack Obama.

“This is a really big, complicated, brand new proposal. It is possible that it works,” Jason Furman, who served in Obama's White House and is now a professor of economic policy at Harvard University, said in a tweet. “It is also possible that another tax version works. But I would be extremely nervous about trying out a brand new idea like this with virtually no vetting.”

Two Senate committee chairs, Ron Wyden, D-Ore., and Bernie Sanders, I-Vt., pitched the idea of a tax penalty Thursday night, following a procedural blow to the $15 minimum-wage provision Democrats wanted in President Joe Biden's COVID-19 relief bill.

As of Friday afternoon, Wyden's staff were still drafting the plan, which would include a 5% payroll-tax penalty for large companies that pay lower wages, and a tax-credit incentive of as much as $10,000 for small businesses that boost wages.

The U.S. House passed the relief bill, including the minimum-wage measure, early Saturday. Yet efforts to use the bill as a vehicle have hit a wall in the Senate after the chamber's parliamentarian, a nonpartisan official, ruled the wage hike doesn't qualify for the fast-track budget procedure used by Democrats.

Economists already are debating the value of a higher minimum wage, with most seeing some trade-off – depending on the level – between income and spending gains and job losses as employers absorb higher labor costs, Bloomberg said.

One disadvantage of targeting big companies is that they employ only a fraction of lower-income workers, and have more flexibility to get around new rules. Wyden and Sanders also did float incentives to boost wages among smaller firms, many of which have been hit hard by the pandemic.

“Most minimum wage workers are not in mega corporations,” Arindrajit Dube, a University of Massachusetts economics professor who's studied the minimum wage, said in a tweet Friday. “Also, what safeguards would prevent large companies from outsourcing low wage work to smaller contractors?”

Wyden said in his outline that there would be measures “to prevent companies from trying to outsource labor to avoid paying living wages.”

Introducing new tax policy is complicated, and would likely lead to lobbying for exceptions and debate about who gets included and who doesn't, said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC.

“It just becomes this eternal struggle to get your firm included in the benefits or excluded from the costs,” Stanley said in an interview.

Many of the largest employers of low-paid workers in the U.S., including Amazon.com Inc., Target Corp., Walmart Inc. and Costco Wholesale Corp. have already been raising wages of their employees in recent years under pressure from critics and labor groups. The country's big corporations – who would be subject to the proposed tax penalty – wouldn't see as much of an impact from a federal minimum-wage increase as small businesses, which strongly oppose the proposal.

“States and localities have already made significant adjustments to boost minimum pay, said Andrew Husby and Eliza Winger of Bloomberg economics. A third of the U.S. workforce is on track to live in a state with a minimum wage of $15 or higher in 2026. When New York is included, the total is closer to 38%. New York's rate is $12.50, though higher-cost downstate counties already operate with a $15 minimum.”

Retail groups have also pushed back on the wage penalty, saying that it would hurt already-suffering businesses.

“Threatening businesses with a whopping payroll tax increase – many of whom were shut down for months in 2020, and had their operations restricted by as much as 75% throughout the holiday season – should be a non-starter for those who care about economic recovery,” Austen Jensen, senior vice president of government affairs at the Retail Industry Leaders Association, said.

White House Press Secretary Jen Psaki said Friday that the Biden administration didn't yet have a position on the proposals from Wyden and Sanders, noting that they had only just been released.

“If you have a policy that will affect tens of millions of workers, businesses and more, then it needs more time/scrutiny/debate than, say, a think-tank white paper,” Furman said. “We can't point to another country that does this. We can't point to a state that does this. I don't know of any think tank proposals that have been discussed and debated (there may be some but not high profile). I don't know of any academic papers that address the issues.

So, we will see. Political pressure on the new administration to raise the minimum wage is intensifying, but it appears that significant opposition is now emerging, as well. This is a fight producers should watch closely as it intensifies, Washington Insider believes.

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