Effect of a Federal Minimum Wage Increase to $15 by 2025 on the Federal Budget

The Raise the Wage Act of 2021, recently introduced by Senator Bernie Sanders and Representative Bobby Scott, would increase the federal minimum wage to $9.50 this year and then gradually to $15 by 2025. It would then index further annual increases to median wage growth and gradually eliminate the subminimum wages for tipped workers and for teen workers. Congress is considering whether the Act could be passed as a budget reconciliation item.

To inform this debate, I provide a quick estimate of the likely effects of The Act on changes in both aggregate federal tax revenues and expenditures at the time of full implementation in 2025. I base my estimate principally upon the findings in the causal research literature, including my own previous work on the side effects of the minimum wage (Reich and West 2015), and that of other economists, notably Dube (2019) and Borgschulte and Ho (2020). I estimate that, once it is fully implemented in 2025, the Act would have a positive effect on the federal budget of $65.4 billion per year.