Democrats' minimum wage backup plan is a combination of carrots and sticks

Thursday’s ruling that the Senate rules don’t allow a minimum wage increase to be included in the current economic relief bill left the effort to directly raise the wage all but dead for the time being.

But many saw this coming. President Biden predicted the decision earlier this month and the White House said it had no interest in trying to override the decision from the Senate Parliamentarian. Faced with that, Democrats were quick to roll out backup plans that some were literally calling a plan B.

“We always knew we had the challenge of the Senate parliamentarian,” Sen. Ben Cardin (D., Md.) told Yahoo Finance Live on Friday.

“We're looking at alternative ways,” he said, pointing specifically to the idea of using the tax code to essentially make it more expensive for companies to keep paying low wages.

The emerging debate seems to be how much carrot, in the form of incentives, Democrats want to include versus how much stick, in the form of tax penalties. “We're going to look at every different way we can,” Cardin said.

Patriotic Millionaires is a group pushing for a higher minimum wage and noted that the plans "wouldn’t technically change the minimum wage, but it would change the incentives that companies face."

As the wage debate in Washington rages on, companies have taken action on their own. Costco's (COST) CEO recently announced it would raise its minimum wage to $16 per hour at a hearing Thursday. Target and Best Buy raised the minimum wage for all its U.S. hourly employees to $15 an hour in 2020. Amazon also increased the retailer's starting wage in 2018 to $15.

Meanwhile, Sen. Josh Hawley (R., Mo.) proposed an alternative bill on Friday to require companies with revenues of $1 billion or more to pay workers $15 an hour.

'Provide small businesses with the incentives they need'

The Democratic effort in Washington is being led by two powerful Senate committee chairmen: Sen. Bernie Sanders (I., Vt.) and Sen. Ron Wyden (D., Ore.).

At statement from Sanders released Feb. 25 promised “an amendment to take tax deductions away from large, profitable corporations that don’t pay workers at least $15 an hour and to provide small businesses with the incentives they need to raise wages,” adding that the provision “must be included in this reconciliation bill.”

On Friday, Wyden offered a little more detail laying out the idea of a 5% penalty that increases over time on a “big corporations’ total payroll if any workers earn less than a certain amount.”

Both senators also want to offer positive reinforcement for small businesses. Wyden would provide an income tax credit of 25% of wages, up to $10,000 per year per employer, to induce small businesses to pay their workers higher wages.

Cardin, who is chairman of the Senate Small Business Committee, echoed the need to help insulate small businesses from potential disruption from a wage increase through the tax code.

[Read more: A $15 minimum wage is the wrong target]

He pointed to his work with the Paycheck Protection Program and Economic Injury Disaster Loans as ways to get funds directly to businesses, and said he wants to look “at the tax code itself to see whether there aren't ways that we can help smaller companies deal with an increase in the minimum wage.”

The fate of the effort will likely end up in the hands of two moderate Democratic Senators whose support will almost surely be needed. Both of them – Sen. Joe Manchin (D., W.V.) and Krysten Sinema (D., Ariz.) – have been skeptical of minimum wage provisions so far. Manchin has said he is against a $15 federal minimum wage while Sinema has said that the "minimum wage provision is not appropriate for the reconciliation process."

Either way, Cardin predicted things could go fast once the bill arrives in the Senate next week. The overall plan is “a bold approach and one in which we expect that we can pass in the Senate, maybe as early as next week,” he said.

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

Read more:

Costco to boost minimum wage to $16 per hour next week, CEO says

$15 minimum wage not allowed in Covid relief bill, Senate official rules

As Congress debates a minimum wage, both sides say they have the data on their side

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