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Index Minimum Wage? Do the Tax Code, Too

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One bill that certainly is heading for Governor Glenn Youngkin’s desk is the increase in the state’s minimum wage to $15 an hour as of two years from now. Both versions, House Bill 1 and Senate Bill 1, raise it to $13.50 for next year, with the $15 level kicking in a year later. Both bills are now out of their first committees.

It was a campaign promise. The Democrats in both chambers coordinated to make it their first bill of the year on both sides. Smart marketing. Soon the Republican governor must decide whether it becomes his first veto, with Republican legislators then having to vote to sustain it or not.

Which of course just tees up the issue as red meat for the 2025 statewide elections, with similar campaign promises and political claims that Republicans want to exploit workers. The days when some business-savvy Virginia Democrats might express concerns that rising wage rates will depress job creation are long gone. That critter is extinct.

When I graduated high school, the minimum wage was $1.60 per hour, which, using a basic inflation calculator translates to just under $12 per hour for 2023. If there is to be a minimum wage at all, it should have nexus to either inflation or the actual base wage employers are having to pay in the current market for unskilled labor. So, $15 for two years from now, given current inflation, has a rational basis.

But of course the bills do not stop there. Both versions of the bill, and this was also an element of the 2020 minimum wage legislation Governor Ralph Northam (D) signed, begin to increase the minimum wage annually. It goes on autopilot, adjusting pay up (but never down) for the Department of Labor’s urban consumer price index (CPI-U) in 2027 and after.

Virginia has already done this with its gasoline taxes, which now rise automatically each summer. And no legislation is necessary for inflation to increase the state’s take from income and sales taxes. If Democrats want to be honest about adjusting things for inflation, they must do the same with the state tax provisions. As we said last year, the standard deduction, personal exemption, and tax rate bracket amounts should all be adjusted annually to reduce the sting of inflation.

Even with the recent increases in the standard deduction (which are not permanent, you must remember, but expire after 2025) a person earning minimum wage for a full year will owe Virginia personal income tax.

No fiscal impact statement on these bills has been published, but when it shows up, if it fails to note that the state itself will be a huge winner, reaping millions in additional tax revenue, the evaluation will be totally dishonest. Government wins big.

As was clear from the testimony on the bills, the unions are the ones who extracted this promise from Democrats. Most union jobs pay substantially better than the minimum wage, but as the bottom floor rises so will all the other stops on the income elevator. This is proof Democrats really do understand the “a rising tide lifts all boats” concept. So again, as wages rise across the board, so do treasury receipts.

And as much as unions love inflation, government, with its reliance on personal income taxes and sales taxes is downright addicted to inflation. Causing inflation is a conscious financial strategy, until it gets out of hand, as it has in the past three years. If the higher wages raise the price of, say, a fast-food meal, then the sales tax receipts rise, too. That better show up in the fiscal impact analysis. But it won’t.

No increase in the minimum wage should be considered until and unless the income tax provisions are tied to the same CPI index in exactly the same tax year. In the case of these bills, that would be with tax year 2025. It should have been part of the decision in 2020, but better late than never.

A version of this commentary originally appeared January 19 in the online Bacon’s Rebellion. Steve Haner is Senior Fellow with the Thomas Jefferson Institute for Public Policy. He may be reached at

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