How the 2014 Minimum Wage Debate Will End

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The latest exchange on raising the minimum wage in 2014 is only one chapter in this months-long political brawl - one that will see Republicans mostly on the defensive.

Fresh ammo came Tuesday from a new Congressional Budget Office (CBO) report, which gave both advocates and opponents some statistics to crow about.

Tuesday's CBO report said that raising the minimum wage to $10.10, as U.S. President Barack Obama has proposed, would lift 900,000 Americans out of poverty, but at the cost of about 500,000 jobs.

Congressional Republicans immediately seized on the job loss number as proof that raising the minimum wage would be a bad idea. Meanwhile, Democrats focused on the number of people the increase would help.

And this is why Republicans have a tough fight ahead in the 2014 minimum wage battle - even if they succeed in preventing the increase Democrats seek...

A History of the Minimum Wage Battle: How We Got Here

First, here's how we reached this point in the minimum wage fight.

minimum wage historyPresident Obama moved the 2014 minimum wage battle into the spotlight earlier this year when he began to discuss it in his speeches, including his Jan. 28 State of the Union address.

The president took matters a step further just last week. He signed an executive order that will require businesses with new or renewed federal contracts to pay a minimum wage of $10.10 an hour by 2015.

The order will affect only about half a million workers - the constitutional limits to President Obama's executive powers prevented him from doing any more. But the action intended to set an example he wants Congress to follow, and in particular to put pressure on Congressional Republicans.

Senate Democrats have introduced a bill, the Fair Minimum Wage Act of 2013, that would raise the federal minimum wage from its current $7.25 an hour to $8.20 the first year, $9.15 the second year and to $10.10 in the third year. After that, increases would be indexed to inflation.

Senate Majority Leader Harry Reid, D-NV, said he plans to bring the bill to the floor for a vote within the next few weeks.

And the Democrats have good reason to think the minimum wage increase is a winning issue for them...

Republicans Face a Tough 2014 Minimum Wage Battle

Republicans who oppose a minimum wage increase will invite attacks from Democrats accusing them of favoring big business profits over improving the lives of the working poor.

That's why the Democrats plan to make the 2014 minimum wage battle a centerpiece of this year's mid-terms in November, when one-third of Senators and all House members must run for re-election.

The Democrats hold most of the high cards in this poker game, and they know it.

"The Republicans must not be viewed as the party that killed it," Hank Greenberg, the former chief executive officer of American International Group (NYSE: AIG), told Bloomberg Television. "If they do that, they're going to have a tough time in the forthcoming elections. So from a practical point of view I'd hope they'd get it done."

The only sticking point is the inconvenient truth that the CBO pointed out - raising the minimum wage will cost some jobs.

But even the CBO admitted it could not be certain of the impact, pointing out that the actual number could fall anywhere between a "very slight" number and 1 million jobs lost. The 500,000 figure is its best guess.

That gives the Democrats some wiggle room. Plus, they can point to numerous studies that have shown that raising the minimum wage has little impact on jobs.

That's the central argument the Republicans have, and maybe suggestions that raising the minimum wage would lead to inflationary price increases.

On the other hand, the Democrats will have plenty of talking points to fall back on in the 2014 minimum wage debate...

For one thing, the minimum wage hasn't been raised since GOP President George W. Bush did it in 2007 (another headache for Republican opponents today). When adjusted for inflation, the minimum wage is well below its historic high in 1968.

But improving the lives of the working poor will be the main thrust of the Democratic argument. The CBO report estimates that 16.5 million low-wage earners would directly benefit from an increase to $10.10 an hour, with another 7.6 million workers who earn just above that likely to get raises as well.

And just about all of that money will be spent - a stimulus for the U.S. economy that doesn't require taxpayer money.

Democrats will also argue that raising the minimum wage could save the government money. Most adults earning low wages are eligible for government assistance programs; increasing those wages would reduce their dependence on such handouts.

Those last two points are especially sticky for GOP conservatives who often complain about the expense of growing government assistance programs and the anemic economic recovery.

Republicans will also have to fend off accusations of being insensitive to the plight of the poor.

But perhaps worst of all for the GOP, the American public strongly favors raising the minimum wage.

Numerous polls put support for an increase in the minimum wage between 65% and 80% - a solid point of agreement in the American electorate. Even Republican support hovers around 50%.

But here is a way Republicans can get some benefits from this battle...

How Republicans Can Play the 2014 Minimum Wage Debate

Because the Republicans control the House of Representatives, they can block any bill sent their way by the Democratic Senate.

But as the months drag on and the fall campaigns heat up, that strategy simply hands Democratic candidates a bludgeon with which to pummel Republican opponents.

While it's always possible the 2014 minimum wage battle will end in gridlock, like so many other fights in Washington, a more carefully considered GOP strategy might agree to an increase - with some conditions.

For instance, Republicans can argue for a smaller increase, say $9.50, to mitigate the job losses. The CBO report offered an alternative scenario of a $9 minimum wage that showed much lower projected job losses of about 100,000.

The GOP also could make a case for a tiered minimum wage that pays younger workers less, as Australia does. That means wealthier suburban kids will get a much smaller raise than adults trying to run a household. This tweak gives employers more options and also helps save jobs.

While a difficult pill to swallow for many Republicans, surrendering on the 2014 minimum wage battle would pay dividends in November and allow candidates to focus on issues more favorable to the GOP, like the struggles of Obamacare.

Where do you stand on raising the minimum wage? Should we hike it to $10.10, as President Obama wants, or something lower, like $9 or $9.50? Or should we leave it as is? Voice your opinion on Twitter @moneymorning or Facebook.

The CBO has been very busy this year. Earlier this month it released a report on the impact that Obamacare would have on jobs, and this time there was no good news/bad news for the partisans in Washington to cherry pick. This is another issue you'll be sure to hear a lot more about in the months ahead...

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