Senator Josh Hawley introduces alternative to minimum wage hike, a pay raise through tax credits

Josh Hawley official Congressional photo

U.S. Senator Josh Hawley (R-Mo.) announced he will introduce new legislation to give blue-collar workers a pay raise. For nearly four decades, workers making below the median wage have experienced stagnant wages, and this past year, the problem has been made worse by unprecedented layoffs, reduced hours, and income disruptions due to the government shutting down the economy over the coronavirus pandemic.

Senator Hawley believes higher wages for blue-collar workers are long overdue and that’s why he wants to provide a bonus to every worker making below the median wage.

Workers would receive the bonus directly through an automatic, advanceable tax credit tied to hours worked. Unlike other proposals to raise wages, this plan does not place a major new burden on small businesses, many of which are still recovering from harmful shutdowns.

Senator Hawley said, “Wages for blue-collar workers have been stagnant for decades. And the government made the problem worse by shutting down the economy a year ago. It’s time we give blue-collar workers some respect and a pay raise. This plan would deliver meaningful relief for families and working Americans through higher pay while incentivizing and promoting work.”

The Blue-Collar Bonus Tax Credit

Credit Amount

The credit is worth 50 percent of the difference between the median wage and the worker’s hourly wage rate. In other words, the credit would boost per hour wages 50 percent closer to the median. The median wage is set at $16.50 per hour and will be indexed to inflation. The credit is allowed for a maximum of 40 hours per week and phases out at the median wage.

  • Example: An American worker making $12 per hour would be eligible for a $2.25 per hour credit [(16.50-12.00)/2]. The maximum credit would be for 40 hours of work per week, or 2080 hours over the course of a year, allowing this full-time worker a total credit of $4,680 for the taxable year. This worker can expect to receive four distinct payments of $1,170 from the IRS.

Eligibility

American workers who hold a valid social security number and earn below the median wage as calculated on an hourly basis.

Delivery

The existing quarterly employer payroll tax reporting regime would be updated to include wage levels and hours worked for each worker who earns below the median wage. Following the submission of each tranche of quarterly wage data from employers, the IRS would send an advanceable “Blue-Collar Bonus Credit” to the eligible worker in the same payment manner by which they currently receive their tax refund, including direct deposit. Each eligible individual would receive four payments a year based on the hours they work.

Program Integrity & Sunset

Protections are included to ensure program integrity and would bar those who committed fraud from receiving the credit in the future. The credit would be implemented on a temporary basis to boost take-home pay during the economic recovery and sunset after three years.