Senate Finance Chairman Ron Wyden said Friday he’s drafting a “Plan B” to boost the federal minimum wage through the tax code since the parliamentarian shot down language included in a pandemic relief package.

The Oregon Democrat issued a statement saying his proposal would impose a 5 percent penalty on the payroll of “big corporations” if any of their workers “earn less than a certain amount.” The penalty would increase over time and also apply in cases where companies replace those workers with contractors, he said.

For small businesses, Wyden said he would offer an income tax credit equal to 25 percent of wages, up to $10,000 per employee, if those businesses “pay their workers higher wages.”  Details of the proposal were not immediately available.

The move came in response to guidance from the Senate parliamentarian Thursday evening that a proposal to raise the hourly federal minimum wage from $7.25 to $15 by 2025 would violate rules under the budget reconciliation process, which Democrats are using to avoid a Republican filibuster.  The so-called Byrd rule prohibits including measures in a reconciliation bill if their budgetary impact is “merely incidental” to their underlying policy objective.

Wyden said he was offering an alternative plan to raise wages through the tax code in an effort to avoid a procedural objection. “We couldn’t get in the front door or the back door, so we will try to go through the window,” he said in his statement.

President Joe Biden had proposed the minimum wage boost as part of his $1.9 trillion pandemic relief package. But he said earlier this month he did not expect the wage measure to survive in the package under Senate rules.

“While conversations are continuing, I believe this ‘plan B’ provides us a path to move forward and get this done through the reconciliation process,” Wyden said. “We can’t continue to have millions of workers — workers who are disproportionately people of color, women and essential workers like fast food workers and home health aides — earning starvation wages.”

The Retail Industry Leaders Association, which represents big-box store chains like Best Buy Co., Target Corp. and Home Depot Inc., quickly denounced Wyden’s proposal as an assault on business.

“Threatening businesses with a whopping payroll tax increase … should be a non-starter for anyone who cares about economic recovery and getting furloughed workers back on private sector payrolls,” said Austen Jensen, the trade group’s senior vice president for government affairs. “This shouldn’t be brought up under a 50-vote scenario or a 60-vote scenario; it’s a terrible idea.”

Respecting the parliamentarian

The House, which plans to vote on its version of the aid package Friday, has included the minimum wage provision despite the adverse ruling from the Senate’s parliamentarian. But the wage measure will have to be stripped out when the bill reaches the Senate unless Democrats decide to overrule the parliamentarian. The White House issued a statement Thursday night saying Biden would respect the parliamentarian’s guidance.

The White House officially endorsed the House bill Friday in a Statement of Administration Policy. “It provides the tools and support critical to meet the moment and tackle the urgent public health and economic crises the Nation faces as a result of COVID-19,” it said.

House leaders have little margin for error as they try to pass the bill Friday with most if not all Republicans opposed to it. A handful of wavering Democrats could threaten to sink the measure.

Rep. Kurt Schrader, D-Oregon, said he was leaning against the bill, partly because of the minimum wage increase. “It’s completely counterproductive to getting businesses to hire people in the middle of this pandemic,” he said, while faulting the bill for not targeting aid closely enough to those most in need.

But House Majority Leader Steny H. Hoyer, D-Md., expressed confidence that the bill would be passed with only one or two Democratic defections. “I expect to have overwhelming Democratic support,” he told CQ Roll Call. “Expecting unanimity all the time is a little tougher.”

Senate Budget Chairman Bernie Sanders, I-Vt., said Thursday night he was also working on a way to get the minimum wage increased through the tax code. It wasn’t clear whether he was referring to Wyden’s plan or a separate proposal.

“I will be working with my colleagues in the Senate to move forward with 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,” Sanders said in a statement.

The House was expected to vote on the package late Friday or early Saturday morning. The Rules Committee on Friday morning was slogging through opening statements from committee leaders and some 219 amendments that had been filed. The amendments were almost solely from Republicans, though one from Illinois Democrat Mike Quigley would make $30 billion available for gyms and fitness facilities suffering from pandemic-related lockdowns.

One was a revised manager’s amendment from House Budget Chairman John Yarmuth, D-Ky., that tacked on 56 pages to an earlier 138-page version.

A Democratic aide said the additions were mostly technical to ensure Byrd rule compliance. The amendment would also tweak language requiring additional child tax credits to be paid in advance on a monthly basis, giving the IRS a little more flexibility in the timing of advance payments.

The revised amendment also sets aside up to $20 million for premium pay for information technology costs related to reprogramming the IRS’ systems to make the new round of direct payments to households, worth up to $1,400 per person.

Paul M. Krawzak, Lindsey McPherson and Doug Sword contributed to this report.