House Passes Tax Breaks Linked to Minimum-Wage Bill

The fate of a higher federal minimum wage for the lowest paid workers no longer depends on whether small businesses will get tax breaks. The pending question is the size of the breaks.

The House overwhelmingly approved business tax breaks worth $1.8 billion over 10 years on Friday, a key step toward forging a congressional compromise on increasing the minimum wage.

The vote on the tax cuts was 360-45.

Passage of a wage hike for the lowest-paid workers now depends on how quickly the House and Senate work out differences between their tax packages. The Senate tax breaks -- worth $8.3 billion -- are more than four times bigger than the ones passed in the House.

Senate Finance Committee Chairman Max Baucus, D-Mont., said House and Senate negotiators could reconcile differences in the bills within two or three weeks.

"The minimum wage provision is going to trump all of this and is going to drive us to get this thing done pretty quickly," Baucus said.

The minimum wage bill has become a test case for the new Democratic majority in Congress. The $2.10 an hour increase--from $5.15 to $7.25 over two years--is one of the party's legislative priorities. But the bill stumbled when House and Senate Democrats disagreed on the need for tax cuts.

Restaurateurs, retailers and other small-business owners who usually employ low-wage workers contend they need tax relief to make up for the higher overhead of a wage increase.

Two Different Packages

The Senate bill includes an $8.3 billion tax package that extended tax credits and tax write-offs, and provides new tax preferences to certain companies. It also would eliminate some tax shelters and add new taxes on lawsuit settlements and punitive damage payments and on deferred compensation packages for higher-paid executives.

The House legislation, though smaller, also would extend business tax credits and increase the amount of capital spending that a business can write off. Restaurants would get a break on how to calculate deductions for Social Security taxes paid on tips.

The House bill would be paid, in part, by eliminating a provision that allows wealthy taxpayers to shift income to their dependent children to avoid higher capital gains and dividend taxes.

The tax bill identifies about $1.4 billion from revenue provisions in the bill to help pay for the House tax cuts. House tax writers said tax revenue generated by a higher minimum wage also would bring in more than $400 million over 10 years, thus covering the full cost of the $1.8 billion tax package.

Both the House and Senate bills provide most of their tax relief over the next five years.

Small-Business Groups

Groups representing small businesses, such as the National Federation of Independent Business, prefers the larger Senate bill. The U.S. Chamber of Commerce supports the House bill because it objects to the Senate's revenue provisions, particularly the plan to eliminate deductions for payments in lawsuits.

"The business community is never going to capitulate on that," said Bruce Josten, the chamber's top lobbyist.

The White House issued a lukewarm endorsement of the House tax breaks, but indicated its preference for the larger Senate cuts. Nevertheless, the White House argued that neither the House nor Senate bill needs to cover the cost of the tax cuts with new revenue.

House Democrats at first did not want tax breaks paired with the minimum wage bill. Senate Democrats said they needed a tax package to win enough Republican support to overcome procedural tactics that could kill the wage increase.

It takes 60 votes in the 100-member Senate to overcome obstacles such as a filibuster. There are 49 Republicans in the Senate, a number that gives them a considerable voice on legislation.

The question facing House and Senate negotiators is how small can the tax cuts be before Senate Republicans decide to vote against the overall legislation.