By William Roberts
Bloomberg, 2/1/07

The Senate voted 94-3 to approve the first increase in the U.S. minimum wage in a decade after Democrats and Republicans agreed to extend tax breaks for small businesses that would bear the cost of the higher wages.

The legislation, a priority of the new Democratic congressional majority, must now be reconciled with a measure passed Jan. 10 by the House of Representatives that didn't include the tax provisions. Both measures would raise the federal minimum wage to $7.25 an hour from $5.15.

"The Senate has chosen the right course of coupling an increased wage with provisions that will assist those small business employers that will face the greatest difficulty in paying those increased costs,'' said Senator Michael B. Enzi, a Wyoming Republican.

Senate Majority Leader Senator Harry Reid, a Nevada Democrat, said he was discussing with House leaders the process for agreeing on final legislation to be sent to President George W. Bush for his signature.

It might be possible to push the minimum wage bill through the Senate even if the tax breaks are stripped out in a conference with the House, which doesn't want them, he said.

"The minimum wage will be increased. The question is do we need all these business pieces of sugar or not,'' Reid told reporters. "We will see.''

The measure extends for one year the expense deductions and depreciation benefits for small businesses under Bush's tax cuts that were set to expire in 2008 and 2009.

Executive Income

The bill sets a $1 million cap on the amount of income highly paid executives can defer into future years to avoid taxes, which would raise an estimated $830 million over 10 years to help pay for the tax cuts.

Bush, in a statement released by the White House after the vote, praised the Senate measure and encouraged the House to accept it. "By working in a bipartisan way to match a minimum wage increase with tax relief for small businesses, the Senate has taken a step toward helping maintain a strong and dynamic labor market and promoting continued economic growth,'' Bush said.

In the tax cut and jobs stimulus legislation passed by Congress in 2003, small business taxpayers were allowed to deduct expenses of as much as $100,000 annually through 2009. The minimum wage proposal would extend that allowance, up to $112,000 when indexed for inflation, through 2010, according to a Senate Finance Committee summary.

$8.3 Billion Cost

The cost to the U.S. Treasury of that and other tax benefits in the Senate measure would be $8.3 billion over 10 years, according to estimates by the Joint Committee on Taxation.

The wage increase would be accomplished in three stages, rising to $5.85 an hour 60 days after enactment, then to $6.55 an hour one year after that and $7.25 an hour two years later.

The increase would affect about 15 million workers in the U.S., many of them employed in restaurants, hotels and retail operations, said Holly Sklar, a spokeswoman for Business for Shared Prosperity, a Boston-based non-profit advocacy group for higher wages.

"These are work-incentive tax provisions,'' said Senator Ted Kennedy, the Massachusetts Democrat who has championed increasing the minimum wage. "These are directly related to employment'' and therefore are the "least objectionable'' tax cuts Republicans could attach to the bill, Kennedy said.

Labor Protests

Organized labor protested the addition of the tax cuts. "The AFL-CIO and our allies plan to turn up the volume on our efforts to pass the clean minimum-wage increase low-wage workers justly deserve,'' AFL-CIO President John Sweeney said in a statement.

Senator Hillary Clinton, a New York Democrat who is running for the Democratic presidential nomination in 2008, said adding the tax provisions was necessary to win enough votes to pass the bill. "We are going to have some challenges going forward,'' Clinton said, adding, "we need to get this done and get this to the president's desk.

The National Restaurant Association, a Washington-based industry trade group, lobbied against the wage boost, saying that it would depress job growth if it didn't also include tax relief.

"The 1996 and 1997 increases in the federal minimum wage had a dramatic impact on restaurant industry employment,'' restaurant spokeswoman Chrissy Shott said in an e-mailed statement.

Senate Republicans last week thwarted an effort by Democrats to pass the minimum-wage legislation without the tax breaks.

The U.S. Chamber of Commerce issued a statement opposing the wage increase. "Any minimum wage increase will significantly affect the bottom line of the nation's small business owners,'' said Bruce Josten, chamber executive vice president for government affairs.

To contact the reporter on this story: William Roberts in Washington at wroberts@bloomberg.net .

Copyright Bloomberg 2007