Senate Panel OKs Tax Breaks for Small Businesses to Ease Minimum Wage Increase

WASHINGTON – Tax breaks aimed at easing the burden on small businesses of increasing the minimum wage sailed through the Senate's tax writing committee Wednesday.

The unanimous voice vote by the Finance Committee paves the way for the full Senate to consider boosting the minimum wage to $7.25 over the next two years. The minimum wage plan is next in line for floor debate after the Senate wraps up work on an ethics and lobbying reform bill.

The tax provisions help restaurants, retailers and those hiring welfare and food stamp recipients, as well as difficult-to-hire people such as ex-convicts and the disabled.

In keeping with promises by Democratic leaders to accompany the tax cuts with balancing revenue increases, the measure also contains a variety of provisions to close tax loopholes and curb corporate tax shelters that have passed the Senate in recent years, only to die in the old GOP-dominated House.

The new House, in which Democrats hold the majority, passed the three-step minimum wage increase — initially an increase from $5.15 to $5.85 per hour — without adding tax help for small businesses that typically employee the greatest number of minimum wage workers.

In the notoriously balky Senate, however, Democratic leaders have opted to add the tax relief to ease passage by avoiding a fight with business lobbyists and the possibility of a filibuster by Republicans.

"A minimum wage hike would likely not pass the Senate without small business tax relief," said top Finance panel Republican Charles Grassley of Iowa.

The Senate's move is likely to cause delays in enacting the minimum wage bill and has generated hard feelings between House and Senate tax writers. House Ways and Means Committee Chairman Charles Rangel, D-N.Y., is guarding his chamber's right under the Constitution to go first on tax bills.

House leaders will ultimately have to accept some tax provisions or risk deadlock, however, and they want to avoid long delays in enacting the minimum wage increase.

The measure would also sharply scale back the ability of corporate executives to postpone paying taxes on deferred compensation plans, limiting the amount of deferrable income to $1 million. That provision would raise $806 million over the next decade. The plans are popular with highly paid CEOs and other executives, and the rollback prompted objections from the business lobby.

All told, the Senate measure would provide about $8 billion in tax incentives for small business by extending the ability of small businesses to defray the cost of equipment purchases. It would also allow restaurant owners and retailers — who typically hire many minimum wage workers — accelerated tax benefits on improvements to their facilities.

It would also extend for five years the work opportunity tax credit, which gives businesses tax relief for hiring a variety of people that employers are often reluctant to hire such as welfare recipients, ex-felons, the mentally and physically disabled, and inner city youth.

Both House and Senate minimum wage plans would raise the wage floor in three steps. It would go to $5.85 an hour 60 days after signed into law by the president, to $6.55 an hour a year later, and to $7.25 an hour a year after that.