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Now part of the Iraq funding bill, the minimum wage proposal has been sweetened with small-business tax breaks.

By John Arensmeyer
Small Business Review, 3/23/07

Swept back into power last November, Democrats in Congress placed a minimum-wage hike atop their “100 Hour Agenda” in January. The measure, bolstered by the passage of minimum-wage ballot initiatives that passed in six states, sailed through the House. Over two years, it would raise the minimum by $2.10 per hour to $7.25.

It would, that is, if the bill could escape from the procedural ping-pong match in which it has been trapped since January as House and Senate leaders wrestle over the details. These include an array of tax breaks for small business that have been tacked on by small-business lobbying groups. Unable to derail the bill, they have used their influence to reduce the impact by inserting language to extend and expand tax breaks.

In the latest twist, the minimum-wage law became a hostage in the battle over funding for the Iraq war. The House attached the minimum-wage bill to the Iraq supplemental funding bill that was narrowly approved earlier today. The Senate plans to do the same next week, but the prospects for passage of the Iraq bill in the Senate are far less certain.

The National Federation of Independent Businesses (NFIB), the largest small-business lobbying group, is still officially opposed to the increase, which it describes as a jobs killer. Other groups concur. “Small businesses are facing increasingly-tough competition from large corporations, expansion of big-box entities, and a fiercely competitive global market,” said Todd McCracken, President of the National Small Business Association. “Particularly in a small company, a minimum-wage increase will have a ripple-effect throughout the business.”

Employers in low-margin businesses that rely on low-cost labor are especially concerned: "One-third of those earning the minimum-wage, many of them teenagers, are employed in foodservice,” noted Brendan Flanagan, Vice President, Federal Relations for the National Restaurant Association. “We think it’s important to protect these jobs.”

But, for the first time, large numbers of businesses have come out in favor of a minimum-wage hike that would go into effect in three increments over the next two years -- from the current $5.15 per hour to $5.85 per hour within 60 days; to $6.55 per hour in 2008 and finally to $7.25 per hour in 2009.

A coalition of 650 business owners and executives, Business for a Fair Minimum-Wage, including the CEO of Costco, the CEO of the U.S. Women’s Chamber of Commerce and small business owners across the country are urging Congress to send the bill to the President’s desk without further adieu. [Full disclosure: My organization is part of this coalition.] These executives point to studies showing that states with higher minimum-wages have stronger economies and higher employment levels than those without, and a 2006 Gallup poll showing that the minimum-wage has a negligible effect on small business and that an increase is supported by half the small businesses in the country.

“A minimum-wage increase is good for my business and it’s good for the economy, because it puts money in the pockets of the people who live here locally,” says Jeff Brown, a member of the coalition who is President of Homes with a Heartbeat, a third-generation family-owned business in Oklahoma City that builds and restores homes.

Bowing to the inevitability of a hike (82 Republicans joined all 233 Democrats in passing the House measure in January), organizations such as the NFIB have pushed for an array of small business tax benefits. To make the bill filibuster-proof in the Senate, requiring a 60% majority (including at least 10 Republican votes), Senate Democrats agreed to add $8.3 billion worth of small business tax benefits. That bill was approved on February 1 by a 94-3 margin. The House responded on February 16 by a 360-45 margin with its own amended bill, containing a more modest $1.3 billion in tax breaks.

“In the end there will be minimum-wage relief,” says Michael Donahue, Senior Media Manager for the NFIB. “All social policies have winners and losers; that’s the way it is, so it is important to ensure that any losses suffered by small business be compensated accordingly.”

In a February 26 letter to the House and Senate leadership, the NFIB urged Congress to “include significant small business relief as part of…minimum-wage legislation.” The letter listed, as the NFIB’s “highest priority,” an expanded Section 179 small business expensing provision, arguing that it “has a proven stimulative effect on the economy.” The NFIB provides specific examples of each of the Senate bill’s tax provisions’ benefits on its web site.

The differences between the House and Senate bills are significant. The House legislation would extend the Work Opportunity Tax Credit (WOTC) for one year and expands the program to cover veterans. The WOTC provides tax credits to employers that hire workers who have experienced barriers to entering the workforce. The amended bill also extends Section 179 expensing limits (which allows businesses to expense capital purchases) through 2008 and increases the expensing limit to $125,000, while the phaseout threshold rises to $500,000. It also allows unincorporated businesses owned by married couples to file as sole proprietorships, penalty-free, and ensures that both spouses get credit for payroll tax purposes.

The Senate measure includes a much longer WOTC extension and a Section 179 expensing extension through 2010, but without the increased limits. It extends the 15-year write-off for restaurant improvements and leased retail space and expands the benefit to new restaurants and owned retail space. It also expands the use of the cash method of accounting and provides S corporation reform.

For now, the minimum-wage bill is caught between the two chambers. House leaders have been reluctant to allow the Senate bill to go to a joint House-Senate conference, arguing that all of its tax provisions must first originate in the House. And House Democrats are reluctant to pass a bill that contains too many of the Senate’s tax provisions.

The latest effort to attach the bill to the supplemental funding legislation for the Iraq war (along with $25 billion in other domestic spending) represents an attempt to get the bill passed as soon as possible, and to use the general support for the minimum-wage increase as an incentive to pass the more controversial Iraq provision. Aides to House Democratic leaders confirm that they are fully committed to a minimum-wage increase, are pushing the legislation any way they can, and are confident that the Senate will back off on some of its tax cut provisions. Attaching the legislation to the Iraq supplemental bill is seen a convenient, immediate vehicle to move it closer to passage, but by no means the last word if the strategy does not succeed.

John Arensmeyer is Founder and CEO of Small Business Majority, a national small business advocacy organization.

http://smallbusinessreview.com/regulations/minimum_wage_bill/