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An Estate Tax Twist Reverses Party Roles On Minimum Wage

Sens. Hillary Rodham Clinton, far left, and Charles E. Schumer join Sen. Edward M. Kennedy as he discusses the bill.
Sens. Hillary Rodham Clinton, far left, and Charles E. Schumer join Sen. Edward M. Kennedy as he discusses the bill. (By Win Mcnamee -- Getty Images)

But business lobbyists said the trade-off between a lower estate tax and a higher minimum wage clearly favors the business community and upper-income Americans. The proposed reduction in the estate tax would lower federal tax revenue by $268 billion over the next decade, according to one estimate.

"Every closely held business in America today is either affected by the death tax or could be affected by it," one top business lobbyist said. "At the same time, less than 3 percent of the country's workers get paid at the minimum wage." In addition, the lobbyist said, "people in the business community understand that it is valuable to Republicans standing for election in November to demonstrate that they have compassion for folks at the lowest end of the economic ladder."

C. Eugene Steuerle, an economist at the Urban Institute, said: "Business groups are saying, in effect, the estate tax change is far more important to them than is the consequence of an increase in the minimum wage. And the unions are saying the increase in the minimum wage isn't as important to them as you might have thought it was."

In the Senate, Republican and Democratic leaders are playing hardball over the measure. Majority Leader Bill Frist (R-Tenn.) warned that he will not permit any other votes this year on any major element of the bill if the overall package is blocked this week. Minority Leader Harry M. Reid (D-Nev.) has pledged to do everything he can to defeat the bill because it includes estate tax relief.

Democrats have been accusing Republicans of ignoring the plight of low-income families and have used their call for a minimum-wage increase as an effective campaign issue. Polls show that a majority of Americans favor an increase in the minimum wage. But if Congress succeeds in passing an increase as part of the larger package, that will undermine the Democrats' effort and allow the GOP to claim credit for helping low-income Americans, some Democratic aides say.

The Republican Party has pushed for years to make estate tax reductions permanent and would be rewarded by the conservative part of its base if it could make that happen. Democrats, meanwhile, overwhelmingly condemn the estate tax cut as a gift to the rich that a government running a $300 billion budget deficit could ill afford.

The estate tax provision would exempt from taxation all estates worth as much as $5 million -- or $10 million for a married couple -- and apply a 15 percent tax rate to inheritances above that threshold and up to $25 million. For estates exceeding $25 million, the tax rate would be 30 percent.

The tactic of pairing the wage and tax provisions was devised by House Majority Leader John A. Boehner (R-Ohio) and Ways and Means Committee Chairman Bill Thomas (R-Calif.), in consultation with Frist.

To lure some lawmakers whose votes are up for grabs, the bill also includes a slew of special tax benefits. A provision that would provide extra write-offs for timber extraction was included to tempt such timber-state lawmakers as Sens. Mark Pryor (Ark.), Maria Cantwell (Wash.) and Patty Murray (Wash.), three Democrats whose votes may be crucial to passing the legislation.

The AFL-CIO is hoping Democrats can block the trifecta legislation so that organized labor can press Congress to approve a stand-alone minimum-wage increase in September. "We do want a minimum-wage increase, and we think we're going to get it," Samuel said.

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