Minimum-Wage Accord Produces Protests

By Lori Montgomery
Washington Post Staff Writer
Tuesday, April 24, 2007

The Iraq spending bill moving through Congress includes a provision to increase the federal minimum wage for the first time in a decade. But Democrats have stripped out a variety of contentious tax measures that had been tied to the minimum-wage legislation, under pressure from some of the nation's largest business lobbies.

Gone is a measure that would have restricted what executives and other highly paid employees can place in deferred-compensation plans, one of the most popular benefits in corporate America. Gone is a proposal to deny tax deductions for fines and penalties associated with lawsuits. And gone are measures to target a variety of corporate tax shelters.

The demise of these measures infuriated one of their chief sponsors, who yesterday accused Democrats of "caving in to K Street, pure and simple."

"Frankly, I thought it would be easier to close tax loopholes and tax shelters with Democrats in control of Congress than Republicans, and I've been totally dismayed," Sen. Charles E. Grassley (R-Iowa) said in an interview. "Democratic leaders blew it for small business."

Carol Guthrie, spokeswoman for Senate Finance Committee Chairman Max Baucus (D-Mont.), defended the minimum-wage package, saying Baucus "fully intends to revisit . . . provisions not included." In the meantime, the aide said, the package "offers a good opportunity to get a minimum-wage increase to workers and some tax relief to their employers, and Congress ought to jump on the chance to get that done."

The package represents a compromise between House and Senate negotiators, who had been trying for weeks to revive legislation to increase the minimum wage to $7.25 an hour from $5.15 over two years, one of the Democratic majority's top priorities. A free-standing bill stalled in February after differences emerged between the two chambers over tax incentives for restaurants and small businesses, which are expected to be hit hardest by the wage hike.

The Senate approved tax cuts worth $8.3 billion over 10 years and proposed to cover the cost by targeting corporations, executives and other highly paid workers by closing tax shelters, eliminating deductions and barring executives from placing more than $1 million a year in deferred compensation plans.

The House approved a much less generous $1.3 billion tax package, paid for primarily by closing a loophole that permits wealthy taxpayers to shelter income by shifting it to their children.

Business lobbyists quickly chose sides. The National Federation of Independent Business and small-business groups supported the Senate package, but the U.S. Chamber of Commerce lobbied heavily for the House bill in hopes of killing many of the Senate provisions.

Last month, Democrats attached the minimum-wage measure to the Iraq spending bill, a move intended to break the logjam while garnering liberal votes in the House for the war bill. On Friday, Baucus and his House counterpart, Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.), finally agreed on the incentives.

The compromise includes tax breaks worth $4.8 billion over 10 years, more than the House wanted but less than the Senate did. The agreement would extend tax credits for employers who hire former welfare recipients, at-risk youth and other targeted groups, as well as a law that allows small businesses to quickly deduct $112,000 for equipment purchases. The compromise would raise the deduction amount to $125,000.

The agreement would also allow married couples who operate unincorporated businesses to file as sole proprietorships, significantly simplifying their tax returns. It would provide a variety of tax incentives for rebuilding areas of the Gulf Coast damaged by Hurricane Katrina. And it would include specific breaks for restaurants, which employ a large number of the nation's minimum-wage workers, though a proposal to make it cheaper to lease space for new establishments was dropped.

To pay for those provisions, the agreement would close what congressional aides have come to call the "kiddie" tax shelter while making it easier for the Internal Revenue Service to collect overdue taxes and punish offenders.

In addition to Grassley, other Republicans are unhappy with the plan. Rep. Jim McCrery of Louisiana, the Ways and Means Committee's chief minority member, issued a statement yesterday calling the compromise "disappointing" because "very little of the tax relief . . . goes to affected small businesses."

If President Bush follows through on his threat to veto the Iraq bill, Democrats said, they will push the compromise package in separate legislation.

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