Congress Approves Minimum Wage Hike

By Lori Montgomery
Washington Post Staff Writer
Friday, May 25, 2007

With little fanfare, Congress yesterday approved the first increase in the federal minimum wage in nearly a decade, voting to boost wages for America's lowest-paid workers from $5.15 to $7.25 an hour over the next two years.

The bill, which a spokesman for President Bush said he would sign, would end the longest stretch without an increase in the federal minimum wage since it was established in 1938. It would also mark a victory for congressional Democrats, becoming the first item to be enacted from an eight-point agenda that House leaders vowed to pursue during their first 100 hours in power.

The wage hike was largely ignored, however, during an acrimonious debate over an emergency spending bill for the Iraq war, to which it was attached. The tactic of attaching it to a must-pass bill deflected attention from an issue Democrats hammered at effectively during last year's election. But it ensured that the wage increase and $4.8 billion in corresponding business tax breaks would take effect despite objections from the White House and other Republicans who wanted a larger package of business incentives.

"Despite our dislike for this package of tax breaks," President Bush plans to sign the bill, said White House spokesman Tony Fratto. "The Democrats put this tax package together, and it's not sufficiently focused on the economic concerns of small businesses who will be most negatively affected by the minimum-wage hike."

House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.), who fought for months to restrict the size of the tax breaks, called the final product a "responsible package that provides the first wage increase in a decade and targets tax relief to small businesses."

Over the past decade, inflation has depleted the value of the minimum wage to its lowest level in more than 50 years. Thirty states and the District have set higher minimum wages, including six where voters in November approved increases at the ballot box.

According to the Bureau of Labor Statistics, about 1.7 million workers, or 2 percent of the hourly workforce, were earning $5.15 an hour or less last year. About half were under age 25, and nearly three-quarters were employed in food preparation or other service jobs.

Democrats contend the measures approved yesterday will lift the incomes of about 13 million workers -- 5.6 million who earn less than $7.25 an hour and 7.4 million people who earn slightly more but are likely to see their wages increase.

Workers would get their first raise, to $5.85 an hour, 60 days after the measure is signed by Bush. A year later, the minimum wage would rise to $6.55 an hour, and it would hit $7.25 a year after that.

Republican leaders, backed by small-business lobbyists and restaurant groups, argued that raising the minimum wage would cripple the economy unless accompanied by significant tax cuts for small businesses. A recent PNC Economic Outlook survey, conducted for PNC Bank of Pittsburgh, found that while most small and mid-size businesses would not be affected, one-third of retail and wholesale business owners said the wage hike would force them to raise prices, limit hiring, cut staff or reduce health-care benefits.

Those concerns delayed passage of the wage hike for months, as Republicans and conservative Democrats in the Senate battled Democrats in the House, who at first insisted that affected businesses get nothing. In March, Democrats tacked the wage issue onto the Iraq spending bill in hopes of breaking the logjam.

The two chambers finally struck a compromise last month that includes tax breaks worth $4.8 billion over 10 years, more than the House wanted but much less than the Senate had sought. More than half that amount -- nearly $2.6 billion -- would pay for an extension and expansion of a tax-credit program for employers who hire former welfare recipients, at-risk youths and other targeted groups.

The measure would also extend a law that allows small business to quickly deduct $112,000 for equipment purchases and raise the deduction amount to $125,000. It would allow married couples who operate unincorporated businesses to file as sole proprietorships, simplifying their tax returns, and offer tax incentives for rebuilding areas of the Gulf Coast damaged by Hurricane Katrina.

The measure includes specific breaks for restaurants, the industry expected to be hit hardest by the wage increase.

To pay for those provisions, the legislation would raise about $4.4 billion in new revenue over 10 years, mainly through stepped-up enforcement and collection of overdue income taxes. The measure also would close a loophole that permits wealthy taxpayers to shelter income by shifting it to their children.

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