Debate Continues Over "Compensation" for Business

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House of Representatives Willing to Accept Some Tax Breaks as Part of Minimum Wage Deal

The House Ways and Means Committee on Monday approved a package of small business tax breaks to be combined with legislation to increase the minimum wage. At a cost of $1.3 billion over ten years, the Ways and Means package is much smaller than the $8.3 billion deal approved by the Senate by a vote of 94-3 on February 1. Senate leaders said that the House, which had previously approved a "clean" or stand-alone minimum wage increase, was now showing that it was ready to negotiate and compromise, although significant differences between the two chambers remain. A clean minimum wage hike in the Senate had earlier fallen six votes short of the 60 votes needed to pass in that chamber, as several Republican Senators insisted that the legislation include tax breaks to "compensate" businesses for the added costs. (The last minimum wage increase, back in 1996, is estimated to have cost employers $13 billion while the total tax breaks for businesses since that time cost $276 billion.)

The largest tax break in the House bill would be a one-year extension of the Work Opportunity Tax Credit (the Senate version would extend it for 5 years). The second largest tax break would be a change in the Alternative Minimum Tax (AMT) paid by restaurants, allowing them to use a tax credit for FICA taxes paid on tipped workers and the Work Opportunity Tax Credit to reduce their AMT. A smaller break, but one apparently important to business lobbyists, is a one-year extension of a special expensing provision (section 179) through 2010 and an increase in the amount that can be expensed.

Costs of Tax Breaks, Revenue Increases from Offset Provisions, 2007-2017

Another provision of the package is currently scored as having no cost, but it is noted that it will cost a projected $457 million (over ten years) when the tax package is combined with a minimum wage hike. This provision concerns the tax credit restaurants get for paying FICA taxes on tips above and beyond the amount that brings employee pay up to the minimum wage. This provision enables restaurants to enjoy as much of the credit as they do today, even though the minimum wage will be higher so the credit would otherwise decrease.

As for the offsets, the largest in the package would stop children of wealthy families from enjoying special capital gains and dividend tax breaks meant for low-income people. The other significant change would allow the IRS to charge interest on delinquent payments for a longer period of time before it must give notification and suspend interest.

The legislation does not include some tax breaks sought by business lobbyists and included in the Senate version, such as increased write-offs for restaurants and retail stores. It also does not include the offsets included in the Senate version. Some of the Senate offsets have been controversial (among business lobbyists) such as the $1 million limit on deferred compensation that can receive tax breaks and retroactive restrictions on sale-in, lease-out arrangements (SILOs).

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