Last Friday, the President signed the emergency war spending bill, which included the long-awaited increase in the minimum wage as well as $4.8 billion in tax breaks for businesses to "compensate" them for the increased labor cost they will allegedly sustain. The wage increase followed a torturous procedural path for months. After the House passed a "clean" increase in the minimum wage bill in January, the Senate passed a package of tax breaks for business based on the idea that they would need to be compensated. CTJ and other organizations found this argument extremely troubling since businesses have received hundreds of billions in tax breaks since the last minimum wage increase in 1996.

Senate Strategy Questioned

The strategy of attaching tax breaks was sometimes presented by Democratic Senate leaders as a pragmatic approach, but the wisdom of that must be questioned now that several Senators and even a majority of House members who supported increasing the minimum wage felt forced to vote against the final bill because it continued funding for a war they oppose. In the end, most advocates for working people are probably just relieved that the minimum wage increase is finally signed into law.

The Tax Provisions

The individual tax break and revenue-raising provisions are the same as those included in the emergency war funding bill that the President vetoed a month ago (H.R. 1591) because of the provisions related to withdrawing from Iraq. The largest tax break, at a cost of over $2.5 billion over ten years, is the three-and-a-half year extension of the Work Opportunity Tax Credit (WOTC), an incentive for businesses to hire welfare recipients and individuals from other at-risk groups. Other tax breaks would loosen various tax rules relating to Subchapter S corporations (which pay no corporate level tax), at a cost of $892 million over 10 years. Also included is 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.

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