Minimum wage still faces hurdles as Democrats debate tax breaks

WASHINGTON -- Low-wage workers will have to wait to see an increase in the minimum wage, a Democratic priority now caught in a party dispute over business tax breaks.

Democrats were trying to avoid an impasse over the legislation, but differences between House and Senate bills to raise the wage floor by $2.10 an hour posed the first test for a party newly in control of Congress.

At issue are tax breaks, worth $8.3 billion over 10 years, that the Senate included in its bill to help small businesses offset the cost of paying higher wages. The Senate bill passed Thursday by an overwhelming 94-3 vote. A House bill that breezed through last month contained no tax cuts.

How the conflict is resolved remains unclear, though party leaders in the House and Senate said they were certain the minimum wage would ultimately become law.

Senate Democrats say they need the tax cuts to win Republican support to overcome procedural blocks against the legislation. It takes 60 votes in the 100-member Senate to cut off debate on legislation. There are 49 Republicans in the Senate.

House Democrats continued to hold out Friday for a "clean" bill without tax breaks and urged Senate Democrats to challenge Republicans to vote against a wage-only bill.

"We believe that this bill ought to move on its own merits and be sent to the president," House Majority Leader Steny Hoyer said. "We're hopeful that that will happen."

Hoyer said he was not "drawing a line in the sand" but said the minimum wage and the tax breaks "don't necessarily need to be attached."

For House Democrats, eliminating the tax breaks has important practical and political consequences.

Under rules adopted by the new Democratic Congress, all spending increases and tax cuts must be paid for by increasing revenue or cutting spending elsewhere. The $8.3 billion in small business tax cuts are paid for by closing tax loopholes on offshore tax shelters, taxing corporate executives for big compensation packages, and removing corporate tax deductions for punitive damage awards in lawsuits and for fines paid to government agencies.

Such revenue is a precious commodity under the new so-called pay-go rules.

Sen. Richard Durbin, D-Ill., the assistant Senate Democratic leader, said Democrats would "rather spend $8 billion on other things. They think there are higher priorities and there are more serious challenges than to come up with additional breaks for businesses."

What's more, Democrats and their organized labor allies reject the argument that small businesses need tax breaks to offset the minimum wage.

"We don't want to validate the claim that small businesses that have been paying below-poverty-level wages need relief before they can start paying decent wages," said Bill Samuel, the legislative director for the AFL-CIO.

House Democrats do support some of the tax breaks in the Senate package, but they insist they should be considered separately. Still, the final outcome could be a compromise that retains some, but not all, the breaks that the Senate approved.

Republicans warned Democrats not to tamper with the Senate version, arguing that the tax breaks and the wage hike offered the right economic and political balance.

Sen. Charles Grassley, R-Iowa, said the overwhelming vote in favor of the Senate bill was a clear signal that the minimum wage and tax breaks must be linked. He scolded House Democrats for insisting that the tax provisions be removed.

"No one should be mistaken," Grassley said. "It is House Democrats, not Senate Republicans, who are delaying passage of the minimum wage."

Both sides were girding for a fight, already blaming each other for any obstacles to reconciling the House and Senate bills.

"Republicans are demanding billions in corporate tax breaks in exchange for a $2 bump in the minimum wage," said Gerald W. McEntee, president of the American Federation of State, County and Municipal Employees. "As they play their political games, low-income workers continue to wait for their first raise in a decade."

Complicating the House-Senate negotiations are constitutional precedents that require tax legislation to originate in the House. The House could draft a small business tax bill and send it to the Senate where it would dovetail with the Senate minimum wage bill. House and Senate negotiators could also meet in a joint conference committee to reconcile the two bills.

Grassley said he was wary of a conference committee because he feared House and Senate Democrats would conspire to strip out the tax breaks.

The legislation would raise the minimum wage in three steps. It would go to $5.85 an hour upon taking effect 60 days after the president signs it into law, then to $6.55 an hour a year later, and to $7.25 an hour a year after that.