The Senate voted overwhelmingly Thursday to boost the federal minimum wage by $2.10 to $7.25 an hour over two years, but packaged the increase with controversial tax cuts for small businesses and higher taxes for many $1 million-plus executives.
The increase in the minimum, the first in a decade, was approved by a 94-3 vote, capping a nine-day debate over how to balance the wage hike with the needs of businesses that employ low-wage workers.
A top priority of Democrats, the wage hike has both real and symbolic consequences. It would be one of the first major legislative successes of the new Democratic-controlled Congress.
"Passing this wage hike represents a small but necessary step to help lift America's working poor out of the ditches of poverty and onto the road toward economic prosperity," said Sen. Edward Kennedy, D-Mass.
President Bush urged the House to support the measure, including the tax help for small business. He said, "The Senate has taken a step toward helping maintain a strong and dynamic labor market and promoting continued economic growth."
Reconciling with House bill
The bill must now be reconciled with the House version passed Jan. 10 that contained no tax provisions. House Democrats have insisted they want a minimum wage bill with no strings attached, though some have conceded the difficulty of passing the legislation in the Senate without tax breaks.
Republicans stressed the importance of the business tax breaks in the bill, though it was a significantly smaller tax package than Republicans had sought during previous attempts to raise the minimum wage.
"The Senate's reasonable approach recognizes that small businesses have been the steady engine of our growing economy and that they have been a source of new job creation, a source of job training," said Sen. Michael Enzi, R-Wyo., who helped manage the debate for the GOP.
The bill presents a challenge to Democrats who must navigate between the demands of labor and other interest groups and the realities of the Senate, where Republicans hold 49 of 100 votes. House and Senate Democrats will try to negotiate a way out of the potential standoff.
House Speaker Nancy Pelosi, D-Calif., has said she supports some of the tax provisions in the House package, but she also has said she would prefer they be put in a separate, House-initiated tax bill.
A spokesman for Senate Majority Leader Harry Reid, D-Nev., said the tax breaks are necessary to overcome a potential GOP filibuster.
"Of course, Democrats would prefer to pass a clean increase in the minimum wage," said the spokesman, Jim Manley. "The fact is that Republicans have made it very clear that the only way we will pass a modest increase in the minimum wage is with tax breaks for small business."
Tax break details
Besides increasing the minimum wage from the current $5.15 an hour, the bill would extend for five years a tax credit for businesses that hire the disadvantaged and provide expensing and depreciation advantages to small firms. The tax breaks would be paid for by closing loopholes on offshore tax shelters, by capping deferred compensation payments to corporate executives and by removing the deductibility of punitive damage payments and fines.
Senators also adopted an amendment that would bar companies that hire illegal immigrants form obtaining federal contracts. That measure was designed to encourage companies to participate in an employee identification program that can weed out undocumented workers.
While the tax breaks have won the support of small business groups as well as retailers and restaurant owners, they have drawn opposition from larger businesses that would bear the brunt of the revenue provisions. Several business groups also opposed the immigration measure.
After the House passed its bill on Jan. 10, the White House issued a statement insisting that final legislation include small business tax breaks. It subsequently issued a statement supporting the Senate version, but said the revenue measures were not necessary.
According to the Labor Department, 479,000 workers earned exactly $5.15 an hour in 2005, the most recent estimate available. Most are young and unmarried and more likely to be women, minorities and part-time workers. According to the liberal Economic Policy Institute, the increase would affect 5.6 million who make less than the proposed minimum of $7.25.
More than two dozen states and the District of Columbia have minimum wages higher than the federal level. The political potency of the issue was evident last November, when proposals to raise statewide minimums passed in all six states where they came to a vote.
Rep. George Miller, D-Calif., a close ally of Speaker Pelosi, said he has talked to key Democrats in the House and Senate to make sure the differences in the bills don't derail the effort to raise the minimum wage.
"We just have to sort it out," Miller said. "I think it can be done. Just don't ask me how."