House passes minimum wage bill with tax breaks

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The House overwhelmingly approved business tax breaks worth $1.8 billion over 10 years yesterday, a key step toward forging a congressional compromise on increasing the minimum wage.

The vote on the tax cuts was 360-45.

Passage of a wage increase for the lowest-paid workers now depends on how quickly the House and Senate work out differences between their tax packages. The Senate tax breaks -- worth $8.3 billion -- are more than four times bigger than the ones passed in the House.

Senate Finance Committee Chairman Max Baucus, Montana Democrat, said House and Senate negotiators could reconcile differences in the bills within two or three weeks.

"The minimum wage provision is going to trump all of this and is going to drive us to get this thing done pretty quickly," Mr. Baucus said.

Under the House bill, small businesses would see an extension in some tax write-offs that are scheduled to expire and would be able to continue to claim a tax credit for hiring disadvantaged workers. The legislation also would ensure that restaurants, which can deduct Social Security taxes paid on tips above the minimum wage, would not be hurt by the wage rise.

The House bill also would raise revenue by closing a loophole that permits wealthy taxpayers to shift income to their children and avoid higher taxes on capital gains and dividends.

The House vote displayed the influence the Senate's Republican minority can have on congressional legislation. House Democrats had demanded a minimum wage bill without any tax provisions. Senate Democrats insisted that without some tax relief, the minimum wage would lose necessary Republican backing.

Senate Republican officials predicted the final tax package would be closer to the House version than the Senate's. Small-business groups have sided with the Senate, but the U.S. Chamber of Commerce is lobbying for the House version.

The bipartisan agreement behind the House tax package was in stark contrast to the largely partisan debate on Iraq that consumed the House for most of the week. Lawmakers held up the House bill as a model for legislative cooperation. Still, some Republicans complained that Democrats prevented them from offering amendments on the House floor.

Rep. Charles B. Rangel, New York Democrat and chairman of the House tax-writing Ways and Means Committee, said the legislation "should set the tone for the rest of the Congress as we search for common ground and solutions to tough issues."

The minimum wage bill had become the new Democratic majority's first legislative challenge. The $2.10 an hour increase -- from $5.15 to $7.25 over two years -- was a Democratic campaign issue last year and was at the top of the party's legislative agenda. But the bill faltered when House and Senate Democrats disagreed on the need for tax cuts.

With its $8.3 billion tax package, the Senate would extend tax credits and tax write-offs and provide new tax preferences to certain companies. It also would eliminate some tax shelters and add new taxes on lawsuit settlements and punitive damage payments and on deferred compensation packages for higher-paid executives.

"The House package is puny," said Sen. Charles E. Grassley of Iowa, the ranking Republican on the Senate Finance Committee. He called for a compromise that would close tax loopholes, raise more revenue and "help small businesses that sometimes are hurt by an increase in the minimum wage."

Groups representing small businesses, such as the National Federation of Independent Business, prefer the larger Senate bill. The U.S. Chamber of Commerce supports the House bill because it objects to the Senate's revenue provisions, particularly the plan to eliminate deductions for payments in lawsuits.