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January 2007
by James C. Musser, ASBA Washington Representative

The new 110th Congress has been sworn in and the new House Democratic leadership has declared its “First Hundred Hour Program” a success. The main legislation affecting small businesses in the early going was the long promised increase in the federal minimum wage. The bill passed the House with a whopping bi-partisan majority 315-116 with 82 Republicans joining the Democrats to raise the minimum wage in phases over the next 26 months from $5.15 per hour to $7.25 per hour.

Unlike the minimum wage legislation that passed the House last year while it was still under Republican leadership, the new Democratic bill did not have any tax relief for small business. The Bush Administration has said that it will only support an increase in the minimum wage if it is paired with tax and regulatory relief to protect small businesses from the impact.

According to the U.S. Department of Labor’s 2005 estimate, the most recent available, only 479,000 workers nationwide earn the current $5.15 per hour wage. According to the Bureau of Labor Statistics, total employment in December, 2006 was estimated at 145,926,000 persons. There were 6.8 million unemployed and an unemployment rate of 4.5%.

The Senate is taking up minimum wage legislation the week of January 22, 2007. Unlike the House, the Senate intends to couple the increase in the minimum wage with tax, regulatory or health care incentives for small business. Some of the items mentioned by Senator Max Baucus (D-MT), Chairman of the tax-writing Senate Finance Committee, are leasehold and expensing provisions, accelerated depreciation for restaurant improvements from 39 to 15 years and a tax credit for employers who hire certain disadvantaged workers. The Senate tax incentives are expected to be valued in a range from $8 to $10 billion and are designed to ease the burden on small businesses from paying higher wages to entry-level workers than those workers may actual be able to produce.

There has also been some discussion of tying Association Health Plan legislation (AHP) to the minimum wage. However, Chairman Baucus has indicated that he would like to take up AHP legislation separate from the minimum wage. AHPs allow individuals to band together through trade and other associations to purchase health care coverage. AHPs would be able to operate on a national scale without being subject to state-by-state regulation. The Senate fell just short of the 60 votes necessary to pass stand-alone AHP legislation in the last Congress. The House has repeatedly passed AHP legislation on a broad bi-partisan basis.

Under new rules passed by the House, no legislation can be passed that would increase the deficit so the tax breaks in the Senate bill must be off-set by either tax hikes elsewhere in the tax code or reductions in spending to match the expected reduction in revenue from the tax cuts. Senator Baucus is working with Finance Committee ranking Republican Senator Charles Grassley (R-IA) to find off-sets for the tax cuts. Ultimately, the package of minimum wage increase, tax breaks and tax increases will be settled in a House-Senate Conference Committee. The two chambers are likely to work quickly to complete work on the legislation and send it to President Bush before work begins on the annual federal budget.

ASBA will be closely monitoring the changes in the minimum wage law and all the issues affecting small business.

James C. Musser, Esq. is a legislative consultant based in Falls Church, Virginia. His reports are updated monthly.