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February 2007
by James C. Musser, ASBA Washington Representative

The House and Senate have both passed minimum wage legislation to increase the minimum wage from $5.15 per hour to $7.25 per hour but in very different versions. The House bill passed with no tax or regulatory relief for small business. However, the Senate bill included a number of tax provisions to protect small businesses from the disproportionate impact they feel from the wage increase. 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.

In order to make the legislation palatable to the Bush Administration, as well as addressing a constitutional issue requiring tax legislation to originate in the House, Chairman Charlie Rangel (D-NY) and ranking Republican Jim McCrery (R-LA) of the tax-writing Ways and Means Committee introduced H.R. 976. Their bill, known as the Small Business Tax Relief Act of 2007, contains several provisions designed to ease the burden of the government-imposed wage hike. The major provisions include an extension of the Work Opportunity Credit, extension and increase of Small Business Expensing, often called Section 179 Expensing because of its place in the Internal Revenue Code, and enhancement of the Tip Credit for certain small businesses. As regular readers of this column know, ASBA has long been a strong and successful proponent of the enhanced expensing provision.

The Small Business Tax Relief Act of 2007 was put on the legislative fast track and passed the House on February 16, 2007, by an overwhelming bipartisan majority. In support of his legislation Chairman Rangel said, “This bill strengthens opportunities for small business and serves as a symbol of what can happen when Democrats and Republicans work together.” Rangel further stated, “This tax relief will help small businesses continue to grow and hire new workers to keep our economy strong.”

Ways and Means Committee Ranking Republican McCrery said, “I believe it is important to couple a minimum wage increase with tax cuts to help businesses that will be hurt by higher costs.” McCrery continued, “This bill will provide nearly $2 billion in tax relief and, unlike the Senate bill, much of the relief will be immediate, helping business when costs are rising, not just down the line.” The vote on passage in the House was 360-45.

The provisions of H.R. 976 will now be included in the discussions of the House-Senate Conference Committee which will reconcile the differences between the House and Senate versions of the minimum wage legislation passed earlier by each chamber. The tax issues will be the largest area of contention because the Senate bill provided nearly $8 billion in breaks for small business while the House bill provided only about $2 billion. The Conference Committee will also have to decide which off-sets to use to ensure the bill is revenue neutral.

In related news, the Arizona Republic has reported that the state minimum wage increase passed by voters in the 2006 Election in that state has already taken a bite out of businesses there. Business owners have reported cutting back hours and laying off young and inexperienced staff members. The minimum wage in Arizona was increased less than the federal plan, increasing the wage from $5.15 to $6.75 rather than $7.25 as proposed by Congress, but the state increase had no off-setting tax relief for small businesses. The Washington, D.C.-based Employment Policies Institute citing data from the Federal Reserve has indicated that a ten percent increase in the minimum wage causes a 2 to 3 percent decrease in employment.

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.