http://www.latimes.com/business/la-fi-minwage2feb02,0,1144018.story?track=tothtml
Proposed tax breaks split state's businesses
A federal minimum wage bill pits the interests of small
companies against those of large corporations.
By Molly
Hennessy-Fiske
Times Staff Writer
February 2, 2007
WASHINGTON —
Tax provisions in the landmark minimum wage bill passed by the Senate on
Thursday have divided the California business community, pitting the interests
of small businesses against large corporations.
The tax provisions were
added to the legislation by Senate Democrats as a concession to small businesses
and Republicans who initially opposed the bill, which would raise the federal
minimum wage for the first time in a decade.
Under the bill, which passed
the Senate by a 94-3 vote, the federal minimum wage would go to $5.85 from $5.15
an hour within 60 days after the legislation became law, then rise to $6.55 in
2008 and $7.25 in 2009. If the measure can be reconciled with a House version
that passed without the tax package Jan. 10, millions of workers could see their
wages increase in 21 states that pay the federal minimum, including three in the
West: Idaho, Utah and Wyoming.
The new federal minimum wage would not
affect California, where the state-mandated minimum rose to $7.50 an hour Jan.
1.
The Senate bill includes extensions of business tax credits,
deductions and other new tax breaks totaling an estimated $8.3 billion over 10
years, designed to offset the effect on small businesses of a higher minimum
wage.
To help pay for the tax breaks, the bill would raise revenue by
preventing companies from deducting the cost of jury verdicts or settlements
against them in liability suits and by capping executives' tax-deferred pay
packages, among other changes.
California small-business owner Mike
Horner said the proposed tax breaks would help him cover rising
costs.
Horner is president of Pasadena-based Tom Sawyer Camps Inc., which
runs summer and year-round after-school camps. The company employs 20 full-time
staff and 200 seasonal workers, about 60% of whom earn minimum wage, Horner
said.
The tax breaks include a one-year extension of a provision that
allows small businesses such as Horner's to combine as much as $112,000 in
expenses into one annual tax deduction.
They also would speed up the
depreciation schedule for improvements to restaurants and retail properties —
where most minimum-wage workers are employed — and extend for five years a tax
credit for businesses that hire low-income or disadvantaged
workers.
Horner said he relied on one of the tax provisions extended in
the Senate bill to deduct the $200,000 cost of buying 10 passenger vans in the
last two years.
"I'm sure it's very valuable to a lot of other small
businesses and probably has encouraged a lot of capital purchases," Horner said
of the tax break, especially for California businesses struggling with rising
payroll costs. "We've been well ahead of the [federal] minimum wage, so anything
to help us offset that cost increase here will be good."
Many
small-business groups that once opposed legislation to raise the minimum wage
came out in support of the Senate bill because of the tax breaks.
"We're
holding our nose, but we're supportive of it because there are small-business
tax cuts included," said Susan Eckerly, vice president of federal policy at the
national Federation of Independent Business, which includes 600,000 businesses,
most with fewer than 10 employees.
But the U.S. Chamber of Commerce and
some large businesses oppose the Senate bill, arguing that it helps small
businesses at their expense.
Bruce Josten, the chamber's top lobbyist,
said the Senate bill would temporarily extend tax cuts for small businesses
while imposing huge new burdens on big businesses. "Those provisions are not
enough to make up for the tax increases that pay for it," he said of the
bill.
Ending the business deduction for court settlements, jury verdicts
and fines would generate about $540 million over 10 years. The provision that
caps tax-deferred compensation at $1 million a year, or a figure equal to the
five-year average of an employee's taxable salary, whichever is less, would
generate about $810 million in revenue over 10 years, according to the Senate
Finance Committee.
"You'd be effectively penalizing large businesses
while trying to laudably raise the minimum wage," said Scott Dunham, partner and
chair of the labor and employment law practice group at O'Melveny & Myers, a
Los Angeles-based law firm that employs more than 1,000 lawyers
internationally.
Dunham called provisions in the bill concerning
tax deductions for settlements, fines and jury verdicts "fairly far-reaching and
draconian in scope" and said they could affect many of the firm's corporate
clients. He added that if companies were unable to deduct the cost of
settlements, they could decide to litigate more cases, further clogging
California's courts.
The Senate bill would also close certain loopholes
for companies that set up foreign tax shelters and would bar firms caught hiring
illegal immigrants from federal government contracts for as many as 10
years.
House Democratic leaders have objected to the Senate's inclusion
of the small-business tax breaks, but the breaks were crucial to winning
Republican votes needed to pass the bill through the narrowly divided Senate.
With Democrats now in control of both chambers and an increase in the minimum
wage a top Democratic priority, an agreement is expected soon.
President
Bush praised the Senate bill and urged the House to support it.
"By
working in a bipartisan way to match a minimum wage increase with tax relief for
small businesses, the Senate has taken a step toward helping maintain a strong
and dynamic labor market and promoting continued economic growth," Bush said.
House Speaker Nancy Pelosi (D-San Francisco) plans to push for passage
of the bill without the tax provisions, but she would support them as a separate
tax package, spokesman Brendan Daly said late Thursday.
*
molly.hennessy-fiske@latimes.com
Times staff writer Richard Simon
contributed to this report.
*
Begin text of infobox
Provisions of the Senate bill
The Senate voted to raise the
federal minimum wage to $5.85 from $5.15 an hour starting 60 days after the bill
became law. The minimum would increase to $6.55 in 2008 and to $7.25 in
2009.
The legislation also includes new tax savings for businesses that
would:
• Extend tax breaks that allow small businesses to deduct as
much as $112,000 in new investments a year.
• Reduce the
depreciation period businesses face for improvements to retail
properties.
• Extend a federal tax credit for businesses that hire
low-income or disadvantaged workers.
Those tax savings would be paid for
by new limits on businesses that would:
• Prevent corporations
from deducting the cost of jury verdicts or settlements in liability
suits.
• Cap executives' tax-deferred pay packages at $1 million a
year.
Source: Times research
Los Angeles Times