By Lori Montgomery
Washington Post Staff Writer
Tuesday, February 13, 2007; D01

The House Ways and Means Committee yesterday approved a modest package of tax breaks for restaurants and small businesses that would be affected by an increase in the federal minimum wage, breaking a logjam with the Senate that has delayed passage of one of the Democrats' top legislative priorities.

By a voice vote, the committee agreed to expand and extend a handful of tax credits and deductions worth $1.3 billion over 10 years. Those provisions would be offset by adjustments to the tax code that would raise a similar amount. The full House is expected to vote on the measure later this week, Democratic aides said.

The House tax package is far less generous than an $8.3 billion package approved by the Senate this month under pressure from that chamber's Republicans, who refused to support a minimum-wage increase unless it included tax relief for small businesses. Senate leaders yesterday said they were hopeful that differences between the two chambers would be worked out. With both houses now willing to go along with tax breaks, congressional aides said it was just a matter of resolving the details.

"The bottom line is, it's moving in the right direction," said Don Stewart, spokesman for Senate Minority Leader Mitch McConnell (R-Ky.). "Everyone recognizes we have to help both the employees and the employers who hire them. I think that's clear in both parties and in both chambers."

As recently as two weeks ago, Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) and other House leaders had insisted that the Senate approve the first increase in the minimum wage in nearly a decade without tacking on a batch of small business tax breaks. After six years of tax cuts from the Bush administration, House Democrats argued, businesses needed no additional help. Meanwhile, they said, the value of the minimum wage, when adjusted for inflation, had fallen to its lowest point in 50 years and should quickly be increased from $5.15 an hour to $7.25.

However, the push to approve such a bill failed in the Senate, which instead overwhelmingly approved the wage hike with tax relief. House leaders quickly reconsidered their hard-line stance, and Rangel and the ranking Republican on Ways and Means, Jim McCrery of Louisiana, introduced their own tax package late last week.

Yesterday, after less than 30 minutes of discussion, the committee unanimously approved the package. It would extend for one year a tax credit for employers who hire former welfare recipients, at-risk youth and other targeted groups. Like the Senate bill, the House measure would expand the credit to apply to military veterans. The bill would also extend for one year a law that allows small businesses to quickly deduct $112,000 for equipment purchases, and would raise the deduction amount to $125,000.

The House bill would also adjust a tax credit paid to restaurant owners whose workers earn more than the minimum wage when cash tips are counted. That change would ensure that restaurant owners continue to receive the same tax benefit after a higher minimum wage is enacted.

To pay for the changes, the House bill would prohibit dependent children who do not support themselves from claiming the lowest tax rate for capital gains and dividends. That measure is aimed at preventing wealthy taxpayers from sheltering income from taxation by shifting it to their children. And the bill would require businesses with assets over $1 billion to pay more in estimated taxes in 2012, though all the excess payments would be returned to them in 2013. The temporary bump in revenue would cover the cost of the tax breaks through their most expensive period.

In a statement, McCrery called the package "a better balance of targeted tax relief and sensible offsets than the Senate has approved," adding that he had "serious concerns" about the Senate's proposal to impose new limits on deferred-compensation plans, one of the most popular executive benefits in corporate America. The House bill omits those limits.