House OKs Tax Breaks for Small Businesses

In a prelude to its debate over a bill raising the minimum wage, the House voted Wednesday to grant small businesses a potpourri of tax cuts and benefits designed to offset some of the costs they could expect if their low-income workers must be paid more.

The House agreed, 414 to 10, to relax a set of tax requirements and government regulations affecting small businesses after a day of behind-the-scenes negotiations that pushed back the vote on the minimum wage bill until today.

The small-business legislation was designed by House leaders to appease conservative Republicans who adamantly opposed increasing the minimum wage.

If the House passes the minimum wage bill, it will be packaged with the small-business tax bill and sent as a single measure to the Senate, where it will await an uncertain fate.

The impact on small business also figures to dominate the debate on the minimum wage. Republicans are seeking to exempt about 9 million employees of small businesses from the new minimum wage, which would reach $4.75 an hour in July and $5.15 next year.

Rep. Major R. Owens (D-N.Y.) called the exemption “one more attack on the working families of America. This is guerrilla warfare on American workers.”

The small-business tax package, also touted as a way to cushion the effects of a higher minimum wage, features a phased-in increase of deductions for the purchase of new equipment, a simpler type of pension plan and a provision that would exempt employer-paid tuition from a worker’s taxable income.

In addition, the bill would broaden a credit received by restaurants for payroll taxes paid on tips. It would also protect the retirement savings of 16 million state and local government workers in the case of municipal bankruptcies.

The bill, which would cost the government $7 billion over eight years, would make up for the lost revenue by eliminating a tax credit for U.S. manufacturers that do business in Puerto Rico.

The White House Office of Management and Budget issued a statement calling for a more limited change in the Puerto Rico exemption so that firms creating jobs on the island would continue to benefit. The OMB statement also strongly opposed a provision of the pending House legislation that would allow U.S. companies to escape income taxes by accumulating foreign earnings with no limitation.

The minimum wage legislation was born of political compromise within the GOP. Conservative critics of a minimum wage hike have argued that it would actually cost jobs for the unskilled, on the theory that employers may no longer find it profitable to fill certain jobs that add only limited value to their business.

Advocates, however, point out that the minimum wage has been severely eroded by inflation over time and falls short of a living wage, making the hike a matter of fairness.

Beyond that, an increase could have ripple effects, pushing up wages somewhat for jobs that are slightly above the minimum. Nonetheless, for all the political significance of the issue, economists generally agree that the overall impact on the economy would be modest.