Clinton, GOP Offer Deal on Tax Breaks, Minimum Wage Hike

President Clinton and Republican leaders in Congress on Wednesday agreed in principle to increase the federal minimum wage by $1 over two years and link it to a package of tax breaks to encourage retirement savings, help small businesses and promote investment in poor urban areas.

Still, obstacles to a final accord remained because Republicans are insisting on linking the wage and tax bill to education and health care proposals that the administration opposes. Those disagreements could scuttle enactment of the minimum wage hike and tax breaks, though both sides seem to want to avoid such a standoff.

Optimism that a deal is in the offing surfaced when Clinton and House Speaker J. Dennis Hastert (R-Ill.), in an exchange of letters Wednesday, expressed willingness to reach a compromise that could pave the way for legislation that would, among other things, hike the minimum wage from $5.15 an hour to $6.15 by 2002 and increase from $2,000 to $5,000 a year the amount of money people can deposit in tax-deferred individual retirement accounts.

“Both sides need to give a little in order to accomplish bipartisan tax legislation this year,” Clinton said in his letter to Hastert.

But the bill unveiled later by Republicans did not go as far as Clinton wants in providing tax breaks for school construction and helping people without health insurance.

Also, the GOP bill includes an unrelated measure that would restore $28 billion in Medicare funding that previously had been cut from payments to hospitals, health maintenance organizations and other health care providers--a measure that Clinton previously threatened to veto because he believes it would give too much to HMOs.

“We’re still too far away from a bill the president could sign,” Gene Sperling, Clinton’s top economic advisor, said Wednesday night. “But we’re hopeful that Republicans would choose to work in good faith to find an acceptable agreement as opposed to seeking to force a presidential veto.”

GOP leaders said that they hope to bring the legislation before the House and Senate later this week in what may be one of the last acts of this session of Congress.

An increase in the federally mandated minimum wage would be important to California, even though the state already has a higher minimum wage--$5.75 an hour now, scheduled to rise to $6.75 by 2002, making it one of the nation’s highest. The state’s business community is eager to see the gap between the federal wage rate and the figure for California reduced, fearing that otherwise it puts the state at a competitive disadvantage.

Conservative Republicans have staunchly opposed the wage increase, arguing that higher payroll costs would lead businesses to hire fewer people. But GOP congressional leaders long ago conceded that a wage hike is inevitable, given that it is a top priority of Democrats and is supported by moderate Republicans in union-heavy districts.

Hastert, in his letter to Clinton, removed a big obstacle to compromise by agreeing to drop some labor law changes that Republicans had wanted and Democrats opposed. But GOP leaders continued to insist that the wage hike be coupled with tax cuts, in part to help small businesses absorb higher payroll costs.

The proposed GOP bill would cut a variety of taxes by about $245 billion over 10 years. That pales in comparison to the $792 billion in tax cuts Republicans sought last year in a bill that Clinton vetoed. The president this year also vetoed GOP measures to reduce taxes on married couples and on inherited wealth.

In his letter to Hastert, Clinton embraced provisions of the bill that would increase incentives to save for retirement. The legislation would raise the ceiling on annual contributions to IRAs--retirement savings accounts on which profits accrue tax-free--from $2,000 to $5,000. It also would increase from $10,500 to $15,000 a year the amount workers can contribute to 401(k) plans--the tax-deferred retirement accounts that increasing numbers of employers are offering.

More controversial, however, are provisions that would provide tax relief for health care costs. One would create a new tax deduction for health insurance premium costs for people who do not have employer-sponsored insurance. Clinton and other Democrats have strongly opposed such deductions, arguing that they would do little to reduce the ranks of the uninsured because many are too poor to pay taxes. They argue that tax credits--providing federal payments to those with no tax liability--would deliver more direct benefits to the people who need it most.

The Republican bill also would provide a new tax deduction for people who provide long-term care for a relative. The deduction would begin at $3,000 in 2001 and rise to $10,000 in 2008, and would be available regardless of whether a taxpayer itemizes deductions. There too, Democrats argued that a tax credit would be more effective.

Clinton also objected that the proposed bill would not provide as big a tax break as he wants to subsidize school construction bonds and did not include provisions, backed by labor unions, requiring that federally subsidized projects pay wages on par with union scale.

Other, less controversial provisions of the bill include:

* Tax breaks for small businesses, including an increased deduction for business meals.

* An economic development initiative, endorsed months ago by GOP leaders and Clinton, that would provide tax breaks for companies that invest in impoverished urban and rural areas, including the elimination of capital gains taxes for business assets in designated areas.

* An extension, through 2005, of tax credits for adoption expenses, raising the maximum credit from $5,000 to $10,000 a year, and to $12,000 for adoption of children with special needs. The legislation also would expand eligibility for the credit.

* Authorization of $10 billion in bonds for Amtrak for development of high-speed rail service, a measure important to Sen. William V. Roth Jr. (R-Del.), who is facing a tough reelection fight in a state in which many commuters use the federally run railroad.

In other action Wednesday, the House and Senate approved a $14.9-billion foreign aid bill that was one of a handful of spending measures Congress needs to enact before adjourning for the year. The foreign aid bill would scrap restrictions that curtail U.S. funding for overseas groups that perform abortions or advocate abortion rights. It also would forgive the debts of dozens of impoverished nations.