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Thursday, January 11, 2007
Baucus Nearing Completion on "Trifecta Lite"
Senator Max Baucus (D-MT) is putting the finishing touches on a minimum wage bill that also cuts taxes for small businesses. Even though the House overwhelmingly passed a clean minimum wage bill, Baucus says the $10 billion in proposed tax breaks are needed to offset the hardship a higher minimum wage might impose on small businesses
Yet the tax breaks may turn out to be a windfall for businesses that don't employ low-wage workers. Only one of the tax breaks is conditioned on employing very low wage workers, and none are calibrated to compensate for the marginal costs of higher wages, assuming they aren't passed on to consumers. In testimony to Congress yesterday, Jared Bernstein of the Economic Policy Institute makes these points generally.
Since many businesses with low-wage workers are already paying wages above $7.25 (or will be by 2009), or are in states with higher minimum wages, it will be very difficult to target any offsets to firms actually facing higher labor costs due to the proposed increase.
Even if Congress could target the cuts, it is not clear what costs these tax cuts are supposed to offset. Since employment effects are negligible at best, these cuts will not lead businesses to retain workers they would have otherwise laid off. This, along with the targeting challenge, raises the possibility that the cuts could end up being a windfall for businesses that have already received billions in tax cuts.
So essentially, tax breaks and the the minimum wage increase have almost nothing to do with each other.
Sen. Baucus is taking a page from a familiar playbook here. Recall that Congressional Republicans tried to tie a minimum wage bill to unrelated tax breaks back in the infamous "trifecta" bill. The new sweeteners aren't in the same league as trifecta, which would have cost nearly $750 billion, but Sen. Baucus is playing the same cynical game of legislative horse-trading.
Call the Senate bill trifecta "lite." Minimum wage workers, denied a raise for the last 10 years, deserve better than this.
Posted by Matt Lewis
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