On Feb. 16, by a vote of 360-45, the U.S. House of Representatives passed H.R. 976, a ten-year, $1.3 billion package of offset tax cuts designed to accompany a $2.10 per hour increase in the minimum wage. On Feb. 1, the Senate adopted S. 2 — including its own set of offset tax cuts totaling $8.3 billion over ten years. The two tax packages differ markedly in size and content, and S. 2 includes the minimum wage hike while H.R. 976 comprises only the tax provisions, which could complicate the procedural road ahead.

In January, the House adopted a "clean" minimum wage increase without any tax cuts, 315-116. But House Ways and Means Chairman Charles Rangel (D-NY) finally relented to pressure from his Senate counterparts who insisted that a clean minimum wage bill would not pass in that chamber. Rangel and Ways and Means Committee ranking member Jim McCrery (R-LA) then drafted H.R. 976, the Small Business Tax Relief Act of 2007, which the Committee unanimously approved on Feb. 12.

Provisions of H.R. 976
H.R. 976's principal tax benefits include:

• one-year extension of the work opportunity tax credit (WOTC) expanded to cover veterans and high-risk youth (estimated cost: $695 million over ten years);
  
• one-year extension of tax code Section 179 small business expensing through 2010, with an increase in the deduction ceiling (estimated cost: $68 million)

The bill's main offsets include:

• disallowing the shifting of assets by parents to wealthy dependents qualifying for the lowest capital gains and dividend income (estimated revenue: $874 million);
  
• allowing the IRS an extra four months — 22 months instead of 18 months — to notify taxpayers of failure to comply with tax obligations before the service is required to suspend interest and penalties (estimated revenue: $506 million)

Not included in the Joint Committee on Taxation's scoring is H.R. 976's extension of a tip credit provision that restaurants get for paying Social Security taxes on employee tip income above the federal minimum wage. If the proposed minimum wage increase were accounted for, the total price of the House tax cuts would rise by $552 million over ten years, to nearly $1.8 billion. The Senate bill includes no such provision.

Other Major Differences between H.R. 976 and S. 2

• Work Opportunity Tax Credit ("WOTC"): The House bill extends the WOTC for one year and expands it to include disabled veterans. The Senate provides for a five-year extension of the WOTC, also applying it to the hiring of veterans disabled after the Sept. 11 terrorist attacks. (Ten-year costs: House - $695 million; Senate - $3.6 billion)
  
• Leased Property Depreciation: S. 2 allows owners of leased property, restaurateurs and some retailers faster depreciation for improvements to leased property, extending the current provision for three months. (Ten-year costs: House - no such provision; Senate - $2.7 billion)
  
• Small Business (Section 179) Expensing: The House bill extends the so-called Section 179 expensing provision that allows small businesses to deduct from income as much as $112,000 for one year through 2010 and increases the maximum deduction to $125,000, indexed for inflation after 2010. The Senate bill provides only for a one-year extension, without an increase in the maximum, but allows it to override tax rules requiring gradual write-offs of capital investments. (Ten-year costs: House - $68 million; Senate - $257 million)
  

Business Interests Fighting Over Tax Cuts
Intense lobbying and counter-lobbying by various interests group within the business community has begun in earnest. In a Feb. 13 letter to Rangel and McCreary, the U.S. Chamber of Commerce praised the House for its "restraint . . . exercised in omitting onerous permanent tax increases from the package." The letter refers to provisions included in the Senate version that cap the deductions for deferred compensation for business executives and prohibit deduction of liabilities incurred in settlements.

But the National Federation of Independent Business (NFIB) and the National Restaurant Association are collaborating to lobby for inclusion of as many tax cuts in the final minimum wage bill as possible.

Procedural Problems May Cause Additional Delays
Because there is a constitutional requirement that tax measures must originate in the House, the next steps in reconciling the House and Senate versions of tax cuts to accompany the minimum wage increase could be complicated and take even more time. While business interests and the House and Senate continue to squabble over yet another round of tax cuts, the minimum wage increase remains unfinished, and millions of Americans who have gone over ten years without a pay raise are still struggling to make ends meet.