On Feb. 1, the U.S. Senate wrapped up nearly two weeks of debate with a 94-3 vote to approve S. 2, the Fair Minimum Wage Act of 2007. The bill raises the federal minimum wage to $7.25 an hour by 2009 and extends $8.3 billion of existing small business tax breaks. The fate of the bill remains uncertain because House Democrats are reluctant to provide tax breaks for small business in exchange for passing a minimum wage hike. The House passed a version of the bill on Jan. 10 as one of the first items on Speaker Nancy Pelosi's (D-CA) "First 100 Hours" agenda this year. The bill passed, 315-116, with 82 House Republicans joining all the House Democrats voting in favor. Under the bill, the federal minimum wage is to rise to $5.85 an hour 60 days after enactment, then to $6.55 an hour one year after that, and $7.25 an hour two years later. That was a clean bill without additional riders. Twenty-nine states have a required minimum wage higher than that of the current federal level — with seven of those states already above the proposed $7.25 an hour. After the minimum wage increase passed the House, Senate Finance Committee chair Max Baucus (D-MT) repeatedly insisted that the House's "clean" minimum wage bill did not have the 60 votes needed for passage in the Senate. Baucus then produced the $8.3 billion tax cut package to help convince some Republicans to support the increase in the minimum wage. House Democratic leaders opposed this move, arguing that businesses have been the beneficiaries of one tax cut after another over the last several years, but the minimum wage has not been raised a penny since 1997. On Jan. 16, the day before the Committee was due to vote on the tax cuts, Baucus announced $8.3 billion in offsets to pay for the tax cut package. The next day, the Committee unanimously approved the package (see itemized provisions and scoring). As floor debate on S. 2 started and the number of amendments filed — all by GOP Senators — soared to over 150, frustration mounted in some quarters. Said Senate Health, Education, Labor, and Pensions Committee chair Ted Kennedy (D-MA), "We have now had amendments that have been worth over 200 billion dollars… health-savings amendments that will benefit people with average incomes of $112,000… But we still cannot get two dollars and fifteen cents -- over two years." In the final vote, only three Senate conservatives opposed the measure: Sens. Tom Coburn (R-OK), Jim DeMint (R-SC), and Jon Kyl (R-AZ). The $8.3 billion in tax cuts mainly offer depreciation and expensing advantages to small companies, including Main Street retailers that own their own stores, and to S-corporation owners, who are generally self-employed. They also include a tax credit for companies to give an incentive to hire certain populations, such as welfare recipients, veterans and food-stamp recipients. S. 2's major tax break provisions are:

• Work opportunity tax credit — extends the credit for five years, through 2012. The bill would modify the credit to also apply to the hiring of veterans disabled after the Sept. 11 terrorist attacks. (estimated cost: $3.6 billion over 10 years)
• 15-year depreciation of improvements on leased property — extends the reduced period of depreciation for three months, through March 31, 2008. ($2.7 billion)
• Small-business expensing — Section 179 deductions for small-business expenses up to $112,000 (indexed for inflation) annually would be extended through 2010, regardless of tax rules requiring gradual write-offs of capital investments. ($257 million)

Sticking to the principles of pay-as-you-go, the tax cuts are paid for mostly by closing loopholes on offshore tax shelters, by capping deferred compensation payments to corporate executives and by removing the deductibility of punitive damage payments and fines. There are also increased expensing allowances and depreciation, and accounting rules for small businesses — not necessarily cuts targeted to business owners affected by a minimum wage increase. The exception is restaurateurs, who are frequent employers of low-wage workers and would be beneficiaries of many of the tax cuts. It's now up to House Ways and Means Chairman Charles Rangel (D-NY) and the House Democratic leadership to determine the next steps. House Democratic leaders oppose linking the small business tax cuts to the minimum wage and have already indicated that any tax legislation, according to the constitution, must originate in the House. Rangel has allowed the bill to "sit at the desk," which means the House has not accepted it, and therefore, it does not trigger constitutional problems. Even if Rangel were willing to accept the tax cut trade-off, he is reportedly not happy with some of the revenue raisers used to pay for the Baucus package, since they are items Rangel may have wanted to use for other purposes. Senate Democratic leaders remain publicly hopeful that a resolution with the House can be reached quickly. Stay tuned.