Senators Highjack Minimum Wage Increase

Posted on Jan 18, 2007

By Marie Cocco

WASHINGTON—The first unsettling embarrassment of the new Democratic Congress is about to unfold.

Senate Democrats are about to turn an overdue, utterly necessary and enormously popular proposal to increase the federal minimum wage into a monumental duel among tax lobbyists.

This spectacle, as minimum-wage legislation begins moving through the Senate, is being staged by Democrats who deposed the ruling Republicans last November. The Republicans lost in good part because they had seized every chance to take legislation meant to do a public good, and turned it into a trough for special interests. When they held the levers of power, Republicans tried to tie an increase in the $5.15 minimum wage—under which a full-time worker earns $10,700 a year—with a cut in the estate tax paid only by heirs who inherit $3.5 million or more.

Now comes a bipartisan coupling of the minimum wage hike with billions in tax breaks for business owners who are quite a bit better off than the janitors who empty their trash. Sen. Max Baucus, D-Mont., the new chair of the Senate Finance Committee, and Sen. Chuck Grassley, R-Iowa, its ranking Republican, want to give ``small businesses’’ about $8.3 billion in new tax breaks, ostensibly to cushion the hardship businesses will incur if they have to increase the pay of their workers from sub-poverty levels to an amount that would still leave a full-time, minimum wage worker struggling near the poverty line. Contrary to popular political fiction, minimum-wage workers aren’t just suburban teenagers scooping ice cream. About half are the chief breadwinners in their households, according to Census Bureau data analyzed by the Center on Budget and Policy Priorities, a liberal-leaning think tank.

So many inconvenient truths lie behind this forced marriage. Little, if any, job loss occurred after the last minimum-wage hike in 1997, according to several economic studies. Nor was small business damaged: A 2004 study by the Fiscal Policy Institute that compared 10 states that had raised their minimum wage with states that had not, showed that small businesses in the higher-wage states fared better. They added more employees, boosted payrolls and the number of small businesses grew.

If there were some link between strained, small enterprises and an increase in the wage floor, none of the tax breaks in the Baucus-Grassley package would address it. The breaks would not require businesses to have minimum-wage workers on the payroll. None would be targeted only at companies in the 21 states that would be affected by a hike in the federal minimum—the rest of the states already have raised the wage.

Even the sweetest-sounding proposal, an expansion of the Work Opportunity Tax Credit—meant to boost hiring of welfare recipients, the disabled and other disadvantaged laborers—isn’t a small-business break. ``It’s absolutely any company and most of the companies who take it are huge,’’ says Sarah Hamersma, a University of Florida economist who has studied the credit’s use. Among those urging Congress to renew the credit are such mega-corporations as Verizon Communications, Hilton Hotels, Georgia-Pacific Corp. and JP Morgan Chase. It is hardly a coalition of the struggling.

Hamersma’s research showed that only a quarter of those hired with the credit started work for less than $6 an hour; the rest earned more. ``In the same way it’s not restricted to small business it’s not restricted to minimum-wage workers,’’ she says.

Now the false premise of tying the wage hike to tax breaks is to become ensnared in more legislative finagling. Under new budget rules set by the Democrats, lawmakers must come up with ways to offset the $8.3 billion revenue drain. So Baucus and Grassley have a companion package of tax hikes to soak the rich and the reliably unsympathetic. That is, they would tighten up on maneuvers that now allow rich corporate chieftains to defer taxes on huge sums of money, and constrain wealthy expatriates in their endless pursuit of offshore havens. Who could be against that?

No one—except the lawyers and lobbyists for the chieftains and expatriates. They will now choke the Capitol’s corridors along with the lawyers and lobbyists for allegedly suffering small businesses who do not necessarily employ minimum-wage workers.

An African proverb applies: When elephants fight, it is the grass that suffers. The unnecessary linkage of a raise in the minimum wage with tax changes that excite armies of lobbyists is ominous. The nation’s poorest workers—again—risk being trampled.

Marie Cocco’s e-mail address is mariecocco@washpost.com.

(c) 2007, Washington Post Writers Group