Small Businesses Weigh In on Wage Hike

The incoming chair of the Senate Finance Committee predicts a minimum-wage increase will be passed this year, as long as it's paired with tax cuts for small businesses.

Two senators got the ball rolling on pushing a minimum-wage increase bill through Congress this year by introducing legislation linking a tax credit for small businesses to the hike. Lawmakers are tying the issues together in order to put an end to the drawn-out battle in Congress to get a minimum-wage measure passed.

The main sticking point for raising the federal floor of the current $5.15 hourly wage for the first time since the mid-1990s has been how small businesses would cope with having to pay the higher rate. A wage hike could force small-business owners to eliminate jobs, reduce hours, and cut employee benefits, according to Bruce Josten, the Chamber of Commerce’s executive vice president for government affairs. President Bush has said he would support a bill offering a $2.10 hike as long as it includes tax and regulatory relief for companies.

While this debate has been going on since the Clinton administration, more than half the states have passed their own bills requiring companies to pay their lowest-paid workers more than $5.15 per hour, with many of them higher than $6.50.

On Wednesday, after the first Senate Finance Committee hearing of the year, incoming chairman Max Baucus (D-Montana) and Senator Olympia Snowe (R-Maine) released their “Tax Incentives for Businesses in Response to a Minimum Wage Increase” bill, which would make the tax break companies get for hiring disadvantaged workers permanent.

During the hearing, Bruce Obenour, president of Akwen, which operates 21 Wendy’s restaurants in Ohio, asked that the senators extend this cut, called the Work Opportunity Tax Credit (WOTC), and consider including teenagers as qualifying employees. “It makes sense to enact a narrow incentive intended to help us hire those who need these job opportunities the most,” he said.

WOTC gives a 40 percent credit on qualified wages up to $6,000. According to Baucus’ office, WOTC has helped move more than 2 million Americans from public assistance to employment in the past 10 years. It is set to expire at the end of 2007.

Still, Obenour rated WOTC as his third priority if he had to choose among other tax credits being discussed by the Senate. Two others would benefit his business more: raise the depreciation period for renovation and increase the amount small companies can expense for new equipment on their taxes.

Last year, Obenour closed one of his restaurants, partly because he knew that on January 1, Ohio was raising its minimum wage to $6.85, a 41-cent difference from the average Obenour had been paying some of his 750 employees.

Dave Ratner, another business owner who testified at the Senate committee hearing, wouldn’t be affected by the wage hike since his four-store Dave’s Soda and Pet City business is in Massachusetts, where the lowest paid workers make $7.50 an hour. But he asked that a bill eliminating a tax code he considers “discriminatory” against small companies be reintroduced this year within any minimum-wage legislation that Congress passes.

That tax rule requires retailers who own their stores to write off improvements over 39 years, while those who lease can do so in 15 years. Companies like his, which competes with Petco and PetSmart, aren’t able to get leasing agreements in big shopping centers and must own their own property to stay in business, said Ratner, who sits on the board of the National Retail Federation. “The new Petcos and PetSmarts have godawful-gorgeous stores,” he said. “Our stores have to be like that, but a floor doesn’t last 39 years.”

The Senate plans to consider other tax breaks for small businesses, including repeals of the estate tax and alternative minimum tax.

Not everyone wants tax credits tied to a wage hike. At the hearing, economist Jared Bernstein of the Economic Policy Institute said doing so isn’t necessary, considering that the businesses have received “extensive” tax cuts over the past decade while the federally mandated minimum wage has been at a standstill.

In response, Baucus said a hike will be passed this year but will most likely be part of a package. Also on Wednesday, the House passed its own minimum-wage increase bill, which would make the $7.25 the lowest hourly wage after three increments over a two-year period. Bush is unlikely to use his veto power on whatever bill Congress does end up putting on his desk because of the bipartisan efforts that have been put into it, predicts Roll Call, CFO.com’s sister publication.

In terms of buying power, according to Bernstein, the minimum wage is at a 52-year low. About 4 percent of the workforce, or 5.6 million workers, would be directly affected by a minimum-wage hike, according to EPI.

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