Business Corner

Senate OKs minimum wage bill with $8.3 billion in tax breaks for small business

The Senate just passed an amended minimum wage bill that features tax incentives for small businesses worth $8.3 billion over 10 years.

The measure at issue, an amended H.R. 2, the Fair Minimum Wage Act of 2007, would raise the minimum wage from its current $5.15 per hour to $5.85 per hour 60 days after enactment, then to $6.55 per hour 12 months later, before rising to $7.25 per hour 24 months after enactment.

The bill now goes to conference where it must be reconciled with the House, which passed the original measure on Jan. 10 with no tax breaks. Many leading Democrats complained about the incentives and threatened to oppose them, complicating the prospects of the compromise measure.

The major tax relief provisions that passed the Senate include a one-year extension of a provision allowing small businesses to combine as much as $112,000 in expenses into one annual tax deduction.

The amended H.R. 2 also extends, through March 31, 2008, tax provisions that allow property owners to more quickly deduct the cost of making improvements to restaurant or leased properties, and extends such provisions to owner-occupied retailer space and for the construction of new restaurants.

The bill also would make a permanent change to the tax code that would allow businesses to simplify their bookkeeping by allowing them to use the cash method of accounting for tax purposes.

The Senate also passed a provision that lets small businesses qualify for or stay within the S Corporation tax rules.

Another provision establishes a certificate program for companies that provide and oversee employees for other corporations. The amended bill would also give a five-year extension of the tax credit provided to employers who hire workers who have experienced barriers to entering the workforce.

Certain “loophole closers” that were included to help finance the breaks are a further crackdown on leasing tax shelters, more restrictions on corporate inversions, a prohibition on the deduction of civil regulatory fines and penalties, and encouraging tax whistleblowers.

Surprisingly, small business groups are not necessarily on the same page when it comes to the minimum wage. For instance, Lloyd Chapman, president of the American Small Business League, said, “It would probably be good for the country if the minimum wage was raised. That’s something that I would be in favor of.”

Chapman challenged the notion that the minimum wage issue is exclusive to small businesses, stating, “I think large businesses are actually more concerned with the minimum wage than small businesses. The large businesses are the ones that employ thousands of low-level employees. I don’t think it’s a huge issue for small businesses. Let me put it this way: It’s nothing I hear people talking about.”

On the other hand, Raymond Keating, chief economist for the Small Business & Entrepreneurship Council, noted his group opposes raising the minimum wage, even if doing so is accompanied by tax incentives for small businesses.

“We are completely and utterly opposed to any kind of minimum wage increase,” Keating said. The vote to block the original bill was a plus “in that a straight increase didn’t go through,” he continued. “However, we’re still very concerned that the end point will be some sort of increase.”

His group would welcome any kind of regulatory or tax relief. “However, it does need to be recognized that whatever measures might go along with it if it does pass, those don’t mitigate the ills of a minimum wage increase,” Keating said. v

Reprinted with permission of Small Business Tax News, Copyright 2007, 1-301-951-1240. This information is distributed with the understanding that the editor and publsiher are not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Reprinted from Floor Care Professional, March 2007