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House and Senate Pass Minimum Wage Hike Legislation
February 2, 2007
FEI Summary
Congress is currently considering legislation that would increase the federal minimum wage from $5.15 per hour to $7.25 per hour. The $2.10 increase would be phased in over two years. President Bush has indicated that he will support the legislation provided it includes tax and regulatory relief for small business.
On January 10, the House passed its minimum wage bill (H.R. 2) by a vote of 315-116. “The Fair Minimum Wage Act of 2007” would raise the minimum wage by $2.10, phased in over two years. It does not include any small business tax relief provisions.
On February 1, the Senate passed by a vote of 94 to 3 legislation that combines a $2.10 increase in the federal minimum wage from $5.15 per hour to $7.25 per hour with a 10-year, $8.3 billion small business tax relief package that is fully offset by 14 revenue-raising tax provisions affecting business and individuals. The Senate version of H.R. 2, the Fair Minimum Wage Act of 2007, must be reconciled with the stand-alone minimum wage bill passed by the House. Negotiations between the House and Senate on a final version of the minimum wage bill are complicated by the fact that the Senate bill violates a constitutional requirement that tax bills originate in the House. The House bill does not contain any tax provisions.
The Senate bill phases in the minimum wage increase, but also includes numerous small business tax relief provisions as well as “revenue offsets” to help pay for them. In particular, the bill includes extensions and expansions of the Work Opportunity Tax Credit and the 15-year cost recovery period for certain retail and restaurant property; extension of small business expensing; reform of S corporation rules; and expansion of the ability to use the cash method of accounting. The revenue loss associated with the tax relief package would be offset by several revenue-raising tax provisions, including proposed new treatment for non-qualified deferred compensation. PwC has prepared a summary of the small business tax relief provisions and the offsets included in the Senate bill.
FEI’s Tax Committed submitted correspondence to House and Senate leaders urging them to drop the non-qualified deferred compensation provision. As drafted, the provision in the bill would amend Internal Revenue Code Section 409(A) to impose a dollar cap on the aggregate amount of compensation that may be deferred by any individual. The cap would be equal to the lesser of $1 million or the individual’s average annual compensation over the previous five years. Should these limits be exceeded, all amounts deferred would be subject to current income tax as well as a 20-percent penalty. The provision generally would be effective for amounts deferred after 2006.
For more information, please contact Mark Prysock, General Counsel at FEI (mprysock@FinancialExecutives.org).
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