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House Passes Small Business Tax Bill Including Increase in Minimum Wage

Thursday, May 23, 1996

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The House Thursday approved, 281-144, and sent to the Senate a bill (H.R. 3448) that would increase the federal minimum wage and implement a $7.5 billion package of small business tax incentives and pension reforms. The Senate will not take action on the measure until after it returns June 3 from a week-long Memorial Day recess.

The House rejected, 229-196, a controversial amendment to the minimum wage provisions that would have exempted all small businesses with gross annual receipts under $500,000 from paying their workers the federal minimum wage or overtime pay. The underlying provisions of H.R. 1227 would exempt employers from paying employees for time spent commuting to and from work in employer-owned vehicles.

President Clinton Wednesday threatened to veto the legislation if small businesses were given an exemption from the two-stage 90-cent hike in the minimum wage. Clinton still is unhappy with some elements of the tax package and expressed hope some of his concerns will be alleviated by Senate action. Particularly irksome to the White House is the proposal to repeal the Section 936 possessions tax credit (which gave a tax break to American companies that set up manufacturing facilities in U.S.-owned possessions such as Puerto Rico).

The House Wednesday passed, 414-10, the tax components of the package, but the small business exemption was still at issue.

The House Thursday approved, 266-162, the 90-cent increase in the minimum wage, but only after a contentious intra-party GOP battle over the issue, with moderate members pushing for the increase and more conservative members rejecting it as anti-small business. Under the legislation, the minimum wage would be increased by 45 cents effective July 1, 1996, and would rise an additional 45 cents July 1, 1997.

The tax component of the combined measure would: increase small business expensing amounts from $17,5000 to $25,000; extend the expired tax provision that excludes from employee gross income employer-provided educational assistance; replace and extend the expired targeted jobs tax credit with the work opportunity tax credit; implement a package of "S" corporation reforms, and adopt a series of pension simplification provisions generally supported by the Clinton Administration.

The pension provisions are intended to make it easier for small businesses to offer retirement programs to their employees without having to comply with the complex reporting requirements now in effect for 401(k) and other defined benefit plans.

To pay for the cost of the tax package, the bill would:

• Phase-out the possessions tax credit available to businesses that relocate their manufacturing facilities to Puerto Rico and other U.S. possessions.
• Repeal the 50 percent interest exclusion for loans to employee stock ownership plans.
• Modify the income forecast method of accounting.
• Repeal the advance refunds of diesel fuel tax for purchasers of diesel-powered vehicles.

Defeat of the small business exemption paves the way for possible acceptance of the package by Senate Democrats, but other tax-related changes still may be necessary to win their support, Senate Minority Leader Tom Daschle, D-S.D., said Tuesday. Daschle and other Senate Democrats have expressed interest in reforming instead of repealing the possessions credit.

Senate to Act on Its Version

The Senate was expected to pass its version of the FY97 budget resolution (S. Con. Res. 57) Thursday before adjourning for the holiday. Republican leaders hope to convene a House-Senate conference the week of June 3 to resolve differences on the budget. The House passed its version May 16.

Both bills would provide for up to $122 billion in tax relief over 6 years, to be used for a $500-per child family tax credit. Additional tax cuts would be allowed, but the tax-writing panels would have to find additional revenue offsets outside the confines of spending reductions contemplated in the budget resolution.

During debate on the budget Wednesday, the Senate approved a non-binding resolution expressing the view that penalties from failing to comply with federal or state environmental or health protection laws should not be tax deductible.

The Senate also approved, 50-48, a sense of the Congress motion proposed by Senate Finance Committee member Phil Gramm, R-Texas, urging the repeal of the 1993 federal income tax increase on Social Security benefits.

Health Insurance Reform Talks Continue: Behind the scenes, House and Senate Republicans continue private meetings to work out differences between the House and Senate versions of the health insurance reform bill. House GOP Health Reform Tax Force Chairman Dennis Hastert, R-Ill., said Thursday that the parties are nearing an agreement they hope to complete by early June, CongressDaily news service reported.

Outstanding issues concern the size of a medical savings account demonstration project, the content of any mental health insurance requirements to be contained in the bill, and how to handle medical malpractice insurance reform. MSAs and medical malpractice reform are in the House-passed version of the bill. A requirement for mental health insurance benefits is in the Senate bill.

There is no word yet on how outgoing Senate Majority Leader Bob Dole, R-Kan., plans to resolve the issue of who the Senate conferees will be. Dole earlier insisted on appointing MSA backers to the conference, despite the Senate's vote against establishing MSAs. Bipartisan objections to the move forced Dole to back off so no formal conference meetings have been held. Dole has indicated he wants final action on the legislation to take place before he relinquishes his Senate seat June 11.