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(The text immediately below is an update to the previous Minimum Wage ALERT posted for February 12, 2007)

On Friday, February 16, 2007, the U.S. House of Representatives overwhelmingly approved business tax breaks worth $1.8 billion over 10 years, a key step toward forging a congressional compromise on increasing the minimum wage. The vote on the tax cuts was 360-45.

Passage of a minimum wage increase now depends on how quickly the House and Senate can work out differences between their tax packages. The Senate tax breaks — worth $8.3 billion — are more than four times larger than the ones passed in the House.

Senate Finance Committee Chairman Max Baucus (D. Mont.) said that House and Senate negotiators could reconcile differences in the bills within two or three weeks.

Under the House bill, small businesses would see an extension in some tax write-offs that are scheduled to expire and would be able to continue to claim a tax credit for hiring disadvantaged workers. The legislation also would ensure that restaurants, which can deduct Social Security taxes paid on tips above the minimum wage, would not be hurt by the wage hike.

The House bill would also raise revenue by closing a loophole that permits wealthy taxpayers to shift income to their children and avoid higher taxes on capital gains and dividends.

Senate Republican officials predicted the final tax package would be closer to the House version than the Senate's. Small business groups have sided with the Senate, but the U.S. Chamber of Commerce is lobbying for the House version.

With its $8.3 billion tax package, the Senate would extend tax credits and tax write-offs, and provides new tax preferences to certain companies. It also would eliminate some tax shelters and add new taxes on lawsuit settlements and punitive damage payments and on deferred compensation packages for higher paid executives.

Groups representing small businesses, such as the National Federation of Independent Business, prefer the larger Senate bill. The U.S. Chamber of Commerce supports the House bill because it objects to the Senate's revenue provisions, particularly the plan to eliminate deductions for payments in lawsuits.


(The text immediately below is an update to the previous Minimum Wage ALERT posted in February, 2007)

After the U.S. Senate's passage of the minimum wage hike on February 1, 2007, U.S. House tax writers will consider more than $1.5 billion in small-business tax cuts next week in hopes of freeing minimum-wage legislation currently stuck in an impasses between the House and Senate.

The tax package is less than one-fourth the size of what the Senate passed last week, but it sets the stage for negotiations that could result in the first increase in the minimum wage in a decade. The legislation would raise the wage floor by $2.10 over two years to $7.25 an hour.

The House proposal has the bipartisan backing of Ways and Means Committee Chairman Charles Rangel, D-N.Y., and the panel's ranking Republican, Rep. Jim McCrery of Louisiana. The committee is expected to consider the proposal Monday. The legislation would then go to the House floor later in the week.

The tax breaks would be paid for by eliminating a tax loophole that permits wealthy taxpayers to shift income to their children in order to avoid high capital-gains and dividend tax rates. In drafting the latest language in the legislation, House Democrats made an abrupt shift from their public insistence just days ago that they wanted Congress to pass minimum-wage legislation without any tax relief in it.

Senate Democrats had been signaling to the House that a tax-cut package was the only way to guarantee needed Republican support for the bill in the Senate. With 49 members in the 100-member Senate, Republicans can easily use procedural tactics to delay or kill legislation unless Democrats can line up 60 votes to hold a vote on a bill.

The House proposal would extend for one year a tax credit for businesses that hire disadvantaged workers, included the poor and wounded veterans. It also extends and increases certain small-business expensing provisions and would allow restaurants to continue to receive a credit for Social Security taxes paid for tips to employees above the current minimum wage of $5.15 an hour.

Minimum Wage ALERT (Feb. 2007)

The legally-required minimum wage rate is front and center across the United States. On January 1, 2007, the state minimum wage went up in 18 states. With Democrats taking control of both houses of the U.S. Congress, it is likely that the federal minimum wage will jump more than $2 an hour, from its current $5.15/hour.

On January 10, 2007, the U.S. House of Representatives voted overwhelmingly to raise the federal minimum wage to $5.85/hour 60 days after a law is signed. It would then increase to $6.55/hour a year later, and to $7.25/hour after two years.

On January 19, 2007, the U.S. Senate's Finance Committee approved a package of tax breaks for small businesses, so as to smooth the way to passing an increase to the federal minimum wage. The package includes $8 billion in tax incentives designed to help small businesses if and when Congress raises the minimum wage. The Senate legislation would extend for five years the Work Opportunity Tax Credit, which is available to employers that hire workers who have experienced barriers to entering the workforce.

President Bush has stated that he would support raising the minimum wage, if Congress also approves tax and regulatory breaks for small businesses. The Senate tax breaks package might accomplish that. The Senate is now set to consider the House-passed bill to raise the federal minimum wage. Senate passage is likely.

The federal minimum wage has been $5.15/hour since 1997. Twenty-nine states have approved minimum wages above $5.15 an hour, including ten that have tied future increases to inflation. Any action on the federal level would affect a number of those 29 states because many of the state minimum wages would fall somewhere in between the first and third steps of the House-approved proposal. In the case of conflicting minimum wage levels, the federal or state law that is more generous to employees takes precedence.

The are some exceptions to the minimum wage. The first is for tipped employees. The minimum wage for tipped employees (e.g., restaurant employees) is $2.13/hour if that sum, plus the tips an employee receives, equals at least the higher federal minimum wage. In addition, the employee must retain all tips and must regularly earn more than $30 a month in gratuities.

The second exception is for some young employees. The federal minimum wage for those under the age of 20 is $4.25/hour for the employee's first 90 days of employment. This applies if their work does not displace other employees. The employee must be paid at least $5.15/ hour after the 90 consecutive days of employment, or after reaching age 20, whichever occurs first.

Following are the current state hourly minimum wage rates:

Alabama. No state minimum wage.

Alaska. $7.15.

Arizona. $6.75. Annual cost-of-living increases.

Arkansas. $6.25.

California. $7.50 increasing to $8 on January 1, 2008. In San Francisco, $8.82. In Los Angeles: $9.08 (with health benefits) or $10.33 (without health benefits).

Colorado. $6.85. Annual cost-of-living increases. Connecticut. $7.65.

Delaware. $6.65. Increasing to $7.15 in 2008.

District of Columbia. $7.00.

Florida. $6.67. Rises with inflation.

Georgia. $5.15.

Hawaii. $7.25.

Idaho. $5.15.

Illinois. $6.50. Increases to $7.50 on July 1, 2007. Increases 25-cents a year until reaching $8.25 on July 1, 2010.

Indiana. $5.15.

Iowa. $5.15.

Kansas. $2.65. (Applies only when the federal law does not apply.)

Kentucky. $5.15.

Louisiana. No state minimum wage.

Maine. $6.75. Increasing to $7 in October 2007.

Maryland. $6.15.

Massachusetts. $7.50. $8 on January 1, 2008.

Michigan. $6.95. Increasing to $7.15 on July 1, 2007 and $7.40 on July 1, 2008.

Minnesota. $5.25, and $6.15 for employers with annual receipts greater than $625,000.

Mississippi. No state minimum wage.

Missouri. $6.50. Annual cost-of-living increases.

Montana. $6.15. Annual cost-of-living increases.

Nebraska. $5.15.

Nevada. $6.15. (Unless health insurance is available to the employee and dependents at no more than 10 percent of the employee's wages. Then the rate is $5.15 per hour.)

New Hampshire. $5.15.

New Jersey. $7.15.

New Mexico. $5.15.

New York. $7.15.

North Carolina. $6.15.

North Dakota. $5.15.

Ohio. $6.85. Annual cost-of-living increase.

Oklahoma. $5.15.

Oregon. $7.80. Increases with inflation.

Pennsylvania. $6.25. $7.15 on July 1, 2007. (For employers with 10 or fewer employees, $5.65 on January 1, 2007, $6.65 on July 1, 2007 and $7.15 on July 1, 2008.)

Rhode Island. $7.40.

South Carolina. $5.15.

South Dakota. $5.15.

Tennessee. No state minimum wage.

Texas. $5.15.

Utah. $5.15.

Vermont. $7.53. Increases with inflation.

Virginia. $5.15.

Washington. $7.93. Increases with inflation.

West Virginia. $5.85. Increasing to $6.55 on July 1, 2007 and $7.25 on July 1, 2008.

Wisconsin. $6.50.

Wyoming. $5.15.

Note: Many state wage laws can change quickly. Before paying employees according to the foregoing state wage laws, you should check the status of the minimum wage in your state and locality, in addition to monitoring developments with the federal minimum wage law.

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