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Minimum wage hike hits snag in Senate

Lawmakers want to add tax breaks for businesses

Sen. Kennedy wants 'no strings attached' to the bill. Sen. Kennedy wants "no strings attached" to the bill.

WASHINGTON -- Democrats' promise of a quick increase in the minimum wage ran aground yesterday in the Senate, where lawmakers are insisting it include new tax breaks for restaurants and other businesses that rely on low-pay workers.

On a 54-to-43 vote, Democrats lost an effort to advance a House-passed bill that would lift the pay floor from $5.15 to $7.25 an hour without any accompanying tax cut. Opponents of the tax cut needed 60 votes to prevail.

The vote sent a message to House Democrats and liberals in the Senate that only a hybrid tax and minimum-wage package could succeed in the Senate. But any tax breaks in the bill would put the Senate on a collision course with the House, which is required by the Constitution to initiate tax measures.

In a separate vote, the Senate also effectively killed a modified line-item veto bill. The Republican-inspired measure would have permitted a president to pluck individual items out of spending bills and submit them to Congress for a vote.

Raising the minimum wage is one of the new top priorities of the Democratic-majority Congress. The wage floor has been unchanged for 10 years. The bill would increase it to $7.25 in three steps over 26 months.

"Why can't we do just one thing for minimum-wage workers, no strings attached, no giveaways for the powerful?" asked Senator Edward M. Kennedy, Democrat of Massachusetts and a leading sponsor of the bill.

The House passed the minimum-wage increase two weeks ago. Since then, Speaker Nancy Pelosi, Democrat of California, and Representative Charles B. Rangel, the chairman of the tax-writing Ways and Means Committee, have prodded the Senate to keep tax proposals out of the bill.

Harry Reid, Democrat of Nevada and the Senate majority leader, scheduled yesterday's vote to demonstrate the Democrats' lack of Republican support for a minimum-wage bill without tax cuts. Every Democrat present voted to end debate, and five moderate Republicans joined them.

"There seems to be agreement to raise the minimum wage," said Senator Michael B. Enzi, Republican of Wyoming. "The difficulty has been how do we take care of some of the impact to small businesses that will result from this."

Reid is backing an $8.3 billion tax package that would extend for five years a tax credit for employers who hire low-income or disadvantaged workers. It also would extend until 2010 tax rules that permit businesses to combine as much as $112,000 in expenses into one annual tax deduction.

The cost of the proposal would be paid with revenue realized from a proposed cap of $1 million on executive compensation that can be tax deferred. The tax package also would end deductions for court settlements or punitive damages paid by companies that have been sued.

A vote on the full tax and wage package is not expected until early next week.

The differences between the House and Senate bills will require Pelosi and Reid to work out an agreement on how to move a similar tax package through the House.

Senator Max Baucus, Democrat of Montana, the chairman of the Senate's tax-writing Finance Committee and co author of the tax proposals, said the Senate bill will be held in the Senate until the leaders resolve the impasse.

"It's just a couple or three steps away from the goal line," Baucus said.