Regretably, this Congress has concluded that it cannot pass a much-needed minimum wage increase without sweetening the package with various additional tax breaks. Remember that we have seen one revenue reduction measure after another passed that gave tax breaks to small businesses and well as large businesses and wealthy taxpayers, with nary a hint of a minimum wage increase to balance those tax breaks out!
On February 12, the House Ways and Means approved its version of the revenue reduction "sweetener" (H.R. 976). At least the House Ways and Means bill is less of an affront to common sense than the Senate Finance Committee's overextended largesse. The Senate bill included more than $8 billion of tax breaks (including breaks targeted to restaurants and a needless extension of the cash method of accounting for businesses, along with several provisions that make it even easier for banks to pay next to nothing in tax--by facilitating the ability of smaller banks to become S corporations).
The House Ways and Means is a more modest $1.3 billion package. It includes a one-year extension of the work opportunity tax credit and the section 179 expensing provisions (with a bump-up to 125,000 and an increase of the threshold to $500,000, which is less expansive than the Senate's version of the same tax break). The Ways and Means bill also applies the rule currently allowing restaurants to claim a tax credit for Social Security taxes paid on tip income in excess of the minimum wage by treating--for this purpose only--the minimum wage as frozen at the lower (pre-legislation) level. As is the case with so many of these tax provisions that are intended to provide subsidies to particular types of employers, that appears to be a needless complexity benefitting restaurant owners that is hard to justify on fairness or efficiency grounds.
One change to be lauded--as a revenue raiser, H.R. 976 denies dependent children the lowest capital gains rates on capital gains and dividend income (5% this year, to be reduced to a unjustified 0% next year), to prevent wealthy parents from merely shifting their income to their children to reduce their tax liability.
The Chairman's amendment (in the nature of a substitute) is at this link. Revenue effects of the Chairman's Mark is at this link. The Ways and Means Committee information includes a Feb. 9, 2007 release on H.R. 976 and a summary of the provisions.
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