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House Group Seeks Tax Breaks to Offset Minimum-Wage Hike


If you can't beat 'em, at least get some tax relief.

That's the strategy being employed on Capitol Hill to link tax breaks for businesses to a proposed hike in the minimum wage. The House of Representatives last week strongly endorsed boosting the current $5.15 federal minimum by $1 an hour over two years. But House Republicans and a fair number of Democrats made it clear that their support is contingent upon throwing a bone to their small-business constituents as well.

The Small Business Tax Fairness Act of 2000 would satisfy a laundry list of small-business wants in such areas as:

* Health insurance: The self-employed could deduct all of their health insurance premiums effective in 2001. That's two years earlier than the 100% phase-in scheduled under current law.

* Equipment: Business owners could write off up to $30,000 worth of equipment starting in 2001, up from $19,000 currently.

* Business meals: The current 50% deduction for business meals would increase to 60% by 2002.

* Pensions: Workers could contribute up to $14,000 of pretax income into their 401(k) plans by 2004, up from $10,500 currently. The legislation also would improve pension portability and allow faster vesting of employer matching contributions.

* Death tax: The top estate tax rate of 55% would drop to 50% by 2002. Rates would then drop 1% across the board for the next two years, bringing the top rate down to 48% by 2004.

* Sale of business: Would allow business owners who sell their companies on the installment plan to spread their tax liability over several years as they receive payments from the buyer. This would amount to a repeal of a controversial tax change made last year that hits accrual-basis sellers for the entire capital gain upfront.

House supporters say the tax breaks, projected to cost $46 billion over five years, are needed to cushion the impact of higher wages on the nation's small businesses. The Senate's version of the legislation would spread the minimum wage increase over three years and provide $26 billion in tax relief to small companies.

Critics charge that the breaks, particularly the reductions in the estate tax, amount to rich folks piggybacking on legislation to help the working poor. President Clinton already has vowed to veto any minimum wage bill laden with business pork. But small-business advocates say compromise is likely.

"We've got substantial bipartisan support," said Donald "Dan" Danner, senior vice president of federal public policy for the National Federation of Independent Business. "There is a very good opportunity that we'll see something by the end of the year."

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