House and Senate Democrats reached a deal Friday afternoon on a package of tax cuts that will accompany a minimum-wage-hike bill.

The $4.9 billion package of tax breaks, along with a $2.10-an-hour increase in the federal minimum wage, will be included in the conference report for the emergency Iraq War spending bill, said a knowledgeable Senate Democratic aide. However, because the president is expected to veto the war bill, the minimum-wage measure also is likely to move separately through both chambers, the aide said.

The tax breaks aimed at small businesses represent a compromise between the $8.3 billion tax package included in the original Senate bill and the $1.3 billion in tax cuts that the House passed.

The largest chunk of the tax package is a three-and-a-half-year extension of the Work Opportunity tax credit, at a cost of $2.5 billion. The entire package is offset, said the Senate Democratic aide, but the offsets do not include a controversial provision that would limit the amount of money CEOs could shift into tax-deferred compensation plans.

The tax package was the most contentious portion of the deal, and presumably Senate Finance ranking member Chuck Grassley (R-Iowa) may have to sign off on it to assure Senate passage.

Both chambers were in agreement on the minimum-wage increase, which would increase from $5.15 an hour to $7.25 over two years. However, workers making minimum wage would get a 60 cent raise two months after the bill is enacted.