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Small-business tax cuts eyed as sweetener for minimum wage boost

House, Senate may go to conference to iron out differences, but they don’t have much time

Senate Budget Chairman Bernie Sanders, I-Vt., has made it a top priority to raise the minimum wage to $15 an hour through the reconciliation process.
Senate Budget Chairman Bernie Sanders, I-Vt., has made it a top priority to raise the minimum wage to $15 an hour through the reconciliation process. (Caroline Brehman/CQ Roll Call)

Democratic leaders are considering adding small-business tax breaks to their coronavirus aid bill to make raising the federal minimum wage more palatable for wavering senators.

The possible move is part of the overall strategizing underway to try to pass a $1.9 trillion COVID-19 relief plan through the expedited budget reconciliation process, according to several sources with knowledge of the conversations.

Under current plans, the Senate is likely to take up its own substitute reconciliation bill when it receives the version the House is hoping to pass by the end of next week. The idea is that small-business tax breaks could be added to the Senate version when that chamber takes it up.

Final decisions haven’t been made, but Democratic leaders envision going to conference to resolve differences between the House- and Senate-passed versions. At that point, the Senate’s small-business breaks and the House’s minimum wage boost could be melded together in a final conference report.

While those steps could add a little more time to the process, the goal is still to send a bill to President Joe Biden’s desk by March 14, when enhanced unemployment benefits lapse.

Senate Budget Chairman Bernie Sanders, I-Vt., has made it a top priority to raise the minimum wage to $15 an hour in several stages and to do so through reconciliation. Reconciliation bills can pass in the Senate with a simple majority rather than the usual 60 votes.

That goal faces two obstacles, one certain and one potential.

The certain obstacle is that Kyrsten Sinema, D-Ariz., opposes raising the minimum wage in a reconciliation bill, and Joe Manchin III, D-W.Va., has said the increase to $15 is too high.

In the 50-50 Senate, Democrats can’t lose a single vote and still pass a reconciliation bill assuming all Republicans oppose the measure.

It’s too early to predict whether Manchin, Sinema and potentially other Democratic senators would vote against the entire $1.9 trillion bill if it included a minimum wage increase, particularly if the provision were modified or paired with small-business tax relief.

The potential obstacle is that a minimum wage increase might not be allowed under the strict reconciliation rules in the Senate because any budget impact could be considered “merely incidental” to its underlying intent. A minimum wage increase also would increase deficits beyond the 10-year timeframe in the budget resolution adopted to allow the use of reconciliation, another potential rule violation.

Democrats, however, believe that a new letter from the Congressional Budget Office bolsters the case they can make to Senate Parliamentarian Elizabeth MacDonough that a wage increase should pass the “Byrd rule” test.

In response to questions from Sanders, CBO Director Phillip L. Swagel wrote Feb. 15 that a minimum wage increase “would have broad economic effects that would, in turn, affect most areas of the budget.”

Beyond that, Swagel said a wage increase would have broader budgetary effects than two provisions that Republicans included in the 2017 tax reconciliation bill. One of those zeroed out the penalty associated with the individual mandate in the 2010 health care law, and the other implemented an oil and gas leasing program in the Arctic National Wildlife Refuge.

Both of those provisions passed the Byrd test, and Democrats argue the minimum wage boost — which the CBO scored as costing $67 billion over a decade in the House reconciliation package — has at least as strong a budgetary connection.

Biden and House Budget Chairman John Yarmuth, D-Ky., are among those who have cast doubt on minimum wage legislation making it through a “Byrd bath,” as it’s known.

But there is enormous pressure from the progressive wing of the party to get it done in the relief package, and fast-food restaurant workers in 15 cities launched a strike Tuesday to try to push federal policymakers to take action.

There is precedent for pairing a minimum wage increase with small-business tax breaks: It happened in 2007, when lawmakers attached a $4.8 billion tax package along with provisions raising the $5.15 an hour minimum wage to $7.25 over two years to an Iraq war spending bill.

It was unclear what types of breaks were being considered, or whether small-business tax cuts would survive if the minimum wage boost ended up being stripped out of the aid package.

If the minimum wage increase isn’t included in the version the Senate will take up, it could still be included in the conference committee version of the bill since the increase would be in the House-passed bill.

House schedule pushed back

The reconciliation process has moved quickly up to now, but is starting to slow as lawmakers and staff scrutinize the emerging legislation.

They want to make sure nothing in the House legislation would cause it to lose its “privilege” in the Senate, in which case it could no longer be considered a reconciliation bill. In particular, they are looking at an issue called “preponderance,” which involves whether the nonbudgetary aspects of a bill outweigh the budgetary impact, sources said.

Nine House committees have advanced various portions of the measure, with three more panels expected to submit smaller pieces without markups. House passage is expected next week, after the Presidents’ Day recess.

But House Majority Leader Steny H. Hoyer, D-Md., warned his Democratic colleagues in a letter Tuesday that the next steps in the budget reconciliation process could take a little more time. The measure won’t be ready until “later in the week,” he said.

As a result, the House schedule of floor votes, initially planned to run from Monday through Thursday, will now stretch from Tuesday through Friday to allow for longer bill preparation time. A vote over the weekend is possible.

The House Budget Committee had been expected to meet sometime this week to compile the various pieces into a comprehensive bill, which would then go to the Rules Committee before a floor vote. But with Hoyer’s announcement, the Budget markup could slip into next week.

House leaders want to pass the measure next week to allow for Senate consideration in early March. Hoyer’s letter said House lawmakers should be prepared to vote again the week of March 8 on the aid bill if the Senate makes changes to it. Lawmakers want to avoid a lapse in expanded unemployment benefits that are set to expire on March 14.

The task of writing the sweeping aid legislation was assigned to 12 House committees, each of which was responsible for different aspects of the bill.

The measure includes tax rebate checks, expanded unemployment benefits, aid to state and local governments, money to reopen schools, funding for vaccine development and distribution, and more. Panels engaged in several lengthy markups last week, some going for two days.

David Lerman contributed to this report.

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