As the House and Senate try to come to a meeting of the minds on minimum wage legislation, retailers, small business owners and others weigh in on the consequences of adding an extra $2.10 an hour. What are the ancillary costs, and who really pays?
The Senate bill adds $8.3 billion in tax breaks to the bill that would lift the current minimum of $5.15 an hour to $7.25 over two years, and also extends small business tax cuts, shuts off some corporate tax loopholes and reins in executive compensation. The House bill applies only to an increase, with no tax breaks.
President Bush has issued a statement urging the House to support a bill that combines the increase with small business tax relief. Republican members of the Senate say that by insisting that the tax provisions be removed, House Democrats are delaying passage of the minimum wage increase.
There are constitutional precedents that require tax legislation to originate in the House. So passage awaits some reconciliation between the two Congressional bodies.
The federally mandated minimum was last increased in 1996, and accompanied by tax cuts to lessen the impact on small business. Wal-Mart was the first, and one of very few large employers, to issue a statement in support of the House measure when it passed.
The company said that in October 2005, Lee Scott, its CEO, "Publicly called for Congress to raise the minimum wage to help working families, saying that $5.15 an hour was out of date with the times. We believe this statement is truer now than ever before."
In the November 2006 elections, six states passed legislation raising the minimum wage above the current $5.15 an hour federal mandate, which took the total number of states that require a higher minimum to 29. Still, an increase at the federal level would apply to an estimated 5.6 million workers.
According to the Economic Policy Institute (EPI), a mandated increase would also lift pay for another 7.4 million workers, since many other job contracts are tied to the federal minimum wage. "Labor loves this legislation," Britt Beemer, chairman and founder of America's Research Group, a consulting firm based in Charlotte, NC, says, "Because so many labor contracts are tied to a federal minimum."
Should the House version of the legislation become law, Beemer says it could result in, "A little short term unemployment. There may be one less person per store, and if companies find they can manage with a reduced staff, pricing should stay the same. Retailers and restaurants will try to hold prices," he says.
The U.S. Chamber of Commerce and the National Federation of Independent Business (NFIB) oppose the House version of the bill. "The proposed $2.10 per hour increase, phased in over a two year period, will likely result in a 40 percent surge in labor costs for small and mid-sized businesses," according to Bruce Josten, the Chamber's executive vice president for government affairs. As a result of an increase, he says, "Small businesses may be forced to eliminate jobs, reduce hours, and cut employee benefits."
"Minimum wage hikes are inefficient tools to erase poverty and discourage small business owners from hiring the very people who need to learn job skills: teenagers and individuals with minimum education and little experience," wrote Dan Danner, senior vice president of public policy for NFIB.
"Teenagers and people without job skills will be priced out of the job market by this proposal," says Danner. He adds, "Studies also show that, as employees gain skills, more than 65 percent earn a raise within a year."
In contrast, during a Senate hearing that followed passage of the current bill in the House, Jared Bernstein, director of EPI's Living Standards program, said, "Even as the economy prospers, and well placed workers receive outlandish bonuses on top of impressive salaries, too many in our workforce fail to benefit much at all from their efforts."
Specifically citing, "A cashier on her feet all day at retail," among others, Bernstein said, "minimum wage policy is a simple, direct way to help lift the earnings of those whose limited ability to bargain for a fair wage has precluded them from sharing in the prosperity they themselves help to generate."
"There is little rationale for adding any tax cuts to this bill," he adds. "Businesses both large and small have enjoyed hundreds of billions of such cuts over the past decade, as the value of the last federal minimum wage increase has evaporated. The wage increase under consideration is a small one in historical terms, and it is very likely that any tax cuts intended to offset its costs to businesses will swamp it in magnitude."
Yet the National Retail Federation (NRF) urged the Senate Finance Committee to approve proposed legislation that would provide an important change in depreciation rules for retailers, and other tax relief for small businesses, as the Senate considers an increase in the federal minimum wage. The proposed legislation would provide $8 billion in tax relief, linked to any minimum wage increase passed by the Senate.
The legislative amendment, "Gives small businesses in the retail industry the tax relief they need in order to continue to compete, when faced with the additional expense of a higher minimum wage," says Steve Pfister, NRF senior vice president for government relations.
Of key interest to retailers is language that would end the difference in depreciation rules for improvements made to stores that are leased and those that are owned. Under current law, improvements made to leased stores can be depreciated over 15 years, but improvements made to stores that are owned must be depreciated over 39 years.
The Senate legislation would extend the 15 year depreciation period for leased stores, which is currently set to expire December 31, 2007, through March 31, 2008. It would also expand it to owned stores so that the depreciation period would be 15 years for both.
"Retailers generally remodel their stores every five to seven years to reflect changing customer tastes and to compete with newer stores," Pfister says. "Forcing retailers to take almost 40 years to depreciate those costs hinders their ability to grow their businesses.
"This bill gives us a depreciation period that is realistic and treats all retailers the same without discrimination. This bill is particularly important for small, Main Street retailers who have been in business for generations and are more likely to own their stores than national competitors leasing space at the mall," he adds.
Approximately half of retail stores are owned and the other half leased. Studies conducted by the Treasury Department, the Congressional Research Service and private economists have all found that the 39 year depreciation period not only exceeds the life of improvements made to buildings but also actually exceeds the economic life of the building itself.
The proposed legislation would also grant the Work Opportunity Tax Credit program a five year extension. The program is widely used by retailers to help low income, potential workers move into the workforce.
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