The chairmen of the House and Senate tax-writing committees have agreed on a $4.8-billion compromise package of tax breaks for small businesses, which they plan to attach to legislation raising the federal minimum wage.


The agreement, announced April 20 by Senate Finance Committee Chairman Max Baucus (D-Mont.) and House Ways and Means Chairman Charles Rangel (D-N.Y.) is partway between an $8.3-billion plan approved by the Senate and a $1.3-billion House-approved version. The plan is to attach the minimum wage hike plus the tax breaks to a pending Iraq spending bill.

For construction, a key part of the compromise agreement is a one-year extension and an increase in the “Section 179” deduction for heavy equipment, computer software and other assets. Under current law, small companies in 2007 are permitted to deduct from earnings up to $112,000 of such assets, and the deduction starts to phase out, dollar-for-dollar, above $450,000. The Baucus-Rangel plan would increase the expensing limit to $125,000 and the phase-out threshold to $500,000. The agreement also extends Section 179 by one year, to Dec. 31, 2010, a congressional source says.

The largest item in the compromise plan is a 3-1/2 year extension of the Work Opportunity Tax Credit, which employers can use when they hire disadvantaged workers. That provision is estimated to cost the Treasury $2.6 billion over 10 years. Unless Congress approves an extension, the credit is to expire at the end of this year.

Also worth noting are things Baucus and Rangel didn’t include in their package. Among the items omitted were Senate-approved extensions of 15-year writeoffs for leaseholds and restaurant upgrades. The Real Estate Roundtable and National Restaurant Association supported those provisions.

The agreement didn’t come quickly: the Senate and House approved their respective minimum wage-tax break bills in February.

Baucus called the compromise plan “a targeted, fiscally responsible package of small business tax incentives that can help minimum wage legislation move through both chambers into law.”

The Senate and House bills both would increase the minimum wage from the present $5.15 to $7.25, in phases, over 26 months.

But Senate Finance’s top Republican, Charles Grassley of Iowa, criticized the agreement, He said, “The Senate package was barely adequate. I called it peanuts. The House package was puny. I called it a peanut shell. Now we have a single shriveled peanut.”