Odds are improving that legislation to raise the minimum wage will be accompanied by tax breaks for small companies, including those in construction. At press time, the Senate Finance Committee was set to vote on a tax incentive package sponsored by the panel’s leaders. It may be added to a minimum-wage measure or move separately. If the Senate clears the plan, it would need to be reconciled with action in the House, which passed a wage bill Jan. 10 without tax provisions. President Bush supports a higher minimum wage, with small-business tax breaks.


The Senate tax proposal, which passed the Finance Committee on Jan. 18, is estimated to cost $8.3 billion over 10 years. Committee Chairman Max Baucus (D-Mont.) says the plan “will help to keep small businesses running strong and employing American workers, and we should do it in a fiscally responsible way.” The cost of the new breaks would be offset by revenue-raising provisions.

“We’re excited about this package for our members,” says Macey Davis, National Federation of Independent Business tax counsel. But she adds, “We remain hesitant for what offsets, if any, might take place.”

Senate Plan Includes:

One-year extension for "Section 179" expensing of depreciable assets.
Five-year extension of credit for hiring disadvantaged workers.
Three-month extension for 15-year writeoffs for restaurant upgrades.
Small firms may use “cash method” accounting when annual receipts top $10 million, up from $5 million now.
Source: Senate Finance Committee 

For construction firms, a key part of  the Baucus plan is a one-year extension of the “Section 179” program. It lets small companies deduct the cost of heavy equipment and other assets from current annual income. Under present law, small firms can “expense” up to $112,000 of such assets in 2007. The deduction phases out dollar-for-dollar when a company’s spending on those assets exceeds $450,000 in the year. Thus, if a firm spent $451,000, it only can take a $111,000 deduction. Expensing and phase-out levels are indexed for inflation through 2009. The proposal extends the program through Dec. 31, 2010.  Heidi Blumenthal, Associated General Contractors’ director for tax and fiscal affairs, says extending Section 179 will help small contractors and “continue to allow them to keep investing in their businesses.”

Industry groups favor making Section 179 permanent. John McClelland, American Rental Association vice president for government affairs, says the one-year extension partly reflects the need for revenue-raising offsets. Those “realities,” he says, “dictate that this is what the Finance Committee is willing to offer and we are certainly willing to accept that.”

Baucus’ plan was co-sponsored by Charles Grassley of Iowa, Finance’s top Republican. Adding the tax package may draw more GOP support for the wage bill, which would hike the minimum from $5.15 an hour to $7.25 over 26 months. Democrats have 51 Senate seats, but need 60 votes to ensure passage.