Minimum wage, estate tax bill dead for now / Unclear provision on tips a sticking point in Senate

2006-08-04 04:00:00 PDT Washington -- The Senate, by a narrow margin, blocked legislation Thursday night that Democratic critics said could have slashed the pay of about 650,000 Californians who rely on tips for a big part of their income.

The provision was included in a fiercely lobbied election-year "trifecta bill" that seemingly offered something for everyone: Democrats' long-sought minimum wage increase, Republicans' cherished cut in estate taxes for the wealthiest families and business tax cuts that appealed to both parties.

For many Democrats, however, their desire for the first increase in nine years in the $5.15 federal minimum wage was outweighed by their abhorrence of a tax break for the rich they said could have cost the federal treasury $753 billion over 10 years.

The Democrats also contended the bill would have cut the pay for a few million workers in California and six other states who rely on tips for a big part of their income.

Those objections led to a 56-42 vote to cut off debate -- falling short of Senate Majority Leader Bill Frist's effort to gain the necessary 60 votes.

"This bill will cut the wages of millions of people, most of them in the West. This bill will add almost $1 trillion to the debt," Senate Minority Leader Harry Reid, D-Nev., said before the vote. "Eighty-one hundred of the wealthiest families hit the jackpot while working Americans pay the debt."

The Senate's debate came as it moved to finish business and leave today for its August recess. Frist switched his vote on the motion to end debate from "yes" to "no" to preserve his right as leader to bring the bill back to the Senate at a later date.

The House, last Saturday just after midnight, passed the bill and left on its five-week break.

Republican House leaders had long opposed a higher minimum wage -- which is earned by about 7 million people -- because they said it would have destroyed low-wage jobs.

But political pressure to allow a vote increased as Democrats focused on the lack of a minimum wage increase and Republicans looked to the midterm congressional elections fearful about their party's prospects for keeping control of the House and Senate.

Instead of providing a clear vote on the minimum wage, Republicans teamed it with legislation that would have cut the estate tax. Republican leaders hoped the bill would allow them to defang the Democrats' criticism that the GOP was hostile to the working poor while also achieving one of their top goals -- reducing taxes for wealthy families.

To sweeten the pot, Republican leaders threw in a host of tax provisions they hoped would appeal to individual senators, particularly Democrats whose votes were needed. So the bill contained, for example, tax breaks for coal-mining companies, aimed at Sen. Robert Byrd, D-W.Va., and timber tax breaks aimed at Sen. Maria Cantwell, D-Wash.

"One thing I've learned in my time in government is you can always find a reason to vote no. It takes a bigger step ... to compromise and get something done that is important for people," said Sen. Rick Santorum, R-Pa., during the debate. "This bill does that."

But one of the items that unraveled the deal was the minimum wage issue in states like California that don't allow employers to use "tip credits" in figuring the pay for workers such as waiters, manicurists and bartenders who get regular tips.

"This legislation is cynical," said Sen. Barbara Boxer, D-Calif. "It's all done to let the public think they are doing something about the minimum wage. But what they're doing to tipped employees is a disgrace."

There was a bitter disagreement about what the tip credit provision meant. Democrats contended it would have cut the pay of about 650,000 Californians from the current $6.75 state minimum wage plus tips to $2.13 an hour plus tips. In San Francisco, which has its own, higher minimum wage, they maintained pay would have been hacked from $8.82 an hour plus tips to $2.13 with tips.

But Republicans and the restaurant industry had a sharply different reading. They said the change would have applied only to future increases in the federal, state or local minimum wage in the seven states. In other words, if California raised the minimum -- as is being considered -- workers who get regular tips wouldn't have received that new higher wage.

"The tip credit provision in the minimum-wage bill protects employee wages at their current level. No provision results in the lowering of wages for any worker," California Restaurant Association President Jot Condie said before the vote.

The bill, HR5970, called for the federal minimum wage to increase to $7.25 over three years, but Democrats said their reading made it clear that tipped workers would have faced a big wage cut. To bolster their view, they offered supporting opinions from the nonpartisan Congressional Research Service and the Congressional Budget Office.

But the restaurateurs, who sought the tip credit provision, disagreed.

"We just don't agree with that interpretation," Condie said. "And the legal experts that we have asked to review this do not interpret it that way either."

The bill's backers also cited a letter from the U.S. Labor Department saying the department interpreted the legislation to "protect current minimum wages."

The California Labor Federation worked against the bill, which was opposed by Boxer and Sen. Dianne Feinstein, D-Calif.

"Our state should have the ability to set fair wages for workers in California -- not have the federal government tell us we need to sink to their level," said Angie Wei, of the labor federation, before the vote.

The other heavily lobbied feature of the bill was the estate tax cuts.

The bill would have increased the amount of an estate exempt from taxes to $5 million for an individual and $10 million for a couple by 2015. Estates of up to $25 million would have been taxed at the capital gains rate, which is 15 percent and scheduled to increase to 20 percent. The top rate on larger estates would have fallen to 30 percent.

"We hope that in the Senate a lot of Democrats who are for a permanent solution to the death tax will vote for the package," Mike Donohue, spokesman for the National Federation of Independent Business, said before the vote.

But Donohue acknowledged that by putting diverse elements together in one package, drafters could have overplayed their hand. "It's the danger of packages like this. The tip credit is an issue that's important to senators from some states and it gives them a reason to oppose it," he said.

In addition to California, the six other states were Washington, Oregon, Nevada, Alaska, Montana and Minnesota.