Minimum Wage and Taxes
Last night the Senate passed an increase in the Federal minimum wage. Attached to the bill are tax breaks for small businesses and tax hikes for big businesses. There are several issues here, so let's take a look at what this bill might mean.
First, the House passed an increase without any tax changes. Leaders in the House have said that they want a "clean" bill—one without any attachments. Unfortunately for the Democratic leadership, in the Senate it takes 60 votes (out of 100) to cut-off debate. Republicans made it quite clear that without the tax changes, this bill was d.o.a. in the Senate.
As to the minimum wage increase itself, it will have no impact at all in California; the state's minimum wage is higher than the new federal minimum wage.
However, the tax provisions will have an impact if they become law. The two versions of the bill must go to a conference committee which will have to iron out differences, and then it must pass both the House and Senate again. Also, under the Constitution tax changes must be first started in the House, not the Senate (there are ways of getting around this, though). So if the House leadership is adamant about a "clean" bill, the tax changes won't happen.
The biggest impact of the new legislation would be a cap on the amount of deferred compensation. Today's Wall Street Journal has an editorial arguing against this provision. The Journal argues that if deferred compensation isn't allowed, companies will switch to other forms of compensation. And they're correct, too. As the cliche goes, where there's a will, there's a way. If someone wants to pay $x, he'll find a way.
So it should be interesting to see what happens with the bill. Since an increase in the minimum wage leads to fewer jobs (this is basic economics), I personally hope that the bill dies. But given that House leadership desperately wants to pass this legislation, I expect to see it emerge in some form later this year.
First, the House passed an increase without any tax changes. Leaders in the House have said that they want a "clean" bill—one without any attachments. Unfortunately for the Democratic leadership, in the Senate it takes 60 votes (out of 100) to cut-off debate. Republicans made it quite clear that without the tax changes, this bill was d.o.a. in the Senate.
As to the minimum wage increase itself, it will have no impact at all in California; the state's minimum wage is higher than the new federal minimum wage.
However, the tax provisions will have an impact if they become law. The two versions of the bill must go to a conference committee which will have to iron out differences, and then it must pass both the House and Senate again. Also, under the Constitution tax changes must be first started in the House, not the Senate (there are ways of getting around this, though). So if the House leadership is adamant about a "clean" bill, the tax changes won't happen.
The biggest impact of the new legislation would be a cap on the amount of deferred compensation. Today's Wall Street Journal has an editorial arguing against this provision. The Journal argues that if deferred compensation isn't allowed, companies will switch to other forms of compensation. And they're correct, too. As the cliche goes, where there's a will, there's a way. If someone wants to pay $x, he'll find a way.
So it should be interesting to see what happens with the bill. Since an increase in the minimum wage leads to fewer jobs (this is basic economics), I personally hope that the bill dies. But given that House leadership desperately wants to pass this legislation, I expect to see it emerge in some form later this year.