Move to Gut the Estate Tax Fails in Senate
Congress had lots of pressing legislation to finish up or at least move forward before departing for its August recess.  But the House and Senate leadership decided that slashing the estate tax was most important, and they threw together a new package in a gamble to gain the 60 votes needed to overcome objections in the Senate.  They failed, with only 56 votes in favor, and 42 opposed.  (http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=2&vote=0022)

The proposal to make cuts in the estate tax drastic and permanent was married to a long list of tax breaks that would expire if Congress failed to extend them and to an increase in the minimum wage.  Those three parts gave H.R. 5970 the nickname “trifecta.”  The trifecta wager was that the minimum wage plus the 10-year, $38 billion package of popular tax cut extenders, originally included in a separate pension bill, would attract the necessary votes.  Because the gamble did not pay off, Congress went home without having enacted extensions of dozens of tax breaks including credits for research and development, hiring low-income workers, inclusion of combat pay for purposes of calculating the earned income tax credit, and many others hotly desired by various business interests.

They also went home without enacting an increase in the minimum wage.  The proposal would have gradually raised the minimum wage from the current $5.15 an hour to $7.25 by June 2009.  Long overdue, this would have been the first increase since 1997, during which time Congress increased its own pay nine times, for a total of $31,600 in raises.  After repeated refusals to let the minimum wage come up for a vote, first the House leadership and then the Senate decided to respond to the growing political pressures to raise it – but to exact a price in return.  At a cost of $750 billion, the gutting of the estate tax turned out to be too high a price for 42 senators – enough to block it.

The package was enough to win approval in the House on July 29.  H.R. 5970 passed in that body by a vote of 230 to 180 (http://clerk.house.gov/evs/2006/roll425.xml).

Estate Tax:  When it was apparent that there were not 60 votes in the Senate to proceed to a vote on the massive tax breaks and overdue minimum wage increase, Majority Leader Frist changed his vote to “no” in order to be able to bring the package up again.  Advocates need to assume they have not heard the last of efforts to gut the estate tax.

A permanent reduction in the estate tax probably can be designed to attract the necessary 60 Senate votes.  But so far, proponents of outright repeal have overreached, with bills that cost nearly as much as full repeal.  The cut in the estate tax in H.R. 5970 would cost about three-quarters as much as total repeal, $750 billion from 2012 to 2021, the first decade in which it would be fully implemented.  (For more details about the estate tax proposal, see the Center on Budget and Policy Priorities, http://www.cbpp.org/7-28-06tax3.htm)  The huge cost, which would deepen the federal deficit and create more pressure to cut services, was too much for 60 senators to swallow.  Analysts tallying up the benefits have noted that only a fraction of one percent of estates will ever be subject to the tax (8,200 estates), including only 135 small businesses nationwide.  Even this year, well before full implementation of the estate tax cut, the richest one percent of taxpayers will receive $61 billion, averaging more than $44,400 in tax cuts for each household in this high-income group.  (To see state-by-state impacts of tax cuts enacted since 2001, see Citizens for Tax Justice)

Minimum Wage:  As noted, the proposal in H.R. 5970 would have increased the minimum wage in three installments to $7.25 in June 2009.  Although long-time proponents of increasing the minimum wage, such as Senator Kennedy (D-MA), preferred a shorter phase-in to $7.25, this increase would certainly have passed were it not saddled with the drastic estate tax cut and a problematic provision that would dramatically lower wages for minimum wage workers who rely on tip income in 7 states.  These 7 states (Alaska, California, Montana, Nevada, Oregon, and Washington, plus Guam) require employers to pay the full minimum wage, whether or not the worker receives tips.  Other states and federal law allow a tip credit, with employers only required to pay a far smaller amount (the federal minimum wage paid by employers of tipped workers is only $2.13 an hour), with the rest made up by tips.  A provision in H.R. 5970 prohibited the 7 states from enforcing their own law unless they adopted a tip credit.  In Washington state, with its state minimum wage of $7.63, employers would no longer be required to pay more than the federal minimum of $2.13, or a stunning $5.50 less in hourly pay for Washington minimum wage workers – a loss of more than $10,000 a year for a full-time employee.  About one million workers in the 7 states would be affected.  As the impact of this proposal became known, Senate leaders hastened to backpedal away from it.  If there is strong enough pressure in September to vote again on a minimum wage increase, the 7-state wage reduction may disappear.  But the pattern of attempting to insert provisions favorable to business is well-entrenched.  In the recent past, minimum wage increase proposals have been tied to business tax breaks or loss of labor standards protections such as the 40-hour work week, and H.R. 5970 also included extension of a tax break for restaurant owners worth nearly $5.7 billion over 10 years.  In the past, though, such “sweeteners” for business have not resulted in actual wage reductions for minimum wage workers.  (See more information about the treatment of tips in H.R. 5970.)

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