Senate Rejects Minimum Wage Hike, Estate Tax Cut

By Kai Sandvig | July 7, 2008 | 8:31 PM EDT

( - Senate Democrats late Thursday refused to accept a bill raising the nation's minimum wage because the bill also would have eliminated the "death tax" on estates up to $5 million.

Republicans needed 60 votes to cut off debate and bring the bill to a vote -- but in the end, they managed to muster only 56 votes.

Furious Democrats called it "sham" legislation and they accused Republicans of "trickery."

"Americans are too smart to be tricked into foregoing middle class tax relief, so America can borrow hundreds of billions of dollars to give tax breaks to a wealthy few," said Senate Minority Leader Harry Reid (D-Nev.).

According to Reid, the bill would have "bankrupted" the country by adding $800 billion to the national debt.

"It's unimaginable Republicans would deny millions of small business a research and development tax credit, it's unimaginable Republicans would deny 15 million workers a $2.10 raise, it's unimaginable Republicans would deny millions of middle class families tax relief, if 8,000 of their wealthy friends don't get billion-dollar tax breaks first," Reid said.

Reid said the American people will "see through these political games."

The Senate has now adjourned for its August recess, and Senate Majority Leader Bill Frist said he worries what kind of message senators are sending to their constituents by refusing to bring the minimum wage/estate tax bill to the floor for a vote: "That's tantamount to saying, 'We don't care about America's economic security.' And I'm deeply ashamed that we, the United States Senate, would ever dare send such a message to the American people," Frist said.

The Washington Post reported that 38 Democrats, one independent and two Republicans -- Lincoln Chafee (R.I.) and George Voinovich (Ohio) -- refused to support the bill, while four Democrats joined a majority of Republicans in trying to let the bill proceed to a vote.

Conservative groups such as the Institute for Policy Innovation (IPI) oppose increases in the minimum wage. Government wage controls are no different than government price controls, IPI contends, adding that minimum wage increases end up harming the people they are designed to help.

"The minimum wage is a tricky issue, because everyone wants workers to get a 'fair' wage (enough to live on), but not to the extent a mandated minimum destroys jobs by making the cost of new hires too big for some businesses," IPI Senior Research Fellow George Pieler wrote in an email to Cybercast News Service.

"Raising the minimum wage doesn't make it harder for people to look for work, but it means (other things being equal) fewer jobs available at the given price point when the minimum wage goes up," Pieler stated.

Most liberals who favored a higher minimum wage opposed the estate tax cut. They were also strongly opposed a provision in the Senate bill that they say would have eliminated state-approved minimum wages for employees who receive tips.

The Senate bill would have superseded minimum wage laws in California, Alaska, Minnesota, Montana, Nevada, Oregon and Washington State, according to liberal Democrats such as Sen. Barbara Boxer of California. Boxer was quoted in the Los Angeles Times as labeling the measure dealing with the state minimum wage laws "a devastating proposal."

The liberal Center on Budget and Policy Priorities (CBPP) described the estate tax cut and other measures submitted by the Senate's Republican majority as "sweeteners to purely attract votes." But CBPP Executive Director Robert Greenstein warned that middle-class taxpayers eventually would have to pay more in order to compensate for the reduction in taxes on wealthy estates.

The Economic Policy Institute (EPI), which bills itself as "nonpartisan," has released a study showing that 8.3 million workers would benefit from the minimum wage increase by 2009, when the average yearly income for full-time minimum-wage workers would rise from the current $10,712 per year to $15,080 per year.

EPI's report also said that estate-tax relief would benefit 8,200 households by 2011. "This [legislation] is more of an excuse to address the estate tax," CBPP Senior Fellow Joel Friedman said.

William Dickens, a senior economic fellow at the "independent" minded Brookings Institution, also supported boosting the minimum wage and rejected the theory that it would reduce the number of available jobs.

"No study I'm aware of has demonstrated that minimum wage increases lead to layoffs. What they show is that the total number of hours worked at affected firms drop," Dickens wrote Cybercast News Service in an email. "The employment reduction can also take place through attrition. But even if someone does lose a job, the low wage labor market is pretty fluid," he added.

Earning power is not based on a higher minimum wage, but rather on education, Pieler noted. There is "plenty of reason to stay at least through high school and preferably beyond ... but a higher minimum wage can reduce opportunities for high-school age workers who may want that option," he said.

The U.S. House on July 28 passed its version of the minimum wage increase bill by a vote of 230 to 180. That bill would hike the minimum wage from the current $5.15 per hour to $7.25 per hour in 70 cent increments over three years.

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