Minimum-wage hike OK'd in Senate, strings attached

WASHINGTON -- The Senate voted overwhelmingly yesterday to increase the federal minimum wage for the first time in nearly a decade, but added small-business tax breaks that are unacceptable to House leaders, preventing Democrats from claiming a quick victory on one of their top legislative priorities.

The Senate voted 94 to 3 in favor of the measure, which would raise the minimum wage from $5.15 an hour to $7.25 an hour over two years.

To attract Republican support, Senate leaders agreed to extend tax credits and expand deductions for businesses that would be hit hardest by the minimum-wage increase. Those tax breaks, worth $8.3 billion over 10 years, are coupled with a proposal to raise taxes by a similar amount on corporations, their chief executives, and other highly paid workers.

Senate Republicans praised the measure as a responsible package that would help workers who earn the minimum wage and the businesses that employ them. They implored House leaders to accept the compromise and send it to President Bush .

"I want to reiterate our hope that the House will not derail this bipartisan approach," said Senator Michael B. Enzi, a Wyoming Republican. "Middle-class relief is in their hands."

Democrats were less effusive. After the vote, Senators Hillary Rodham Clinton of New York and Barack Obama of Illinois lined up at a press conference with the bill's sponsor, Senator Edward M. Kennedy of Massachusetts and bemoaned the complications. Earlier, Harry Reid of Nevada, the majority leader, said he would prefer to pass a minimum-wage increase without "all these business pieces of sugar."

The Senate action sets the stage for potentially lengthy negotiations between the two chambers, as the new Democratic majority works through one of its first significant tests. After winning control of Congress in a campaign that emphasized middle-class anxiety and corporate greed, Democrats pushed the minimum wage to the top of their agenda, noting that it had fallen to its lowest value, when adjusted for inflation, in more than 50 years.

The House quickly approved the measure after just a few hours of debate. But the Senate took days, tacking on an amendment to ban companies that hire illegal immigrants from receiving government contracts for 10 years, in addition to the tax package.

As passed by the Senate, the bill would extend several business-tax deductions and credits, including one that allows small businesses to accelerate deductions for new purchases. It would extend for five years a tax credit for employers who hire welfare recipients and "high-risk youth," and expand the provision to include disabled military veterans.

To cover the costs of those provisions, the bill would close loopholes used by corporations that do business overseas and increase penalties for tax evasion. It would also forbid executives from deferring more than $1 million in pay every year and placing the money in tax-deferred accounts. Anyone who exceeded the allowable amount would be forced to pay taxes on all income deferred since Dec. 31, 2006, plus a 20 percent penalty.

House leaders have demanded that the tax measures be stripped from the bill. They argue that business needs no additional help after six years of breaks from the Bush administration.