August 30, 2000


Tax Package Proposed as Accompaniment to Minimum Wage Bill Contains Troubling Proposals

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On August 28, 2000, House Speaker Dennis Hastert wrote to President Clinton proposing that they work to pass a package that would include a minimum-wage increase, a series of changes in the Fair Labor Standards Act (some of which could exempt certain firms and employers from minimum wage and overtime rules), and a package of tax cuts. The minimum-wage and FSLA changes are beyond the scope of this short analysis. Its purpose is to highlight three problematic aspects of the proposed tax package.

Repealing the UI surtax without approving the other elements of the business-labor-state-DOL reform proposal would unravel the agreement and undermine prospects for passing the rest of the proposal. A strong case can be made for including the full UI reform proposal in the minimum wage package. If inclusion of the full proposal is not possible, repeal of the surtax should not be part of the minimum-wage package.

One other point bears mention. Speaker Hastert's letter describes the tax cuts in the package as reflecting "our desire to help alleviate the burdens on small businesses that would shoulder the costs of [the minimum wage] increase." However, a number of the provisions that make up the tax package (especially the health insurance deduction) bear little relationship to any possible effects of a minimum-wage increase on small business.