NCPA - National Center for Policy Analysis

Tax Breaks To Cushion Minimum Wage Hike

September 30, 1999

Congressional leaders are clearing the way for passage next month of a bill that would increase the $5.15 an hour minimum wage by at least $1 over the next two to four years, say observers.

To make a wage increase less costly to small businesses -- which employ many of the 4.4 million workers that would be affected -- G.O.P. leaders in the House of Representatives plan to pair a wage increase with some business-friendly tax breaks, such as:

  • Tax credits for hiring entry-level workers.
  • An increase in the business meal deduction from 50 percent to 80 percent.
  • A full deduction for health insurance premiums paid by the self-employed.

The size of the tax breaks is likely to depend on how much the minimum wage is raised. While Democrats want a $1 boost over two years, a bipartisan House alternative would increase it $1.30 over four years.

The estimated cost to employers is up to $3 billion a year.

About 3 percent of workers would benefit from the increase. Half of them are under 25, nearly two-thirds are women, and three- fifths work only part time.

Congress last raised the minimum in 1996, from $4.25 to $5.15. By contrast, the average hourly wage for all private sector employees is about $13 an hour. When adjusted for inflation, average pay and the minimum wage are worth less than in 1979.

Source: Owen Ullmann, "This Time, GOP Likely to Concede on Raising Wages," USA Today, September 30, 1999.


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