WASHINGTON — A rift between House and Senate Democrats has arisen over tying a minimum wage increase to tax breaks for small businesses.

Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee, and Rep. Charles Rangel (D., N.Y.), chairman of the House Ways & Means Committee, are at loggerheads over the issue, marking one of the first fissures in the Democratic Party since it took control of Congress this year.

Baucus, whose panel passed a comprehensive tax incentive package for small businesses Wednesday, said after the meeting that he had discussed the differences over linking the tax breaks to a minimum wage increase with Rangel and concluded Democratic leaders will have to hammer out a compromise.

“At this point, it’s up to House Speaker [Nancy] Pelosi, and Sen. [Harry] Reid [Senate Majority Leader] as to how they want to work that out,” said Baucus. “It’s their call right now.”

The differences between Rangel and Baucus boil down to strategy and politics. The House passed a bill for a minimum wage increase last week that did not provide tax breaks for small businesses, which will bear the brunt of a $2.10 increase in the federal minimum wage rate.

The House bill would raise the federal wage to $7.25 from $5.15 over two years. House Democrats argue the increase, the first in the minimum wage in 10 years, should be enacted without any concessions to employers.

However, there is bipartisan support in the Senate for a minimum wage increase tied to tax breaks for small businesses. In addition, President Bush has made his support of a wage increase contingent upon such tax breaks.

“Senators have made it clear…there are not 60 senators who will vote for the minimum wage [increase] unless it includes small business provisions,” said Baucus, referring to the “supermajority” needed to derail a filibuster. “I very much hope to get the minimum wage passed, but the Senate is just a different body than the House, and for the House and Senate to agree, especially on a conference report, we have to have the small business provisions.”

This story first appeared in the January 18, 2007 issue of WWD. Subscribe Today.

Sen. Chuck Grassley (R., Iowa), sent out a warning Wednesday to Democrats who oppose Baucus’ efforts.

The “reality is a minimum wage hike would likely not pass the Senate without small business tax relief,” said Grassley. “So, to those on his side who have been critical of chairman Baucus for being practical, I’d ask them how they would propose to get a minimum wage increase across the goal line.”

In the House, which is where all revenue bills must originate, Rangel has reportedly said he would use a procedural maneuver to vote on whether to reject the Senate bill if it contains the tax breaks. The National Retail Federation said Wednesday it supports the legislation proposed by Baucus and Grassley because it would provide a change in depreciation rules for retailers and other tax relief for small businesses.

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