JANUARY 10, 2007
Top News
By Richard S. Dunham
More Than the Minimum Wage
The Democrats are looking to boost salaries for the country's lowest-paid workers, and that's just the beginning of their business agenda
Elections have consequences, and the business community, which bet heavily on the losing Republican side in 2006, is learning to live with a Democratic Congress in 2007. Representative Barney Frank (D-Mass.), the new chairman of the House Financial Services Committee, recently put the plight of companies this way: "Many of the people in the business community are very frustrated because they cannot get adopted at the national level policies that they think are important for growth."
As the House Democrats steamroll through what they're calling their "100 hour" agenda over the next two weeks, corporate reps are on the defensive. First on the Democrats' list: raising the minimum wage. The preliminary plan calls for boosting the federal minimum from $5.15 per hour to $7.25 per hour in three increments over about two years. The House is likely to approve the measure on Jan. 10, and President Bush already has indicated that he favors such an increase.
It's just one example of how the Democrats' rise in Washington will change things for business in the months ahead. Over the next nine days, the Democrats are expected to hold votes on several top economic initiatives, such as lowering interest rates on student loans, allowing the government to negotiate lower prescription drug prices with pharmaceutical manufacturers, and rolling back tax breaks for energy producers that were approved by the Republican Congress. The only Democratic proposal with widespread business support is a plan to expand federal funding of stem-cell research, a proposal almost certain to face an eventual Presidential veto.
Wage Increase's Broad Effect It didn't have to turn out this way. The minimum wage debate, in particular, is an example of squandered opportunity for the business community and its Republican allies. Months ago, before the midterm elections, Democrats were so anxious for a minimum wage increase that they were willing to agree to accept a series of tax sweeteners for small business in exchange for the pay hike. But GOP leaders balked and demanded that Democrats agree to a reduction in estate taxes worth more than $750 billion to the wealthiest of heirs. The business-backed compromise died. Instead of tax incentives for entrepreneurs, business now will be handed a "clean" minimum wage bill that will raise the salaries of 7.3 million of the lowest-paid American workers, according to statistics compiled by the liberal Economic Policy Institute.
Conservatives argue that the working poor, not companies, will be the biggest losers. A higher minimum wage "causes businesses to hire fewer workers, and it particularly discourages businesses from hiring the least-skilled workers who most need assistance," says James Sherk of the conservative Heritage Foundation. "Losing access to entry-level positions deprives many unskilled workers of the opportunity to learn the skills they need to advance up a career ladder."
But it's too late for academic arguments. The Democrats have the votes, and White House advisers say President Bush does not want the minimum wage hike to be the first veto of his second term. The higher minimum will affect a host of businesses, including restaurant chains such as McDonald's (MCD) and Burger King (BKC). Retailing giant Wal-Mart (WMT) has been one of the supporters of a minimum wage increase.
Countering the Democrats The "100 hour" blitz is just the beginning of hundreds of days of defensive maneuvering by American companies and their Washington lobbyists. The Democrats already have announced plans for rounds of hearings on business subjects ranging from executive compensation to shareholders' rights to the Administration's contracting practices in the Persian Gulf and Gulf Coast regions. And while some of the hearings may be largely political grandstanding designed to shine the spotlight on controversial corporate conduct, some investigations could result in legislation that will affect all of American business. Chairman Frank, for example, says he is planning to introduce legislation in the wake of former Home Depot (HD) chief executive officer Robert Nardelli's $200 million-plus severance package to give shareholders more power to vote on executive compensation issues.
To counter the Democratic offensive, business reps are planning a two-pronged strategy: playing aggressive defense in the Senate on measures they have a chance to modify or defeat, while working in concert with Democrats on issues of mutual interest. According to U.S. Chamber of Commerce CEO Tom Donohue, the areas of potential common ground include immigration reform, improving math and science education, development of green energy sources, rebuilding America's transportation infrastructure, and liberalizing trade.
While the prospect for further business tax cuts seems remote, Donohue says key Democrats such as House Ways & Means Committee Chairman Charles Rangel (D-N.Y.) and Senate Finance Committee Chairman Max Baucus (D-Mont.) are open to business-favored measures to make the research-and-development tax credit permanent and to reform the alternative minimum tax that bites millions of middle-income taxpayers. "We'll vigorously challenge anti-business proposals that would hurt growth and cost jobs," says Donohue. "[But we] want to enter into a discussion and a political debate on those issues we can agree on."
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