Small-business tax cuts tied to Iraq funding bill

By Angus Loten

(Inc.com) - President Bush's expected veto of the Iraq funding bill this week will also halt small-business tax breaks aimed at offsetting an increase in the federal minimum wage.

While the president has said he supports both the wage hike and tax breaks, he is opposed to a separate provision included in the bill that creates a timetable for withdrawing U.S. troops from Iraq.

"If the Congress wants to test my will as to whether or not I'll accept a timetable for withdrawal, I won't accept one," Bush said at a press conference at Camp David on Friday. "I just don't think it's in the interest of our troops."

The president also attacked Congress for "putting all kinds of extraneous spending on a bill, the purpose of which is to fund our troops."

If the bill is vetoed, Democrat lawmakers have said they will resend the minimum-wage package in separate legislation in coming weeks.

The package is the result of a compromise struck earlier this month between House and Senate negotiators, which offers $4.8 billion in tax cuts while boosting the minimum wage by $2.10 to $7.25 an hour over two years. If approved, it would be the first increase in the federal minimum wage in a decade.

The cost of the tax cuts would be covered by reducing a capital-gains loophole for the children of wealthy taxpayers, among other changes to the tax code. The Senate had initially approved a minimum-wage hike that offered more than $12 billion in tax breaks. By contrast, the House bill offered only $1.3 billion in tax breaks.

The package also offers special tax breaks for restaurants owners, more capital write-offs for small businesses, and added incentives for those that hire disabled veterans.

"In many ways, including the minimum-wage increase in this bill on Iraq couldn't be more appropriate," Sen. Ted Kennedy (D-Mass.) said last week. "The minimum wage represents the values our troops are fighting for -- basic fairness. It's about what we stand for as a nation."

As many as 10 percent of military spouses earn less than $7.25 an hour, while more than 50,000 military families are expected to benefit from a minimum-wage increase, Kennedy said.

For its part, the National Federation of Independent Businesses, a small-business lobby with more than 600,000 members, continues to oppose the wage hike.

"Small-business owners have always opposed mandated wage levels because it leaves them with fewer choices in how they compensate their employees," Dann Danner, the group's executive vice president, said in a statement. He said the accompanying tax-relief package wasn't enough to allow small businesses to invest and stay competitive.