ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, August 21, 1996 TAG: 9608210064
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Knight-Ridder/Tribune
NOTE: Lede
President Clinton signed legislation Tuesday that boosts the minimum wage by 90 cents an hour and offers small businesses a hefty package of tax breaks.
``This bill says to the working people of America: If you're willing to take responsibility and go to work, your work will be honored,'' Clinton said before signing the bill at the desk of Frances Perkins, who was labor secretary when the first minimum-wage law was enacted in 1938.
The new law will raise the minimum hourly wage to $4.75 on Oct.1 and to $5.15 on Sept. 1, 1997. The increase is expected to help about 3.7 million people who earn the current minimum of $4.25, and an additional 7.7 million who earn less than $5.15.
Clinton hailed the law's $5,000 tax credit for parents to offset the cost of adoptions and provisions that help remove barriers to interracial adoptions. He also praised tax incentives for small businesses.
While some of those breaks were intended to help companies offset the effects of higher wages, the businesses that will bear most of the wage increase will benefit least from the tax incentives. And businesses that don't have any minimum-wage workers will gain the most.
``There's no linkage between those that will be hurt by the wage increase and those that will be helped by the tax breaks,'' said David Wyss, director of research at DRI/McGraw-Hill Inc., an economic forecasting firm.
Wyss estimates that about 100,000 low-wage jobs could be lost annually because of the increase.
Meanwhile, some higher-wage jobs will be helped by the tax incentives, which include bigger write-offs for equipment purchases and tax credits for research.
``On the whole, small business will come out pretty much even, and it will be a wash for the economy,'' said Mark Zandi, chief economist at Regional Financial Associates, an economic consulting firm in Pennsylvania.
But the effects of the new law won't fall equally on all companies.
The people who earn the minimum wage are concentrated in low-skill, labor-intensive sectors such as the service industry - grocery stores, fast-food outlets, restaurants, convenience stores, hotels and resorts, child-care centers and apparel manufacturing. Few of the new tax breaks apply to those businesses.
Instead, most of the tax proposals will boost capital-intensive businesses that have high-skill, high-wage workers, such as computer and technology companies, venture-capital businesses, engineering or management consulting firms, law firms and construction businesses.
For example, askSam Systems, a fast-growing software company in rural Perry, Fla., has no minimum-wage employees but will be able to write off as much as $25,000 in new equipment purchases annually by 2003.
Phil Schnyder, the company's president, said the deduction was ideal for his company, which spends about $20,000 a year to upgrade its computer systems and buy the latest technology.
``We've bought a ton of equipment this year, and we're constantly buying because we need faster and better machines all the time in what we do,'' he said. ``This tax break will definitely help me.''
But for a small business like Gambino's Pizza, a family-style eatery and bowling alley in Cheney, Kan., the minimum-wage increase will hit hard, and there are no tax breaks to cushion the blow. Brian Latta, the assistant manager, said the pizzeria intends to lay off two or three of its seven minimum-wage employees.
Economists predict that businesses with many minimum-wage employees will almost immediately try to pass along the cost to customers by raising prices or will reduce the number of shifts, jobs or services.
``The money will have to come out of somebody's pocket - some out of the business owner's and some out of the customer's, and a few businesses will be pushed financially out the door - but this is the nature of doing business,'' said Ken Goldstein, an economist at the Conference Board, a business research group in New York. ``It's not a monumental, major change.''
Of minimum-wage earners, 63 percent are women. Fifty-four percent are 16 to 24 years old. The South has the highest proportion of minimum-wage earners, and the Northeast has the lowest.
Here are some of the package's main business provisions:
* Businesses will be able to increase the amount they can deduct for equipment purchases in the first year, rather than depreciate it over the life of the equipment. The amount will be gradually increased to $25,000 in 2003 from the current $17,500.
This will be valuable to high-tech companies and others that frequently replace their equipment. Most businesses that pay minimum wage will not benefit.
* Small businesses will be able to create pension plans with less paperwork. Businesses with fewer than 100 workers will be allowed to set aside pension money for employees without complying with many of the complex reporting standards they must now meet for 401(k) plans. Minimum-wage employees rarely receive such benefits.
* Business owners will be able to receive a tax credit on the tips of workers who deliver food, not just servers on the premises. This will help small businesses that deliver food, but it is not expected to fully offset the costs of higher minimum wages.
* A tax credit for employer-provided educational assistance will be renewed, and a tax credit for research and experimentation will be extended. These measures apply mostly to high-skill, high-end businesses.
As Jim Weidman, a spokesman for the National Federation of Independent Business, put it: ``A barber shop isn't investing heavily into research and development.''
LENGTH: Long : 104 linesby CNB