A winning tax-and-wage trifecta

This week is shaping up as a major showdown in the U.S. Senate over a sweeping legislative package that includes a permanent reduction of the estate tax, extensions of various tax policies critical to economic growth and job creation, and an increase in the national minimum wage. This "trifecta," as they're calling it in our nation's capital, is a winning combination for America and provides significant benefits for the state of Washington.

However, before this much-needed tax-relief legislation becomes law, it must overcome a procedural hurdle. By early Friday morning, the Senate is expected to have a "cloture" vote on the measure — a parliamentary procedure that closes down a filibuster by opponents of the legislation. Senate rules require that 60 of 100 senators vote to stop the stalling tactics and vote on the legislation.

With the Senate scheduled to leave town for the August recess at the end of this week, and a hectic election-year schedule in the fall, this will be the last chance for the Estate Tax and Extension of Tax Relief Act of 2006 to become law. The measure has already passed the House.

I hope that Washington's two senators will seriously consider the ramifications for our state and support this vital legislation.

First, it is important to clear up a major misunderstanding. Despite some misleading claims, this new legislation would not affect our state's current minimum wage of $7.63 an hour. It also does not prohibit states from increasing their minimum wage in the future.

The legislation before the Senate would incrementally raise the current national minimum wage from $5.15 an hour to $7.25 by June 1, 2009. It would not lower our state's minimum wage, nor would it lower the wages required to be paid to tipped employees. Washington is one of seven states where employers are required to pay the higher between the state and the federal minimum wage without regard to tips, and the federal bill would have no effect on the current prohibition.

The bill would create a prospective tip credit that would go into effect only if the state increases its minimum wage level in the future. It would not take money away from restaurant workers, parking attendants, bellhops and others who rely on tips for a significant share of their income.

The tax package also contains a number of provisions, some of which have recently expired or are due to expire at the end of the year, that are critical to helping Americans start or expand a business, raise a family, get a first job, and invest and save for the future.

Particularly important to maintaining the thriving business climate in our state, the legislation extends and expands the Research and Development Tax Credit. This provision is vital to the innovative firms based in Washington, such as Microsoft and Boeing, that provide revenues for the state treasury and high-quality jobs for our people, and help spur further business development.

In addition, the state sales tax deductibility would be extended by two years, and capital-gains taxes on timber sales would be reduced by 60 percent.

Two other tax provisions vital for promoting opportunity in our state are the Work Opportunity Tax Credit (WOTC) and the Welfare to Work (WTW) Tax Credit, which would both be extended and expanded under the legislation. Employers may claim the WOTC if they hire individuals from groups considered to face barriers to employment. The WTW tax credit can be claimed by employers who hire individuals who have received public assistance for an extended period of time.

The restaurant and hotel sectors particularly benefit from these provisions. These proven programs are essential to a successful welfare-to-work strategy, providing necessary incentives to employers and helping to break the cycle of poverty and dependence.

Finally, the legislation would help resolve a long-standing injustice that I have fought against for years: the estate tax, or, as I call it, the death tax. If I had my way, we'd completely get rid of this unfair tax burden on family farmers and small-business owners. Under the legislation now before the Senate, Americans would still enjoy significant — and permanent — death-tax relief.

As part of the tax cuts we passed in 2001, the death tax will end by 2010, after a decade of incremental decreases. However, because of a "sunset" provision in the tax-cut legislation, on Jan. 1, 2011, we would go back to the way things were in 2000, at the exorbitant tax rate of 55 percent for assets over $1 million, unless Congress acts.

The current legislation before the Senate would lower estate- and gift-tax rates on amounts up to $25 million (indexed for inflation) to the capital-gains tax rate (currently 15 percent). It also phases in a reduced tax rate on amounts over $25 million to 30 percent.

The legislation would also reunify the estate, gift and generation-skipping transfer taxes, giving people greater flexibility to make estate-planning decisions during their lifetime. A $5 million estate- and gift-tax exemption would be phased in by 2015.

Estate-tax planning would be simplified by allowing married couples to take full advantage of the personal exemption by carrying over any unused exemption amount to the surviving spouse. The legislation would provide a stepped-up basis in estates to current appreciated values.

This vital legislation must not be stopped by procedural roadblocks. There are bipartisan majorities in the Senate for estate-tax reform, extending tax policies that promote economic growth, and increasing the minimum wage. This legislation accomplishes all of those goals, for the benefit of our state and our nation. It's time for the Senate to stop talking and act.

Jennifer Dunn is a former representative from Washington's 8th Congressional District. She is currently with the law firm of DLA Piper Rudnick Gray Cary.