In Congress, a flurry of last-minute deals

The House passed pension reform, hiked the minimum wage, and curtailed the estate tax. But Senate fight looms.

As House Republicans huddled late Friday, they needed a win.

"We need to put some major scores on the board before Election Day ... issues of concern to the American people," said Rep. John Shadegg (R) of Arizona.

After all, their agenda's big-ticket items – immigration, lobbying rules, Social Security, detainee rights, port security, a response to secret domestic surveillance, and a budget for this year's spending bills – had either derailed or were in dispute.

So, as the August recess loomed, the GOP made an 11th-hour gambit. To pass the most significant changes to pension laws in 30 years, Republicans offered Democrats a shotgun marriage – a $2.10 hike in the minimum wage coupled with a roll-back of the estate tax. They also agreed to a divorce, removing a host of popular tax breaks from the pension bill and adding it to the minimum wage/estate-tax deal as a sweetener.

The tactic paid off in the House, where both bills passed in midnight votes. But all the maneuvering may not cement agreement in the Senate, where even Republican votes are not assured.

On the pension bill, the big question is whether GOP leaders can move the controversial bill across the finish line without the tax breaks. Another is whether powerful Senate chairmen will tolerate being cut out of the deal by House leaders and Senate majority leader Bill Frist.

The pension bill aims to reform the employer pension system that is currently underfunded by some $450 billion, risking a federal bailout. Without congressional action, airlines Northwest and Delta said they would have to shut down their pension plans.

Senate and House negotiators had been grappling with competing versions of the complex bill for more than five months. On Friday, Senate conferees again urged House members to sign the agreement. "Working together we can put a bill on the President's desk for signature within a week," they wrote in a letter.

The agreement requires more than 30,000 companies to boost payments to their pension plans, offers relief to airline companies on the verge of default, raises the contribution limits for IRAs and other 401(k) plans, and promotes charitable giving.

House leaders brought the substance of this agreement to the floor late Friday night, but without a package of tax breaks that Senate negotiators said was a key to passing the bill in the Senate. These include a popular research-and-development tax credit and a $4,000 tax deduction for college expenses.

"There is a critical mass of senators opposed to passing this bill without the tax package," said Sen. Max Baucus of Montana, the ranking Democrat on the Senate Finance Committee, last week. GOP leadership aides say they expect to find the 60 votes needed to overcome a filibuster.

For many Republicans, the pairing of estate-tax relief with a hike in the minimum wage is an even higher hurdle.

Conservatives have long pushed for permanent repeal of the estate tax – they like to call it the "death tax" – but they don't want it paired with an increase in the minimum wage.

"I want permanent death tax relief. But I cannot in good conscience vote for a bill that also contains an excessive minimum wage increase that will hurt small businesses and cost American jobs," said Rep. Mike Pence (R) of Indiana, a fiscal hawk.

The deal was pushed by moderate Republicans, many facing tough reelection fights this fall. Opponents charged that GOP lawmakers had voted to increase their own salaries, but had not raised the minimum wage in nine years. Under the House bill, the minimum wage rate would increase from $5.15 per hour to $7.25 by June 2009. It passed by a vote of 230 to 180.

Democrats, who wanted an up-or-down vote, called the deal an election-year stunt. "This Republican bill reeks of cynicism," said Democratic whip Steny Hoyer.

Critics say the House deal, linking an increase in the minimum wage with a sharp reduction of the estate tax, is aimed at two groups at opposite ends of the economic spectrum. The minimum wage hike will help some 6.6 million beneficiaries with an average dollar benefit of $1,200. The estate tax cut will benefit some 8,200 people with an average dollar benefit of $1.4 million, according to the Center on Budget and Policy Priorities (CBPP) in Washington.

But millions of middle income individuals "will almost certainly lose from the House bill, when the measures ultimately needed to pay for the bill's sharp cuts in the estate tax are taken into account," reported CBPP's Joel Friedman and Aviva Aron-Dine this weekend.