A measure that included a tax cut and a minimum pay boost, which some said could actually lower pay for some Oregon workers, fails in the Senate

FROM STAFF AND WIRE REPORTS

The Oregonian

Washington state's Democratic senators helped drive the U.S. Senate's rejection late Thursday of a Republican election-year effort to fuse a cut in inheritance taxes on multimillion-dollar estates with the first minimum wage increase in nearly a decade.

The vote came as a relief to thousands of tipped workers in seven states, including Washington and Oregon, who might have seen their paychecks frozen or slashed -- depending on who you believe.

Republicans needed 60 votes to advance their bill, which linked a $2.10 increase in the $5.15 federal minimum wage over three years to reductions in estate taxes . The bill got a 56-42 vote -- four votes short of succeeding.

For Republicans, the combination could have neutralized a Democratic campaign issue while also advancing an estate tax cut, a priority that may have an uncertain future if the GOP loses seats in Congress in November.

The GOP strategy put Democrats in an uncomfortable position. Either they could vote against the bill -- thus rejecting a minimum wage increase -- or they could vote for it -- thus agreeing to cut taxes on multimillion-dollar estates.

Most rejected the bill, blocking a GOP victory months before the election.

Republicans were dealt a blow when Washington Democratic Sens. Maria Cantwell and Patty Murray announced they planned to oppose the GOP's bill.

"Washington voters passed a minimum wage increase adjusted for inflation in 1998 by a wide margin," Cantwell said. "It is senseless to roll it back now."

The raise in the minimum wage would not have affected Oregon's higher minimum wage of $7.50 or Washington's minimum of $7.63.

But the bill contained language that would have negated prohibitions in Oregon and Washington against counting tips as wages for tipped employees. California, Alaska, Montana, Minnesota and Nevada also bar the so-called employer "tip credit." As a result, critics say, restaurants in such states might have been able to pay tipped employees less in hourly wages.

Oregon Labor Commissioner Dan Gardner and worker advocates say the bill could have slashed tipped worker wages to as low as $2.13 an hour, the minimum set out under tip-credit laws.

Restaurant servers, hairdressers, baristas and taxi drivers were among potentially affected workers, though Gardner said it's hard to say just how many tipped employees work in Oregon. Full-service restaurants alone employ more than 60,000, state figures show, but Gardner said tipped workers could number as high as 100,000.

Oregon Restaurant Association lobbyist Bill Perry said the impact would have been less dramatic than critics contended.

The bill, he said, would have frozen hourly wages of Oregon's tipped workers at the state's $7.50 minimum. Employers could then use worker tips to make up the difference from future annual minimum increases. Oregon voters approved an inflation-indexed minimum wage in 2002.

"Our industry has never asked anybody to go backwards," Perry said.

Sen. Gordon Smith, R-Ore., voted for the bill. His spokesman said the minimum wages of tipped workers in the seven states would have been protected.

Sen. Ron Wyden, D-Ore., voted against it, saying the legislation would "stomp the will of Oregon voters."

The bill also would have revived popular tax breaks that expired last year -- among them, deductions for state sales taxes and college tuition, along with a research and development credit for business.

The measure passed the House on Saturday. Rep. David Wu, D-Ore., broke ranks with most of his party and voted for the bill, joining Greg Walden, R-Ore. Oregon Democrats Earl Blumenauer, Peter DeFazio and Darlene Hooley voted against the bill.

On Thursday, Oregon Gov. Ted Kulongoski seized on the debate to gain mileage in his re-election campaign. He met with workers Thursday at the Bijou restaurant in downtown Portland and sent a letter to Smith and Wyden asking them to vote against the bill.

Workers at Shari's Restaurant on the corner of Southwest Garden Home and Oleson Road said they'd not heard of the proposal but shook their head at a reporter's description of what might happen if it passes.

"I'd definitely look for another job," said Manny Davila, 28, who had just survived Thursday's lunch rush. A seven-year employee of Shari's, Davila said restaurant workers toil hard for their pay.

Before moving to Oregon, Davila worked in Crawford, Idaho, where he said a tip credit reduced his hourly wage to about $2.55. He figures he now earns more than $11 an hour in wages plus tips -- income that helped him put his wife through school.

Some union leaders and employers acknowledged that most Portland-area employers already pay above the minimum wage to stay competitive for workers.

Ben Davis, president of Grand Central Baking Co. in Portland, said an above-minimum wage lowers turnover. And by tradition, he said, tips belong to the workers who serve coffee and pastries at the company's five retail outlets.

"It seems like tips are an employees' earning from their service," said Davis, whose store employees average $9.15 an hour and get health, 401(k) and profit-sharing benefits. "That's the way the tradition goes in this country. It seems like they own that and not the employer."

Oregonian reporters Jeff Kosseff and Brent Hunsberger and The Associated Press contributed to this report. Brent Hunsberger: 503-221-8359; brenthunsberger@news.oregonian.com, www.oregonlive.com/weblogs/atwork