Bits, Pieces of Tax Relief Bill to Stay on Table After Veto : Congress: Modest array of cuts, incentives is kept alive even as larger GOP package goes down in flames.

Just when it looked like tax cuts of any kind were dead for the year, congressional Republicans may salvage some modest relief from the wreckage of the $792-billion tax-cut bill that President Clinton is expected to veto this week.

Some Republicans--and even some Democrats--want to link a smaller package of tax breaks to a popular bill that would raise the minimum wage from $5.15 an hour.

On another front, there is broad bipartisan support to extend tax credits for research and development--a top priority for the high-tech industry--as well as other targeted breaks that otherwise would die with the larger GOP tax bill.

Pressure also is building to fix a quirk in the tax code that could force a million middle-class taxpayers into a higher tax bracket next year.

So while Clinton’s long-promised veto effectively will kill the measure that Republicans had touted as their signature achievement, the tax-cut issue is likely to remain in play. Clinton had planned to exercise his veto today but a hoarse throat caused him to postpone the action, the White House said Tuesday night.

At one time, attention focused on prospects for tax cuts as part of a grand compromise between Congress and Clinton on a range of other budget issues, including Medicare and domestic spending. But with GOP leaders now shunning such a post-veto deal, other Republicans see coupling tax relief with the minimum wage increase backed by Clinton and congressional Democrats as another way to enact at least part of the tax cuts the party has sought.

Efforts to link taxes and the minimum wage will meet stiff opposition from conservative Republicans, who vehemently oppose any wage hike. “I don’t believe it is going to take root and grow,” said Sen. Larry E. Craig (R-Idaho).

And any new tax initiative faces procedural obstacles in the Senate, where the measure could tie up the filibuster-prone chamber at a time when GOP leaders are trying to wrap up the year’s crucial fiscal business.

But in the House, Republicans may try to overcome such objections and obstacles with a deal that could include the minimum wage and extension of the widely backed research and development tax credit, as well as a few other tax breaks scheduled to expire.

“This place has a way of moving quickly if you get a bipartisan agreement,” said Trent Duffy, spokesman for Republicans on the House Ways and Means Committee. “There’s no question the minimum wage and [extension of the tax breaks] are really the twin engines to getting some kind of tax cut signed into law.”

Another idea being floated is to link minimum wage legislation with a cut in inheritance taxes--one of the most popular elements of the sweeping tax cut bill that narrowly passed the House and Senate over the summer and a top priority for the small business lobby. Other pieces of the big tax bill that could resurface, GOP sources said, are an increase in the deduction businesses can claim for meals and entertainment and expanded breaks for self-employed people who buy their own health insurance.

The opening salvo in the minimum wage debate was fired Tuesday, when the Senate took up a bill to make it harder for people to escape their debts by declaring bankruptcy.

Sen. Edward M. Kennedy (D-Mass.) wants to offer an amendment to the bankruptcy bill to increase the minimum wage by $1--to $6.15 an hour--over two years. Senate Majority Leader Trent Lott (R-Miss.) failed Tuesday in a procedural maneuver designed to block Kennedy from offering the amendment. In the wake of that defeat, Lott was expected to shelve the bankruptcy bill for at least a week in hopes of reaching an agreement with Democrats to limit debate and amendments.

When the issue comes to a head, Senate Republicans are preparing an alternative. Although details of that plan are not yet set, Assistant Majority Leader Don Nickles (R-Okla.) said that options include tax relief for small business and a proposed change in labor law--opposed by unions--to make it easier for employers to offer compensatory time off instead of overtime pay.

In the House, a group of 18 moderate Republicans has written to House Speaker J. Dennis Hastert (R-Ill.) demanding a House vote on the minimum wage this fall. Hastert has asked a GOP task force to develop a plan for linking a minimum wage increase to measures that would “make sure that there is not going to be any job loss and give small businesses the ability to absorb this by cutting taxes,” said John Feehery, Hastert’s spokesman.

The idea of uniting a minimum wage increase with a package of tax cuts is not new. Congress did it in 1996, the last time it increased the minimum wage. That measure included tax breaks mostly for small businesses, which traditionally fight legislation that increases their payroll costs.

Even if the tax break-minimum wage link fails this year, the effort to renew the tax credit for businesses that increase their investment in research and development may be propelled into law by a sense of urgency and bipartisan support.

The credit has proved especially lucrative for the high-technology industry but it typically has to be renewed by Congress every year. The bill Clinton is ready to veto would have extended and expanded the tax credit, providing $1.6 billion in relief in 2000 alone.

With Clinton’s veto, the credit will lapse unless Congress finds another way to renew it. Members of both parties, including House Ways and Means Chairman Bill Archer (R-Texas) said that they do not want the year to end without action renewing that and other expiring tax breaks, including one that encourages businesses to hire former welfare recipients.

Another issue that Archer and members of both parties want to address is the quirk in the tax law that will increase taxes on many middle-class families next year by expanding the reach of the so-called alternative minimum tax.

This tax was established to keep wealthy people from eliminating all their tax liability through the use of credits and loopholes. But a growing number of middle-class taxpayers have come under the tax’s reach because it is not indexed for inflation and because more tax breaks have been made available to the middle class, such as the $500-per-child tax credit that took effect in 1998.

Last year, Congress tried to ease the problem by exempting the per-child tax credit and other middle-class breaks from being considered in calculating the alternative minimum tax. That exemption expires at the end of this year. If Congress does not act, government analysts said, 1 million more families will have to pay more under the alternative minimum tax, which applies a 26% tax to income compared to the 15% bracket most middle-income families are in.