The well-prepared Washington business lobbyist always keeps a couple of new tax cuts or deregulatory schemes in his suit pocket just in case a selling opportunity arises during a Capitol Hill visit. But the congressional market for new pro-business legislation is weak this year. Instead of tax cuts, Congress is talking tax hikes. And deregulation, after the Environmental Protection Agency scandals, has lost some of its shine.
So, the first priority for business's Washington agents this year has been damage control "We'll be busy enough just keeping the bastards from taking it away," says Walter Stults, president of the National Association of Small Business Investment Companies. Among the measures being discussed in Washington, some have special significance for smaller companies.
A cap on the third-year personal tax cut, for example, would have fallen heavily on unincorporated businesses. It would also have had a chilling effect on business start-ups and initial expansions by reducing investors' capital. "Those are the people we borrow from," says Mike McKevitt, director of federal legislation for the National Federation of Independent Business, which has about 500,000 members. Fortunately, the proposal was defeated.
Then there is the plan proposed by Senate Finance Committee chairman Robert Dole (R-Kans), which would limit to $175 a month the amount a company could contribute tax-free toward each employee's family medical insurance. Anything more than $175 would not be a deductible business expense for the company and would be taxed as ordinary income to the employee. Not fair, says lobbyist Allen Neece of Small Business United who points out that small-company employee groups generally pay higher premiums than groups formed by big corporations. As a result, such a cap on medical benefits could mean that two employees with identical medical coverage would have different tax bills, depending on the size of the company cach worked for.
Most worrisome, however, is a surtax on corporate earnings, an idea proposed early this year by the Administration as part of a contingency tax package. An across-the-board surtax sounds fair enough -- until you look at the companies that actually pay corporate taxes. Many large corporations with assets to manipulate can take advantage of tax credits and accelerated depreciation; hence, smaller and less capital-intensive companies would shoulder most of the burden of a higher corporate income tax.
All of these proposals must leave Republicans, especially, a little exasperated. This is not the scenario that they foresaw for the third year of the Reagan Administration, when, according to the Laffer curve, government revenues should be increasing as tax rates are cut. "Our members say they didn't vote for a change in government in 1980 to have $200 billion deficits," remarks Tom Cator, who also represents Small Business United in Washington.
Meanwhile, a few longer-term, nontax projects of interest to large numbers of small businesses are moving ahead, albeit at a glacial pace:
Product liability law reform. A coalition of business groups has been working since 1980 to replace 50 separate state product liability statutes with one federal law, and it expects to see its bill approved by the Senate this year. But House action appears to lie at least a year away.
Small business participating debentures (SBDs). Proponents say SBPDs would help small companies raise capital for growth (see "Jumping the Gun," page 19), but they have been saying that for almost four years with little effect in Congress. This year, Senate Finance Committee chairman Dole has at least promised to hold hearings on the novel scheme.
Government procurement from, and competition with, the private sector.
That is, when should the federal government rely on the private sector, and when should it use its own employees to produce goods and services? The issue won't be resolved this year, but expect a new assault from the Senate on the tendency of the government bureaucracy to go into business for itself.
And what about those tax proposals being carried around in suit-coat pockets Well, since you asked, Mr Congressman, here are a few changes in the tax code that business wouldn't mind seeing:
* One optimistic catch-all bill would (1) lower capital gains tax rates on investments in small companies to 20% for corporations (from the current 28%) and to no more than 10% for individuals (from the current 20%; (2) give individuals a 10% tax credit for equity investments in small businesses; (3) lower corporate income tax rates by raising from $100,000 to $200,000 the point at which the maximum tax rate is applied to corporate earnings; and (4) allow companies with gross receipts of less than $1.5 million to use the cash accounting method (whereby they report cash received, not accounts receivable, as income for tax purposes).
* The high-technology sector would like a permanent 25% tax credit for increases in research and development. The current credit provision is due to expire at the end of 1985.
* And, while this may not be the year to do it, the still-embryonic Coalition to Reduce High Effective Tax Rates would like to talk seriously to Congress about stopping further corporate tax increases.
But let's face it: When the final gavel sounds on the first session of the 98th Congress, few, if any, of these measures are likely to be the law of the land. Indeed, this may well turn out to be one session that most businesspeople would rather forget.
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