Friend or foe? - small business and politics

Entrepreneur, July, 1996 by Stephen Barlas

THE CLINTON administration crushed a critical IRS provision in the small-business regulatory reform bill the president signed on March 29. And the House GOP promises to turn the Small Business Committee into sawdust in the next Congress. Yet with the opening of the national 1996 campaign season, both Democrats and Republicans are throwing their arms around the shoulders of small business and squeezing tight, as if mimicking the popular TV show "Friends."

Republicans have been especially quick to claim political sponsorship of small business, given the election of numerous small-business people to the House in 1994. Soon after that election, Haley Barbour, chairman of the Republican National Committee, declared the GOP the party of "Main Street." Rep. Tom DeLay (R-TX), the House Republican whip and third-ranking House member, has repeatedly said the federal regulatory angst he suffered as a small-business owner catapulted him into politics.

"What we accomplished for small business this session--a balanced budget that would have led to lower interest rates--the president has vetoed," says DeLay. "You can't look at tax policy and the growth of the federal government, particularly federal regulation, and not believe, in your wildest dreams, that the Democrats were not responsible."

Not surprisingly, Sen. Paul Wellstone (D-MN), a well-regarded member of the Senate Small Business Committee, has a different perspective. "The Republicans are more attentive to Wall Street and protecting big business subsidies than they are to small business," he says.

Wellstone is the odd case of a senator who actually agitated to get on the Small Business Committee, which has limited jurisdiction and even less visibility. A university professor when he was elected, he was couraged to seek a committee post by two small-business owners in his home town of Northfield, Minnesota.

"Everyone seems to love the small-business person in the abstract, but follow-up on public policy is often lacking," says Wellstone. "Both parties can do much better."

* ANY ACTION?

One good way to evaluate Democratic and Republican claims to small-business allegiance is to use the top recommendations from the June 1995 White House Conference (WHC) on Small Business as a yardstick. The number-one recommendation that came out of the conference involved making five changes in how the IRS determines whether a worker is an employee or an independent contractor. In June 1995, Rep. Jon Christensen (R-NE) introduced a bill addressing the most important of those reforms: changing the "20-factor" test the IRS uses. But despite having more than 200 co-sponsors, the bill has gone nowhere in the House.

Karen Kerrigan, president of the Small Business Survival Committee, which tends to be pro-Republican, admits, "That is a key issue. In hindsight, the Republicans should have made that a priority."

When asked about the bill, Rep. DeLay answers, "That bill will hit the floor sometime this summer. Up until now, we had huge issues. We had to prioritize in terms of what we spent committee and floor time on."

Another component in the independent contractor recommendation asked the IRS to eliminate back taxes for misclassification when Form 1099s are filed and there is no evidence of fraud. Although neither Democrats nor Republicans acted on this issue, IRS Commissioner Margaret Milner Richardson announced a pilot program to alleviate that problem in March 1996.

The number-two recommendation from the WHC demanded a 100 percent deduction for meals and entertainment. This was not addressed in the tax bill Congress passed in December 1995. In its progress report on the WHC recommendations, Building the Foundation for a New Century, published in December 1995, the Small Business Administration (SBA) noted the IRS had only increased the amount of entertainment and travel expenses for which receipts must be kept from $25 to $75.

The number-three WHC recommendation addressed regulatory reform. Here is where some progress has been made. There was heavy bipartisan support for the Small Business Regulatory Enforcement Fairness Act of 1996, which passed the House and Senate in March 1996 and was signed by President Clinton on March 29. James Morrison, senior policy advisor for the National Association for the Self-Employed, calls that bill "stupendous," adding, "it far exceeded our expectations."

However, the bill did not include numerous elements in the WHC recommendation, including costbenefit and scientific-benefit analysis of federal regulations. Moreover, while the original bill sponsored by Sens. Kit Bond (R-MO) and Dale Bumpers (D-AR) would have made all IRS rules subject to the Regulatory Flexibility Act, the final bill includes only those IRS rules that require the collection of information.

John Satagaj, president of the Small Business Legislative Council, says, "We're delighted the IRS provision was in the bill at all. But if you are asking me whether we would have liked that provision to go further, the answer is yes."