Congressional wrap-up - business-related law and legislation

Nation's Business, Jan, 1990 by Bradford A. McKee

Congressional Wrap-Up

Repeal of Section 89 was a major victory for small business in the first session of the 101st Congress, and an increase in the minimum wage was a major setback.

Otherwise, most of the issues of greatest concern to small business during 1989 are still awaiting action by Congress during its 1990 session.

"Very few of the important business issues were resolved in 1989," says Albert D. Bourland, vice president for congressional relations of the U.S. Chamber of Commerce. "So this year will be tough--lots of long, hard work ahead in this second session. We've got all of last year's priorities piled on top of what we expect to develop this year."

Here is a status report on major small-business issues in the 101st Congress:

Section 89. The unrelenting opposition of small business resulted in a retreat by Congress in one of the hardest-fought battles in years on government regulation. At issue was Section 89 of the 1986 Tax Reform Act, a section designed to prevent employers from favoring higher-paid employees in pension and other benefits plans. Small business protested, however, that the mechanisms set up for determining whether discrimination existed placed such an enormous regulatory burden on companies that many would give up benefits programs rather than incur the high costs of compliance.

Enforcement of the regulations was deferred several times during the long congressional debate on whether the provision should be repealed or simplified. That debate ended conclusively with repeal of Section 89, which was one of the last major actions of Congress in 1989.

Nonetheless, some members of Congress are continuing to explore ways to deal with allegations of discrimination in benefits plans, and some new proposals on this subject, including taxation of benefits generally, may be forthcoming this year.

Minimum Wage. A compromise between President Bush and the Democratic leadership of Congress resulted in enactment of legislation that will raise the federal minimum wage 90 cents an hour in two steps. The level will go to $3.80 on April 1 and to $4.25 a year later.

The law also provides for payment of a training wage to new workers aged 16 to 19. The training wage is set at 85 percent of the regular minimum. Employers can pay at that level only for 90 days, but firms with certified training programs can pay it for an additional 90 days. In a further limitation, the training wage can apply to no more than 25 percent of the total number of hours worked by all employees.

The final passage of the increase followed a veto by President Bush--with strong support from business--of an earlier bill that called for attaining a $4.65 wage level over three years.

Small business argued against any increase on grounds that wage levels should be determined by market forces, not federal edict, and that any mandated increase would drive many smaller firms out of business.

Capital Gains. Enactment of a reduction in the tax rate on capital gains is expected in the new congressional session. A majority of members of Congress indicated in direct or test votes in 1989 that they support President Bush's proposal for the lower rate.

While Democratic leaders in the Senate managed to prevent final action last year with procedural roadblocks, the issue will come to a final vote early this year.

The president's proposal calls for reducing the tax on capital gains, now a maximum of 33 percent, to 15 percent.

Opponents have argued that a reduction would curtail federal revenues during a period when elimination of the federal budget deficit is a major priority.

Supporters point out that previous experience shows that a rate reduction encourages investment and economic activity, thereby increasing tax collections.

Disabilities Act. The Americans with Disabilities Act, which would set federal requirements for protecting the rights of the disabled, probably will become law early in 1990. The Senate passed the measure overwhelmingly in 1989. A key House committee has completed action on a similar bill.

Business is concerned chiefly about the measure's potential for increasing litigation and about its compliance costs. For example, the legislation would require businesses to make "reasonable accommodations" to serve disabled persons--such as expanding narrow doorways if that would be "readily achievable"--or face first-offense penalties of $50,000.

The Senate bill exempts firms with 15 or fewer employees; the House bill has no small-business exemption.

Business's supporters in Congress, who admit they cannot derail the bill, are working to moderate its impact through actions such as clarifying definitions to minimize litigation and providing a $5,000 tax credit to ease the financial burden of compliance.

Estate Freeze. An issue of critical concern to family businesses in the 1990 session of Congress will be a move to repeal the tax provision known as 2036(c). That is the section of the tax code that abolished the estate-freeze approach to tax planning. The pending legislation would restore use of the freeze, which could save a family from being forced to sell its business just to pay ruinous inheritance taxes.