Budget Plan a Mixed Bag for Small Business
To defenders of small-business interests, the latest congressional budget package is a win-some and lose-some proposition that does not seriously punish or please.
Congress appears ready to approve a tax provision that helps some small-business owners. It appears that small-business lobbyists have also rallied enough votes to save some existing tax law provisions important to small- to medium-size enterprises. However, Congress has also eliminated proposals that could have proved to be a boon to growing firms.
The big defeat for small business is elimination of proposed tax incentives designed to help smaller firms grow. The package of growth incentives was part of the proposal that emerged late last month from the so-called budget summit, a compromise plan developed by congressional leaders at the behest of President Bush. When Congress failed to approve the budget proposal earlier this month, a new plan was developed--and growth-incentive provisions were among items left on the cutting room floor.
Among the most generous of the proposed growth incentives was a provision that would allow investors to deduct 25% of their investment in newly issued stock in eligible small companies--to a maximum of $50,000. The provision was designed to help small firms attract capital for expansion and new ventures.
The concept behind the growth-incentive proposal was actually developed in 1982 by Harvey Goldstein, a financial adviser to small business and managing partner of Singer, Lewak, Greenbaum & Goldstein, a Los Angeles-based management consultant and accounting firm. However, Goldstein has favored far stronger incentives--a provision, for example, that allows investors to deduct 100% of up to $50,000 invested in newly issued stock from small companies. There has been a congressional sponsor for some version of Goldstein’s incentive concept every year for eight years, but the idea has not yet survived the budget process.
Goldstein, who has spent time as a small-business advocate in Washington, said the incentive version proposed by congressional summit leaders was inadequate. He said he would not have lobbied for the provision, but favored passage--hoping Congress would add stronger incentives later.
“I was surprised when they (congressional summit leaders) adopted it,” he said. “I was pleased because we always look for trends. We were seeing a start in this direction.”
Goldstein said small business failed to make major gains in the budget process because it doesn’t have the lobbying clout of other interest groups. “Small business doesn’t employ ex-members of Congress,” he said.
On balance, small business has suffered no significant losses and has made no substantial gains in the 1990 budget proceedings, Goldstein said.
However, there have been some small gains. National Small Business United, a Washington-based coalition of 125,000 companies, cites reinstatement of a budget proposal that helps those who inherit family businesses reduce their inheritance-tax burden. The inheritance tax had increased for some successors in family business as a result of a 1986 tax change. The new budget provision would repeal the change.
Congressional supporters of small business have also had the numbers to fend off efforts to eliminate some tax laws that benefit owners of smaller enterprises. For example, owners of sole proprietorships can deduct 25% of their health-care premiums. Some in Congress tried--but failed--to eliminate the deduction.
On the other hand, small-business supporters in Congress have tried--but failed--to get enough support for major cuts in capital gains taxes on the sale of property and business facilities. Some in Congress have sought to cut the tax rate nearly in half.
The loss of the capital gains fight irks Arthur Sweet, president of Certified Business Funding, a North Hollywood company that makes loans to fledgling firms.
“This hurts,” he said, “because you need every liquid dollar you can get, and you may want to sell an inadequate facility to get money to plow into a more modern facility.”
Sweet said Congress should help cut the budget by foregoing any pay raises.
Betty Jo Toccoli, president of Total One Development Centers, a Los Angeles-based firm that offers companies training and analysis of human resource and customer service needs, said, “I don’t think small business is hurt any less or any more than any other segment of the economy. But there were some things that would have helped--like capital gains and tax incentives.”
