Taxes, Welfare Reform Among Top Legislative Issues
Small business made progress on the legislative front in 1997, but work on key issues remains for the new year.
Here’s a survey of what was achieved and what’s still on the agenda for tax reform, welfare to work, independent contractors and Los Angeles’ home-based business tax.
* Tax reform and federal law: Probably the most substantial gains for small business in 1997 came from federal measures that over time will double the exemption on estate taxes, decrease the capital gains tax, expand the home-office deduction and increase deductions for health-care costs for the self-employed.
Family-owned businesses with substantial physical inventory, such as car dealerships and manufacturing firms, will benefit from the estate-tax exemption. The exemption will rise to $1.3 million in January, giving heirs relief from the 55% tax rate. And the capital gains tax decrease from 28% to 20%, which went into effect retroactively May 7, will continue to provide a break for business owners who want to sell their firms to retire or start another business.
In 1998, the National Federation of Independent Business will continue its drive to abolish the Internal Revenue Service tax code by Dec. 31, 2000. The NFIB plans to hold a news conference April 15 calling for abolition of the code and is gathering 1 million signatures it will deliver to Congress on June 17 to that end. NFIB head Jack Faris argues that setting an expiration date would force Congress to rewrite the code quickly.
Though that might seem farfetched, some kind of tax reform is possible in the new year. Four bills are already pending in Congress to revamp the tax code.
Small-business advocates don’t see other big issues on the horizon when Congress reconvenes Jan. 27.
“I’m not sure a whole lot is going to happen in the area of small business in the second session of Congress,” said Allan Neece, a veteran small-business and trade association lobbyist. “The economy’s going along pretty well, profits are pretty good and I don’t think there are any burning issues for small business that are going to cause that sector to go to the barricades.”
* But one small measure that could squeak through is HR 96, a bill proposed by Gerald B.H. Solomon (R-N.Y.), that directs the federal Environmental Protection Agency, the Internal Revenue Service and the Occupational Safety and Health Administration to provide hands-on management and technical assistance for small businesses seeking to comply with new regulations. The network of nearly 1,000 Small Business Development Centers nationwide would provide the assistance.
* The federal government also gave small business a break in phone deregulation. Federal regulators now require phone companies to give a below-market rate to small businesses, defined as any firm with up to four telephone lines.
* Welfare to work: With great fanfare, President Clinton in May called on businesses to provide jobs to those eliminated from the welfare rolls. A national organization, the Welfare-to-Work Partnership, formed to carry out that mission, but few business owners attended the group’s recent conference in Los Angeles.
Small businesses worry that because they create most of the new jobs and most often hire workers new to the labor market, they could be hit with unskilled and unmotivated workers who might end up filing workers’ compensation claims and cost individual small businesses thousands of dollars. But as the drive to reform welfare proceeds, small business will continue to be called on to help out.
* Independent contractors: Small business will keep seeking clearer definitions of employees and independent contractors, but no progress is expected at the federal level. About 1,800 small-business owners at the June 1995 White House Conference on Small Business identified the hazy federal rules as their top concern, but labor unions have blocked action at the federal and state level for the last five years.
In the state Legislature, Assembly Bill 810, which would bring together labor and business on a 10-member task force to devise recommendations for a clearer independent contractor definition, has little chance of being revived after Gov. Pete Wilson indicated his opposition.
* Los Angeles home-based businesses: Nearly a year after the city of Los Angeles legalized home-based businesses, confusion persists. Do businesses that have no impact on their neighborhood have to register and pay the $25 fee? Do home-based businesses have to also pay city business taxes? Should a minimum earnings level be established so that individuals who earn less than $100 won’t have to pay taxes that start at $118?
City officials drafted a seven-page information sheet to help guide the public. And a City Council committee will take up these questions in January. Meanwhile, the measure faces a lawsuit filed by the Howard Jarvis Taxpayers Assn. in Los Angeles County Superior Court.
The group argues that the city home-based business ordinance amounts to taxation without a public vote, an action prohibited by Proposition 218. The city argues, however, that home-based businesses have always had to pay city taxes. But the association says that, before the home-based business ordinance was passed, any home business could have been stopped if it operated in a residential area. Thus, allowing them to operate brought them under the tax codes--in effect, the city created a new tax.
The lawsuit, which is likely to proceed unless the city agrees to put the matter to a vote, could take two years to go through the state court system.
Times staff writer Vicki Torres can be reached at (213) 237-6553 or at vicki.torres@latimes.com
