Tax Reform, Health-Care Issues Likely to Dominate Legislative Agendas

Now that Congress and the Legislature are back in session, small-business lobbyists are assessing the political landscape to see what gains can be made in 1998.

At the federal level, an estimated $2.4-billion budget surplus could mean tax cuts for small business, lobbyists say. Such breaks are likely to be discussed in hearings held in March by Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee.

Lobbyists say Archer has already indicated he wants to follow up last year’s estate tax change--which raised the asset exemption to $1.3 million--with a possible reduction in the 55% tax rate paid by heirs of family-owned businesses. Small businesses also could see a reduction in their payroll taxes.

If any changes are made, expect them early on--March or April--or not at all, said David D’Onofrio, spokesman for National Small Business United, a small-business association. Many lawmakers are facing reelection, and their minds will be on local battles rather than on battles on the hill, he said.

“Typically, Congress doesn’t do a lot of heavy lifting in an election year,” D’Onofrio said.

So expect hearings and lots of them, especially when it comes to fundamental tax reform, a hot issue in Washington.

“It’s come to the point where all small businesses believe the current tax system doesn’t work for them,” D’Onofrio said. Abolishment of the current IRS tax code, institution of a flat tax or creation of a national sales tax are among the ideas in circulation.

Besides the push by the National Federation of Independent Business to kill the IRS tax code, Americans for Fair Taxation, a Texas group, recently announced a $10-million drive for a 23% national sales tax and the elimination of all other taxes, D’Onofrio said.

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Both Archer’s committee and the Senate Finance Committee, which is chaired by Sen. William V. Roth (R-Del.), will tackle tax reform. Roth’s committee begins hearings next week to come up with legislation, which is likely to contain many of the same measures proposed last year by Sen. Bob Kerrey (D-Neb.) in the IRS Restructuring Act.

Sen. Christopher “Kit” Bond (R-Mo.), chairman of the Senate Committee on Small Business, wants Roth to include a number of other small-business measures, such as requiring court approval for seizure of taxpayer property, easing of penalties so that small businesses can afford to pay fines, notification of audits, and an evaluation of the costs and burdens of electronic filing of payroll taxes.

“Generally speaking, if we don’t get these in the finance package, we’ll seek to get them in amendments,” said Ken Bricker, a Bond aide.

Other federal issues likely to occupy small-business activists at the federal level:

* President Clinton’s proposed small-business pension program tax credit. Small firms that start pension plans would get tax credits for three years, up to $1,000 in the first year and up to $500 in the next two.

* Modest changes in product liability laws that would protect companies with fewer than 15 employees and limit noneconomic damages. Sen. John D. “Jay” Rockefeller (D-W.Va.) is working on a compromise bill after Clinton vetoed more substantive changes last year, D’Onofrio said.

* Minimum-wage increases of 50 cents a year for the next three years. Small-business activists will oppose a measure sought by House Minority Whip David Bonior (D-Mich.) and will probably extend their opposition to Clinton’s proposed wage hike.

* “Patient Access to Responsible Care,” a health-care bill that would require more than 300 changes or mandates in the way managed-care companies provide services. Small business, along with the general business community, opposes the bill, believing it would drive up costs.

The changes would “make it harder to negotiate a lower price and, as price goes up, thousands of small-business owners will no longer be able to afford coverage,” said David Danner of the National Federation of Independent Business.

Taxes and health care are also likely to dominate the year at the state level.

A move is afoot to reduce the tax burden on start-ups by waiving the $600 to $800 corporate filing fee. The measure is sponsored by Assemblywoman Lynne Leach (R-Walnut Creek).

And although the self-employed won a series of health insurance tax deductions at the federal level last year, those breaks don’t exist at the state level. Assemblyman Howard Wayne (D-San Diego) will renew a bill he introduced last year to provide such deductions.

The National Federation of Independent Business will oppose what it calls “mandates by body part,” a series of legislative bills that specify how hospitals must handle pregnancies, mastectomies, second opinions and other procedures.

“When you start placing mandates on the books, premium costs go up, and we’re trying to keep costs down for small businesses,” said Shirley Knight, California assistant director for the NFIB.

Small business, along with other business interests, might be taking on labor over Assembly Bill 480, which restricts how an employer provides sick leave. The regulations, Knight argues, open business to litigation.

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Increases in unemployment insurance under Senate Bill 495 are also opposed by the NFIB, as is expansion of state disability benefits under Senate Bill 164, proposed by Sen. Hilda Solis (D-El Monte).

The business federation is also joining a coalition of 500 organizations in opposing the PEG Initiative, a government contracting change sought by the Professional Engineers in State Government, an employee group. The measure would permit public agencies to omit salaries for certain employees when drawing up cost estimates for projects. At a disadvantage would be contractors seeking to bid for private construction of the same projects.

“The bottom line is it will cut out a lot of private companies from bidding and create a huge bureaucracy to add to the bidding process,” Knight said.

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Times staff writer Vicki Torres can be reached at (213) 237-6553 or at vicki.torres@latimes.com