Proposed Legislation Would Ease Burdens for Small Firms
Small business could win significant victories after Congress reconvenes Tuesday.
One of the first bills to be considered would provide loans to upgrade or repair equipment affected by the year 2000 computer problem.
Other measures would give the self-employed immediate 100% deductibility for health insurance premiums, eliminate inheritance taxes, revamp federally backed venture capital corporations to attract more investors to small-business enterprises, and relieve the paperwork burden on small businesses by requiring all federal agencies to accept electronic filings.
Another bill, whose prospects aren’t as rosy, would simplify independent contractor rules, the No. 1 concern of nearly 2,000 small-business owners at the White House Conference on Small Business in 1995. The bill faces an uphill battle because of opposition by organized labor, but most of the other measures could pass this year. Associations such as the National Federation of Independent Business and National Small Business United are pushing for the bills and urging their members and small-business owners in general to contact their elected representatives.
Below are details on some of the proposed measures:
* Y2K relief: The Small Business Year 2000 Readiness Act (S314) is designated for priority consideration by the Senate and House.
The proposal by Sen. Christopher S. Bond (R-Mo.), chairman of the Senate Committee on Small Business, would allow Small Business Administration loans to be used for Y2K-related upgrades, repairs or purchases of computer hardware and software. After Jan. 1, 2000, business owners who can prove they suffered economic losses as a result of Y2K problems could apply for loans for operating capital.
* Health insurance deductions: The Self-Employed Health Insurance Fairness Act of 1999 (S343), written by Bond and now in the Senate Finance Committee, would allow the self-employed to deduct 100% of health-care premiums effective Jan. 1, 1999. The deduction now stands at 60%.
The bill also would eliminate the rule barring a deduction if the small-business owner could have obtained health insurance through a spouse, regardless of whether the business owner takes advantage of the insurance or not.
If approved, the measure would cap years of effort by NSBU and other small-business advocacy groups to give small businesses the same exemption received by giant corporations.
“Not too long ago, the self-employed were at a 25% deduction, but we increased that in 1996 and 1997 and a little bit last year,” said David D’Onofrio, a legislative analyst in Washington with the NSBU. “We’re talking peanuts [in loss of revenue to the government] to get to 100% now.”
* Inheritance tax elimination: Several bills have been introduced, but the one that seems to have the most support is the Family Heritage Preservation Act (HR86), sponsored by Rep. Christopher Cox (R-Newport Beach). The bill would eliminate individual inheritance taxes, also called estate taxes, gift taxes or death taxes. Such taxes are onerous for small-business owners, particularly those with asset-heavy companies such as farmers, auto dealers and retailers, whose heirs can be required to pay up to 55% of the estate in federal taxes. Finding ways to avoid paying such taxes also result in costly attorney and accountant fees, money that could be used to grow the business, small-business advocates say.
* Small-business investing: Small firms could become more attractive investment vehicles under changes proposed to Small Business Investment Companies, which are government-backed venture capital corporations. Regulated and licensed by the SBA, these corporations use a mix of private dollars and federal funds to assist small start-up companies with funding from $250,000 to $4 million.
Two measures exist: Bond’s Small Business Investment Improvement Act (S364), and the SBIC Technical Corrections Act (HR68), sponsored by Rep. James M. Talent (R-Mo.), chairman of the House Committee on Small Business.
One of the proposed changes would allow small businesses to give royalties as an equity investment return, in lieu of issuing stock or being acquired by a larger corporation. Such royalties are now counted as part of the cost of the funding, which has a cap. Royalties often can make a small business exceed the cap and become ineligible to receive SBIC money. The bills also seek to increase federal backup for SBIC equity investment to allow for $1.2 billion this year and $1.5 billion in fiscal year 2000, an increase of $400 million and $600 million, respectively, over the current budget.
“What it really means is the economy is producing an extraordinary number of growing small businesses that require growth capital,” said Lee Mercer, president of the National Assn. of Small Business Investment Cos., which sought the bills.
* Paperwork: Again, two measures exist.
The Small Business Paperwork Reduction Act (HR391), by Rep. David M. McIntosh (R-Ind.), would waive civil fines for minor first-time paperwork violations if the small business corrects the violation within six months. The bill also would require federal agencies to create an information hotline for small businesses. The Paperwork Elimination Act (HR439), sponsored by Talent, would require federal agencies to do business via e-mail, fax or computer disk with firms seeking to use such technology, instead of requiring original paper documents.
* Independent contractors: Bond has proposed the Independent Contractor Simplification and Relief Act (S344), which would make it easier to determine whether an independent contractor should be classified as an employee.
Bond’s bill would eliminate the 20-question test used by the Internal Revenue Service and would substitute objective standards to show that the contractor has economic and workplace independence, plus a written agreement stating that the contractor is not being treated as an employee. Furthermore, businesses with contractors who are reclassified as employees would not be required to pay back wages if they met all IRS reporting requirements.
* Other federal small-business developments: President Clinton’s proposed SBA budget, released earlier this month, calls for fiscal year 2000 spending of $994.5 million, with $233 million of that slated for the disaster loan program. That compares with $820 million for fiscal year 1999, with $101 million for disaster loans. According to federal practice, a percentage of SBA funds are kept as reserves to fund loan and equity financing guarantees. The money proposed in Clinton’s budget would allow $2.4 billion for SBIC equity financing, $10.5 billion for the 7(a) loan program and $3.5 billion for 504 Certified Development Companies, nonprofit organizations that aid small business.
The budget must undergo the congressional appropriations process. Bond indicated that he might hold hearings in the spring to examine just how well SBA programs have been functioning.
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Times staff writer Vicki Torres can be reached at (213) 237-6553 or at vicki.torres@latimes.com.
