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STATUS OF
LEGISLATION NAWBO PUBLIC POLICY ISSUES Note: The information below is current as of September 17, 1999. However, activity affecting NAWBO's top public policy issues continues on a daily basis. Updates will be announced throughout Public Policy Days if, and when, events occur. TAXATION Introduction – Most of NAWBO's tax initiatives described below were included in the major tax bill which has passed both the House and the Senate. That tax bill was to be delivered to President Clinton on September 15 but at the time of this report it is uncertain as to whether or not it has arrived in his office. Whether or not the President will veto any or all of the provisions is the subject of much discussion. Independent Contractor Clarification – In the 106th Congress, Senator Christopher "Kit" Bond (R-MO). (a long-time proponent of clarification) introduced a package of small business targeted tax proposals. Included was S.344 – Independent Contractor Simplification and Relief Act of 1999, co-sponsored by Senator Don Nickles (R-OK) and others. Also introduced in the 106th Congress was a bill (HR1525) sponsored by Congressman Kleczka (D-WI), Houghton (R-NY) and others. It is cited as the "Independent Contractor Clarification Act of 1999" and provides a simplified criteria for determining whether an individual is an employee or an independent contractor. This bill is currently tabled in House Ways and Means Committee. It contains a number of provisions that could negatively affect the status of Independent Contractor. NAWBO is continuing to support and lobby for a clarification of the definition of an Independent Contractor and our efforts and those of other small business groups must be intensified to get the correct legislative action. Business Meals Deduction – NAWBO urges enactment of legislation that will allow an immediate or accelerated tax deduction for 100% of the expenditures for Meals and Entertainment expenses of a small business that are connected to doing business. HR 2087, Small Employer Tax Relief Act of 1999 (SETRA), introduced by Congressman Jim Talent (R-MO), proposes an amendment to Internal Revenue Code, Section 274(n) to increase the meal and entertainment expenses for small business taxpayers from 50% to 80%, and to put all small business on the same allowance increase schedule, equitably. NAWBO testified at a Small Business Committee hearing in favor of the bill. Estate and Gift (Death) Tax Repeal – Congress has proposed many legislative proposals and bills which address either the complete elimination of the tax or proposed to continue to increase the lifetime exemption. The Balanced Budget Agreement for FY 1998 included commitments to estate tax reform. Both the Dunn-Tanner Death Tax Elimination Act, (HR8) and the Dunn-Weller Lifetime Tax Relief Act, (HR1084) will reduce the estate tax by 5% each year until it is eliminated in 11 years. HR8 is sponsored by Representatives Jennifer Dunn (R-WA) and John Tanner (D-TN). It is sponsored by Jerry Weller (R-IL). S.1128, Estate Tax Elimination Act is sponsored by Senators John Kyl (R-AZ) and Bob Kerrey (D-NE). It has been referred to the Senate Committee. This bill would immediately repeal the estate tax outright. Under the bill, no estate tax would be due upon the death of an individual. If the descendant passes on a business or other property, that asset would only be taxed if sold by the heir, and taxed only at the capital gains rate the descendant would have paid had they sold the business prior to death. NAWBO's position is to repeal the Estate and Gift "Death" Tax in its entirety and testified before the House Ways and Means Committee (June 1999), calling upon Congress to eliminate this burdensome tax. 100 % Deductibility of Health Insurance Premiums Senator Christopher "Kit" Bond (R-MO) sponsored S.343, The Self-Employed Health Insurance Fairness act, which was referred to Senate Committee on Finance. This bill amends the IRC of 1986 to allow an immediate deduction for 100 percent of a self-employed individual's health insurance costs for himself or herself, spouse, and dependents, unless such individual already participates in an employer-maintained health plan. Congressman Jim Talent's (R-MO) "Small Employer Tax Relief Act of 1999" (SETRA), amends the IRC to increase the deduction for health insurance costs of self-employed individuals to 100 percent, beginning on January 1, 1999. This bill would place self-employed individuals on equal footing with large business. NAWBO testified before Congress on this issue (June, 99) and urges Congress to accelerate the deduction of health care expenses to 100% sooner than 2003. Capital Gains Rate Reduction Congress has recognized the critical need for capital-gains tax reform to enable small businesses to expand as well as to facilitate the availability of capital for small and start-up enterprises. A significant number of hearings have been held and bills have been enacted that focus particularly on reductions in the capital gains rate for individuals and for business. The Taxpayer Relief Act of 1997 provided a welcomed rate reduction for capital gains. However, true relief was not realized due to the confusion and complexity of short-term, mid-term and long-term holding period computations. Tax rates were dropped from 28% to 20% on assets held 18 months. Assets held five years or longer have a top rate of 18 percent. Later, there was a return to 12 months for long term gains and the elimination of midterm gains. There was capital gains tax relief for homeowners at the sale of a personal residence. Progress has been made in the effort to reduce the capital gains tax burden on small business, but more must be done. To encourage small business investment, there is a need for legislation permitting capital gains tax deferral upon the sale of any small business if proceeds are reinvested (within 2 years, for at least 5 years) in another small business. In addition, the capital gains tax rate upon proceeds form both investments should be reduced to at least 14%. Capital gains taxes have never been indexed for inflation, therefore a small business can pay substantial tax on a gain resulting solely from inflation. There are no incentives for investors to support small businesses such as 'S' corporations due to lack of broad based capital gains incentives for people investing in small businesses. Proposed legislation include the Tax Refund and Relief Act of 1999 (H.R.2448) which reduces individual capital gains tax from 20% to 18% and from 10% to 8% for the 15 percent bracket taxpayers. This will unleash additional capital into the economy, including funds for investment in small business. Section 179, Small Business Equipment Expensing Small Employer Tax Relief Act of 1999 (SETRA) introduced in 106th congress by Rep, Jim Talent (R-MO) includes a section that will increase expensing for small business to $35,000 immediately. NAWBO testified in support of this bill at a congressional hearing (June 99). Marriage Penalty Tax Relief A married couple generally is treated as one tax unit that must pay tax on the unit's total taxable income. HR 6, The Marriage Tax Elimination Act, sponsored by Jennifer Dunn (R-WA) and Jerry Weller (R-IL) proposes to restore marriage fairness and simplify the tax code for married workers. Dunn-Weller doubles the standard deduction for married couples filing their taxes jointly. It also simplifies the tax code by allowing a simple standard deduction rather having to determine the value of itemized deductions. The Weller-McIntosh-Danner Marriage Tax Elimination Act of 1999 world double the standard deductions while also doubling the rates within each of the income brackets. The result would give the average family up to $1,053 in tax relief. Tax Equity for Small Business – these provisions have been included in other portions of the Tax Bill Payroll Tax Relief – A cap must be placed on the employer's portion of payroll taxes, especially FICA and FUTA. Also, Small Employer Tax Relief Act of 1999 (SETRA) introduced in the 106th Congress by Jim Talent (R-MO) repeals the Federal Unemployment surtax of 2% under current law. The bill amends Section 3301 of the IRC of 1986 to provide a 6.0% percent excise tax under the Federal Unemployment systems instead of a 6.2% tax under current law. Congress added the 0,2% surtax temporarily in 1976 to repay government loans from federal unemployment trust funds. While Congress fully repaid the loans in 1987, it continues to extend the temporary surtax. NAWBO testified in support of this bill at a congressional hearing in June, 1999. TECHNOLOGY Patent Reform- HR 1902 (major bill) and HR 2654 (amendment) have passed the House and have sent to Senate but at the time of this report it is uncertain what Committee in the Senate received the legislation. Small Business Innovative Research Program (SBIR) – HR 2392 was set to be heard before the House on September 14 but current status in not clear. PROCUREMENT 5% WBE Goal – The Federal Streamlining Act of 1994 called for a greater level of contract participation by women-owned businesses. NAWBO's position is to call on Congress to hold oversight hearings and ask federal agency and department heads what they are doing to achieve the 5% procurement goal for women-owned businesses. Furthermore, NAWBO suggests accountability measures be added to the performance standards of federal procurement officers. Regulation of Private Certifiers – If the SDB certification process, with built-in uneven service quality and fees, is implemented with the SBA's budget reauthorization, organizations such as NAWBO's affiliate, NWBOC, will be disadvantaged in serving their target populations. Certifying the certifiers adds to red tape and paperwork, and is in direct opposition to NAWBO's stand at the 1995 White House Conference on Small Business in support of paperwork reduction. HUMAN
CAPITAL Association Health Plans – Legislation authored by Talent has passed out of the House Employer/Employee Relations Sub-Committee but is now stuck in the House Education and Work Force Committee. Association health plan issues have become part of the larger debate on health care reform and it was recently announced that the House may take up debate on health care reform in early October. At present no legislation has been introduced in the Senate but efforts to identify a sponsor continue. NAWBO has joined a coalition of small business groups and other employer groups to advance these issues. Pension Plan Benefits for All Business Entities – The SIMPLE plan, created by legislation passed in 1997, was a step toward simplifying pensions for small business. HR 352, sponsored by Roy Blunt (R-MO) and introduced on 1/19/99 amends the Internal Revenue Code to set forth provisions for: (1) a small employer (100 or fewer employees) retirement plans; (2) a credit for the expenses of establishing such a plan: and (3) a model small employer retirement plan. The bill has 131 co-sponsors and was referred to the House Ways and Means Committee. HR 1357, sponsored by Rep Mark Souder (R-IN) and introduced on 3/25/99, would amend the Internal Revenue Code of 1986 to increase the maximum amount which may be contributed annually to an individual retirement plan to $5,000 and to increase the maximum amount which may be contributed annually to an education individual retirement account to $2,000. The Senate version, S.487, was introduced by Rod Grams (R-MN) on 2/25/99. HR 1357 has been referred to the Ways and Means Committee. Saving Social Security - Several bills have been introduced in Congress to reform Social Security, most of which include Personal Retirement Accounts (PRAs) for workers. However, there are wide variations among them. There are two primary differences between the PRA bills. The first is whether the PRAs are created from a portion of the existing payroll taxes (12.4%)--called "carved-out" or added on top of the existing tax structure. The second is whether or not the promised Social Security benefit (which cannot now be paid for through payroll taxes) would be reduced. All PRA bills maintain a guaranteed defined benefit from the government, and "hold harmless" those who are currently retired or near retired. There are two primary bills that include a "carved-out" PRA, and are supported by both AWRS and NAWBO. In the House, H.R. 1793, co-sponsored by Congressmen Jim Kolbe (R-AZ) and Charlie Stenholm (D-TX) includes a 2% PRA. There are 5 other co-sponsors. In the Senate, S.1383 was introduced by Senators Judd Gregg (R-NH), John Breaux (D-LA), Bob Kerrey (D-NE), and Chuck Grassley (R-IA). Other Senate co-sponsors include Senators Thompson (R-TN), Thomas (R-WY), and Robb (D-VA). Five of the seven sponsors are on the Senate Finance Committee. Both of these bills would increase the minimum benefit provided by the SSA at retirement for the lowest paid workers, but decrease the promised benefit for the higher waged workers at retirement. All workers would control the investment of their PRAs and have the choice at retirement to convert them to an annuity or pass them along to their heirs. There are two proposals (not yet introduced as legislation) that include PRAs that are added-on to the existing system. In each case, workers are given 2% of payroll from general revenues to invest in their own PRA. However, at retirement the government will use most or all of the funds in these accounts to offset the guaranteed promised Social Security benefit. These proposals are authored in the House by Chairman of the Ways and Means Committee Bill Archer (R-TX) and Congressman Clay Shaw (R-FL). We applaud Chairman Archer and Congressman Shaw for their commitment to saving Social Security, and we understand that these bills may be politically more attractive because they do not reduce the promised benefit to workers. However, AWRS and NAWBO does not support them because they are not a "carve-out" of the payroll taxes--which polls show the majority of the public supports--they will require trillions of dollars in general revenues (mostly income taxes) over the next several decades, and workers will be required to forfeit all or most of the assets to the government at retirement. Other bills introduced in the House would increase the payroll tax wage base from $72,600 to $100,000 (Cong. Jerry Nadler D-NY) and/or direct the government to invest Social Security payroll taxes in the stock market. Few members of Congress have signed on to these bills. We strongly oppose them. President Clinton has not sent a reform bill to Congress this session. Instead, he advocates creating Universal Savings Accounts for all workers from general revenues. The is, in essence, a new entitlements system and has no impact on Social Security and does nothing to reduce the government's looming unfunded liability in the SS system. Outlook: Hearings have not been held in the Senate on Social Security this year. Chairman Archer held extensive hearings in the Ways and Means Committee in the spring but hasn't introduced his proposal into legislation or begun markup. He and Cong. Shaw are currently working actively behind the scenes to get support for their proposal, and they have recently restated that they intend to mark up their bill this fall. They are working to win support from President Clinton, outside groups such as AWRS and the AFL-CIO, and members of both sides of the aisle in the House. Although we have seen little public support for their proposal, we are in an atmosphere where anything can happen. |
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