Small Business Buoyed by Capitol Hill Outlook

Small-business groups applauded the victory of George W. Bush in the presidential contest, but at the same time some conceded the near-equal split on Capitol Hill will force a scaling back of their agenda.

They don’t expect to come up empty-handed, though. Small business, well represented in every state and congressional district, believes its conviction that “the economy depends on us” will win considerable support among legislators.

“We are guardedly optimistic. We certainly do believe that there are things that are doable, that could have and will have bipartisan support,” said Dan Danner, senior vice president of public policy at the National Federation of Independent Business, a small-business lobby group in Washington.

A second optimistic note is drawn from the growing number of lawmakers who have ties to the high-tech and entrepreneurial sectors of the economy.

The division in Congress “really strengthens the hands of centrist Republicans and Democrats, and they tend to be tuned in to the new economy, the entrepreneurial economy. That means issues decided on the margin will really be decided by them. That’s really good news,” said Patrick Von Bargen, executive director of the National Commission on Entrepreneurship, a private group in Washington.

All this means that giant tax cuts of the sort proposed by Bush and passed by the GOP-controlled Congress but vetoed last year are probably out the window. But more modest tax cuts, particularly some easing of the estate tax, do seem possible.

Danner, pointing to the fact that Congress has passed it before, said there is hope for repeal of the estate tax, which President-elect Bush has said he would sign.

But other lobbyists say a more moderate outcome, such as boosting the exemption amount available to all estates from the current $675,000 (which is set to rise to $1 million in 2006) to $2 million or $5 million, is more likely. That kind of increase would exempt many small businesses.

Another possible tax cut is an increase in businesses’ ability to “expense” (deduct in the year of purchase) new equipment, such as computers, rather than “amortize” it (writing it off over its useful life).

Businesses now can write off up to $20,000 in certain equipment purchases; advocates would like to see that limit increased. They say the revenue evens out over the years and amortization is a major accounting hassle that isn’t really necessary.

Small-business groups are also looking at health care for possible help.

Allowing the self-employed to deduct 100% of their health insurance premiums right away, instead of phasing the deduction in, as the law now calls for, has wide appeal.

One proposal that the NFIB is backing is a change in the law to allow “association” health plans. These would allow small businesses to band together to buy insurance, giving them “some of the same clout and protection under ERISA [Employee Retirement Income Security Act] that large corporations and union plans have,” Danner said. “Mr. Bush has supported that concept, and we think that’s something that would increase choice and lower the costs.”

Other groups are hoping for gains in different areas.

High-technology firms would like to see improved tax treatment of stock options, a major form of employee compensation in the high-tech world. Today, options can be windfalls, but they can also be tax traps.

Often workers are caught between unpleasant choices: making a special election and paying taxes now--which means coming up with cash--or waiting and possibly getting hit much harder later, especially if the employer’s stock declines.

Similarly, Von Bargen said, his members “would love to see Congress take some further action on human resource constraints,” such as easing immigration restrictions on skilled workers and boosting spending for education.

Ginny Beauchamp of the National Assn. for the Self-Employed said many of her members and very small businesses favor raising limits on individual retirement accounts and also the creation of individual investment accounts within the Social Security system.

“Self-employed people and the smallest businesses do not have the benefit of employer-based retirement plans, and many have not saved for their own retirement future,” she said.

AT A GLANCE

* Company: San Yuan A.C. Inc.

* Owners: Susan Fang, Yang Tielin, Yang Suong Xi

* Nature of business: Acupuncture and herbal medicine

* Location: 18700 Main St., #212, Huntington Beach, CA 92648

* Founded: March 2000

* Employees: 0

* Annual revenue: $15,000

On the Agenda

Here are some of the top issues that small-business groups will be pushing when the new Congress and administration get underway.

* Tax cuts: Repeal or ease the estate tax; increase businesses’ ability to “expense” purchases of new equipment.

* Health care: Allow the self-employed to deduct 100% of their insurance premiums immediately; let small businesses band together to form “association” health plans.

* Retirement savings: Raise the limits for individual retirement account deductions.