Setting the NASE's agenda for congressional action in 1997

When Congress reconvenes in January, an array of issues important to small business and the self-employed will emerge in the political give-and-take. Already, the NASE is closely tracking issues of concern to our Members. Medical Savings Accounts, patent legislation and OSHA regulations all require our immediate attention. But six key tax issues top the NASE's agenda for action.

  1. Tax treatment of independent contractors must be clarified. Independent contractors, and the generally small businesses that use them, have paid out nearly three-quarters of a billion dollars in fines and back taxes during the past ten years -- all as a result of disputes with the IRS over who is considered an independent contractor and who is considered an employee. Yet the rules for making the legal distinction remain murky and archaic. Indeed, even the IRS has come to opposite decisions in seemingly identical cases.

    The last Congress made headway in clarifying this issue. Most importantly, Congress shifted the burden of proof to the IRS in instances when a business showed a solid reason for classifying someone as an independent contractor. And the IRS issued field guidance to its examiners which should help resolve many cases quickly and fairly. Still, we have more work to do to untangle this complicated problem.

  2. The health insurance deduction for the self-employed needs to be more equitable, particularly if Congress and the president are serious about reducing the number of uninsured people. Businesses that purchase health insurance for employees can deduct 100 percent of the cost. But for self-employed professionals, the deduction is limited to a much smaller percentage.

    Actions by the last Congress improved but did not rectify the situation. First, Congress made the deduction permanent. No longer will the NASE and other organizations have to plead with Congress every year to extend the deduction. And no longer will the self-employed have to worry whether they can take any health insurance deduction at all. Second, the rate of the deduction was increased. For 1996, the self-employed can deduct only 30 percent of their health insurance cost. In 1997, the deduction rises to 40 percent. It gradually increases to 80 percent by the year 2006. Those increases help, but your NASE will fight for immediately raising the deduction to 100 percent, the same as other businesses currently enjoy.

  3. The home-office deduction needs updating. Current rules for obtaining the deduction overlook advances in technology and changes in self-employment trends during the last two decades. And the IRS has created a climate of fear by aggressively challenging many people who have claimed the deduction.

    Although the U.S. House of Representatives voted to modernize the deduction in the last Congress, the Senate took no final action. Last summer, Republican Presidential candidate Bob Dole endorsed updating the deduction. And the Clinton administration has come out guardedly in favor of modernizing the deduction. During the coming Congress, your NASE again will work to allow this deduction for businesses that conduct their essential administrative and management functions from home.

  4. Congress should review estate taxes for small businesses. The increasing value of many small businesses has caused exemptions and rate structures in federal estate taxes to become outdated. Businesses that would have been protected ten or twenty years ago are now vulnerable to being split up just so they can pay taxes. The NASE will work to preserve family-owned businesses.
  5. Electronic filing of payroll taxes for small business must be closely monitored. In 1996, the NASE led a successful effort that postponed the requirement for many small businesses to file payroll taxes electronically. In 1997, we will monitor the phase-in of the voluntary program carefully. Small businesses need concrete proof that the program is simple, fair and economical before the NASE will back this measure.
  6. The NASE was less successful in restoring the full 100-percent tax deduction for meals and entertainment. Although legislation was introduced, it was not acted upon. However, the IRS did agree to increase, from $25 to $75, the threshold for which receipts are required to claim the current 50-percent deduction. The NASE continues to believe that entertaining customers and clients takes the place of advertising for many self-employed people and very small businesses. Such meal and entertainment expenses should therefore be fully deductible, as is advertising. We hope to have better luck with this issue in the new Congress.

    Along with these key tax issues, the NASE will pursue action on other vital issues that affect our Members.

    The NASE successfully got self-employed Americans included in the pilot project for Medical Savings Accounts (MSAs) that Congress passed in July. This innovative program could be beneficial for all of America's 13 million self- employed -- whether they are rich or poor, healthy or sick. But Congress imposed an initial limit of 750,000 MSA policies. The NASE will push hard to eliminate the cap.

    The NASE successfully stopped patent legislation that would have seriously damaged the ability of inventors to gain full patent rights and acquire venture capital. Many highly technical patents take three years or more to be granted. Yet the bill would have made patent applications public after 18 months, even if the patent had not yet been granted. Such action would have alerted competitors to an inventor's intentions before even the inventor could act on them. The bill also would have made it easier for "patent protesters" to tie up patent applications for years with endless lawsuits. Thus, the bill would have made it harder for inventors to raise capital based upon their patent applications, and would have made the entire patent process vulnerable to abuse by large companies with deep pockets. The NASE will actively oppose the bill again in 1997.

    The NASE will also defend the self-employed on other pressing issues -- like new regulations and paperwork requirements. We intend to see that the new Small Business Regulatory Enforcement Fairness Act, which was designed to lessen the regulatory burden on small business, is rigorously applied to federal regulators. We'll also work with the Occupational Safety and Health Administration to address workplace violence prevention (see SEA, November/December 1996, page 4) and to protect small business and the self-employed from unnecessary regulations and vague proposals.


      Read the sidebar story: Seeking Fairness in Social Security Taxation


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