Washington Watch - January 26, 2011

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Washington Watch - January 26, 2011

NASE: Economic Recovery Starts with Small Business

Getting our economy back on track depends on the success of our nation’s small businesses. Critical measures enacted last year like the Small Business Jobs and Credit Act and the extension of the Bush-era tax cuts delivered much needed tax relief to small businesses, especially the self-employed and micro-businesses, helping business owners keep their doors open and even expand their operations.

The latest messaging from the White House signals that President Obama is serious about continuing to support the small business community. During his State of the Union address, the President stated that he is open to fixing an element of the health care reform law that unwittingly created a significant regulatory burden for small business owners:

“Now, I’ve heard rumors that a few of you have some concerns about the new health care law. So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”

The President is referring to a small, but incredibly onerous provision buried in the health care reform bill requiring small business owners to submit IRS Form 1099 for every purchase of goods and services over $600, which will increase the time and money spent on tax preparation for three out of four business owners. This is the type of burdensome regulation that prevents small businesses from thriving.

It is also the type of burden that the President seems eager to eliminate with his vision for a 21st century regulatory system. This goal was recently promoted by the President in the pages of the Wall Street Journal. In the lead up to the State of the Union, the President issued an executive order addressing the overwhelming regulatory burden on small businesses, especially our nation's smallest businesses -  the self-employed. A key component directs federal agencies to consider the cost/benefit analysis of proposed regulations and choose the least burdensome path for small business. While the executive order is a step in the right direction as agencies have all too often issued regulations without considering their impact on small business, creating onerous compliance costs and difficulties.

There is, however, a glaring problem with the E.O. and the Regulatory Flexibility Act: the agency with the single largest impact on small business – the IRS – is exempt from this law. The IRS is not required to perform any sort of analysis regarding the impact of their regulations on small business. Without addressing the elephant in the room, there is only so much benefit this E.O. will deliver to the majority of small businesses.

Enhancing competitiveness and expanding employment are solid economic goals. But policies to get us there have to take into account the demographics of our nation’s businesses. Policymakers need to continue legislating to the majority of small businesses, not just to the corporate giants.

President Obama Unveils Regulatory Strategy

As part of President Obama's Executive Order on Regulatory Strategy, he included a specific portion aimed at small businesses. His memorandum specifically mentions the Regulatory Flexibility Act, which requires federal institutions to consider the effect of proposed regulations on small businesses.

The NASE has worked with the SBA Office of Advocacy in the past to point out existing harmful regulations. The home office deduction is one such case. Business owners who use a portion of their home regularly and exclusively for business are permitted to deduct a portion of the costs of upkeep of this home office. Currently, many micro-businesses neglect to take the home office deduction because the eligibility requirements are too difficult to understand and make it difficult to comply. For this reason, the NASE has supported the creation of an optional standard home office deduction.

Another regulation that the Association finds burdensome to the micro-businesses and the self-employed is the 1099 rule, which was passed under the health law and set to go into effect in 2012. The new law would require every business owner to issue a Form 1099 to merchants for goods or services over $600.

A recently released Executive Order outlines the following guiding principles for government agencies when crafting regulation:

Consistent with law, Agencies must consider costs and benefits and choose the least burdensome alternative.

  • The regulatory process must encourage public participation and an open exchange of views, with an opportunity for the public to comment.
  • Agencies must attempt to coordinate, simplify, and harmonize regulations to reduce costs and promote certainty for businesses and the public.
  • Agencies must consider low-cost approaches that reduce burdens and maintain flexibility.
  • Regulations must be guided by objective scientific evidence.
  • Existing regulations must be reviewed to determine that they are still necessary and crafted effectively; if not, they must be modified, streamlined, or repealed.
  • Taken together, these principles will create a more effective and cost-efficient regulatory framework. In addition to this EO, the Administration is taking two new steps to promote this balanced approach to regulation.

Read the entire Regulatory, Small Business and Job Creation memoranda here.

President Obama's Op-Ed in the Wall Street Journal can be found here.

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Visit NASE Advocacy to view archived editions of Washington Watch. While you’re there, read the latest updates from the Washington, D.C. office, write your Congressperson, and find out how you can join the fight for micro-business.

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