Taxation, regulation add to cost of small business

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Well-intentioned federal laws can often have a negative impact on business and individuals. Every time new legislation is passed or a new regulation is put into place somebody has to pay, said Richard Jackson, president and CEO of Barker Phillips Jackson Insurance Agency. |ret||ret||tab|

If an industry must absorb expenses incurred to comply with a new law, it has to pass the cost along to the consumer, Jackson said.|ret||ret||tab|

"Every elected representative has a personal agenda of some sort and it might not necessarily be in the best interest of society as a whole," he added.|ret||ret||tab|

One hot issue in Washington is the "death tax," or estate tax. The death tax as it now exists is a combination of the estate tax, the gift tax and the generation-skipping transfer tax, which were unified in 1981.|ret||ret||tab|

The estate tax kicks in when an estate exceeds the minimum gross estate value. |ret||ret||tab|

That minimum was $600,000 in 1997 and is at $675,000 today. Taxes on the portion of the estate that exceeds the minimum can range as high as 55 percent. The minimum gross estate value increases yearly, hitting $1 million in 2006.|ret||ret||tab|

The estate tax was designed to place the burden of inheritance tax on the rich, according to information from Sen. Christopher Cox, who cosponsored HR 86, a bill to repeal the law, in January 1999. |ret||ret||tab|

HR 86 passed both the House and Senate in 1999 but was vetoed by President Clinton in September of that year. |ret||ret||tab|

Its latest incarnation, HR 8, has been approved by Congress and awaits presidential action. |ret||ret||tab|

It would provide $28.3 billion in tax relief in the course of five years. |ret||ret||tab|

The plan would phase down rates and repeal the federal estate, gift and generation-skipping transfer taxes within 10 years, according to a statement from the House Ways and Means Committee.|ret||ret||tab|

For small businesses and family farms, the estate tax can be a killer. It doesn't take much inventory in a small business, such as a mom-and-pop hardware store, or much equipment on a family farm to add up to the $675,000 minimum estate value, said Scott George, general manager at Mid-America Dental and Hearing Center in Mt. Vernon. |ret||ret||tab|

There is often not enough cash flow in small businesses or farms to cover the tax burden, and the benefactors end up selling off the assets of the business to pay the taxes.|ret||ret||tab|

George is a member of the Small Business Regulatory Fairness Board, which keeps an eye on legislation and regulations that can adversely affect the small-business owner. There are 50 members of the board nationally, appointed by the U.S. Small Business Administration.|ret||ret||tab|

According to George, only 13 percent of family businesses make it to the third generation, largely because of the unfair death tax law.|ret||ret||tab|

Because the death tax is costly to administer, there is little revenue generated from it, while jobs are lost and personal incomes reduced in the wake, according to Cox.|ret||ret||tab|

The marriage tax penalty is another drain on the small husband-and-wife-owned company where both spouses receive an income from the business, according to Jackson. He said the bills to repeal the death tax and marriage tax previously were lumped together, and both were vetoed by the president.|ret||ret||tab|

Regarding the death tax, Congressman Roy Blunt said, "People who pay death taxes are small businesses and family farms where they don't have the money. It creates a huge financial problem for the families."|ret||ret||tab|

Federal regulations also can have a huge impact on individuals and small businesses. |ret||ret||tab|

One example George pointed to was the Environmental Protection Agency's lowering the ozone standard from 12 parts per million to 8 parts per million.|ret||ret||tab|

"It threw every metropolitan area in the country out of compliance," George said. The new restriction is almost unattainable and affects the cost of doing business, he added.|ret||ret||tab|

George also mentioned that the requirement for cleaner gas, starting June 1, increased the use of reformulated fuel, which is costlier to transport than other fuels. George said this is one reason the cost of gas jumped so dramatically in June.|ret||ret||tab|

The residual effect of higher fuel cost was that small business slowed because people were spending extra money at the gas pump, and the cost of goods went up to cover increased shipping costs due to fuel prices, George said.|ret||ret||tab|

Meanwhile, pro-small-business legislation is in the works. Blunt is sponsoring a bill to make it easier and more affordable for small businesses to offer pension plans. The bill will encourage retirement savings with increased contribution and benefit limits, shorten vesting requirements and increase portability of plan assets.|ret||ret||tab|

Blunt said the bill has passed the House and is now being considered in the Senate.|ret||ret||tab|

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