ICYMI: This Summer’s Top 5 Small Business Policy Debates
Last week, Congress adjourned for its summer break – they will return to Washington after Labor Day. A look at their work this summer reveals some important debates that may have a significant impact on small businesses.
1. TRADE: Even though 95% of the global marketplace lies beyond the United States’ borders, only 1% of small businesses export. Those businesses that do export not only grow faster, but also are nearly 8.5% less likely to go out of business than their non-exporting competitors. So why aren’t more businesses engaged in trade? Like navigating most regulations and taxes, overcoming barriers (tariff and non-tariff) to trade is more difficult for small companies than larger ones. Leveling the playing field by setting fair trade rules and removing hurdles is particularly important for small exporters. In June, after contentious debate, Congress passed and the President signed a law to help facilitate international trade agreements. This renewal of Trade Promotion Authority (TPA) should be positive for all companies hoping to reach out to more global customers.
2. OVERTIME REGULATIONS: As discussed in a previous blog, the Obama Administration recently proposed new regulations to determine which workers are eligible for overtime. The proposal would more than double the salary level employers need to pay before workers are considered exempt. It is estimated that 5 million workers may be newly eligible for overtime pay (1½ times their regular pay rate for more than 40 hours worked in a week) under the proposal. For businesses, the Department of Labor estimates that the direct costs of compliance would be around $250 million annually, and if companies don’t alter employees’ compensation or hours as a result of the rules, about $1.2 billion more will be spent by employers to pay overtime to employees. Comments on the proposal are due by September 4th. You can be sure that significant concerns will be raised by the business community and many in Congress (see: July 23rd hearing) before the final rules are published.
3. PATENT REFORM – Innovation led by small businesses is key to our nation’s economic growth and job creation. For many start ups, intellectual property is their most valuable asset. The recent debate on patent law revolves around “patent trolls,” a term used for those who engage in the practice of making vague claims of patent infringements and demanding that fees be paid or litigation will ensue – 55% of troll suits are filed against companies with less than $10 million in revenue. The patent infringement claims the trolls make are often frivolous, but put companies in the position of deciding whether to pay and make them go away or fight an expensive legal battle. For small companies with limited resources neither option may be viable, and engaging in litigation could jeopardize their ability to attract the investment they need to continue. Both the House and Senate are working on legislation (The Innovation Act and the PATENT Act, respectively) to deter patent trolls by making losers of lawsuits pay legal fees, raising pleading and discovery standards to make it harder to file frivolous suits, and requiring patent troll demand letters to be more specific about the claims they make. Committees in both the House and Senate approved their respective bills in June, but patent laws are complicated and changes invite significant debate. The House’s plans to vote on the bill in July were postponed as opponents questioning the Innovation Act’s provisions, including whether the reforms actually hurt the innovators they seek to protect, gained traction. Both the House and Senate are expected to try to pass the legislation when Congress returns in the fall.
4. REGULATORY REFORM – It costs small businesses about $10,585 per employee to comply with regulations, which is 36% higher than the burden on their larger competitors. New regulations from all levels of government keep coming. In Washington, the Spring 2015 Unified Agenda of Federal Regulatory and Deregulatory Action reveals 3,260 new regulations that are in the pipeline this year. That’s a lot for the business community to absorb. A number of bills are making their way through Congress to reform the regulatory process in a variety of ways from providing greater transparency and time for scrutiny, to expanding congressional authority to slow down or stop regulations from implementation, to giving small businesses a greater say in regulatory policy, to curbing lawsuits that manipulate the regulatory process. In July, the House passed the Regulations from the Executive in Need of Scrutiny (REINS) Act to require congressional approval of major regulations that have an economic impact of more than $100 million. Not surprisingly, it’s a partisan debate (Republicans run Congress and a Democrat runs the executive branch that issues the regulations). The Senate hopes to take up the bill in the fall.
5. ONLINE TAXES – How to collect state sales tax on online purchases has been a sticky debate in Washington for some time, pitting brick and mortar companies against online competitors. The Marketplace Fairness Act (MFA) would allow state governments to charge sales tax on out-of-state retailers, regardless of their physical presence in the state. In June, the House passed a separate bill that permanently extends the moratorium on taxing Internet service. That bill’s movement may provide an opportunity for online sales tax legislation to be passed by attaching it to the Internet tax bill when the Senate takes it up. The issue also got a boost by the June 15th introduction of a bipartisan online sales tax bill in the House titled the “Remote Transactions Parity Act” (RTPA). The RTPA is similar to the MFA, but provides a more generous reprieve for small sellers through a phased-out exemption, among other differences. Time will tell if any of this momentum can be sustained in the fall.
After Labor Day, Congress has a full plate. We’ll keep you updated on how small business interests fare in the end-of-year Washington frenzy.