June 11, 1998

HOW THE TOBACCO BILL COULD HELP SMALL BUSINESS

Edited by Douglas Harbrecht

Sandra Hanlon lives in fear of tractor trailers, or "big rigs." As a self-employed sales rep for womens' clothing makers, she plies highways across the Mid-Atlantic states, where the immense trucks blow by pipsqueak vehicles such as Hanlon's Dodge Caravan.

It isn't just a wreck that the 48-year-old Hanlon fears, however: It's the fact that she carries no health insurance. "There have been such drastic changes in our business," she rues. "And that means you have to make very hard choices." She mourns the fate of other uninsured self-employed, a group she has gotten to know as president of the Bureau of Wholesale Sales Representatives. "We don't have the same luxuries as people who work for corporations."

That's why the June 10 news from Washington brought Hanlon such hope. As part of a possible Congressional tobacco settlement, Republican senators attached an amendment earmarking $46 billion in tax relief for married couples and self-employed. For the 10.5 million workers who are their own boss, the bill would let them deduct 100% of health-insurance costs from federal taxes, a break already afforded incorporated businesses. For a person paying $5,000 per year in premiums in the 28% tax bracket, that translates into $770 of direct savings over current rules, which allow for just 45% deductibility. If the tobacco bill passes, Hanlon says, she "would definitely look at what I could afford in a different view," adding: "You don't mind making the initial outlay if you know you're going to get it back."

Self-employed workers haven't been entirely ignored by Washington. Congress has already planned to phase in full deductibility by 2007. Still, the small-business lobby has long made full deductibility one of its top priorities. If the tobacco bill and amendment survives Washington's partisan gauntlet, it would be viewed as a stunning victory for small fry, and one that advocates say might reverse some disturbing trends in public health. A recent study by the Employee Benefits Research Institute found that more than 5.4 million Americans in families headed by a self-employed person have no health coverage. "The figures [of uninsured] keep going up and up," says Bennie L. Thayer, president and CEO of the 330,000-member National Association of the Self-Employed. "This would give people peace of mind."

To do that, of course, the bill must first be signed into law. And few Congressional proposals have proved as devisive as the tobacco proposal, which has floated around Capitol Hill for months, coming close to death a number of times. Small-business leaders concede that they're hitching their hopes to a political hot potato, but they say it's worth it, if for no other reason than to attract attention to what they see as inequity between corporate America and Main Street.

"There's no reason why CEOs of large corporations can deduct their health insurance and self-employed people can't," fumes Victoria Caldira, a Senate lobbyist for the National Federation of Independent Business.

If and when a tobacco bill arrives, it could also be time for the self-employed to light up a victory cigar. "I don't feel very comfortable driving on the interstate highways all day," says Hanlon, "This could really be a wonderful thing."

Dennis Berman is a Staff Reporter of Business Week Online