June 19, 1998

A NEW TAX CODE? SMALL BIZ SAVORS THE CHANCE

Just blocks away from the Capitol, where House Republicans had a day earlier pushed through their version of a bill to abolish the nation's tax code, 500 of the nation's small-business owners were already hatching plans for shaping a new IRS.

The company owners were gathered for the first-ever National Federation of Independent Business Congressional Small Business Summit, a three-day affair in which small-company owners and advocates from around the nation draft a legislative "wish list" to forward to Congress. The mood was one of back-thumping elation as the owners' longtime call for tax reform was finally making some headway on the Hill. While President Bill Clinton promised to veto the House's tax-code proposal for having "a significant negative economic effect on America," the NFIB representatives saw it as their window for crafting a dream tax code.

They jumped at the chance. Gathering in a session called "A New Tax Code for the New Millennium," some 75 representatives swept through a two-hour debate that flogged at the "injustice" and administrative demands of the current system. But while the disdain for taxes was universal, the group could not arrive at a consensus for fixing the code. A range of political options flooded the informal meeting as delegates haggled over the merits of a flat income tax vs. a national sales tax, or a hybrid of the two. Other representatives struck a more drastic tone, calling for the abolition of the Sixteenth Amendment (which established the federal income tax in 1913), or a national transaction tax, which would place a fee of 1% to 3% on all transactions.

"This is a fairness issue," said Troy L. Wilson, owner of First National Bank in Sikeston, Mo., and a supporter of a value-added tax. "There is such a great part of the underground economy that doesn't pay taxes."

For Mark Duwe, president of Osh Kosh (Wis.) Waldan Paper Services Inc., the House vote to abolish the code was the first step in scrapping a system that he says favors special interests and neglects grassroots business owners. "A lot of what they claim to be a budget surplus is really smoke and mirrors," he gripes. Although Duwe favors a flat consumption tax -- which might place a 17%-to-20% fee on all purchases -- he admitted that such a stark turnabout was "not likely," given how entrenched the federal income tax has become.

Indeed, the House bill is not expected to survive either Senate objections or the opposition of the Clinton Administration. Treasury Secretary Robert Rubin has dismissed the proposal out-of-hand. But for some small-business stalwarts, the bill is a victor -- and one that goes beyond mere symbolism. Illinois business owner Stephen S. Stack recalled that most policy experts laughed at a small-business demand for a tax overhaul after a 1986 national conference. "Now" he said, grinning, "it's in Congress."

By Dennis Berman
Staff Reporter, Business Week Online