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Hill Feels The Big Clout Of Small Business

By David Hosansky, CQ Staff Writer

When President Clinton vetoed product liability legislation in 1996, he said that capping damage awards against companies would "endanger the safety of the public."

But small businesses and their premier lobby, the National Federation of Independent Business (NFIB), are so powerful that Clinton has taken a step back. Breaking ranks with consumer advocates, the administration supports draft legislation that would limit punitive damage awards against small companies.

"The NFIB, when they insert themselves into an issue, they make a difference," said Sen. John D. Rockefeller IV, D-W.Va., a key player in the product liability negotiations.

The product liability debate is just one example of the federation's expanding muscle -- and penchant for stirring controversy. With a growing economic presence across the country, and with such former small businessmen as House Majority Whip Tom DeLay, R-Texas, and Senate Majority Whip Don Nickles, R-Okla., overseeing legislation, the group has scored impressive tax and regulatory victories. For example:

  • Last year's omnibus tax bill (PL 105-34) contained so many tax breaks for small businesses -- including home office deductions and a reduction in the estate tax -- that Small Business Administration (SBA) lawyer Jere W. Glover summarized it as "probably more targeted tax reductions for small business than anything in our nation's history."
  • The 104th Congress gave small-business owners the power to sue federal agencies that fail to consider the impact of new regulations. Agencies must now consult the SBA before promulgating rules that could burden small businesses.
  • Even the federation's biggest loss -- the enactment of a minimum wage increase in 1996 (PL 104-188) -- was softened when lawmakers added a package of small-business tax breaks to the legislation. (1996 Almanac, 2-34)
  • The federation's growing profile and decided Republican tilt has implications that go far beyond narrowly focused economic issues. The 600,000-member, $70 million organization, ranked in a recent Fortune magazine survey as Washington's most powerful business lobby, is mounting an all-out offensive to rewrite the nation's tax code from scratch and pare back health care and labor regulations, even as it attempts to rev up its influence by getting more small-business owners elected to Congress.

    Such an ambitious agenda is roiling the nation's political currents. GOP leaders want to tap the "Mom and Pop" romanticism and economic expansion of small business to whip up popular support for conservative priorities. But Democrats warn that millions of workers would suffer.

    "I applaud [NFIB] efforts," said House GOP Conference Chairman John A. Boehner of Ohio. "Their priorities are fairly well in line with Republican positions, because most of their members are small-business people who think the government in Washington is too big, too bureaucratic, too ineffective."

    Mobilizing in opposition, however, an array of organizations warn that what is portrayed as a Main Street small-business agenda could undermine the health and safety of millions of Americans. Labor unions, trial lawyers, environmentalists and state government officials say proposals to end the federal unemployment system and exempt small businesses from environmental and health care requirements would weaken worker protections, foul the water and air and undo decades of health care regulations.

    "We're very concerned," said Joanne Doroshow, a lawyer for the consumer group Public Citizen, who is lobbying against efforts to limit lawsuits against small businesses. "The solution is not to take peoples' rights away."

    Some local government officials are also wading into the fray. They believe the NFIB and other business groups, by blocking new procurement procedures, are thwarting attempts to save taxpayers money.

    But NFIB members, contending that government regulations could imperil millions of jobs created by small businesses, are determined to stay the course.

    Twelve years ago, for example, investment banker Kent P. Swanson bought a temporary nursing service because he was tired of working for somebody else. Now that Swanson has built a profitable Baltimore business with an administrative staff of 10, the last thing he wants is new government rules. "We're trying to run businesses and all the government does is give us more paperwork to fill out, and take us away from trying to earn a living and employ people," he said. "That's the stupidity of the bureaucrats. . . . There's just too much regulation."

    Legislative Gains

    By the NFIB's reckoning, a majority of lawmakers in both chambers regularly support its agenda. In the 104th Congress, 247 representatives and 51 senators -- mostly Republicans and conservative Democrats -- backed the federation on at least 70 percent of its key votes, earning the title of NFIB "guardian."

    Small surprise that the lobbying group and its allies in the small-business community, such as the National Association for the Self-Employed, have won several landslide victories. By margins such as 408-0 and 381-44 in the House, and 83-0 and 100-0 in the Senate, lawmakers in the 104th Congress advanced legislation that was ultimately enacted (sometimes after being added to other measures) to expand health insurance tax deductions for the self-employed (PL 104-191), make it easier for small businesses to sue federal agencies (PL 104-121) and revamp a government program guaranteeing bank loans to small businesses (PL 104-208).

    Enacted laws aside, the NFIB is scoring other legislative gains. Both Democrats and Republicans have signed off on preliminary proposals to limit legal damages against small businesses involved in hazardous waste cleanup and product liability litigation.

    And the long reach of small business extends into the White House. Following the 1995 White House Conference on Small Business, federal agencies -- sometimes working with Congress -- moved to implement 86 percent of the recommendations advocated by small business delegates, according to the Small Business Administration.

    Still, no single interest group -- no matter how influential -- can hope to score regular victories in Congress. Even with the assistance of allies in the broader business community, the federation has been unable to overcome labor union opposition to proposals that would make it easier for businesses to contract out work and reduce overtime costs.

    Democrats and pro-labor Republicans say such plans would strip health care coverage, overtime pay and other benefits from millions of workers.

    "Wholesale changes are not going to occur all at once in a Congress that is this divided between the two parties," conceded the NFIB's top lobbyist, Dan Danner. "You have to deal in the art of the doable."

    Capitol Hill Influence

    From the day that Republicans took control of Congress in 1994, small business has occupied a central position on Capitol Hill. "The Republican Party is the party of small business, not big business; the party of Main Street, not Wall Street," declared then-Republican National Committee Chairman Haley Barbour on Election Night 1994.

    The GOP embrace of small business stems partly from a political debt. In 1993, the NFIB, elbowing aside better-known business groups such as the U.S. Chamber of Commerce, took the lead in battling Clinton's massive health care overhaul initiative. The federation's aggressive stance helped checkmate the administration and ultimately topple Democratic control of Congress.

    Just as important, however, lawmakers acknowledge that an alliance with small business can pay big political dividends.

    Small-business owners are the nation's predominant economic force. While large companies went through rounds of layoffs, smaller businesses (defined as those with 500 or fewer employees) created virtually all the nation's 11.2 million net new jobs in recent years. They now employ more than half the nation's private work force, according to data cited by the SBA.

    Besides such economic might, small business possesses something shared by few powerhouse industries: an aura of goodness. Both NFIB supporters and opponents agree that small-business owners have a reputation for honesty and enterprise, and federation polls indicate that an overwhelming number of Americans like small business.

    "I think small business is to people and government today what the small farmer was during the time of Jefferson," said Sen. Phil Gramm, R-Texas. "Small business is really the face of American prosperity."

    The NFIB also profits from recent Washington trends. With Congress increasingly fractured and chairmen holding a weakened grip on their committees, lobbying organizations are moving away from the old days of clubby veterans cutting deals with top leaders over drinks and cigars.

    Instead, organizations like the NFIB are finding that their grass roots are their best weapon, because such a broad-based constituency can reach every member of Congress.

    "Politics here in Washington have fundamentally changed," Danner said. "Instead of listening to the chairman of their committee or the head of their party, as was the case years ago, what they listen to now are the grass roots -- and that's what we're all about."

    Indeed, a recent Fortune magazine survey of lawmakers and other officials concluded that the NFIB is the most powerful business lobby in Washington, and the fourth most powerful lobby overall. (The American Association of Retired Persons ranked first, followed by the American Israel Public Affairs Committee and the AFL-CIO.)

    Prominent lawmakers are so supportive of small business that Senate Small Business Committee Chairman Christopher S. Bond, R-Mo., could not cite a single disagreement between himself and the NFIB. A Bond spokesman, Kenneth E. Bricker, summed up the senator's dealings with the federation this way: "The phone conversations between Sen. Bond and [NFIB President] Jack Faris are very brief. It's like: 'I agree with everything you say.'"

    Vocal Advocates

    Not content with their current margin of support, NFIB officials are pouring money into campaigns to reinforce their congressional majorities. Their political action committee (PAC) contributions to federal candidates jumped from $372,000 in the 1993-94 election cycle to more than $1 million in the 1995-96 cycle, according to the non-partisan Center for Responsive Politics. NFIB Political Director Jeff Butzke expects to contribute twice as much in this election cycle.

    The NFIB steers 94 percent of its federal contributions to the GOP -- a higher percentage than any other major independent organization, according to the center. The federation also is putting a greater emphasis on state races, because of the many regulatory battles occurring on the state level.

    Other small-business groups seek to chart a somewhat more bipartisan course. The 65,000-member National Small Business United, for example, contributes about 25 percent of its money to Democrats.

    Some Democrats warn the NFIB is becoming so partisan that it could be mortgaging its future. "I think they're putting all their eggs in one basket, and that can be very dangerous for them," said Karl Struble, a Democratic political consultant.

    Butzke, however, said the NFIB is simply rewarding its legislative allies. His goal is to elect at least 260 NFIB supporters to the House and 60 to the Senate, which could enable the federation to overcome labor opposition in the House and Democratic parliamentary maneuvers in the Senate.

    He also wants to establish a "farm system" of small-business owners who run for state and federal political office. About three dozen present or former NFIB members now serve in Congress, according to a federation count.

    Buttressing the federation's clout are its members -- averaging 1,400 in every congressional district -- who weigh in passionately on issues that could affect them. "They [lawmakers] listen, because they recognize that we're the strongest part of the economy," said Missouri dental lab owner Scott George, who opposes certain workplace safety regulations. "If it's good for small business, it's good for America."

    The Growing Opposition

    Across the political divide from Butzke is longtime labor activist Edward Wytkind, now the top transportation lobbyist with the AFL-CIO. Wytkind has nothing against small businesses making a profit, but he draws the line when they try to strip away workers' rights. To Wytkind's thinking, the NFIB agenda would undercut decades of labor gains, scaling back such basic rights as overtime pay for extra work.

    "That organization's legislative agenda is one of the most sinister in Washington when it comes to affecting the working man," he said. "It would destroy longstanding protections in federal law; it would bring more safety hazards to the worksite, and it would continue what's already been a two or three-decade erosion in the standard of living for workers."

    Wytkind is hardly alone. NFIB's enhanced stature has brought with it a growing notoriety, with unions and consumer advocates scrambling to stop the federation's initiatives, and liberal Democrats accusing federation lobbyists of caring more about advancing the GOP agenda than about the economic needs of small businesses. "A lot of these things they do, they've got no credibility," said Rep. Jerrold Nadler, D-N.Y. "I don't even bother reading their stuff anymore."

    Some of the most controversial issues on the NFIB agenda include:

  • Health care purchasing. The NFIB supports legislation (HR1515) that would enable small businesses nationwide to pool their resources, buying health care coverage at reduced rates through special associations. NFIB lobbyist Danner said this would let small employers provide high quality health care for their employees, in much the way that large corporations and unions use purchasing plans.
  • But health care advocates sharply oppose the plan as an attempt by small businesses to evade state insurance regulations and limit employees to substandard coverage. The proposal "will not provide basic consumer protections," North Dakota Insurance Commissioner Glenn Pomeroy told lawmakers in 1997.

  • Independent contractors. Republicans, backed by the NFIB and other business groups, added language to the omnibus tax bill (PL 105-34) that would have revised the legal distinction between an employee and an independent contractor. The House version would have replaced the Internal Revenue Service's 20-part classification with a three-part test -- a simpler approach that NFIB said would save small business owners who make mistakes from thousands of dollars in penalties.
  • But Clinton persuaded Republican leaders to remove the language. He sided with labor lobbyists who feared that the provision would reclassify as many as 2 million employees as independent contractors, costing them their benefits.

  • Compensatory time. The NFIB and other business groups want companies to be able to give employees time off for extra hours worked, rather than overtime pay. Such a proposal (HR1, S4), currently blocked by Senate Democrats, would allow companies and workers to negotiate flexible arrangements, NFIB lobbyists contend.
  • Labor advocates, however, say the plan would give an opening for companies who want to deny their workers overtime pay. "In essence, it lengthens the work week without a corresponding increase in pay," said Lou Gerber, chief lobbyist for the Communications Workers of America.

    Apart from such high-profile battles, the NFIB is engaged in skirmishes over legal and regulatory issues. For example, small business owners are mobilizing against a preliminary plan by the Occupational Safety and Health Administration (OSHA) that would require all companies to set up detailed programs for managing workplace safety and health.

    OSHA officials, eager to avoid a showdown with the small business community, concede that the plan could place an undue burden on smaller companies. "Small businesses may get a partial or complete exemption," predicted Arthur DeCoursey, OSHA's small business liaison.

    Coming Showdowns

    Besides debates over labor standards and health purchasing, the NFIB is likely to find itself in the center of at least three battles that could spill over into the 1998 and 2000 elections.

    One will likely take place this year over health care. The Clinton administration and its congressional allies are girding for an attempt to expand health care coverage, possibly by mandating longer hospital stays for certain procedures or prescribing detailed standards for health plans.

    Staff aides to House Speaker Newt Gingrich of Georgia, Senate Majority Leader Trent Lott of Mississippi and other top GOP leaders reportedly are urging the NFIB to help stop those proposals. An Oct. 22, 1997, memo by the Health Insurance Association of America, leaked to the news media, stated that the aides asked the NFIB to "implement heavy grass roots during recess" and "write the definitive piece of paper trashing all these bills."

    A second battle may erupt over expected attempts by pro-labor Democrats to again increase the minimum wage. The NFIB lost that fight in 1996, but its lobbyists say this time they will be more prepared.

    The third, and possibly most extensive fight could break out over NFIB's aggressive support of legislation (HR2490, S1225) that would sunset the Internal Revenue Service (IRS) tax code in 2001. NFIB President Faris is leading a nationwide drive to collect 1 million signatures to replace the tax code with a simpler system, not yet defined, that could save small-business owners considerable time and money.

    The idea of shutting down the entire code, even temporarily, may appear overly ambitious. After all, Democrats contend that the revenue-collecting system supports such vital functions as the nation's armed services, and the NFIB-backed plan could jeopardize national security. "It's kind of irresponsible," said Rep. Robert T. Matsui, D-Calif., a veteran Ways and Means Committee member.

    But GOP leaders say such a grass-roots effort is needed if they are ever to succeed in overhauling the complex tax code. And Faris, launching his petition drive in Missouri, predicted that small business has such clout that it will prevail in what may be its most audacious undertaking yet.

    "NFIB is the catalyst that will urge Congress to abolish the IRS code," he said. "Nothing is impossible when you have the grass-roots support of millions of small-business owners."

    © 1998 Congressional Quarterly Inc. All rights reserved.

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