Newton, Mass.—The Republican victory in November was good news to business leaders across the country, and distributors were no exception. From Washington, D.C. to Washington state, business owners and managers are banking on a conservative agenda to boost commerce and provide permanent tax relief on hot-button issues such as the Estate Tax.

Groups such as the National Assn. of Wholesaler-Distributors and the Small Business Legislative Council, who work on behalf of distributors, retailers and others, say they are optimistic about action on litigation reform and tax issues, in particular.

Following the election, NAW released a statement saying, "The sheer numbers on Capitol Hill for the incoming 109th Congress clearly suggest that the president's hand will be strengthened in pursuing his pro-business agenda—making permanent the tax cuts, private sector-oriented health care reform, and litigation reform, issues which were strongly resisted by the Democratic minority."

John Satagaj, president of the SBLC, is equally optimistic about litigation reform and tax cuts, referring to them as "the two positive ones I think we can do something about." The SBLC represents distributor groups such as the Specialty Tools & Fasteners Distributors Assn. and the American Machine Tool Distributors Assn.

"The thing I'm most hopeful on is product liability," said Satagaj. "The Senate had two important changes [in the recent election]—the retirements of Sen. [Fritz] Hollings (D—S.C.) and Sen. [John] Edwards (D—N.C.). They were two of the biggest opponents of any kind of tort reform. With their retirement, we're closer in number to breaking a filibuster. So, after a decade of no action on tort reform, this is one of the highest priorities."

Hollings' seat will be filled by Republican Jim DeMint, and Edwards' by Republican Richard Burr. The Republicans gained four seats in the Senate, bringing their total to 55, making it easier to attain the 60 votes needed to break a filibuster, Satagaj explained.

Jade West, senior vice president—government relations for NAW, said in December that the White House is likely to come out strongly on tort reform, and that she's hopeful product liability is put back on the front burner. However, she said three other issues will likely trump product liability: class action, asbestos and medical malpractice reform.

The other positive issue on Satagaj's list is the Estate Tax, commonly referred to as "the death tax." While Estate Tax relief was delivered in the first Bush Administration, the changes were temporary, leaving many small-business owners with the costly burden of continuing to plan for estate taxes, Satagaj said.

"For a lot of smaller businesses, the issue is estate tax planning. They spend a fortune on it," he said. "Because there's still uncertainty on the issue, they're still spending money on it. We need a permanent solution...now."

West agreed that tax policy will be a central issue this time around, but added that questions loom about whether the focus will be on slow-moving, broad-based tax reform or on making permanent the tax cuts of 2001 and 2002. She said many small business owners would prefer the latter, as it would likely provide more immediate relief.

Satagaj said he's less optimistic about action on health care reform, saying the issue is still too big to be tackled, in many ways, because it not only involves business owners, but lawyers, insurers and physicians—all of whom will have to "feel a little bit of the pain" in order to get costs under control.

West said NAW will work aggressively with the White House to maintain the president's support of Association Health Plans, an issue that went nowhere in the last Congress. The Association Health Plans bill would allow business associations, such as NAW, to offer health coverage to members across state lines, complying with one set of federal regulations that would govern the plan. To do so now would require associations to comply with different laws in different states.

Tom Berger of Fuchs Machinery in Omaha, Neb., is equally concerned about health care—but like Stagaj, is skeptical about any action on the issue. As a distributor of industrial tooling, machine tools, safety and welding products, Berger says he's watching tax issues more closely—specifically, the 2004 expiration of the 50 percent bonus depreciation allowance on new equipment, which was put in place following 9/11 to stimulate the economy. The law allowed businesses to write-off 50 percent of the value of new equipment in the year it was purchased.

Berger, who is also president of the Industrial Supply Assn., which represents manufacturers and distributors, said he's concerned that the tax incentives may have artificially propped up the recent growth in the manufacturing sector, particularly among machine tool companies.

"The assumption is that people are making capital expenditures, so they'll buy more cutting tools and abrasives, etc.," Berger said. "But if the purchase of the machine tools is not a result of the market, but a result of the tax incentives, will the market sustain its current growth? All you can do at this point is keep an eye on it."

Both Berger and Satagaj say they'd like to see the depreciation bonus extended, but they don't think that will happen. For his part, Satagaj said he hopes businesses aren't fooled by the fourth-quarter numbers they're likely to see.

"It felt good to be selling stuff, but it was an artificial event at the end of the year," Satagaj said. "The potential is that you could see a great fourth quarter and a bad first quarter."

Ralph Nappi, president of AMTDA, disagrees, saying that the depreciation bonus was a reason, not the reason, for a pickup in the manufacturing economy at the end of 2004.

"There's no doubt that the expiration [of the depreciation bonus] will have some effect on capital equipment purchases," Nappi explained. "I don't think many companies would go out and purchase equipment because of the allowance, though...Clearly, there was some pent-up demand and increased capacity."

Nappi went on to explain that a slowdown in machine tool sales is typical in the first quarter, and that he expects that to be the case this year. However, he doesn't think the first quarter of 2005 will be as quiet as most people expect.

"I think there's still a lot of pent-up demand out there," he said, adding that inventories of machine tools have been depleted so much over the last six months that many companies are waiting to purchase more needed equipment. "I think the first quarter will be surprisingly stronger than people expect."

AMTDA produces the monthly U.S. Machine Tool Consumption report in conjunction with the Assn. for Manufacturing Technology. The report measures machine tool purchases nationwide and is considered a key economic indicator for the manufacturing sector. In early December, Nappi said U.S. Machine Tool Consumption was up 42 percent year to date, and emphasized his positive outlook for 2005.

"Now that business has clearly improved, companies have to invest in productivity-enhancing equipment—and you can only do that with new technology," he said. "I also think that with the re-election of President Bush, people are more comfortable with the manufacturing sector and the business environment in general."

West agreed, adding that there is more optimism among business and political leaders for legislative progress during the second Bush Administration. She said there's a sense that Bush's clear victory in November will put to rest some of the hostility that existed among some Democrats during the last session, following President Bush's controversial victory in 2000.

"The hope is that...at least some Democrats will decide that starting out with and continuing a fight throughout a long Congress is not practical," she said. "There is certainly a great deal more optimism."