Taxes, health care top industry agenda

Industry watchers are hopeful for more action on tax and health care reform this year, though new issues such as immigration policy are also taking center stage

By Victoria Fraza Kickham, Managing Editor -- Industrial Distribution, 2/1/2006

Many in the industry are hopeful for another business-friendly year in Washington, following strides in economic policy and legal reform in 2005—most notably, bills on class action and bankruptcy reform that became law early in the year.

Trade groups such as the National Assn. of Wholesaler-Distributors and the Small Business Legislative Counsel are hopeful for action on long-standing issues such as taxes, tort reform and health care, but are also keeping an eye on newer issues cropping up among their members—specifically, immigration policy.

Both NAW and the SBLC work on behalf of distributors, retailers and others.

Much of the action both groups hoped to see last year came to a screeching halt when Hurricanes Katrina and Rita devastated the Gulf Coast region. Understandably, says NAW's Jade West, the hurricanes sidetracked a number of issues that never made it back to the table—particularly, approving the 2006 fiscal budget and addressing a tax reconciliation bill that never made it through both houses of Congress.

"The first thing the Congress needs to do is finish last year's business," said West, who is NAW's senior vice president—government relations.

West praised the budget bill as an attempt to restrain growth in entitlement spending programs. And she noted that the House version of the tax bill contains a measure to extend the 2003 reduced tax rate on capital gains and dividends, an issue of concern to business leaders.

On the tax side, SBLC president and general counsel John Stagaj also noted a provision to extend the temporary increase in the direct expensing allowance, a measure that allows businesses to expense more of the cost of new business equipment.

Another issue is the Alternative Minimum Tax. Last year, lawmakers did not extend the life of a provision that limited the scope of the AMT. The provision expired at the end of 2005, and unless Congress acts, many more people will be affected by the AMT, which observers say was designed to prevent the very wealthy from paying little or no tax, but now affects millions of "regular" taxpayers, especially small-business owners.

Then there's the Estate Tax. A repeal of the Estate Tax was passed in the House last year, and the Senate was scheduled to vote on it when Katrina hit. Satagaj says the prospect for a vote in the Senate this year is 50-50. Congress has passed temporary relief measures on the Estate Tax in recent years, but permanent repeal remains the priority for NAW and the SBLC—and for President Bush.

Health care is an ongoing issue, especially legislation on association health plans, which would make it easier for trade groups and business associations to offer access to health insurance plans to members nationwide. Proponents of AHPs argue that they would reduce costs, enabling more employers to offer health insurance benefits to more employees and their families.

The Small Business Health Fairness Act of 2005 addresses AHPs, and was passed in the House last year. There is a bill moving through the Senate now that addresses the issue, as well. Though West says she's not sure NAW will love the Senate bill, she's encouraged that the issue is still on the table.

"We're cautiously optimistic on that one," she said.

Stagaj agreed, noting that health care reform is, "one of those things that is certainly in the realm off doable this year."

Industry health care costs rose an average 15 percent last year, according to Industrial Distribution's 59th Annual Survey of Distributor Operations, a report that polled more than 750 distributor executives on a range of business issues. The report also showed that companies are passing along costs to employees in order to deal with the situation, and that employees of large distributorships are being hit the hardest.

Industrial Supply Assn. president Tim Tevens echoed those concerns, noting that health care is among the top business concerns for U.S. companies. Anything that can be done to reduce the financial burden of providing health insurance to workers is a boon to all businesses, he said.

"Health care in this country continues to be a dilemma for us all, so some help is needed on that," said Tevens, who is president of hoist manufacturer Columbus McKinnon Corp.

ISA represents distributors and manufacturers. As such, health care, taxes and legal reform top the group's legislative agenda, as well.

"ISA and its members are concerned about a strong manufacturing/industrial base," said Tevens. "So, any legislation that supports that is beneficial to us."

Enter immigration policy, which is quickly becoming a top concern for those in the supply chain.

"We're watching that one very closely," said West, noting that a guest worker program is a vital component of any immigration legislation, as business leaders see it. "How Congress addresses the issue of [illegal aliens] currently holding jobs in the U.S. is a concern to us."

The issue is of particular interest to members of the Specialty Tools & Fasteners Distributors Assn., who are servicing a growing number of Hispanic customers in the construction industry, in particular.

Georgia Foley, STAFDA's executive director, said many STAFDA members are seeking bilingual customer service representatives as a way to cater to their new customer base, and are turning to Hispanic workers, in many cases, to fill that need.

"[Immigration policy] is an increasing issue, and not just for members in Arizona and Texas," she said.

STAFDA is a member of the SBLC, which is also watching the issue closely.

"Our perspective is that you have to have a stable pool of both skilled and unskilled workers [in the United States]," says Stagaj. "So, if you're going to do something in the immigration area, you can't simply shut it down. Some type of guest worker program is something we support."

The House passed a get-tough bill on immigration reform last year, tightening border control and making it easier to deport immigrants who commit some crimes, among other measures. The issue now moves to the Senate, where debate is expected over whether or not to soften the House measure by adding some sort of guest worker program.

Many business leaders say the untold story of 2005 was the solid economy, which had sustained 50 months of growth through December, according to the Institute for Supply Management, which measures economic growth with its Purchasing Managers Index. ISM's report shows that the manufacturing economy had grown for 31 consecutive months as of December.

Congress played a part in the economic story by doing no harm in 2005, West said.

"The year itself was actually a productive year," she said, pointing to class action reform, which helped curtail frivolous lawsuits by shifting many class action suits now heard in State courts to Federal court, reducing the ability for lawyers to venue shop; and to the bankruptcy legislation, which makes it more difficult for consumers to walk away from debt, and corrects a system that business leaders argued was rife with abuse.

She also pointed to the tax policies of 2003 and 2004, and to the 2005 budget bill, as an attempt to get, "back on the path of responsible governance."

"There is still a public perception of insecurity over the economy, which makes no sense because the economy is growing," she said.

Tevens agreed, and said he expects continued economic strength in 2006.

"Most of our members are feeling good about the general economy," he said. "If we could continue this nice, steady trend, we'd see a lot of happy ISA members. And I don't see it ending. There may be a slight slowing, but not anything [dramatic]."