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November 2006
by James C. Musser, ASBA Washington Representative

The Democrats’ big win in the 2006 mid-term election will bring significant changes to Washington after the first of the year. Both parties have now selected their new leaders and the time is right to examine what the new majority in Congress hopes to do. The bottom line for small business is that things are about to be tougher.

Various Democratic leaders have outlined their plans for the new Congress and small business will be playing defense for much of the next two years. If the early statements are an accurate reflection of what the 110th Congress intends to do, increases in the minimum wage, tax hikes and another attempt to create a government-run, universal health care system are on the agenda. Small business priorities such as permanent repeal of the Death Tax and association health plans (AHPs) will be off the table for the foreseeable future.

Incoming Chairman of the House Ways and Means Committee, Charlie Rangel (D-NY) has said that there is no part of the Bush tax cuts that he wants to keep in place. Rangel has indicated that he intends to attempt to roll back the capital gains tax cuts as well as those on dividends. He has not specifically mentioned a roll back of the provision for enhanced small business expensing, but in the plan to eliminate all of the Bush tax cuts, it is likely to come under scrutiny as well. The Committee on Ways and Means has jurisdiction over all tax and trade legislation, much of health care and welfare and all of Social Security. Chairman-presumptive Rangel will be a key player in the new Congress.

Small business is also likely to take it on the chin from a proposed increase in the minimum wage. Senator Ted Kennedy (D-MA) the incoming chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee has promised to increase the federal minimum wage to $7.25 per hour from the current $5.15 per hour. Economist John Cogan of the Hoover Institute at Stanford University says that such an increase is likely to be a job killer. Economists have indicated that small businesses are likely to find ways to trim their workforces if such a change is enacted. Past increases in the minimum wage have reduced the number of entry-level jobs, which are critical to those seeking to get on the first rung of the economic ladder.

Senator Hillary Clinton (D-NY) has indicated that she intends to introduce legislation to create a government-run health care system and Democratic leaders have also said that they want to look at revising the new Medicare Part D prescription drug program. The main thrust of the changes that are being proposed for Medicare Part D is to have the government negotiate directly with pharmaceutical companies to set the prices the companies will charge. In the past, such government price setting has limited the types and numbers of drugs that the companies are willing to sell. The other proposal that has been put forth by Democratic leaders is to revise the drug program to eliminate the so-called donut hole that occurs in coverage.

Even with Democrats in charge of both the House and the Senate, a number of these proposals are likely to fail during the legislative process. However, President Bush is likely to have ample opportunity to exercise his rarely used veto pen if these and similar proposals are actually enacted by Congress.

James C. Musser, Esq. is a legislative consultant based in Falls Church, Virginia. His reports are updated monthly.