It’s a Wonderful LIFO

Anew administration brings renewed efforts by lobbyists. The most important lobbyists for small businesses generally and retailers and jewelers specifically are the National Federation of Independent Businesses, the National Retail Federation, and Jewelers of America.

“In these trying times, the needs of small business, especially, must be considered in Congress,” says Stephanie Cathcart, NFIB’s senior media manager. “The ‘Joe the plumber’ phase of the election campaign turned the spotlight on them.”

Here is the lobbyists’ agenda for the 111th Congress.

The economy. Most experts expect an economic stimulus bill to pass, probably in President Obama’s first 100 days. The issue is what’s in it. NRF wants direct relief for consumers, such as another round of tax rebate checks or suspension of payroll taxes. “We need short-term support for consumers, to put money into their pockets to spend and pump into the economy; 2008’s rebate checks did that significantly,” says J. Craig Shearman, NRF vice president, government affairs public relations. “Something similar is needed in 2009.”

NFIB is looking at details like tax equity for the self-employed and home office deductions. “We want provisions that stimulate small businesses, not harm them,” says Cathcart.

Sales tax fairness. JA is aggressively lobbying for the national Sales Tax Fairness and Simplification Act, which would make Internet retailers collect sales tax. NRF also supports “a level playing field on sales tax policy.” It’s unfair to exempt Internet retailers while making others do it, says Shearman.

Experts say Internet tax revenue would be significant and give cash-strapped states much-needed funds. Record state budget deficits and continued growth in e-commerce have strengthened efforts to reintroduce and push the act, says JA, and half the states now support it. Shearman believes action is likely in this Congress.

General tax legislation. JA is closely watching any new tax legislation that could affect small businesses or their affluent customers. Advisers to President Obama have said he might reconsider a key campaign pledge to repeal the Bush tax cuts for the wealthiest Americans. Instead, he may let those tax cuts run until their expiration at the end of 2010. Even that would mean a tax increase for many small businesses, some of which are structured to count business income as personal income. JA, NRF, and NFIB favor making tax cuts permanent, minimizing any tax increases, and simplifying taxes.

Health care. Experts expect a health care package, including health insurance reform, to pass this Democratically controlled Congress, fulfilling one of Obama’s major campaign promises. Affordable health insurance is a top goal of JA, NRF, and NFIB, so a key concern is an Obama campaign proposal that businesses be mandated to provide health coverage for employees, either directly or by paying into a government fund. All three oppose that. “Many small businesses can barely afford health insurance now,” says Cathcart. “As President Obama said during the campaign [on another topic], ‘How can you mandate someone to do something they can’t afford?’ ”

All three seek ways to cut health coverage costs, like putting small businesses into regional pools to spread the risk, more cost-effective administration of health care (e.g., eliminating unnecessary tests), association health plans, and health savings accounts.

LIFO repeal. The 111th Congress will almost certainly consider eliminating the last-in, first-out accounting method, because repeal would boost tax revenues. JA opposes it because jewelers often use LIFO to decrease profits and minimize taxes. LIFO helps small businesses maximize after-tax cash flow, reducing the need to borrow. It’s also a useful accounting method when inventory costs rise.

Estate tax. JA favors “fair and reasonable reform.” Under current law, reductions in this tax since 2002 end Dec. 31, 2010, when the tax returns to much higher 2002 levels. “Those levels are unfair to jewelers, whose businesses are often family owned,” says JA director of public affairs Peggy Jo Donahue.

Experts and published reports suggest that a compromise is possible between President Obama and Senate Republicans. Obama proposed freezing the exemption at $3.5 million and imposing a 45 percent top rate; Republican senators called for a $5 million exemption and dual rates of 15 percent and 30 percent. Action by Congress is likely, say observers.

15-Year Depreciation on Owner Improvements. After years of lobbying by JA, NRF, and others, this provision, once available only to leaseholders, now can be used by property owners, with total savings of $1 billion annually. The provision, an attachment to last year’s $700 billion financial rescue legislation, will expire Dec. 31, 2009, when the former 39-year mandate returns. JA is pushing hard to extend it. “In this challenging and competitive luxury retail environment, being able to keep stores updated and refurbished—thanks to speeded-up depreciation—is a key component for retail success,” says Donahue. At press time, experts gave good odds for renewal.