08:00 AM PST on Tuesday, February 1, 2005

By Terry Corbell

Count on micro businesses to play a pivotal role in the Social Security debate this year – primarily because the nation’s self-employed apparently side with President Bush over whether to allow creation of personal retirement investment accounts.

The National Association for the Self-Employed (NASE) also says it will also press Congress for other changes. The group wants its small businesses to be able to fully deduct health care premiums; provide a simplified home-office tax write-off; allow higher deductions for business meals; extend capital expenses indefinitely; and simplify IRS rules on independent contractors and workers.

NASE is being joined in the Social Security debate by the National Federation of Independent Business (NFIB), the National Restaurant Association, the National Association of Manufacturers (NAM), the Business Roundtable and other organizations in COMPASS – the Coalition for the Modernization and Protection of America’s Social Security.

As the baby boomer population continues to rapidly age and threaten to drain Social Security funds, many businesspeople – from small business owners to big business CEOs – believe they’ll be stuck with having to pay for the shortfall.

In 1937, the Social Security tax was initially 2 percent, but there have been about 20 increases since then and it’s now 15.3 percent. Normally, it’s split 50-50 between employers and workers. However, self-employed persons must pay the entire percentage.

COMPASS spent $5 million to promote its cause three years ago and plans larger expenditures in the near future to make certain payroll taxes don’t increase again.

Bush’s Social Security plan is opposed primarily by Democrats, labor unions and senior citizen groups.

Bush appointed a bipartisan commission in 2001 that recommended the concept of private investment accounts. The commission also suggested that the accounts be comprised of stocks and bonds, especially for the benefit of younger workers in the decades ahead.

NAM President John Engler argues that Social Security tax increases cost 1 million American jobs between 1984 and 1997. That’s when the payroll tax rate jumped from 10.8 percent to 12.4 percent. The ceiling for taxable wages is now $90,000. It was $37,800 in 1984.

In Washington state, small business is perhaps getting more recognition for making contributions to the economy. Governor Christine Gregoire has already floated an idea that would give a $52 million tax break to small companies. She would give another 28,000 small firms an exemption from business and occupation taxes on their gross receipts.

Some 159,000 companies get a partial or 100 percent tax break now. Her proposal means a third of all state companies would get relief.

Companies earning less than $28,000, or 80,000 micro businesses, are exempt from B&O taxes. Gregoire’s new annual minimum would be $56,000 before businesses are subject to taxes.

Depending on details to be announced, that might be welcome news for Washington’s chamber of commerce. The Association of Washington Business says the 2005 Washington Alliance for a Competitive Economy Redbook indicates state businesses have the sixth-highest costs in the nation.

Perhaps high business costs and the Gregoire proposal have something to do with Washington’s No. 36 ranking in the formation of new small businesses, according to the U.S. Census Bureau. The state had a 2.5 percent increase in new small businesses in 2002 over 2001, which lags way behind Nevada at 7.4 percent.

Oregon did even worse, ranking 39th with a 2.2 percent increase during the same period.

Idaho was tenth best with a 4.4 percent increase.

Companies also have internal challenges. Poor hiring and human resources programs cost small and large businesses an aggregate $105 billion a year – 1.05 percent of the nation’s gross national product. According to a study by the Future Foundation, eight months are needed on average for each new employee’s learning curve. So if the wrong persons are hired, it’s very costly to firms.

The study also shows 23 percent of surveyed workers believed their peers are inept and that managers waste 34 days a year coping with ineffectual employees.

Here’s an astonishing admission by workers: more than two-thirds, 68 percent, admit their errors are not discovered or divulged to managers.

Hmm. Time for human resources training for higher efficiency.

Here’s a small business tip from the coach’s corner: if you want to start a new venture, but you’re unsure what direction you want to go, start by asking yourself: “What experiences or training in my past can help me create new opportunities?”

Anything is possible if you believe in it enough.

Scheduling announcement: You might want to consider reading this column February 8 and each week for the rest of the month. I’ll launch a three-part series on growing your small business and will be tapping the expertise of Neil Delisanti, currently a business professor at both the University of Puget Sound and The Evergreen State College. (He also ran Tacoma’s Small Business Development Center, which was funded by the Small Business Administration and Washington State University.)

In response to my concerns in a recent column, State auditor could lose in proposed state budget, a reader writes:

Question: I would like to know who I could contact in the legislative body to air my concern for any budget cuts of the State Auditor's office. They need full funding so they can keep some of the suspect agencies somewhat honest. -- GN, Tacoma

Answer: It would appear that a lot of people agree with you. I’d write letters to the state lawmakers representing you, the governor’s office, and the State Auditor. A letter to the editor (of your local newspaper) would be beneficial, too.

If you agree that performance audits should be conducted, I’d also mention that in your letters. You might also consider recruiting like-minded friends and relatives to do so, too.

Thank you for your inquiry. I trust you’ll be successful.