Last month, I went on vacation and I saw America. No, I didn’t do some month long cross country trip (though with three kids and a dog in the car, it felt a little longer than it actually was) – just a few hours up the road to Maine. Along the way, we opted not to stop at those expansive food and gas service plazas and instead, snaked through small towns and mid-sized cities, stopping in one general store here and a cozy diner there.

I’m talking about places like Bridgton Books where they will special order books for you – even if you’re a tourist – for no charge. Even more impressive, they use your name while talking to you because they take the time to notice.

And Mt. Mann Jewelers where they are happy to explain in detail to my kids where the smallest of rocks come from – and then package them beautifully – even though we both know that their biggest sale of the day will not be a couple of loose moonstones and geodes.

And Smokin’ Good BBQ where you get a good dose of story telling while you wait for your meal to be served up hot out of a bright orange trailer.

Of course, America isn’t just found in small towns. I live in Philadelphia, the sixth most populous city in the US (*glowers at Phoenix, AZ*) and I see America here, too. I see America in the corner stores and the coffee shops tucked in along the street corridors. I see it in the faces of our clients at our law firm who show up with a plan and a twinkle in their eyes – that same twinkle that I must have had ten years ago when I convinced my husband to quit his big law firm job and practice law with me.

Businesses like these, whether in small towns or big cities, are the entrepreneurial spirit at its best – that same spirit that our politicians seem to have forgotten. Maybe I’d forgotten about it a little bit, too, until I climbed into the car. My trip forced me to slow down and take a look around me, something I’d suggest to members of Congress. Maybe a trip outside of the halls of the Capitol Building would help them really see America.

It’s so easy to flip through ads on TV and forget that we are not a nation made up simply of large conglomerates but rather a country filled with hard-working, industrious individuals. Statistically, at least half of those individuals are employed by small businesses just like the ones I happened upon; that’s according to the most recent data available from the U.S. Census Bureau (2005). It also appears that new hires are dependent upon the small business market for jobs: nearly 80% of the net new jobs came from small businesses (defined as firms with 500 or fewer employees). (Source: The Small Business Economy, prepared by the SBA – link will download as a pdf). In other words, small businesses are driving our economy in important, meaningful ways.

This year, in the middle of all of the debates about taxes, tax cuts and breaks for businesses, Congress is making a lot of noise about how they’re trying to help small businesses. But it has dawned on me as I’ve listened to them – and then taken a look around me – that they really don’t seem to know much about small businesses at all.

Think about the small businesses that you know. Who works there?

At our local coffee shop, the owner’s wife plays barista and his son is the manager. Down the street from him, a local restaurant is managed by one of several sisters – the others wait tables while a brother sometimes staffs the kitchen. At our print shop, the owner runs the presses while his wife tends to customers – their son does the design work. And my law firm? The managing partners happen to be my husband and I; I don’t doubt that some day, my kids will file and do odd jobs for pay just like at the small firm where I started out in New Jersey.

Get the picture? Small businesses are very often about family. Interestingly, families are the very entities that Congress has deliberately exempted from many of the breaks offered to small businesses. I’m not sure how that’s supposed to make sense.

At issue most recently is the highly touted health care credit for small businesses. Under the Patient Protection and Affordable Care Act, signed into law on March 23, 2010, a tax credit is available to small businesses to assist with the cost of health insurance coverage. According to the IRS web site, the purpose of the credit is to give small businesses a break for offering coverage for the first time or to maintain coverage they already have. So great, right? Except for this bit: A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit. So owners don’t count, just employees…

But what about this bit? A family member of any of the business owners or partners… or a member of such a business owner’s or partner’s household, is not considered an employee for purposes of the credit… For this purpose, a family member is defined as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law. Family members don’t count for purposes of the credit either.

(Loud sigh here)

I get that the family exclusion is some kind of effort to curb potential abuses. But what’s really happening is that Congress is effectively pointing the finger at family-based small businesses and saying: We’re helping everyone but you. Family run businesses make up a pretty hefty percentage of small businesses especially considering that for purposes of the credit, we’re talking *really* small businesses. A qualifying business must employ fewer than the equivalent of 25 full-time permanent (non-seasonal) workers with an average salary per employee of less than $50,000. How many small businesses do you know that fit that bill? Now back out the ones that are family-based. Who’s left?

Quite frankly, as much as I want this legislation to succeed, I’m not optimistic. It offers a very limited amount of relief to a limited pool of taxpayers. It is short-sighted, Band-Aid style politics, something we’re seeing a bit too much of lately. It makes you wonder who is actually looking out for America. Reading through the series of tax breaks offered up by Congress this year, I know who isn’t.

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Author

Kelly Erb is a tax attorney and tax writer.

Comments

  1. I could not agree more. One of the great joys of my life is helping mom and pop shops get better at what they do. The face of small business in this country is a family portrait. You cannot pass (“really”) small business legislation, exclude family run businesses and expect that legislation to have any meaningful impact. In its effort to “weed out” businesses that would abuse the law congress wiped out benefits for the largest segment of entrepreneurs that would get the most relief.

    What makes this move so incredibly short sighted is the fact that family run businesses, in my experience, are those most likely to actually retain earnings and re-invest them back into inventory expansion or new jobs.

    This group of weather beaten, tax weary businesses needs more than just a band aid. I don’t expect this congress to give it to them, but it would be nice if they didn’t dangle the carrot out there before bashing them over the head with the stick.

  2. Amen, amen!

    As a part-time advisor at the local SBDC, I see countless business owners who are running a business completely solo. Some have a handful of employees, but many of them are wearing ALL the hats in their business.

    Being solo myself, I don’t want a hand out or a loan. It’s frustrating to see politicians “helping” small business, when they don’t have a clue what that actually is or what we actually need.

    Preach it, sister!

  3. Tim Larason Reply

    Or consider a small business with part time employees. The statute seems to require the employer to cover 50% of insurance for all employees. What about a 10 hour per week employee who d0esn’t qualify for the group plan?

  4. Wayne Phillips Reply

    Hampstead, self-proclaimed “seafood capital of the East Coast”, is entirely small businesses, almost all managed and operated by families and their neighbors. Hardware store, the fish houses ( all family owned and operated), the barber shops, local gym, and so much more that make up this village town. There are two large employers, Food Lion and Lowes.
    Congress never looks at the real gears of America. The real gears of America are too busy trying to keep running, to surviving and even the potential to expand, to be walking the halls to lobby for themselves.
    Maybe not Senators, who appear to be closer to god-like figures, in their own eyes, but Representatives should know better. They know the folks who they represent for what they do. But it seems they don’t seem for themselves as suggested in Kelly’s blog, but cater to the rich and powerful at the home base.
    This year, all incumbents should shake in their shoes. I believe the real gears of America is tired of “same old, same old”, and turn out those there. I am for making my own term limits. Professional politicians need to go. Their un-Constitutional.

    Very good article Kelly,
    Wayne

  5. Howe note that “spouse” has been left out of the list of family members who are ineligible for the credit — intentionally or by accident.

    Jan Zobel EA

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