A frog's tale: Congress is killing small business - Opinion - Column

There is an old wives' tale that says if you place a frog in cool water and turn the heat up very slowly, it will allow itself to be cooked to death. While the precept may not really work with frogs, Washington continually uses a version of this rule to "cook" small business.

Want to impose a costly and burdensome mandate on employers? One that requires them to buy health insurance for their workers? Don't hit all businesses right away. Start slowly. Buy off the little guys with exemptions and subsidies. Later, of course, you withdraw them or let time erode their value. If you do it slowly, relatively few people are affected with each tightening of the screw (pun intended), effectively weakening the political opposition.

Sam Gibbons, the new acting chairman of the Ways and Means Committee, replacing Dan Rostenkowski, already has shown he knows how to play the game. In his "Chairman's Mark," a starting point for his committee's deliberations, he has provided great new subsidies for those who employ less than 26 employees. Tucked away, however, and not part of any press release, is the fact that the credit would last for only 10 years. After that, each small business gets treated as if it were Exxon.

Without commenting on the value of some existing laws - the devil is in the details - consider a few examples of how small-business exemptions and subsidies have slowly been eroded:

The Fair Labor Standards Act (FLSA) of 1938. Originally, this law that set minimum wages and other workplace rules applied only to large businesses engaged in producing goods for "interstate commerce." Then, in 1961, Congress significantly widened the act by expanding the definition to any "commerce" for firms with an annual sales volume of $1 million or more. In 1966 this threshold began coming down: $500,000, $250,000, $225,000, $200,000 and by Jan. 1, 1977, zero. The process took a generation, but small business was eventually swallowed up whole. Epilogue: In 1989, Congress "restored" the sales volume threshold to $500,000 (not adjusted for inflation) but added a "preservation" clause denying the relief to all enterprises subject to the act prior to 1989, regardless of size! Alas, one never does go back.

The Civil Rights Act of 1964.

Small business was first exempted to avoid ruinous litigation. The initial coverage applied to employers of 100 or more, then 75, 50, and finally 25 or more employees. Then in 1991, President Bush agreed to sign a civil-rights bill removing the limit on damage awards, but only if the bill was limited to "race-based" claims. But a deal is never really permanent in Washington. The ink is barely dry, and Sen. Edward Kennedy has made his move to expand unlimited damage awards to "all victims" of discrimination for large and small employers (today 15 or more employees put you in the litigation lottery).

The Americans with Disabilities Act of 1990

Coverage began at 25 employees, but on July 26 of this year the threshold declines from 25 to 15, making tens of thousands of small businesses liable to legal action and damages under the broad and difficult-to-understand law.

The Family and Medical Leave Act of 1993 (FMLA).

This law grants employees up to 12 weeks of job-protected unpaid leave every year for specified personal reasons. Currently, it exempts some "highly compensated" employees and employers with 49 or fewer workers. But look out. As Ohio's Sen. Metzenbaum said just after the bill's passage, This is a major, major step, but it does not go far enough. There will have to be a second and a third step so all Americans are covered."

Sen. Metzenbaum needn't wait long for steps two and three. Congressman Harry Johnston has already introduced a bill to take away the exemption for highly compensated employees. And last November in Cincinnati, unions held a seminar on how to expand workplace rights under the law. Among the proposals discussed: demand "income replacement" to compensate workers for unpaid leave; relax the definition of "serious illness"; expand the definition of "family" so more people are eligible for leave; and lengthen the list of reasons people can use to take paid leave.

Compared with these labor laws, a health-care system run by the government will be far more intrusive because it means direct demands on the U. S. Treasury. When the money runs short-- as almost every observer, including the Congressional Budget Office, has said it will-- small business subsidies will be declared "too expensive." (The Clinton plan conveniently ignored indexing the subsidies upward as health costs rise, so the subsidies would soon be worthless anyway.)

No matter what deal Congressman Gibbons and others cut to pass reform, we can bank on being promised more than can be delivered. The next Congress will then begin to chip away at exemptions, revise definitions, raise premiums and otherwise renege.

And, as so often in the past, small business - like the proverbial frog - will be "cooked."

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