Small Business Chic and Mau-Mauing the Mom and Pops

For years small businesses got no respect in Washington. Deep-pocketed corporate giants that could keep campaign coffers filled largely called the shots. But recently that dynamic has changed. Small businesses are suddenly chic.

Just the term itself conjures up Norman Rockwell images of the corner druggist, or the friendly grocer trying to make an honest living on Main Street. Forget the fact that most mom-and-pop shops were long ago eclipsed by Wal-Mart, the Gap, and other national chains that do business largely in expansive shopping malls.

Still, it's very fashionable to say you support small businesses. In the cynical game of politics -- at least as it's played in Washington -- that translates into hard political capital. By that I mean, suddenly, everyone is a friend of small business. Expect to see mom and pop at all the fancy Washington cocktail parties soon.

Indeed, no matter what the issue, there's a small business angle. So what if it actually has little to do with small firms in general, or worse, adversely affects them? Right now small business sells. And in Washington you go with what sells. Take the case of the looming debate over Internet taxation.

Since 1998, Congress has imposed a moratorium on most Internet taxes, including sales tax on merchandise sold online. With the moratorium set to expire Nov. 1, the drumbeat has already begun to renew it. Karen Kerrigan, president and chief executive of the Small Business & Entrepreneurship Council, is already playing the small business card and other small business advocacy groups are sure to follow.

But it makes me a little suspicious when small business groups, the conservative National Review, and the right-wing American Enterprise Institute all agree on an issue. The latter, after all, advocates abolishing the Small Business Administration.

Certainly, nobody likes taxes, but who really benefits from the moratorium? Actually, large Internet providers like AT&T and Verizon, major online retailers like Amazon.com, and companies like Google, Microsoft, and Yahoo! do. No surprise that most belong to a coalition opposing Internet taxes. Now ask yourself, what have they done for small businesses lately?

According to David Utter, a staff writer for WebProNews, the telecom industry has pocketed more than $200 billion in tax breaks over the past decade to wire the nation. Yet what segments of the nation still remain woefully underserved? Would you believe small businesses, low-income households, and rural areas of the country, where most small businesses reside?

Major telecom companies have also lobbied aggressively (and, for the most part, successfully) at the state level to prevent small municipalities and rural towns from offering public Web access. A tax dedicated to addressing these shortfalls might not be a bad idea. It would certainly help small businesses.

Of course, everyone knows how Microsoft competes viciously to stamp out small competitors. Amazon.com is a great service, but it's driven countless (tax-paying) independent book shops out of business. Apple's iTunes is doing the same to independent record stores, and even national chains like Tower Records. Gee, you would think they should at least be required to collect sales taxes. But, no, somehow that would hurt small businesses. In fact, it does just the opposite. The current moratorium gives online retailers a 6 to 8 percent price advantage right off the bat. That's typical of what small retailers, largely still brick-and-mortar operations, must collect on purchases and remit to state tax collectors.

The current policy also makes sales taxes even more regressive for those who don't have Internet access and a credit card, namely the poor and rural households that are currently underserved by the tax-freeloading telecom giants.

In another instance, a group called Alliance for Aviation Across America is lobbying against a bill that would impose a tax on commercial airport flights, no matter whether it involves a small corporate jet or a commercial airliner. The tax is designed to raise money to reduce airport congestion, but the group opposes it on the grounds that it hurts small businesses.

The fact is, most of these "small" aviation companies service large corporate clients. And any small business that can afford the cost of a private airplane can probably afford the tax. So is this really a small business issue?

The most transparent effort to cloak an issue in a small business mantle involves the current flap over how mega-wealthy hedge fund and private equity managers pay taxes on the profits they reap. They claim the money is a capital gain, which is taxed at a lower rate than ordinary income. But they are really investing other people's money, not their own.

A bill in Congress would require them to pay income taxes like everyone else on what is clearly income. But wait, this would punish small and minority-owned businesses, according to a group called the Access to Capital Coalition, which claims to represent, what else, small and minority-owned businesses. The group, however, is largely funded by 11 major private investment companies.

So now you know the drill. If your special interest is threatened or you would like to see it advanced in Washington, create a coalition and claim to represent small businesses. After all, it's the fashionable thing to do.