Reform and Remodeling

Regulatory reform and tax reform are hot topics in Washington. Regulatory reform legislation is pending in the House and Senate that would strengthen small business’s ability to influence agency decisions. Small businesses need regulatory reform because they spend 36 percent more per employee to comply with federal mandates than their larger business competitors. The U.S. Small Business Administration estimates compliance with federal regulations costs small businesses $10,585 per employee every year. And the most recent estimates show regulatory compliance costs rose faster than the cost of medical care.

The remodeling industry has experienced its share of aggressive regulation, and these regulations have become a heavier burden as the U.S. economy struggles. Although the industry was successful this past summer in persuading EPA not to pile on additional requirements for the LRRP rule, it still seems as though there is an avalanche of federal mandates crushing small businesses in America.

hrough industry research conducted this summer by NARI, EPA officials learned an underground economy exists. Homeowners were choosing contractors who were not RRP-certified to save money. Those poor choices increase the likelihood of more children being exposed to lead. NARI’s survey also revealed some homeowners decided to take on some or all of the work themselves to save money. We all know that presents a host of other problems.

NARI is encouraged because EPA examined the survey results, met with NARI officials and listened to the stories remodelers told about their LRRP challenges prior to making a decision about whether to add requirements to LRRP. EPA announced its decision on July 15 to not add more LRRP requirements. We know EPA based its decision, in part, on NARI data showing how added costs would result in more uncertified contractors getting jobs that would otherwise go to EPA-certified remodelers.

Tax reform is also a hot topic, especially with GOP presidential candidates and Congress’s super committee. When tax reform comes up, small businesses get frustrated because lowering individual rates is rarely discussed.

Politicians sometimes talk about tax reform and how they can help small business. However, tweaking corporate rates does not directly help most small firms. More than 75 percent of small businesses file taxes on business income at individual rates, and the vast majority of remodeling businesses are small businesses.

Individual rates are significant to small-business owners because it is common for an owner to structure his or her business as a pass-through. A recent survey revealed that 85 percent of NARI members are taxed at individual rates with the highest percentage (52 percent) filing as S Corps. From a taxation standpoint, the pass-through model is wise for the typical small business to avoid paying tax twice—first at the corporate level and then on wages, or business-investment returns.