October 2008 Franchising World

As the United States prepares for an historic presidential election next month, Franchising World magazine invited the candidates to provide their insights on a variety of policy issues affecting the nation, as well as those of particular interest to franchised businesses. 

In response to questions posed to U.S. Sens. John McCain (R-Ariz.) and Barack Obama (D-Ill.) by the International Franchise Association, the candidates lay out their visions for the next four years.

FW: Why do you want to be president of the United States?

McCain: I am running for president to protect our country from harm and defeat its enemies. I am running for president to restore trust in our government and to ensure it remains worthy of that honor. I am not running to leave our biggest problems to an unluckier generation of leaders, but to fix them now, and fix them well. I am running for president to make sure America maintains its place as the military, political and economic leader of the world; the country that doesn't fear change, but makes change work for us; the country that does not look longingly to the past, but aspires to even better days. I am running for president to serve our nation, a blessed country, a proud country, a hopeful country, the most powerful and prosperous country and the greatest force for good on earth.

Obama: (No response to the question was provided.)

FW: Small businesses provide significant jobs and contribute greatly to our economy.  As president, how will you ensure that small businesses, especially franchised businesses continue to thrive?

McCain: It is a terrible mistake to raise taxes during an economic downturn. Increasing the tax burden on Americans impedes job growth, discourages innovation and makes us less competitive. The many small-business owners who pay individual tax rates would take strong exception to the idea that keeping them low helps no one but the wealthiest Americans. Taking more money from small businesses deprives them of the capital they need to invest and grow and hire. Jobs are the most important thing our economy creates. When you raise taxes in a bad economy you eliminate jobs. I'm not going to let that happen.

Under my plan, we will preserve the current low rates as they are, so businesses large and small can hire more people. We will double the personal dependent exemption from $3,500 to $7,000 for American families. We will offer every individual and family a large tax credit to buy their health care, so that their health insurance is theirs to keep even when they move or change jobs. And we will lower the business tax rate, so American companies can open new manufacturing plants and create more jobs in this country, instead of going overseas to flee the second-highest tax rate in the world.

Obama: I recognize that small businesses are an essential ingredient to economic growth and United States productivity.  There are approximately 25.8 million businesses in the United States and over 99 percent of all employers are small businesses. Small businesses create more than two-thirds of net-new jobs each year in our country. Meanwhile, I realize that small businesses face many competitive challenges. Health-care and energy costs are skyrocketing, access to capital is a top concern, and more federal support is needed so that small businesses can invest in innovation and development.

I will ensure that small businesses continue to thrive through several policy mechanisms. First, I will lower health-care costs for small businesses through a small-business-specific health initiative and through my general health plan. Small-business owners face unique challenges in providing health care to their employees, including higher administrative costs, lower bargaining power, greater price volatility, and fewer pooling options. I will offer a new small-business health tax credit to help small businesses provide quality health care to their employees; this tax will provide a refundable credit of up to 50 percent on premiums paid by small businesses on behalf of their employees. In addition, my health-care plan has several other features that will lower costs and improve competitiveness for America’s small businesses. I will spearhead the creation of a new national health exchange, through which small businesses can buy low-cost, high-quality health-care plans for their employees, will offer reimbursements for a portion of the catastrophic costs incurred by employer health plans, and will invest in technologies and health-information systems to lower the costs of health care nationally.

Second, I will reform our tax code to provide relief for America’s small businesses. I will help small businesses raise capital by exempting investments in small and start-up businesses from all capital-gains taxes. I will cut taxes for corporations that create jobs in America. I will provide a $500 “Making Work Pay” tax credit to almost every worker in America, which benefits self-employed small-business owners in particular who otherwise pay both the employee and the employer side of the payroll tax. In addition, I will dramatically simplify tax filings so that millions of small-business owners and other Americans will be able to do their taxes in less than five minutes. Currently, the IRS receives Americans’ financial information directly from employers and banks. I will ensure that the IRS uses this information to give taxpayers the option of a pre-filled tax form to verify, sign and return to the IRS or online. This will eliminate the need for Americans to hire expensive tax preparers and to gather information that the federal government already has on file. Experts estimate that this proposal will save Americans up to 200 million total hours of work and aggravation and up to $2 billion in tax preparer fees.

Third, I will help small businesses get the tools and the capital that they need to innovate and thrive. In the Senate, I cosponsored the bipartisan Small Business Lending Reauthorization and Improvements Act. This bill expands the U.S. Small Business Administration’s loan and micro-loan programs which provide start-up and long-term financing that small firms cannot receive through normal channels. I also will work to create a new national network of public-private business incubators to facilitate the work of entrepreneurs in creating start-up companies.

FW: IFA members cite health insurance reform as a major legislative priority. The increasing cost of health care is making employer-sponsored health coverage harder for small franchised businesses to provide for their employees and harder for working families to afford.  What is your view on health-care reform, or more specifically small-business health plans for franchise business systems?

McCain: The biggest problem with the American health-care system is that it costs too much. Small businesses and families pay more and more every year to get what they often consider to be inadequate attention or poor care. And those who want to buy insurance are often unable to afford health insurance because of the high cost. By promoting research and development of new treatment models, promoting wellness, investing in technology and empowering Americans with better information on quality, we can make health care more affordable.

My approach toward helping small businesses that cannot afford to provide their employees with health insurance is not to burden those small businesses, but to help their employees.  I believe that every American should have access to quality and affordable care of their choice. I will build on the current system to provide American families with a $5,000 refundable tax credit ($2,500 for individuals) to purchase insurance that fits their unique needs. I strongly support Americans keeping their existing coverage.  If you want to keep your current coverage, you can.  But you also have the option to investigate other policies.  When coupled with my reforms to spur innovation and flexibility in insurance options including buying insurance across state lines, this will permit everyone to have the opportunity to buy affordable and quality insurance.

No American, simply because of a pre-existing condition, should be denied coverage to quality care. I will work closely with states to create Guaranteed Access Plans that will ensure quality coverage to individuals who are otherwise unable to find coverage due to high premiums. GAPs will have reasonable limits on premiums and offer help for low-income Americans. 

I strongly oppose mandates on employers, especially 'play or pay' mandates forcing employers to provide employees with health insurance, which would lower wages and force employers to eliminate jobs.  For example, Barack Obama’s plan would require a business with 20 employees who had families to incur roughly a quarter of a million dollars in health-insurance costs and would mandate what the terms of those health-insurance plans needed to be.  He has since proposed a tax credit to try to offset these burdens, but even his own new proposal would only cover half the cost burden, would only apply as a tax credit, and would not ease the cash-flow burden of his plan on the business operator.   Further, his tax credit would penalize businesses with incomes over an undefined threshold, and would penalize business growth by phasing out the credit if your business grows over a certain size he has refused to define.

Obama:  I understand that the skyrocketing cost of health care poses a serious competitive threat to America’s small businesses. I will reduce the burden on small businesses in our economy by offering a new small-business health-tax credit to help small businesses provide quality health care to their employees. This small-business health tax credit will provide a refundable credit of up to 50 percent on premiums paid by small businesses on behalf of their employees. This health-care reform plan also includes other initiatives to reduce health-care costs for small businesses. This plan creates a new national health insurance exchange to allow small businesses to buy low-cost, high-quality health plans for their employees. This proposal will allow small businesses to take advantage of a larger shared-risk insurance pool, a priority that the IFA has been advocating for years.

My plan will also reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold if they guarantee such savings are used to reduce the cost of workers’ premiums. This reimbursement is particularly important for small-business plans, which can be overwhelmed by the costs of catastrophic expenditures for even a single employee. Finally, this plan also invests in aggressive cost reduction measures including the broad adoption of standards-based electronic health-information systems, and other value-increasing innovations improving chronic care management, and increasing insurance market competition.

FW: Immigration has become one of the major issues facing the United States. For many U.S. franchised businesses, finding reliable workers is critical. How will you ensure an adequate labor supply and how will you address the estimated 12 million workers currently in the United States that do not have legal status?

McCain: I, and many other colleagues, twice attempted to pass comprehensive immigration legislation to fix our broken borders; ensure respect for the laws of this country; recognize the important economic contribution of immigrant laborers; apprehend those who came here illegally to commit crimes; and deal practically and humanely with those who came here, as my distant ancestors did, to build a better, safer life for their families, without excusing the fact they came here illegally or granting them privileges before those who have been waiting their turn outside the country. Many Americans did not believe us when we said we would secure our borders, and so we failed in our efforts. I don't want to fail again to achieve comprehensive immigration reform. We must prove we have the resources to secure our borders and use them, while respecting the dignity and rights of citizens and legal residents of the United States. When we have achieved our border security goal, we must enact and implement the other parts of practical, fair and necessary immigration policy. As part of this reform, I will implement temporary-worker programs that will reflect the labor needs of the United States in both the high-tech and low-skilled sectors while protecting the employment opportunities for U.S. workers. I also believe we must establish a user-friendly system employing a limited set of secure documents that contain biometric data and are electronically verifiable to check a worker’s identity. This system should be secure and provide responses to employer inquiries in a prompt and timely manner to provide both the employer and employee security in their hiring decisions.

Obama:  I support comprehensive immigration reform that includes an earned path to citizenship for the undocumented. As president, I will put comprehensive immigration reform back on the nation's agenda during my first year in office. We must create an immigration system that strengthens our security while reaffirming our heritage as a nation of immigrants. There are millions of people living in the shadows who would like to fully embrace our values and become full members of our democracy. For the millions living here illegally but otherwise playing by the rules, we must encourage them to come out of hiding and get right with the law. I support a system that requires undocumented immigrants who are in good standing to pay a fine, learn English, not commit crimes, and go to the back of the line for citizenship. After all those conditions are met, they would be granted the opportunity to stay in the United States.

FW: The death, or estate, tax affects the livelihood of many franchise businesses as many are family-owned.  With the impending sunset and return of the tax in 2011, how will you address the uncertainty of estate tax planning for small-business owners?

McCain: Among my disagreements with Sen. Obama lies my concern over the estate tax, which he proposes to increase to a top rate of 45 percent.  The estate tax is one of the most unfair tax laws on the books, and the first step to reform is to keep it predictable and keep it low.  After a lifetime building up a business, and paying taxes on every dollar that business earns, that asset should not be subjected to a confiscatory tax. I will hold the rate on the estate tax to 15 percent, with a $10 million dollar exemption per couple, so franchise owners can leave the product of a lifetime of labor and love to their children.

Obama:  We should reform the estate tax in order to completely eliminate estate taxes for 99.7 percent of Americans. To do so, I would freeze the estate tax at its 2009 level of $7 million per couple and index it to inflation after that. The remaining 0.3 percent of estates–the 8,000 wealthiest estates in the country–would still be able to keep a portion of the Bush estate tax cut under my plan. I will use the savings from avoiding outright repeal to help finance tax cuts for tens of millions of working families and small-business owners.

FW:  Various proposals in Congress seek to mandate that employers provide a minimum of paid leave to employees—regardless of size, market or existing benefit structure.  How will your administration address employee-benefit mandates and the impact to small franchised businesses?

McCain: Particularly at a time when our economy is suffering, I am opposed to federal mandates that raise costs on employers and harm the labor market.

Obama:  As president, I will initiate a 50-state strategy to encourage all of the states to adopt paid-leave systems. This is a state-by-state approach, and through it, I will provide a $1.5 billion fund to assist states with start-up costs and to help states offset the costs for employees and employers, including for small businesses, which may experience the costs of paid-leave programs more acutely. The Department of Labor will also provide technical information to the states on how to craft paid-leave programs consistent with their local needs and which are attuned to the needs of small businesses. However, in addition to this effort, I recognize that half of all private-sector workers have no paid sick days at all. Less than a quarter of employees in low-wage jobs are eligible to receive paid sick days, and 40 percent of women do not have a single paid sick day. I will accordingly work with employers and the small-business community to ensure that all employees receive a base amount of paid sick days–seven per year, which may be taken on an hourly basis–so that Americans with disabilities and suffering from illness can take the time off they need without fear of losing their jobs or a paycheck.

FW: IFA members have aggressively advocated for legal reform.  Small businesses, with limited capital resources, can be dramatically affected by frivolous claims.  Class-action reform, damage caps, alternative-dispute resolution and recapture of attorney’s fees are all cost-effective solutions to protect small businesses from abusive lawsuits.  Is legal reform a priority for your administration and how will you protect a person’s right to sue, but at the same time ensure the growth of small businesses in America?

McCain: I support comprehensive tort reform to free small businesses from the burden of frivolous litigation.  We should set a high standard for imposing punitive damages on small businesses.  I support adopting a proportionate-liability standard so that a small business is required to pay only for its fair share of a plaintiff’s injury.  I would also require federal courts to impose monetary sanctions on lawyers who bring frivolous suits and more serious sanctions for repeat offenders, such as suspension. 

Obama:  As a former civil rights attorney and lecturer on constitutional law at the Univ. of Chicago, I understand that the courtroom is often the last bastion for ordinary people seeking justice. I oppose arbitrary caps on damages, as they fail to bring relief to consumers or reduce insurance rates. As president, I will keep the halls of justice open and the legal process fair for regular Americans. Some of our great advances in civil rights and consumer protections have come from these lawsuits, including ensuring stronger environmental protections, insurance industry practices, workers rights and consumer safety systems.

FW: Since 1979, and updated in 2008, the Federal Trade Commission has regulated franchising and ensured comprehensive and strict pre-sale disclosure requirements in every agreement to invest in a franchise business.  In the past, legislation was introduced that would create a new federal law that superseded the terms of hundreds of thousands existing private contracts between franchisors and franshisees.  Regarding issues specific to franchised businesses, what is your position on post-sale franchise relationship legislation if it were to be introduced in Congress?

McCain: While I would not want to speculate on legislation that is not currently before the Congress, I would direct your readers to my consistent record of opposing onerous regulations and federal overreach, particularly when laws are sought to address issues already satisfied by existing regulatory authorities.

Obama: (No response to the question was provided.)