[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 102-000
ROUNDTABLE DISCUSSION ON PRESIDENT'S ECONOMIC STIMULUS PROPOSAL
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COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, FEBRUARY 4, 2003
__________
Serial No. 108-1
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Printed for the use of the Committee on Small Business
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COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia CHARLES GONZALEZ, Texas
TODD AKIN, Missouri GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia ANIBAL ACEVDEO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania ED CASE, Haiwaii
MARILYN MUSGRAVE, Colorado MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire MICHAEL RICHAUD, Maine
BOB BEAUPREZ, Colorado LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan
J. Matthew Szymanski, Chief of Staff and Chief Counsel
Phil Eskeland, Policy Director
Michael Day, Minority Staff Director
C O N T E N T S
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Participants
Page
Barreto, Hon. Hector V., Administrator, Small Business
Administration................................................. 02
Merski, Paul, Independent Community Bankers of America........... 06
Vlaming, Jacqueline, Women Impacting Public Policy............... 07
Benham, Robert, National Retail Federation....................... 08
Coffey, Matthew, NTMA............................................ 10
Coleman, Dorothy, National Association of Manufacturers.......... 11
Alford, Harry, The National Black Chamber of Commerce............ 12
Falconer, LLoyd, National Federation of Independent Business..... 13
Battle, Dena, National Federation of Independent Business........ 14
Regalia, Martin, U.S. Chamber of Commerce........................ 15
Wolff, Patricia, American Farm Bureau Federation................. 16
Wolyn, Michael, Bureau of Wholesale Sales Representatives........ 18
Darien, Kristie, National Association for the Self-Employed...... 19
Satagaj, John, Small Business Legislative Council................ 19
Culpepper, R. Lee, National Restaurant Association............... 21
Kerrigan, Karen, Small Business Survival Committee............... 22
Mack, David, national Small Business United...................... 23
ROUNDTABLE DISCUSSION ON PRESIDENT'S ECONOMIC STIMULUS PROPOSAL
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TUESDAY, FEBRUARY 4, 2003
House of Representatives,
Committee on Small Business,
Washington, D.C.
The Committee met, pursuant to call, at 10:15 a.m., in Room
2168, Rayburn House Office Building, Hon. Donald A. Manzullo
[chair of the committee] presiding.
Chairman Manzullo. Good morning. Forgive me for being late.
It is good to have you here. Welcome to this inaugural event
for the Small Business Committee for the 108th Congress. What a
thrill it is to have Hector Barreto here. First meeting of the
year, and the Committee isn't even organized yet.
I would like to welcome the Members who joined us today.
Representative Bradley is here, and we may be joined later on
by Representative Musgrave and Representative Beauprez. And Mr.
Bartlett might also join us, but I am sure he is experiencing
the same problem coming with the streets.
I appreciate you coming together to discuss the President's
jobs and growth initiative and its benefit for small
businesses. We should remember that in 2 or 3 hours there is
going to be a memorial service for the 7 astronauts that
perished on Saturday. Obviously our prayers and thoughts are
with them and their families and the entire Nation.
The President's jobs and growth initiative is very
important to our economic vitality. The initiative includes
provisions to enable short-term growth as well as to ensure
sustained long-term growth. Both are vital. Both are important
to the stability and growth of our small business community.
Accordingly, today's roundtable will explore the benefits
for small businesses contained in the President's initiative.
Also we will listen to your ideas on other tax initiatives
important to small businesses.
Before we commence, I just want to explain some
administrative procedures for the roundtable discussion. If you
wish to speak, if you would just turn your nameplate up on one
end, I will call you. Please introduce yourself and your
organization. Please keep the time in mind as you speak, as we
would like to have everybody's thoughts.
For those present today, this roundtable is formally
recorded. We will keep the record open for 7 days for any
written submissions that participants may wish to supplement
their remarks. Keep those written submissions to two typed
pages, single-spaced, elite type.
Chairman Manzullo. With that, I would like to introduce
Hector Barreto, the Administrator of the U.S. Small Business
Administration, to present the President's plan. Actually, the
plan is now just a few weeks old, and the budget came in
yesterday. It looks in pretty good shape here. A couple areas
we will have to work around, but it looks pretty good.
And Hector has done a tremendous job for this
administration, a tough job. I had the privilege of having him
in our congressional district. I think it was one of the first
times that he visited any congressional district and held an
informal meeting at my brother's restaurant, and Lloyd Falconer
was there. And I think within about 2 hours' notice, there were
about 30 small business people that came, and we are absolutely
thrilled that the Small Business Administrator would take the
time to come out and visit with the business people there.
I am just going to turn it over to Hector to comment on the
administration's plan, and, again, this is very informal.
Hector, let me turn it over to you. Thank you for being here.
What a joy it is.
STATEMENT OF HECTOR V. BARRETO
Mr. Barreto. Thank you, Mr. Chairman. Good morning. Good
morning again, Chairman Manzullo. Thank you so much for
inviting me to be here and to be able to participate in this
roundtable. I also want to acknowledge the distinguished Member
from Congress. Thank you so much for being here as well.
I am pleased to be here this morning to participate with
you in this roundtable discussion on the small business
provisions of the President's economic growth package. It is
good to be among so many good friends. So many of you have
supported our President and our administration, especially
during these challenging times.
Small businesses are the backbone of our economy. They
employ more than half of the private work force. They generate
about 50 percent of the Nation's gross domestic product, and
they create two-thirds to three-fourths of all the net new jobs
in our economy. Research shows that the vast majority of these
new jobs are created in the first 2 years of a small business.
Entrepreneurs are truly the key to our economic vitality, and
the President's plan offers specific relief and the opportunity
for them to grow and to create even more American jobs.
This roundtable is a perfect way to talk about the
President's plan and narrow in on making sure that government
policy helps small business. This format is one that the
President personally believes in.
I have been with the President quite a few times over the
last year doing roundtables, discussing with small businesses
their issues. The President always elicits feedback and support
from the small-employer community.
I have been with him in Waco, Texas, during his economic
summit. We had a small business roundtable late last year in
Louisville, Kentucky. I was with him in St. Louis, Missouri,
about several weeks ago. I know that Mr. Falconer was there as
well. We did a small business roundtable the first week of
January in Alexandria, Virginia. And the President's purpose
has always been clear: to hear from the employer community
about what will work best for our country.
The President has called on Congress to act swiftly to pass
his economic growth package, and your voice will be critical to
this effort, and we thank you for your commitment and active
participation in these deliberations.
Through a combination of income tax rate reduction, an
increase in allowable deductions for expenses, and the
permanent repeal of the estate tax, America's small business
owners and their families will get to keep more of what they
earn. The President has pointed out that under his plan, and I
quote, a family of four with an income of $40,000 will receive
a 96 percent reduction in Federal income taxes, end quote. That
is nearly a complete elimination of the family's Federal income
tax burden, and it translates to more disposable income to be
invested, to be saved and to be spent.
For small business owners, many of whom are subject to
personal income tax rates on their business, the reduction in
rates will mean an increase in capital to expand their
business, to hire new workers and to provide new or improved
products.
As proposed, the reductions in top marginal rates scheduled
to take effect in 2006 down to 35 percent would take place
retroactively in 2003, resulting in tax cuts averaging $2,042
for some 23 million small business owners. These hard-working
entrepreneurs would receive 79 percent, or about $10.4 billion,
of the $13.3 billion in tax relief from accelerating the
reduction in the top tax bracket.
Since small business owners are so closely tied to the
personal tax rates, lowering individual marginal rates will
have a positive effect on the ability of many entrepreneurs to
expand.
As a Princeton University economist, Harvey Rosen, stated
in a May 2001 report to the SBA, and I quote, taxes matter. As
tax rates go up, entrepreneurial enterprises grow at a slower
rate. They buy less capital, and they are less likely to hire
workers, end quote.
Additionally, a proposed 200 percent increase in year 1
expense deduction for new investment--this is the section 179
expensing--would encourage small business owners to purchase
the technology, the machinery and other capital equipment that
they need to expand.
The amount of investment that may be immediately deducted
beginning in 2003 by small businesses would increase from
$25,000, where it is today, up to $75,000. This new amount is
permanent and indexed to inflation.
Expanding the eligible write-offs for small business
investment has strong support in the small business community.
All White House conferences on small business have recommended
increases in direct expensing. Moreover, SBA's Office of
Advocacy has long supported proposals to increase such write-
offs and testified in support of this change before the Senate
Finance Committee in March 2001.
From an economic development perspective, this is more than
a simple Tax Code change. There have been several studies that
have found links between taxation and investment. A 1998 Bureau
of Economic Research paper concluded that the marginal tax rate
changes significantly change investment spending patterns. The
study suggested that the tax rate changes would alter the cost
of capital for new investment decisions, and that the lower tax
rate would make more projects viable, and by making this change
permanent and predictable for small businesses, it will yield
greater results as capital spending patterns rise from year to
year.
According to the SBA's Office of Advocacy, there are 22
million small businesses in the United States. If on the
President's plan on average they increase their equipment
purchases by only $10,000, that would be almost $230 billion
which would be pumped back into the economy annually, creating
jobs and expanding the tax base.
As the President stated in his recent visit with me to
Applied Manufacturing Company in Alexandria, Virginia, and I
will quote the President again, he said, this is a plan that
says if you are willing to take risks and invest more, there is
a benefit for doing so, end quote. It is an incentive for small
businesses to increase.
The President has also proposed the permanent repeal of the
estate tax so small business owners will no longer be faced
with the prospect of leaving their family an insurmountable tax
bill along with the family business and the difficult decision
of whether or not to sell the business to pay the tax. Instead
of forcing their heirs to sell the business to pay the
government, the repeal will provide certainty for family-owned
small businesses that want to transfer the business to the next
generation of entrepreneurs.
And finally, the President's plan to abolish the double tax
on dividends will help businesses to grow and create jobs by
reducing the cost of capital. Most dividends received by
shareholders will be tax-free. Small businesses that retain
corporate earnings will not face capital gains tax on the
increase in the value of the firm from retained earnings that
could have been distributed as dividends. This will benefit the
owners of 2 million C corporations, including many small
corporations.
Our President and administration are strongly committed to
helping small business by removing or reducing the barriers
that stand in their way for faster economic growth. Besides the
significant changes outlined in the plan, let me take this
opportunity to mention just a couple of other items the
President talks about in his agenda for small business.
He talks about streamlining small business regulation and
the need for tort reform to prevent and curtail frivolous
lawsuits. We know that small businesses are hardest hit by
regulation. They face an annual regulatory burden of $6,975 per
worker, 60 percent more than a firm employing 500 or more
people, and tax compliance costs are twice as burdensome on
small businesses compared with their larger counterparts.
The Federal Government has a new Web site,
www.regulations.gov, that makes it easier to participate in
Federal rulemaking. Small businesses can review and submit
comments on proposed regulations that are published in the
Federal Register.
Americans spend nearly a trillion dollars a year complying
with State and Federal regulations, so having this Web site
provides an opportunity to hear from those that are unfairly
burdened.
Tomorrow I will be testifying before the Senate Committee
on Small Business and Entrepreneurship on another
administration priority, the need for Congress to pass
association health plan legislation to help small business have
access to affordable health care for their employees, another
issue that the community has been very proactive in pursuing.
Taken together, these changes send a strong signal that
this administration understands that our economy can thrive
only if our small businesses thrive. As the economy continues
to trend upward, America's small businesses can be counted on
to continue to provide the strength, resilience and optimism.
Thanks to the President's aggressive agenda, small business
owners can count on an environment in which their efforts will
be encouraged and their success will be sustained.
Chairman Manzullo, thank you again for including me in
today's discussion, and I look forward to working with you and
the entire Committee in the months ahead as we actively pursue
the passage of the President's economic growth plan. Thank you
very much.
Chairman Manzullo. Thank you very much.
Chairman Manzullo. I am going to have that statement put in
the Congressional Record and distributed to every small
business person in my congressional district, and I want to
encourage all the groups here to take that statement and
publish it in your next monthly magazine or newsletter, because
I don't know a statement that more succinctly sets forth the
challenges and the proposals to increase the viability for
small businesses than that which you just prepared. So you did
a great job on it.
Let us go around and introduce the folks here and then get
engaged with conversation.
Harry Alford is the president and CEO of the National Black
Chamber of Commerce. Harry stopped by and saw me several months
ago, and we sent out about 8,000 letters to every legislator in
the country, and we found out there was an egregious bill
pending that would have essentially socialized all local and
State zoning requirements with a one-size-fits-all program that
would have mandated the size and color of signs and would have
made every municipality that got, quote, a planning grant, end
of quote, from HUD to be subject to that 1,000-page manual.
HUD has apologized for giving $2 million to a planning
association to come up with that model code. Hopefully the
thing is scrapped, and Harry recognized the fact that a lot of
small businesses will be wiped out. That is all we need is one
more Federal agency determining the fate of the small
businesses.
We are also joined by Dena Battle, manager, legislative
affairs, National Federation of Independent Businesses, 600,000
strong. Is that correct?
Ms. Battle. Absolutely.
Chairman Manzullo. And growing by hundreds each day in the
16th Congressional District, where Lloyd Falconer, who is my
constituent, is sitting next to you. He is a member of the
board of trustees. Is that correct?
Mr. Falconer. Board of directors.
Chairman Manzullo. Board of directors for the National
Federation of Independent Businesses, secretary and treasurer
of Sewards Group Products in Seward, Illinois. He has got quite
a testimony. He will talk about that.
Bob Benham is chair of the policy committee of the
Independent Stores Board, the National Retail Federation, owner
of Balliet's of Oklahoma City. What kind of store is that?
Mr. Benham. It is a very nice women's store with 34
wonderful employees; been there for almost 7 years.
Chairman Manzullo. Great.
Matt Coffey, president and CEO of the National Tooling and
Machining Association, an industry under tremendous stress. Ask
Mr. Falconer about that, plus the 1,100 owners of small
factories in Rockford, Illinois, which only has about 160,000
people. We look forward to your comments.
Dorothy Coleman, vice president, tax policy, National
Association of Manufacturing. We put the manufacturers next to
each other down there.
Lee Culpepper, senior VP, Government Affairs and Public
Policy, National Restaurant Association. Good to see you, Lee.
Mr. Culpepper. Good to see you, Chairman.
Chairman Manzullo. Kristie--is it Darien?
Ms. Darien. Yes.
Chairman Manzullo. Director of government affairs, National
Association for the Self-Employed.
And Karen Kerrigan, chairman, Small Business Survival
Committee. Good to see you again, Karen.
Todd--he isn't here.
Mr. Mack. I will be standing in for him today in the
meantime.
Chairman Manzullo. What is your name?
Mr. Mack. My name is David Mack.
Chairman Manzullo. Good to see you, David.
Paul Merski, chief economist, director of Federal tax
policy, Independent Community Bankers of America. Good to see
you, Paul.
Dr. Martin Regalia, VP for economic and tax policy, chief
economist, U.S. Chamber of Commerce.
John Satagaj, president and general counsel, Small Business
Legislative Council.
Jacqueline Vlaming, VP, corporate counsel, Coverall North
America, Inc., from Fort Lauderdale, with the Women Impacting
Public Policy. Is that Terry's group?
Ms. Vlaming. Yes, it is.
Chairman Manzullo. Okay.
Patricia Wolff, senior director, congressional relations,
American Farm Bureau Federation. Good to see you here,
Patricia.
And Michael Wolyn, executive director, Bureau of Wholesale
Sales Representatives.
Wow. We have got quite a cross-section across America.
What I would like to do is just raise your--if you could
keep your remarks to, say, under 2 minutes, if that is
possible, so we can move it along.
Go ahead, Paul.
STATEMENT OF PAUL MERSKI
Mr. Merski. Thank you, Mr. Chairman. On behalf of the 5,000
members of the Independent Community Bankers of America, we
appreciate you having this roundtable and sincerely appreciate
all your hard work over the years on behalf of small
businesses.
Small businesses are the key customers for community banks.
That is our bread and butter, to do lending to the small
business community, and as far as the President's economic
growth and jobs plan, we wholeheartedly endorse these
proposals. It is good for small business. The rate reductions
in particular will dramatically help a number of our community
banks that are subchapter S and pay individual income taxes.
And one key point I would like to make is that small
businesses typically do not go to the equity markets or stock
markets for their capital to grow their business, to start
their business. They rely on bank lending, and it is a key
source of revenues that the small businesses need to run their
businesses on a daily basis. And it is the community banks that
keep a lot of small communities and towns viable to that
lending, and a lot of the President's proposals are good for
community banks and good for small businesses.
And one thing I would like to mention is the proposals for
expanding savings incentives that just came out in the
President's budget yesterday, dramatic changes in the way
people are allowed to save, and as we all know, that core
savings that is deposited in the banks and in the equity
markets is what is available to small businesses to invest.
So overall we are very pleased with the President's budget.
We look forward to working with this Committee and working with
Congress to enact many of those solid pro-small-business
incentives. Thank you.
Chairman Manzullo. Jacqueline.
STATEMENT OF JACQUELINE VLAMING
Ms. Vlaming. Good morning. I am here on behalf of the
National Association of Business Owners and Women Impacting
Public Policy of which NABO is a member. So I will speak on
behalf of the 400,000 women business owners and professionals.
While we are very pleased with the proposals in the
economic stimulus package, particularly those dealing with the
increase in the expensing from 25,000 to 75,000 and the
decrease in the income tax rates which will affect about 23
million small business owners, given on average an additional
$2,000 per year, we don't know that--while we support those
provisions, that they will really give us the opportunities
that we need in the current economic climate. We think that our
opportunity lies in Federal contracting, and in that regard,
Chairman Manzullo, I would like to compliment you on the
efforts that you have made before the Department of Defense to
see that small business gets more of their share of Federal
contracts.
About $200 billion a year is spent by our government on
services; $212 billion of that is from the Department of
Defense. For every increase in the contracts, fewer Federal
contracts are awarded to small business. So we strongly support
the unbundling of Federal contracts to give better
opportunities to small businesses. We will take that money that
we save in the President's economic stimulus package, and we
will invest in our businesses, but we want a piece of the
Federal contracting budget.
Also there is a public act that was enacted--Public Law
106.554, that was enacted in the year 2000 establishing
contracting assistance for women business owners. It called for
a 5 percent set-aside for women business owners. The Small
Business Administration conducted a study to determine whether
or not women were underrepresented in Federal contracting. That
study was done. It has not been released. That study, my
understanding, did determine that women are underrepresented,
and we would urge that Public Law 106.554 be implemented and
that the SBA release that study. Thank you.
Chairman Manzullo. Let me state that we continue to fight
with the--and I would like to mention the names of companies,
because the only way you can do it is to hold people publicly
accountable. We are in a fight with Northrup Grumman. Northrop
Grumman is a subcontractor for Lockheed Martin, which is
building the Joint Strike Force fighter. There are seven
European countries involved in that consortium. Spain is now.
Northrop Grumman, as part of the American component, has given
four or five expensive and lucrative contracts to the
Europeans. That supposedly represents the U.S. participation in
it, and I asked the Northrop Grumman people to come to
Washington, and they told me to my face that Ingersoll in
Rockford, Illinois, does not have the expertise to make the
machines necessary to build a Joint Strike Force fighter, one
of the most insulting things ever to happen.
They gave the contract to the Spaniards, who are not part
of the consortium, and they say, well, it costs less, and the
Spanish can do it much better than the United States. This is
the United States contract, the United States taxpayers'
dollars to build our portion of the Joint Strike Force fighter.
So I am going to join the Joint Strike Force fight with
Northrop Grumman. That is disgusting that they would even look
at somebody besides American contractors. This is U.S. policy,
and they are going offshore to do that.
We are also in a fight with the post office. We like to
take on these small people. They entered into a giant bundling
contract with Boise Cascade--it has been a disaster--for pens
and pencils and everything, and as the post office talks about
raising the staff for everything, they are responsible for the
destruction of many small Ma and Pa stationery stores across
the Nation. The name of that company is Boise Cascade. It is a
bundler who has been helped by, I guess, the bundlee or
bundlor, which is the United States Post Office.
So I would like to mention these people by name, because it
is the only way that you can bring attention to the fact that
this is our own U.S. Government policy, but it is destroying
jobs.
Bob, you are up next.
STATEMENT OF ROBERT BENHAM
Mr. Benham. Thank you, Mr. Chairman. Thank you for the
opportunity to be here this morning. I am representing the
National Retail Federation, but I really feel like I am
representing my 34 employees and the hundreds of thousands of
small retailers across this wonderful land of ours.
We support the President's stimulus package. Retailers have
strongly denied this. And I think the focus should be on
putting dollars back into consumers' pockets as quickly as
possible. I think we are all aware that the consumer supports
two-thirds of the economy. About 65 percent of economic
activity is the American consumer, who has been absolutely
magnificent over the years, but they are beginning to falter. I
think you have seen consumer confidence levels begin to slip,
particularly in December. It was a very difficult December for
retailers.
And I would like to focus on two specific aspects of the
President's stimulus package. The first is the need for across-
the-board tax cuts, all of the marginal rates. I think that is
really critical, because the economy is interrelated.
For example, in my business in Oklahoma, city, we are a
mainstream retailer. We sell nice things to affluent people,
but I have 34 employees to whom we provide health care
insurance. We provide an IRA plan. We have dental insurance,
disability insurance, life insurance. Many of them are heads of
households. Some are single moms. They really rely on the store
to provide their income and their benefits, and I am really
very, very concerned about the fact that if these cuts are
targeted, that the interrelationship between the various
differing economic layers will not happen. We really need those
cuts to be across the board, because the people who have the
incomes who will receive greater tax reduction will drive the
economy, as Mr. Barreto says, by spending, investing or saving,
and that is exactly what the economy needs. So let us work very
hard to keep these cuts across the board in all tax brackets.
The other thing I would like to just comment on very
briefly is the estate tax. I mean, right now my estate--I am
63. I have a daughter who is 31 who wants to come into the
business. She is a mom right now, but right now my estate plan
consists of deciding whether I am going to climb the highest
building in Oklahoma City and jump the night before the estate
tax comes back into effect, and that is not really how I want
to run my business.
There is tremendous uncertainty hanging over all of us
independent business owners. We really need to make the estate
tax relief permanent. Aside from putting dollars in consumers'
pockets right now, estate tax relief--permanent estate tax
relief really is the name of the game for us.
There are other issues, but those are the two key ones.
Thank you, Mr. Chairman.
Chairman Manzullo. Thank you.
Chairman Manzullo. Our next participant--we are joined by
Congressman Bob Beauprez.
Bob, do you have opening statements you would like to make?
Mr. Beauprez. I appreciate that, Mr. Chairman. Mostly, I am
delighted to be in the company of so much experience and
especially the organizations that you represent. I come out of
a background of small business, with my father and brother ran
a dairy farm for 4 years of my life, and then as we got out of
that business, I rather impulsively found myself buying a small
community bank, and we ran that like a small business, too,
because it was owner-operated. But what we found ourselves
doing, of course, was interfacing with the numerous small
business owners out there as our client.
And I will confess to continually being astounded at
discovering new ways that people find to get through the day,
the products and services that they create that need to be done
out there. And so this whole discussion that we are having, I
find myself, coming to Congress as a freshman, seems to be very
appropriate for my background; how do we get this economy
going, how do we create jobs, and recognizing that the role,
the critical role, the huge role that small business has always
played in America and still plays, thank God, and I hope that I
can maybe bring some of my practical experience to bear here in
Washington, D.C., reflecting on what impact we had back home.
I very much look forward to this discussion, and hopefully,
Mr. Chairman, I will have time before I have to leave--just a
couple minutes early--to ask a few questions later on. Thank
you, Mr. Chairman.
Chairman Manzullo. Thank you.
Chairman Manzullo. Mr. Coffey.
STATEMENT OF MATTHEW B. COFFEY
Mr. Coffey. Thank you, Mr. Chairman. I want to pick up on
some remarks that you were making earlier about the
manufacturing, about the particular problem with the Defense
Department. I was particularly struck during the dock workers'
strike on the west coast that the United States had to shut
down the production of Tomahawk missiles because parts that one
of their prime contractors had ordered from Japan were sitting
in ships off the coast. If that isn't a case of us doing
something really stupid, I don't know what is, and I think that
clearly where the defense appropriations are concerned this
time around and the defense budget, we clearly need to have a
very, very clear statement that all subcontracts related to
defense spending wind up in the United States. Otherwise, we
are placing our country at jeopardy.
On the President's package, I would make a couple points.
First, of the 800,000 tax returns filed by businesses in the
United States, according to the Treasury Department, 62 percent
of them are filed by small businesses. That clearly indicates
that the bulk of the benefits here--of these rate cuts is going
to come to small business.
To accelerating the tax cuts, I think we learned our
lesson. In 1980, we didn't do that, and we wound up with the
1982 recession, and I think it is absolutely mandatory that we
move forward in that area.
We are very appreciative of the recommendation to increase
the expense allowance, but as you know in manufacturing, the
cost of equipment in manufacturing is extremely high. Basic
milling machine is these days running somewhere in the
neighborhood of 200- to $300,000, and so while $75,000 is a
great allowance, it is not of sufficient magnitude for most
manufacturers, particularly small manufacturers, to be able to
make the big investment, the investment they really need to get
their productivity up to compete in what is, in fact, a very
arduous global economy at the present time.
And I just associate myself with the whole conversation of
unbundling contracts and on association health plans. I think
that if we can put some things in place like association health
plans, while they don't solve the problem of health care in
America, they at least give some immediate relief to small
businesses--potential for that relief. I think it is important
that we move in that direction. Thank you, sir.
Chairman Manzullo. Ms. Coleman.
STATEMENT OF DOROTHY COLEMAN
Ms. Coleman. Thank you. Thank you, Chairman Manzullo, for
holding this roundtable on very important issues, especially to
small manufacturers.
The NAM strongly endorses the President's economic recovery
plan, as well as the additional tax relief provisions that were
in his budget that he sent out to Congress last year. We feel
that this tax relief will be a very important factor in jump-
starting the current economic recovery, as well as ensuring
durable economic growth in the future.
I just want to tell you--mention a recent survey that we
took of our small manufacturers. NAM has 14,000 members, and of
those, about 10,000 are small, medium-sized manufacturers. We
did an informal survey earlier in January and asked them what
the top three tax incentives are that would most help them
expand their business, and the three things that they
identified were accelerating the individual tax rates, making
permanent the repeal of the death tax and also expanding
expenses to $75,000.
The individual rate cuts are important not only to our
manufacturers' employees, but also to the 4- to 5,000 small and
medium-sized manufacturers that are S corporations. Getting a
reduction in their top tax rate of almost 4 percent is going to
mean a lot to them and help them invest and create jobs.
On the expensing, many of our members who are not able to
use the current expensing provisions under current law would be
able to use the expanded expensing. Lifting the ceiling to
$400,000 certainly is a big improvement and will help many of
them.
On the estate tax, this is a huge issue for our small
manufacturers, small and medium-sized manufacturers. On
average, they pay about $52,000 a year just on estate tax
planning alone. This is money that they would otherwise use to
create jobs and expand their businesses.
I would also like to raise another issue that was
addressed, happily so, in the President's budget proposal that
they sent out yesterday, and that is that this FSC/ETI, or
foreign sales corporation/extraterritorial income issue. This
is an issue of particular interest to small manufacturers. Very
often it is viewed as a big-company issue, but there are a lot
of small manufacturers that take advantage of the FSC/ETI
benefits.
We did a survey several years ago, and on average our small
manufacturers receive the benefits of about $124,000 from the
FSC/ETI regime. As you know, the WTO ruled finally at the
beginning of 2002 that the FSC/ETI was an illegal export
subsidy, and we now face pending sanctions unless we repeal it
and replace it with another tax incentive or tax law change.
One concern that we have are that some of the proposals
under discussion to replace FSC/ETI or to substitute the FSC/
ETI would not benefit at all the small manufacturers who
typically are pure exporters. They don't have multinational
operations, but operate solely in the U.S. and export.
So in moving forward, we hope that you will work with us,
Chairman Manzullo, to craft an acceptable solution both to WTO,
and one that provides fair and equitable treatment to all
manufacturers. Thank you.
Chairman Manzullo. We were planning on having a hearing on
FSC/ETI. The small business voice I don't believe has been
heard on that very complicated issue.
Ms. Coleman. Well, we certainly appreciate that.
Chairman Manzullo. Thank you.
Chairman Manzullo. Mr. Alford.
STATEMENT OF HARRY ALFORD
Mr. Alford. Thank you, Mr. Chairman.
Mr. Chair, Members of Congress, Mr. Administrator, I am
very happy to be here. The National Black Chamber of Commerce
represents 1 million of those 22 million small businesses. We
have a little under 200 chapters in 40 States and 8 countries,
and we are extremely thankful, very thankful, that for the
first time in my mature life, this country has a President who
not only understands small business, but he addresses and acts
upon the best interest of small business. I think truly these
are exciting times.
In his stimulus package, I think the most notable players
are the speedup of the 2001 tax cuts, the elimination of the
dividend tax. Perhaps the most valuable player is the
increasing of small business expenses from $25,000 to $75,000.
I think that is going to have a strong, positive impact on
small business growth.
And I am very happy to see Congressman Beauprez here. He
invited me out to Colorado to speak on many items such as the
permanent repeal of the estate tax, and if we get that done, I
think that probably would be one of the biggest accomplishments
on our platform, on our agenda. The National Black Chamber of
Commerce, in going around the country we got the support of Bob
Johnson, the founder of BET, who is the head of one of the
larger black business--.
Chairman Manzullo. He is from Freeport.
Mr. Alford. That is correct, sir. And for him to put a
full-page ad in the Washington Post saying, we are supporting
the position of the National Black Chamber of Commerce to
repeal the estate tax, shook the liberal world. I mean, it
shook it. They are still shaking.
So I think we are on the proper road to recovery. I think
these are great times. Mr. Administrator mentioned the
association health plans. I, too, will be testifying tomorrow
in support of that.
Another pet of ours is Social Security reform. African
American males have a life span in this country of 64 years.
They can retire at age 65. Now, do the math on that. We are
cash cows, and I think that if we make the money that is
accrued assignable to the heirs, the spouse, then that
overrides that sad historic fact.
I understand that the first hour is on the President's tax
plan. The second hour is on various other subjects. I will wait
for that. Thank you, Mr. Chairman.
Chairman Manzullo. Thank you.
Chairman Manzullo. Mr. Falconer.
If during the course of this you have a question to ask Mr.
Barreto, he is here to avail himself of that. If he gets stuck,
he will ask you for the answer.
STATEMENT OF LLOYD FALCONER
Mr. Falconer. Thank you, Mr. Chairman, for inviting me.
Thank you for holding this meeting. It is good again to see
Director Barreto once again. Welcome, Members of Congress, Mr.
Beauprez and Mr. Bradley.
If you do not remember anything more that I say in this
meeting, I have four words to anyone who will listen. Let us
export products, not jobs.
In the 16th District where I live, the Rockford area, which
I am a part, is very heavily dependent on manufacturing, and
for 150 years that has been the core business of that area.
Manufacturing, I think you, Mr. Chairman, in your speech
September 30th in Rockford reported how important the
manufacturing power became as it rolled down the hill and other
people benefited, compared with, let us say, a service sector
job or a government job and the effect that that same dollar
spent has on the community and on the country. And I referred
to that. I still have a copy of that speech in your bullet
points, and I referred to it frequently.
Our business is a family-owned business, or a C corp. It
was founded by my father in 1954. Currently my brother and I
run the day-to-day operations. I have a sister and mother who
are stockholders, and some other people, but my brother and I
make the operation work. He wanted to be president. I said,
fine; I will be secretary/treasurer. I get to sign your check.
We have seen good times, and we have seen bad times. Right
now we are among the very lucky few who are seeing some good
times, but that is only because of the choice of customers that
we have. Twenty years ago we wondered why we were still in
business. We had 9 employees, down from about 50. That was our
Depression.
However, while we are currently enjoying success, and we
are growing and expanding and spending lots of money on new
equipment, many of my colleagues are not, for a variety of
reasons, and one of the major reasons is that we have been
exporting our jobs and not our products, as you have alluded
to, in contract bundling and the government spending in Spain
what they could be spending in Rockford, Illinois, and things
like that.
We have a Federal policy which, quite frankly, encourages
large Fortune 500 companies to leave this country, and I think
that is sad, because not only when they leave do they take jobs
away from their own business, but they take jobs away from the
small businesses who were their suppliers. And so consequently,
they lose not only the employees, but they actually lose
customers.
And if you recall Henry Ford early on in his business, he
said, you know, if my employees can't afford to buy my product,
what is the point? And we have to be able to compete in the
world.
So there is a lot of issues that are at hand here.
Simplifying the Tax Code is just one of them, but it is a very
important one, and I will not retrace all the steps of former
speakers.
I am on board with the President's plan. I just hope we can
do more and quicker, and I applaud him for taking this message
on the road. I had the privilege of hearing him speak in St.
Louis on January 22nd, and Director Barreto was there, and it
is wonderful that he is getting out and getting this message
across, because without manufacturing jobs that allow money to
be spent in every other direction of life, whether it is in
this gentleman's store, fine lady's apparel or a gift shop or a
stationary store, it is academic. We have to have good
manufacturing jobs, and so that is where I am coming from, and
I really appreciate the opportunity to speak here, and I thank
you.
Chairman Manzullo. Thank you.
Chairman Manzullo. Ms. Battle.
STATEMENT OF DENA BATTLE
Ms. Battle. Thank you, Mr. Chairman, and Members of
Congress, Administrator Barreto. I appreciate the opportunity
to be here. I appreciate the remarks that Lloyd Falconer made
on behalf of small businesses throughout America.
Talking about the President's plan, we are very supportive
of this plan, and it means a lot to our 600,000 members
nationwide. Specifically--and I will echo one of the comments
that someone has made--but accelerating the rate cuts is very
important for our members. Eighty-five percent of our members
file as individuals. The money that they will receive from
these tax cuts, that is money that is going to go directly back
into their business. A lot of them are self-employed. A lot of
them operate out of their homes. The money that they get, they
want to grow their business, and that is going to go right back
into their business. So in terms of stimulating the economy,
that provision is just going to be very helpful to our members.
We think it is going to help a lot of them grow.
I came across a statistic: 90 percent of Inc. Magazine's
500 fastest growing companies started with less than $20,000,
and 1 in 4 started with less than $5,000. It just goes to show
big companies start out small. They are the growth engine of
our economy, and this is a growth provision for them.
The expensing provision also was very important. NFIB did a
study. They surveyed our members. Sixty-two percent of our
members said that they had capital outlays in the last 6
months; 62 percent of what they spent their money on included
equipment and furniture for their offices, whether it was
computer equipment--so the expensing provision is going to
allow them to expand on what they are already buying right now,
and we think it is going to be a great benefit to our members.
We are very excited about the fact that the bill that has
been introduced by Congressman Herger that supports the
President's plan is indexed for inflation. That means we don't
have to come back and ask Congress to look at those numbers
again, and we appreciate that, and we hope that that provision
stays in when the package goes before Congress.
And lastly I will just say NFIB is a member of the Family
Business Estate Tax Coalition. Repealing the death tax is one
of the most important issues for our members.
I met with a staffer the other day, and he mentioned that
he used to own a small business. He said it was an ice skating
rink in Texas. He said, you know, it was a small business--.
Chairman Manzullo. South or north Texas?
Ms. Battle. It was south Texas, believe it or not. It was
south Texas, and he said it was a small business. I never
thought of it as a very big business, but come to think of it,
the building was worth $10 million. So when you consider the
fact that this is a person who had a small business who would
be hit by the estate tax because his money was tied up into
those assets, he wouldn't be able to pass that on to his
children, that really speaks to the unfairness of the death
tax. And Congress has repealed it, but permanency is really
what we want, and we hope to see that in this Congress. Thank
you.
Chairman Manzullo. Dr. Martin Regalia.
STATEMENT OF MARTIN A. REGALIA
Mr. Regalia. Thank you very much, Mr. Chairman. I want to
commend you for holding these hearings and thank you for
inviting us to participate.
When we look at our economy, we have been growing now for
five quarters, coming out of a very brief recession that really
began in the last waning days of the last administration, but
the economy really has not performed up to par yet. It has lost
its confidence. It has lost its direction. It has lost its
balance, and it has lost its momentum. And as we look around
for policy, solutions to that, we see the Federal Reserve
having cut rates about as far as they can. And so it really
becomes important for Congress to adopt fiscal policies which
will continue the growth in our economy and put the growth from
just below par where it is not creating jobs to just above par
where it is. And we think that the President's plan for
creating growth and jobs is a perfect way to do that.
We believe and support--believe the plan and support it
strongly. We look at the pieces of the plan really as a puzzle.
One piece helps one particular aspect of the economy. Another
piece helps another. Certainly the expensing provisions and the
rate acceleration will help small businesses that pay taxes as
individuals. It will help them to grow, help them retain
earnings, but when we look at the other pieces of the puzzle,
we look at things like the dividend, the elimination of double
taxation on dividends that will stimulate consumption. That
will help other people to spend.
And as I travel around the country and talk to businesses
of all types, they seem to have one thing in common. What they
need now, what they want now are customers. They want customers
coming in the door and spending their money. This particular
type of plan, which is balanced, which is across the board,
will do that. It will put people in the doors. It will start
people spending money, and when that happens, businesses will
invest, and the economy will grow.
So once again, we thank you for this roundtable. We support
the President's plan strongly, and we encourage you in the
Congress to pass it as quickly as possible.
Chairman Manzullo. Thank you.
Chairman Manzullo. Let me interject a question here. When I
ask questions of the economists--you know, Will Rogers' story
about the economists.
But let me ask you a question. How do you get people to buy
more? Is it the chicken or the egg? This seems to be the
problem.
Mr. Regalia. When we look at consumption, we see a couple
things that drive it. First and foremost, it is disposable
income, and you get disposable income by creating jobs that pay
good wages and by leaving those wages with the individuals. So
it is two-piece. It is creating the jobs that pay well, but
then once people make money, it is leaving it there. That is
first and foremost.
The second aspect is one of confidence. People spend when
they are confident. They don't spend when they are worried, and
right now across the board people are worried. They are worried
about what is happening in Iraq, but they are also worried
about what is happening domestically. Is our public policy
moving in the right direction. This type of an approach will
encourage them in that regard. It will say to them, yes, we
are--we do understand what the issues are. We do understand
that we have to be a more confident society. We do have to
understand that we have to encourage businesses to take the
risks that they are in the business to do. That is what
businesses do. They take risks.
So this type of an approach, we believe, will help as far
as we can. We can't solve the situation in Iraq, but we can
solve much of the situation here, and we believe this plan will
do that.
Chairman Manzullo. Thank you.
Patricia.
STATEMENT OF PATRICIA WOLFF
Ms. Wolff. Thank you. I am here today on behalf of the 5
million members of the American Farm Bureau Federation. We
represent growers and producers of everything you could think
of that you could eat and every natural fiber you could wear.
I would like to start by talking about the President's plan
and then moving on to another issue that we are very concerned
about, and as I talk about the President's proposal, I would
like to talk about it in two parts. First, from a business
aspect, the small business expensing provisions in that package
are very important to farmers and ranchers. We in agriculture
have been going through a very difficult economical time in
recent years. Farmers have been patching things up and making
things do for an extra year for a long time now. They are not
in a cash surplus situation, and so buying things they need for
their businesses have been very difficult.
With that increase in small business expensing, there are
two bonuses. One is that because they won't be able to recoup
that expense immediately, that they will be able to go out and
purchase the things that they need to upgrade their businesses
and keep their businesses profitable. And second of all, there
will be a stimulating economic effect on the world communities
that they support. So the small business expensing provisions
are very important to us.
Second of all, from an individual standpoint, over 90
percent of farmers do pay taxes as individuals, and so all of
the individual tax cuts in the President's package are very
important, the marriage penalty, the child credits; could make
a long list. But any businessman who files as an individual
finds those tax cuts very helpful as they try to make a go in
their--.
Chairman Manzullo. You said 9 percent. You meant--.
Ms. Wolff. Ninety percent, over 90 percent.
Lastly, I would like to turn to the death tax, because the
permanent repeal of the death tax has been our top priority for
many years, and we are comforted by the factthat--in knowing
the majority of Congress does support permanent repeal of the
death tax, but we have been prevented from achieving permanent
repeal by some arcane Senate rules.
Death taxes are very important for farmers and ranchers for
two reasons. The first reason is that at death, a tax which can
be as high as 50 percent can just put a farmer or rancher out
of business. Farmers are worth money because of their business,
not because they have cash in the bank, and when they die,
Uncle Sam wants cash. And so you can't take your tractor or
your trowel down to the IRS and say, here. No. You have to
sell. And when you have to sell, you are selling at fire sale
rates, which is a double wammy. And so the tax is very, very
harmful to farmers as they try to pass the businesses from
generation to generation.
Second of all, the death tax hurts farmers while they are
alive, while they are still in business. We call it a
prepayment of the tax.
Ms. Wolff. Farmers don't know when they are going to die.
They don't know what they are going to be worth when they die.
And they don't know what the tax law is going to be in the year
they die. And so as a result of that, they must spend money for
life insurance policies, for accountants to reorganize their
business, for attorneys, and all that money is money that could
be better spent growing their business, keeping their
businesses profitable.
So I can't emphasize enough that the permanent repeal of
death taxes is something that we hope Congress will address and
address quickly.
Mr. Beauprez. Patricia, question. Your membership primarily
are small farmers and you outline very well the problem that
they go through with the death tax. I know that from very
firsthand experience. It crosses my mind, though, I am
wondering how many of your members might be struggling with the
affordability of health care and how many of them might be
doing, frankly, without health insurance because of that cost.
Ms. Wolff. Okay. I don't know how many are going without
health insurance. I think it might be notable at this point to
say something positive, in that 2003 is the year that we have
achieved 100 percent deductibility for the health insurance
premiums that people pay. And that is something that we waited
a long time for and will be helpful to us. Our members do see
skyrocketing health insurance costs. They also see loss of
service in rural areas. We have come out in support of
associated health plans as a way to address that issue and we
will be presenting testimony on that in Congress.
Mr. Beauprez. Mr. Chairman, I would submit at least a
question, because I don't have any facts to back it up. But I
think the health care issue for family farms are significant,
not only to the farmers, but I think that is an industry that
really struggles in providing health care benefits to their
employees as well, for the same reason of cost, and it is a
serious problem I think in the agricultural community.
Chairman Manzullo. Michael.
STATEMENT OF MICHAEL WOLYN
Mr. Wolyn. Thank you, Mr. Chairman. Thank you for
conducting this roundtable. I represent the Bureau of Wholesale
Sales Representatives and I am here to speak on behalf of the
National Association of Sales Reps Associations, which is our
lobbying arm, and our 10,000 members who are primarily
subchapter (s) corporations or independent contractors. These
people are people in the needle trades, people in the gift
industry, people in the golf industry, the people that would
supply Robert's store in Oklahoma City.
The biggest thing that we see and the thing that we applaud
quite candidly in the President's proposal is the section 179
expensing increase. And I have heard a number of people speak
of that issue.
Our people are addressing it from a different standpoint
and that is the size of automobile that they must procure to
move their product up and down the streets of North America.
Unfortunately, the current Tax Code states that a business
vehicle is a vehicle over 6,000 pounds. Our people are not
buying SUVs, Mr. Chairman, for the purpose of driving an SUV.
They are driving an SUV because of the size of the payload they
can carry.
We did a survey prior to coming into this meeting: 31.5
percent of our members drive trucks or vans--those would be
conversions; 40.9 percent drive automobiles; and 27.6 percent
drive SUVs. The problem we are having in our industry is that
our people are driving 30-, 40-, 60,000 miles a year. Under the
current expensing allowances they would expense an automobile
over a 5-year schedule. They wouldn't be driving that
automobile. Quite candidly, the automobile is burned out after
about 24 months and so they are rolling.
The same thing happens for the bundling of software and
hardware. We have had that discussion before. So we applaud the
President's proposal.
Because our people are sole proprietors or subchapter (s)
corporations, we also applaud the reduction in marginal rates.
This is going to help many of our folks. Our folks
unfortunately fall under the radar screen of most small
business advocacy groups or most small groups because we are
tiny. Most of our folks are sole proprietors as I indicated,
one-person shops, and the thing that we are finding more and
more applicable to health care and applicable to the members'
comments regard farmers. We have the same problem. The average
age of our group is 48.9 years old, and I submit to you that if
you are 50 years old or older in this society right now, God
love you. Health care is doggone near unavailable if it is
affordable. And something has got to be fixed.
We have just come out of a rather large debacle, and in the
next hour we will talk about health care delivery in this
country. And affordability is a big part of accessibility and
that is something we want to address. But we appreciate your
efforts, Mr. Chairman, and we look forward to working with you.
Chairman Manzullo. Kristie.
STATEMENT OF KRISTIE DARIEN
Ms. Darien. Thank you, Mr. Chairman. On behalf of the
National Association for the Self-Employed, we greatly
appreciate you holding this roundtable. The NASE represents
microbusinesses, businesses with 10 or less employees, and the
self-employed. We have about 50 percent of our businesses are
home-based businesses.
We are pleased with some of the provisions given in the
President's proposal, most especially the increase in expensing
and the income rate reductions; especially the income rate
reduction will pull a lot of money back into the hands of our
members. Our concern, though, is that that money will not be
used to be reinvested in their business for growth purposes.
Currently the health care situation in our Nation has
reached an all-time crisis level. We recently did a study of
last year which showed us that our members felt about--about 80
percent of our members felt that part of their health care was
in a crisis situation. They couldn't afford it and they were
literally barely holding on by the skin of their teeth. We feel
that any money received will probably get reinvested into
keeping or maintaining the current health care that they have.
So we really would like to see things done to make health care
more accessible, more affordable.
We also would like to see more done for microbusinesses and
the self-employed. There really is not a level and fair playing
field for this particular segment of the small business
population. The self-employed have a completely different tax
burden in comparison to someone who is incorporated, most
specifically tax and health care. One thing in particular, as
we luckily reached 100 percent deductibility, but the self-
employed still have to pay self-employment tax on their health
insurance premiums. That is an added 15.3 percent that they
will be paying on their health insurance premiums because they
cannot deduct it as an ordinary business expense just like
someone who is incorporated. And that is a big issue,
considering that there are approximately 15 million people in
the United States that are self-employed.
So we again appreciate all the efforts that, you, the Small
Business Committee, and the SBA have done. But we are hoping
that more gets done, most specifically for the microbusiness
community and the self-employed. Thank you.
Chairman Manzullo. John Satagaj.
STATEMENT OF JOHN SATAGAJ
Mr. Satagaj. Thank you, Mr. Chairman. I will be brief. I
think we've kind of beat this horse pretty much. It is pretty
clear that we know what we want and what we are all hoping for,
so I am not going to spend much time going over it. I would
just reemphasize you have got to get it in the hands of the
consumer. And on that take-home paycheck, that drives it all. I
mean, you have got to have something more coming home in that
take-home paycheck. So we need it there.
And then we have got an industrial policy in this country
for manufacturing in the U.S. I mean, we talked about little
pieces of this. But we don't know what we are doing to keep
manufacturing going in America, and we have got to do a better
job in coming up with what is it exactly that is going to make
us more competitive in a comprehensive way, not a little piece
here, not a little piece there; what is going to do it to keep
the manufacturing in the U.S.
I can tell you there are not three Members of Congress or
three Senators who can articulate to me a policy of what would
be good policy to keep manufacturing in the U.S. In fairness, I
can't find three people around this table, myself included,
that could tell you what it is that is a comprehensive policy.
We need to get together and we need to figure that out in a
good way. That is a good subject for the committee to work on
this year. Thank you, Mr. Chairman.
Chairman Manzullo. Well, we are having a series of at least
five hearings and we are asking the question that nobody wants
to ask, and that is: Is America in a post-manufacturing state?
You have got to ask the tough questions. We are not going to
get out of this recession until manufacturing gets
reestablished. Washington does not understand that.
We held a hearing about a year ago where we heard the Fed,
believe it or not, felt we were coming out of the recession and
was going to raise the interest rate. The Fed raised the
interest rate as June of 2000, believe it or not. And we asked
Dr. Roger Ferguson, who was the deputy to Dr. Greenspan at that
hearing, and he said that manufacturing is only 16 percent of
the GDP. I said, without mining, agriculture, and manufacturing
this Nation is going to crumble. And I said, would you be
willing to visit our district and smell the sweet smell of
machine oil? And he came out. Lloyd, I think you were there. We
held--it was--I mean, just a magnificent man. He brought with
him somebody from the Chicago office of the Fed who knows
machinery, has a machinery background, and Garrett Anderberg
who is with Dell Machine has now become a member of the group
that puts out the brown book each year on that.
Mr. Falconer. The beige book.
Chairman Manzullo. Did I say brown? That is what happens
when you don't change the machine oil. But we are getting into
the areas of manufacturing that no one is talking about. I
mean, we held--or yesterday we had a man from China who is
building a city, 600,000 people, $2 billion in capital, meeting
with our tool and die and mold manufacturers back home. The
Chinese understand what American corporations do not; and that
is, the Chinese are looking to the United States to recover.
The Chinese will think long range and American corporations
only think to the next quarterly estimate of earnings. The
Chinese believe the United States has to lead the recovery. And
we have been working with the Chinese companies because we were
so frustrated working with American companies. But they are
coming back to our district, working to give contracts for tool
and die and molds to our guys back home to restart that
particular industry. It is an astonishing thing what has
happened to manufacturing and we will be getting into more of
that later on.
But it is--we look forward to working with you on that.
Chairman Manzullo. Oh, Lee, from the restaurant business.
STATEMENT OF R. LEE CULPEPPER
Mr. Culpepper. Thank you, Mr. Chairman. I would actually
like to move over to the sweet smell of olive oil, if I could.
Chairman Manzullo. There you go.
Mr. Culpepper. First I want to commend you for holding this
roundtable discussion. It is great to have the Administrator
with us. For everybody's edification, the Chairman's brother
runs a restaurant, and the Administrator was raised in a
restaurant family and has extensive experience in helping run
that family-owned business, so they are here to correct me if I
say anything wrong. We will be working with the other members
to find the restaurant background in your past experience. I
think it is about 1 in 3 people at one point worked in a
restaurant, so the odds are with me that a lot of you have done
that at some point.
I will try not to be redundant, but let me mention a couple
of things about the current situation in the restaurant
industry. There are over 800,000 restaurants in America and
about two-thirds of those are small businesses. So while you
have McDonald's and you have Burger King and Wendy's and so
many others that are members of ours, you have a lot of those
people associated with those companies who are franchisees and
they are small businesses. And then, obviously, you have a lot
of mom and pops. So it is an industry with small business to
this day. We obviously employ over 11 million people. But over
the past year and a half, we have lost about 250,000 jobs in
the industry. And, in fact, last year was only the second time
in the last 30 years that the restaurant industry had lost
jobs. We have been a growth component of the economy and of GDP
for a long time. And sales are up slightly but employment is
down. So the President's package focusing on economic growth
and jobs is very important to us.
Again, not to be redundant, but I think Bob said it a long
time ago, very succinctly. And that is, we need to get money in
the hands of the consumers. If we could have a greater
sustained growth in sales and restaurants, I think those jobs
would come back.
And so I think the most important part in the first
instance of the President's plan is the accelerated income tax
rate cuts. It helps for many of our members who are (s) corps
and sole proprietors to be able to take advantage of having
more money to expand and create jobs. But it also helps get
more money in the consumers' hands so that they can go out. We
hope they are going to go out to eat when they begin
withholding less out of those paychecks if Congress sees fit to
pass that plan, as we hope they will.
So if you can create that solid and growing demand for
goods and services, the expensing provision will benefit many
of our members and, again, that will help create jobs.
I can't speak a lot to the dividend component of the
President's proposal except that it strikes me as an excellent
tax policy. I don't yet have an economic analysis of what the
impact on restaurants would be.
Let me touch briefly on a couple of other issues, and I
will quit speaking. Obviously the association health plans is a
huge issue for us. The average table service restaurant saw
health insurance premiums increase 23 percent last year. Again,
that is a drag on investment. That is a drag on jobs, if you
have that sort of increase in your cost, and ultimately it also
leads to a lot of companies that want to offer the coverage
having to quit offering it; otherwise they are going to have to
eliminate the jobs. So it is a big problem for us.
Death tax permanent repeal. You have heard it all around
the table. I won't repeat it except to say a very big issue for
us.
And I was delighted to hear the Administrator focus on tort
reform because legal reform and tort reform is a huge issue for
us. We have so much cost in this industry that is tied up in
litigation for many cases that never even get to court. But you
have to--you have to go to court or you have to settle out of
court, and it costs a lot of money. Many of you have seen in
the news some of the lawsuits from people who are suing
restaurants, many of our members claiming that they are
overweight and they have health problems because they ate too
much at these restaurants. And it is the sort of thing--we say
it gives frivolous a bad name when you look at these types of
lawsuits.
So we actually have worked with Congressman Ric Keller who
has just dropped in a bill called the Responsibility in Food
Consumption Act. And that is going--that needs to be added to
your list of tort reform bills that--but just like so many
others, though, and in a broad sense class action lawsuit
reform and other bills that can help businesses in these--
either not have these cases come to court or at least have some
venue that would be more favorable would be very helpful I
think to all of us.
So thank you for this opportunity to be here with you.
Chairman Manzullo. Thank you.
Chairman Manzullo. Karen.
STATEMENT OF KAREN KERRIGAN
Ms. Kerrigan. I will be really brief as well. Let me thank
you, Mr. Manzullo, for pulling together this roundtable.
Administrator Barreto and other Members of Congress, our
organization and our membership is just really optimistic about
what can happen this year for small businesses both because of
your leadership and involvement and also because of the
President's commitment to the small business and
entrepreneurial sector. We are fully in support of the
President's jobs and growth package. We feel it is a balanced
and comprehensive plan which recognizes the highly
interdependent nature of our economy.
Accelerating and making permanent the individual marginal
rates is central to allowing our members to keep more of their
capital, to invest in their businesses, to invest in their
employees. And unfortunately, for many, I think as Kristie had
brought up, we are also having the cash to deal with their
ever-increasing health insurance premiums. This is truly a
major, major problem with our membership. The expensing
provision coupled with the marginal rate acceleration and
reduction is a nice powerful package that is truly going to
help our membership.
I think with the package that the President put forward, it
is obvious he is listening to small business. We heard at Waco,
when we were down there in Texas, from the small businesses who
participated in that session. And I am sure you heard this,
Administrator Barreto, and you also hear this, Chairman
Manzullo, in your travels around the country and your district,
that small businesses want to see self-financing for their
capital needs. They want certainty in the economy but also in
the Tax Code. And the package and I think many of the
initiatives that the President put forward is going to help in
this regard.
On the health care front, I agree with everyone on the need
to address that problem and address it very aggressively. SBFC
is a strong supporter of the association health plans. We also
support medical savings accounts, making them universal. I know
people like MSAs, making them permanent, as well as individual
tax credits. So there is a lot the Congress can do this year
for small business and the self-employed, and we are very
enthusiastic in terms of where our starting point is.
Chairman Manzullo. David, you know Todd is back here. He is
just sitting back here seeing how well you are going to speak
in his name.
STATEMENT OF DAVID MACK
Mr. Mack. He can just enjoy it. I also would be brief.
Everyone has made very brief points and I will try to
supplement what has been said. As for the stimulus package, we
strongly do support the expensing provisions as well as the
accelerated margin of tax cut.
I would also like to echo Mr. Merski's support for the
administration's tax savings and retirement security proposal
which take care of some very serious problems in pension reform
that need to be addressed; and Kristie Darien's speaking to the
self-employment tax on health care.
Chairman Manzullo. If the groups want to work on a bill for
that, I will introduce it for you.
Ms. Darien. We already have something worked out.
Chairman Manzullo. Okay.
Mr. Mack. Really those two, so I just wanted to get in on
both sides strategically. But those two principles in the
future, the reform of pension systems so more can be offered on
behalf of both employees and employers, as well as allowing for
those employers and small business owners that have to reinvest
in their businesses and have little left over for more
traditional savings can be fulfilled through a lot of the
outline that is given by the President's package.
Chairman Manzullo. Okay. We are really open. Tell me
anything you want involving tax or my tie or whatever you think
is relative to the business. Paul?
Mr. Merski. You had alluded to earlier, we are going to do
a tax cut; and given the tightness of the budget and economic
growth that we are facing now, what is going to be the best
thing for your--what do the economists look at as what is going
to be the best bang for your buck? What do the economists look
at as what is going to be the most complete tax cut we can
provide?
And let me offer three criteria:
One, the tax cut has to be permanent. If you are going to
change people's behavior, if you are going to get people to
spend more in the retail stores and the restaurants, the tax
cut has to be permanent. A quick one-time windfall doesn't
change people's behavior. So I would suggest that you make any
of the tax cuts permanent. If you look at the death tax it
wasn't permanent. Very few if any people have changed their
estate tax planning, because that tax is not permanent. You are
not changing behavior.
The second criteria is the tax cut has to be appropriate
size and scale. Let's face it. We have a $10 trillion economy;
a 10 billion or $50 billion tax cut is not going stimulate a
$10 trillion economy. So the President's putting a bold plan of
609 billion on the table over 10 years is the kind of tax cut
we need to stimulate a 10-plus trillion dollar economy a year.
The third criterion, and from a commerce perspective
probably the most important to change people's behavior, is the
tax cuts are critical that they be done at the margin. You have
to cut all the tax rates, particularly at the margin where
people decide, hey, with my last dollar that I just made, am I
going invest it and face a 60 percent tax rate? Am I going work
harder to earn an extra dollar if I am going to pay a 40
percent Federal tax right off the bat on that? So it is
critical that the tax cuts be done across the board and
particularly the top marginal tax rates, where people's
behavior is influenced the most, be cut as well.
And while the SBA Administrator Barreto is here, I would
throw out a question to him on the SBA 7A loan program. Every
year the community banking industry provides hundreds of
millions of dollars in loans to small business through the SBA
7A and 504 loan programs. But every year we come to Congress
with a budget fight to restore the funding that has been cut
for those programs. And I know they are working on the budget
for that from last year, still working on that in Congress.
I would like your comments on the importance in the new
budget's offering for 7A lending that is so valuable to small
businesses that don't have access to lending from any other
source except those programs. Thank you.
Mr. Barreto. Thank you. I appreciate that. And I want to
thank everybody around the table for your comments and your
input. I want you to know that the President hears your
comments. He really gets it. I want you to know that I hear
your comments. And I have had many opportunities to work with
your organizations, work with you individually, and I look
forward to building on what I think is already a great
relationship, but we want to continue moving forward. This is a
big year for us. It is our 50th anniversary and we will be able
to talk a lot about the success stories. But we need to talk
about the future as well and I appreciate the question, Bill.
You are absolutely right. Small business lending is vital.
I think of it as the oxygen that small businesses need to start
their businesses, to grow their businesses and to survive over
the long term. You know I have said many times before that it
is not so much that we start so many small businesses in the
United States, it is important that those small businesses
survive; because that is when they start creating jobs and
contributing to their tax base and contributing to their
communities and innovate products. It is vitally important.
And we take the responsibility of being able to facilitate
those loans along with our partners very seriously. Over our
history, we have done something close to $140 billion in access
to capital and we have helped create many, many companies that
are household names today. We need to be doing that in the
future as well.
I believe that we are making significant progress. I know
that the Chairman is passionate about this and we have worked
very closely with him and we are--we have some wins, if you
will. I believe that before not too long, we are going to have
a lower subsidy rate that will actually take place this year,
and that is going to help us to expand our budget authority
which is critical to us being able to do this.
I will also tell you a couple of other things that we are
learning. We are learning--and somebody mentioned this before--
that most businesses are capitalized with very little. It is
just amazing. I am getting messages that show the majority of
small businesses are capitalized with 50,000 or less.
One of the things that we need to be doing at the SBA, and
I know that the Chairman agrees with this, is that we need to
make sure that we are helping as many of those small businesses
as possible. Our portfolio right now, about 80 percent of the
small businesses that come to us and get 7A loans are getting
those loans under $500,000, doesn't mean that we shouldn't do
or can't do larger loans. We need to do larger loans and we
need to explore different ways to be able to do that. We are
still waiting for, you know, the continuing resolution to be
lifted, and we will be taking a look at the cap that we
currently have in place. But it is something that we know that
is very important for us to be able to help small businesses at
all levels, the start-ups, but also those ones that are
evolving. And we appreciate the partnerships that we have had
with our lenders and we are looking forward again to
strengthening that partnership as well.
Again, I want to thank the Chairman for allowing me to be
here and contributing and listening. I learned a long time
ago--and the Chairman knows this--that you learn a lot more by
listening to your customers than you do by talking at them.
Your customers will tell you everything they need to be
successful, and we commit to you that we will continue
listening, working together with you, so that we can benefit as
many of those 23 million small businesses.
I also want to thank very much Congressman Beauprez and
Congressman Bradley for their presence and their support as
well. And again, I wish you the best of luck and I know that
you will have a very informative and successful roundtable.
Thank you very much.
Chairman Manzullo. Thank you.
Bob, you're up next.
Mr. Benham. Thank you, Mr. Chairman. I would like to touch
on three things that haven't been mentioned so far that are
very important to a number of retailers, particularly smaller
retailers. The first point is important to all retailers, and
that is the repeal of the Federal unemployment surtax which is
an unnecessary burden for our businesses. Congress extended to
2007 the Federal unemployment surtax which is used to offset
the cost for programs unrelated to the unemployment fund. It is
eight-tenths of 1 percent. It is an unnecessary burden and it
has become outdated for business.
I will give you a real world example of what this means,
for example, to Balliet's. That costs us $8,000 a year that we
shouldn't have to spend. And just to put that in perspective,
we have to generate at the 3 or 4 percent bottom line, which is
what we are targeting, we need to generate an additional 200 to
$230,000 a year in sales to generate $8,000 in net profit. That
is a big number to us.
Our health care this year went up $13,800. That is another
300,000 we have got to produce in income. It is becoming very,
very difficult to sustain financial viability for a business
like ours. So we would love to get Congress to look into the
repeal of the Federal unemployment surtax. It would benefit
many, many businesses.
The other one that is going to be coming back at Congress
in the not-too-distant future is leveling the playing field for
remote sellers. There now is an inequity between remote and
main street retailers. For example, at our store we will have a
customer come in--and we have a big cosmetics business in our
store. And perhaps the customer will sit down at the Bobby
Brown counter, and our line girl will go through a process with
her--give her a makeup lesson, do a prescription for her,
suggest products--and they will get up and leave, and we know
where they are going. They are going to the Internet, and they
are going to buy these products on-line after we have invested
in inventory and space and location and our store and salaries
and commissions and all the other things, and we lose that sale
because it is an unlevel playing field. Other stores may have
these things in catalogs they mail into our State. They don't
have Nexus in the State of Oklahoma; therefore, they don't have
to charge sales tax. We lose the business. Our communities lose
the sales tax revenue and, boy, do we need them now in the
State of Oklahoma and many other States.
Chairman Manzullo. But you know, Bob, the States have the
authority to enter into agreements among themselves to
reciprocate on the sales tax.
Mr. Benham. Yes. We have been through the simplification
process now. We have come a long way on this. We were
absolutely under water on this when we began the year 2000. But
we now--Congressman Istook, my guy in the Fifth District, who
is just great, provided me enabling language for us to go back
and simplify the classifications and the language and went back
to the State legislatures and the treasury folks, the financial
folks in the States. They have achieved that simplification
now.
And now the next step in the process is it is going to the
legislators for enabling legislation. Then it will eventually
come back to Congress so that we can overturn the quo because
the problem originally why that occurred was because there were
so many taxing jurisdictions and it was so complicated for
sellers to collect the taxes. If we can overcome that and
simplify, then we have a chance to be competitive with out-of-
state competitors who are offering similar products on the
Internet or through catalogs. Big, big issue for independent
stores, small stores.
Thank you, Mr. Chairman.
Chairman Manzullo. Jackie.
Ms. Vlaming. I would like to speak to association health
plans. Malvo and Witt both strongly endorsed association health
plans. But I would like to give you a testimonial from my
company. Coverall North America, Inc. does not make coveralls
or overalls. What we do is we franchise commercial janitorial
cleaning businesses. We have 4,500 domestic franchisees and
they clean a lot of those restaurants. But those domestic
franchisees do not have health insurance. If there were an
association health plan available, we could provide health
insurance or at least provide a vehicle for providing health
insurance to those franchise owners. We have cobbled together a
program for them where they at least have Workers' Compensation
at affordable rates. We have the self-insured program they
participate in. And on top of that, we are working to get the
catastrophic health insurance policy in place at an affordable
rate, so if they are injured on the job, when Workers' Comp
leaves off, the catastrophic plan will pick up. But it is very
important that those 4,500 people have health insurance for
themselves and their employees and their families.
And another example, too, is my brother owns a small
business in Pascagoula, Mississippi. He is a law clerk. He has
four or five employees, but he cannot afford to provide health
insurance for those four or five employees. Association health
plans are very important, not only for Malvo and Witt but for
companies like mine who want their employees insured and their
franchise owners and their employees insured.
Chairman Manzullo. How were you able to group together
these franchisees for Workers' Comp?
Ms. Vlaming. What we did was for one thing--because our
customers, the customers that we claim to be entitled to
Workers' Compensation--we created a captive and they
participate in the captive.
Chairman Manzullo. That is interesting.
Dorothy.
Ms. Coleman. Thank you, Chairman. I just wanted to go back
to your comments about the manufacturing industry. We are very
pleased to hear that you are going to have a series of hearings
focusing on the plight of manufacturers. And we believe
certainly, and I think you do too, that manufacturing is the
backbone of the economy. They provide not only high-quality
products but also high-quality jobs. Manufacturing at the same
time is at a crossroads. We were certainly the first to feel
the recession and now the last to feel the recovery.
Later this week, the NAM board of directors is going to be
meeting and focus--its major focus of the meeting would be on
our manufacturing agenda. And I certainly hope we will have an
opportunity to talk about that with you later on.
I also wanted to just tell you briefly about a phone call
that I got yesterday from one of our small manufacturers from
Ohio--from Fostoria, Ohio. He called ostensibly to talk to me
about tax policy and tax rate cuts and how important they were,
but then he went on to tell me that he was fearful about the
future of his business. He is a third-generation owner of a
specialized machinery factory. There are--a lot of their
customers are in the automotive business. He sees the future as
very uncertain. He is worried not only for himself and his
family but also for his workers. So I think we are hearing that
from a lot of our members. And we certainly appreciate your
interest in manufacturing.
Chairman Manzullo. Tricia.
Ms. Wolff. I would like to talk just a minute about some
specific tax cuts, and these are not new ideas; they are
leftovers from the last Congress.
The first deals--the first issue is in the area of energy,
and we have--as Congress debates energy policy, we have a
tremendous opportunity to provide some tax incentives for
renewable energy. We have had success with the production of
ethanol. That has been possible because of tax credits. And now
there is an opportunity to help farmers in other industries by
promoting other biofuels, the most notable of which is bio-
soybean oil.
Second of all, I would like to talk about a tax proposal
that would help farmers self-insure or save for a rainy day.
The nickname is "Farm Accounts," farmer-managed risk management
accounts. It is a self-help tool where taxes would be deferred
on money that farmers save for a rainy day. We all know that
the farm economy is very cylical. Farmers don't know from one
year to the next whether they will have zero income or a banner
year. And if there were a way to encourage them or help them
save for the rainy days using these farm accounts, it would
help even out the bumps in the farm economy and hopefully
reduce some of the need for asking Congress for help.
Chairman Manzullo. John.
Mr. Satagaj. Mr. Chairman, I would be remiss if I didn't
bring up an inside-the-Beltway issue. But those of us who
represent small business on a macro-level, we want to get this
independent advocacy bill resolved very quickly. Let's get it
done. All of us, like my passionate friend behind me, Mr.
Giovanni, we feel strongly that we need to get this done, and
anything we can do to help you get that bill, let's do it. We
brought it up. Some of us were with Chairwoman Snowe the other
day when we raised this issue about let's just get it done. It
is something we all should just work on and resolve this. So we
are committed to do this and we are going to do anything we can
to get that resolved.
Chairman Manzullo. Kristie.
Ms. Darien. Thank you. Just for the record, I wanted to--
the NASE would like to applaud the Bush administration for all
the efforts they have been doing on behalf of women's
entrepreneurship. The NASE strongly feels that Congress should
make more strides to assist both women and minority business
owners most especially, because they are the future of
entrepreneurs if you look at the statistics as to the new
businesses coming on board.
We think that two particular pools that exist with these
segments are home office issues, most specifically
simplification of home office deduction. In the last Congress
Representative DeLay introduced a bill on that. We would like
to see that reintroduced and to get passed.
Also clarification of independent contractor status is a
huge issue not just for the self-employed but for minority
women business owners who tend to be self-employed, as well as
microbusinesses. We would like to see that get done this year.
It is a top priority for our association to get independent
contractor clarification. And we would like to work with the
House Small Business Committee to get that done. Thank you very
much.
Chairman Manzullo. Lloyd.
Mr. Falconer. Thank you. One last thing, if you really want
to give a big tax cut, is to review the Social Security system.
The gentleman here to the right had it absolutely correct that
minorities and women are cash cows who do not collect but they
contribute. And that--to me, that is very sad. But for the
minuscule sum of $765 per 10,000, that is what an individual
contributes to FICA-S and FICA-M, per $10,000; and President
Bush is talking about those who will be paying virtually no
taxes, at least Federal withholding at $40,000. That would
translate into approximately 32- or $3,300--I didn't do my math
on it--but per family that has income of $40,000. If that were
invested over a period of 40 to 45 years at compound interest,
we could eliminate two things: One, we could eliminate Social
Security as we know it and Medicaid; and secondly, we would
immediately be giving people money back or not taking away from
them in the first place so that they could spend on other
things. And this, by the way does not include the match that
companies have to provide.
I think that this is down the road, but I hope it isn't too
far down the road because the amount of money that is spent in
just gathering money, accounting for it, redistributing it, in
my mind is a sinful waste of time and energy. And if we are
going to be competitive in the world market, that is the last
thing we can afford is to be wasteful of our precious time and
our money.
Chairman Manzullo. There is an interesting article that
appeared in the Washington Post about 2 weeks ago, talked about
Dr. Hubbard who is the head of the Council of Economic
Advisors, and dealing with why the President threw in the
elimination of the dividend tax, and he said the reason for it
is a testimony to shift the United States from tax on income to
a tax on consumption. And I thought it was a pretty bold move,
because that is the first time a President has done something
that radical just to get the people talking about it. And it
will probably--probably won't pass, at least now, but people
need to talk about new ideas like that. That is how things
happen.
Karen.
Ms. Kerrigan. Ditto also our support on the Congress doing
something about the independent contractor issues, making the
tax cuts arbitrary, 20 point test more certain. Not only is
this important for small businesses and entrepreneurs, existing
businesses, people who are just starting businesses, but also
for people who want to be contractors. It just makes sense that
the independent contractor rule is modernized to our 21st
century economy. So any work that the committee will be doing
on that, certainly we would like to work with you to help you
advance that.
But another issue that we were very supportive of, a
bipartisan proposal in the last Congress--and, Chairman
Manzullo, your Committee had hearings on this--speaks to the
need to be more supportive of start-up businesses. We supported
the SUSA accounts, the start-up savings accounts which would
allow small businesses in their first 5 years, its first
fragile years, to set aside money, tax free, that they can draw
down later when they hit that inevitable cash crunch.
As you know from holding hearings and studying the issue
now for many years, we just lose too many of these businesses
because of access to capital and because of those capital
crunch reasons. And so the SUSA accounts idea is one that we
still support and would like to see addressed as well by the
Congress.
Chairman Manzullo. Bob.
Mr. Benham. Thank you. I note the clock is winding down.
Just two other very, very quick subjects. Number one is
minimum wage, which I am surprised hasn't come up yet this is a
big issue. Lee, I know it is always on your platter.
Mr. Culpepper. I didn't want to provoke controversy.
Mr. Benham. I understand. I am a retailer and I am not a
Beltway guy so I guess I can do it. But we certainly would like
to see Congress hold the line on minimum wage, particularly at
this fragile point in time for our economy. It is not so much
the minimum wage itself, although that is very difficult for
businesses to absorb. But there is a significant increase. But
it creates upward pressure on all wages, and that is really the
difficulty for a store like mine. We don't have anyone at
minimum wage in my business. And I know many small retailers,
when people come in and they are good, they very quickly give
them additional increases.
But we are all competing against other industries for good
employees. And I am competing not only against other retailers
but all kinds of other businesses in Oklahoma City, and it is
much tougher to compete against these higher wage rates. So if
minimum wage comes up, we hope that Congress will hold the
line, particularly at this point in time; and if we have to
give it away, let's get some real meaningful regulatory relief
for small business in the process. That would be my comment on
minimum wage.
And number two is the issue that won't pass and won't die,
and that is bankruptcy reform. We have had that thing on the 1-
yard line, how many times, and we can't get it across. I guess
we need somebody from the Tampa Bay Bucks to get it in the end
zone.
But this is an issue for many small retail businesses as
well, because we extend credit to our customers. And when we
have someone take bankruptcy who has the means to repay some
portion of that debt, we would like to see that happen. We have
had record numbers of bankruptcy filings as people try to beat
the clock on what they think is going to be bankruptcy reform
in Congress and it hasn't happened. It is primarily on the
Senate side. There was a roadblock at the White House 2 or 3
years ago as well. But we hope that we can get real bankruptcy
reform through the 108th at some point or maybe the next
Congress. But these are also very critical issues to retailers
and I am sure other industries as well.
Thank you, Mr. Chairman.
Chairman Manzullo. We have been working on an amendment to
the existing bill that has been trying to get through. A lot of
small businesses are being hit on the preferences, a sleeper
out there. If an individual or company pays for goods and
services within 90 days of the filing of bankruptcy, then the
trustee comes in and he can get all that money back. I am not
satisfied with this bankruptcy bill that is out there. I mean,
I practiced bankruptcy law for 22 years. The rate of efficiency
of Chapter 13 paybacks was--you know, it wasn't that great.
Trustees were really bent out of shape on it.
But I am in favor of having something--some payback is
ordered as opposed to straight settlement liquidation. The
small business issue on there is the preferences. We have been
contacted by a lot of people who we run up against the banks
on, because the banks will come in and they want to have as
much of the corpus of the trust estate as possible because they
say that we undersecured. Well, that is an issue that they
should determine before they make the initial loan on it not go
and penalize the little vendors. I mean, some of these are
little fellows. We have got people out there that it may have
been $1,000 they pay back, and 500 of that represents product
that they had to buy themselves out of pocket, plus $500 of
their own money to put into the bankruptcy pot. And I would
like to see the different organizations here consider that to
be part of it. It is going to bring a big war because it brings
the unsecured little guys up against the security lenders. And
I have represented both when I practiced law for a number of
years.
It doesn't have to be unfair to banks or the secured
lenders. For example, we could set a threshold up. Under $2,500
the trustee doesn't--you know, is presumed not to be a
preference. Now, it is an actual presumption of law for any
amount that is given to any, but that is one of the problems of
bankruptcy. Plus what Senator Schumer did on the Senate side,
bringing a social issue and attaching it to a business issue.
And you can blame him for the mess that happened, that they
never ask a Member of Congress to pit a business issue against
a social issue.
Mr. Benham. Thank you, Mr. Chairman.
Chairman Manzullo. Mr. Alford.
Mr. Alford. Mr. Chairman, on procurement we have got the
small business goal, we have got the hub zone goal, we have got
the women's goal, the small and disadvantaged business goal,
the AA goal, totally being ignored by procurement agents at
these Federal agencies. Some companies even go beyond our
shores to get gain a political favor and to contract with a
foreign industry.
But there are offices at each of these agencies, the Office
of Small and Disadvantaged Business Utilization, the OSDBUs,
who were supposed to enforce these laws and report to the
agency Secretaries, the administrators, and directors. They are
not doing a good job, and I mentioned to Chair Snowe last week
that perhaps these OSDBUs should be required to send a
quarterly activity report to the Chairs of the House and the
Senate Small Business committees on what they were doing the
previous 3 months, what activities they had that would increase
and enforce the laws that are on the books.
These OSDBUs, there are 44 of them, and I would suggest
that maybe 6 are doing their job. They have a big annual bash
in the Virgin Islands every year to service the 12 small
businesses in the Virgin Islands. They refuse to participate
with the associations such as mine and others; refuse, won't
return phone calls. "no, we are not coming. Don't send your
people to us." and I am pretty upset about it. And as opposed
to picking fights with agency Secretaries, I think it should be
some kind of accountability to the Small Business Committee.
Chairman Manzullo. But, Harry, we like to pick fights. That
is our job. Also we have a member of our committee that
represents the Virgin Islands and you may hear from her about
the 12 businesses.
Mr. Alford. Oh, she started it.
Chairman Manzullo. Karen.
Ms. Kerrigan. Very briefly, to follow up on the procurement
issue, I think the administration is going to need all the help
it can in terms of holding these procurement officials
accountable to the OMB initiative in terms of bundling. So any
opportunity that you have, Chairman Manzullo, to bring these
guys before your Committee, and gals, to see how they are
implementing that initiative would be really important. I think
that is very important for small businesses. I think it is
important in the respect that none of these small businesses
are acting on those contracts, but also the government is
getting the best and most innovative services and increases
available from the American businesses. So we hope that the
Committee is helpful to the administration in that regards and
in just following through and seeing what the status is on the
OMB issue.
Chairman Manzullo. I want to thank you all for coming. What
we do with the roundtable is we are all trolling for causes.
This committee last year took on the Defense Logistics Agency
in Philadelphia. And there are 615,000 Chinese-made American
berets that are rotting in a warehouse because we thought that
the military should follow the Berry amendment. As opposed to
having those berets made in the United States the military went
to Sri Lanka, India, South Africa, Romania, China, Canada, a
small portion of the United States, and I think we busted four
or five of the seven contracts.
The Air Force put out a request for proposal to manufacture
115,000 hats, baseball caps, promotional caps, and they sent
out six notices. It was very simple.
And the seventh notice repealed the request for a proposal.
One of the people with whom we have worked on that issue
advised us that the Department of the Air Force had entered
into an agreement with the Government Printing Office, which is
not governed by the Barry amendment yet. The Government
Printing Office entered into a contract with the American
company to have those hats manufactured. Guess where? In China.
So we canceled that contract. An American manufacturer got that
contract.
So, no, I want to pick fights with agencies. What I have
found is this: The only way the agencies will be responsible is
to be dragged at times, such as we did with Mr. Scully from
HCFA, before this committee with a subpoena. When I found out
that as a Committee Chairman I had powers of subpoena, that is
like a kid with a new toy. I exercised this judiciously, but we
ended up subpoenaing three generals on that issue with the
black berets. And if government agencies do not answer my
requests, usually within 10 days, I can snap a hearing together
in 2 weeks, get those subpoenas issued, and give them the
alternative of having a Federal marshal show up at their place
of business, or at their home, or have someone from their
office accept it by substituted service.
It is very, very difficult to work with the agencies.
Hector Barreto does a good job. OMB is all over him like a ball
cap, and has made his life extremely difficult; very, very
difficult. We had a hearing where Hector was working with us
trying to expand the definition on allowing the travel agents
to get economic injury emergency loans as a result of 9/11. And
SBA would send a note over to OMB and they would say well, you
know, we are looking at it 5 months later.
So I brought Mr. Barreto and Dr. Graham before the
committee and I said, you are not leaving this room. I am going
to lock the doors until you come up with an agreement whereby
you are going to allow these travel agents the ability to get
these loans. And we formed a Committee. I said, you are not
leaving this room. I am going to lock the doors until you come
up with an agreement whereby you are going to allow these
travel agents the ability to get these loans. But I think it
took about 5 days after that.
The only way that we can hold most of the agencies
responsible is through the hearing process. There is no hearing
that is unimportant--that you may think is unimportant enough
to bring to my attention. And that is why we get those berets.
We stopped the construction of the National Park Service
putting the hotel business in Denali National Park in Alaska.
That would put eight campgrounds out of business. We got
involved. Lloyd got involved as the manufacturer with banning
snowmobiling at Yellowstone National Park. It would have
destroyed an $8 billion industry; that is, the snowmobiling
industry. And snowmobiles are manufactured.
And we got what I think was a very favorable result because
we held field hearings in West Yellowstone and also near
Washington. And we held six hearings, six hearings on HCFA. Six
hearings, because medical providers are small business people.
And so we invite you to--and I live on causes. And if I didn't
have a cause, I wouldn't be the Chair of this Committee.
Pat Toomey came in a little bit late, and we are just
finishing up, Pat. He is the Chairman of our Subcommittee. Glad
to see you here.
Mr. Toomey. I apologize for my lateness but I had a hearing
with the Budget Committee.
Chairman Manzullo. Well, that is all right. That is where
you belong. Pat, did you want to share a couple of things? You
are the Chairman of our Subcommittee.
Mr. Toomey. Well, I really, I just would say that I am
looking forward to serving with you with in this 108th
Congress. I am looking forward to doing everything we can to
pass an ambitious tax relief package because I am convinced
that our small businesses are still overtaxed in this country.
In fact, I think that we in the House ought to view the
President's proposal as an excellent constructive proposal that
should be the floor, not a ceiling, for tax relief. And I have
a few personal favorites that I hope we can move, including
reduction of capital gains.
But I am particularly interested in having a whole series
of hearings that ought to be driven by the small business
community, which I think is something you may have alluded to,
Mr. Chairman. You know, clearly one of the greater challenges
facing small business is access to capital. I look forward to
hearing about how we can play a constructive role and help in
small businesses gain that access as well as working on tax
relief.
Thank you.
Chairman Manzullo. Including allowing taxpayers--we had a
hearing scheduled for September 11 of 2001--allowing business
taxpayers to set their own depreciation schedules. I just put a
$27,000 roof on a 150-year-old building, 39\1/2\ years, yet I
had to remortgage my farm in order to do that.
But that is all part of it, and all the roof people like
this because you want to have incentives to get people to do
something. That is the biggest expense that a small business
has as a building. An HVAC system you can replace, put in a
compressor here, condenser there, and stuff like that. But a
roof is usually all at one time and it has a 39\1/2\ year life.
It has got a 10-year warranty.
Well, thank you all for coming. We appreciate it very much.
Thank you.
[Whereupon, at 12:15 p.m., the Committee was adjourned.]