[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
THE FUTURE OF SMALL BUSINESS: WHAT LIES AHEAD? WHAT ISSUES NEED TO BE
ADDRESSED?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
GOVERNMENT PROGRAMS AND OVERSIGHT
OF THE
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
SEPTEMBER 28, 2000
__________
Serial No. 106-71
__________
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
68-099 WASHINGTON : 2001
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA MC CHRISTENSEN, Virgin
DAVID M. McINTOSH, Indiana Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
JOHN E. SWEENEY, New York DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota GRACE F. NAPOLITANO, California
MARY BONO, California BRIAN BAIRD, Washington
MARK UDALL, Colorado
SHELLEY BERKLEY, Nevada
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
Subcommittee on Government Programs and Oversight
ROSCOE G. BARTLETT, Maryland, Chairman
MARY BONO, California DANNY K. DAVIS, Illinois
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
RICK HILL, Montana CHARLES A. GONZALEZ, Texas
Nelson Crowther, Counsel
C O N T E N T S
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Page
Hearing held on September 28, 2000............................... 1
WITNESSES
Blann, James, Senior Vice President, American Express Company.... 2
Hexter, John, Chairman, National Small Business United........... 5
McCutchen, Woodrow C., Executive Director........................ 8
Coratolo, Giovanni, Director of the Small Business Council, U.S.
Chamber of Commerce............................................ 10
Yancey, Ken, Executive Director, Service Core of Retired
Executives..................................................... 13
Raimondo, Anthony, Chairman & CEO, Behlen Manufacturing Company
on Behalf of National Association of Manufacturers............. 14
APPENDIX
Opening statements:
Bartlett, Hon. Roscoe G...................................... 32
Prepared statements:
Blann, James................................................. 35
Hexter, John................................................. 38
McCutchen, Woodrow C......................................... 49
Coratolo, Giovanni........................................... 59
Yancey, Ken.................................................. 77
Raimondo, Anthony............................................ 82
Additional Material:
Written Comments by Mr. O'Hagan, President, National
Electrical Manufacturers Association....................... 100
THE FUTURE OF SMALL BUSINESS: WHAT LIES AHEAD? WHAT ISSUES NEED TO BE
ADDRESSED?
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THURSDAY, SEPTEMBER 28, 2000
House of Representatives,
Subcommittee on Government Programs
and Oversight,
Committee on Small Business,
Washington, D.C.
The Subcommittee met, pursuant to call, at 10:04 a.m., in
room 2360, Rayburn House Office Building, Hon. Roscoe G.
Bartlett [chairman of the Subcommittee] presiding.
Chairman Bartlett. If our witnesses would take their places
at the table.
We will call to order this Subcommittee on Government
Programs and Oversight of the House Committee on Small
Business. Good morning and welcome to this hearing of the
Subcommittee on Government Programs and Oversight of the
Committee on Small Business. A special welcome to those who
have come some distance to participate. The hearing will look
into the future of small business in the United States and
those issues of vital concern to the small business community
and Main Street, America. It is small businesses that are the
engine driving the present economic prosperity by spurring the
creation of new enterprises, by producing new job
opportunities, and by being leaders in technology and
innovation.
Congress needs to keep in constant touch with the needs and
concerns of the small business community. This hearing will
provide an opportunity to learn of those issues of most concern
and those that will affect the future of small business in the
United States.
Another focus of the hearing is to obtain your
recommendations about how to best promote and sustain an
enterprise friendly economy that rewards those who start and
grow small businesses. Suggestions with respect to legislation
to assist small businesses would be most welcome. Also, your
views with respect to any burden created by Federal regulations
and paperwork together with suggestions for improvements would
be most helpful. There are a number of questions that can be
asked. How can the present economic conditions be sustained?
Has the prosperity touched every segment of the small business
community or are there segments of the small business community
that need assistance? If so what kind of assistance? Should the
assistance come from the private or public sectors? How
effective are the private solutions and government programs in
addressing these needs?
As previously pointed out, small businesses have been
leading the economy both in innovation and job creation. It is
hoped that the hearing will help to answer these and other
questions. For example, what is needed to maintain this record
well into the 21st century?
Why the emphasis on small businesses? For the simple reason
that small businesses are presently the main engine driving the
economy of this country. It is a statistical fact that small
businesses are the creators of new jobs and the stimulus behind
our present economic prosperity.
Independently owned businesses, the free market economy in
this country with fewer than 500 employees and many with far
fewer than that, created 76 percent of the new jobs from 1991
to 1995, employed 53 percent of the private nonfarm workforce,
contributed 47 percent of all sales in the country, are
responsible for 51 percent of the private gross domestic
product and produce 55 percent of innovations. Small businesses
produce twice as many both product innovations and significant
innovations per employee as compared to larger firms.
Those who work in Washington, D.C. need your views. The
Committee on Small Business welcomes your testimony. I look
forward to a lively and informative discussion. Thank you again
for being here today.
In a former life I was a small business person. I am one of
perhaps 30 or 35 Members of Congress who were ever a member of
NFIB. I have read your testimony with great interest. You know,
if small business people were running this country we wouldn't
have to be having this hearing, and I would hope that more of
our small business people will get into politics and eventually
into Congress, because what you want for our future will
benefit every one of the people in this country, not just small
business people. Thank you very much for coming to our hearing
this morning.
We will turn now to our witnesses. Our witnesses are Mr.
James Blann, Senior Vice President of the American Express
Company; Mr. John Hexter, Chairman, National Small Business
United; Mr. Woodrow McCutchen, Executive Director of the
Association of Small Business Development Centers; Mr. Giovanni
Coratolo, Director of the Small Business Council, U.S. Chamber
of Commerce; Mr. Ken Yancey, Executive Director, Service Core
of Retired Executives, SCORE; Anthony Raimondo, Chairman and
CEO, Behlen Manufacturing Company, National Association of
Manufacturers.
Thank you all very much for agreeing to come and
participate in this hearing. We will began with Mr. Blann.
STATEMENT OF JAMES BLANN, SENIOR VICE PRESIDENT, AMERICAN
EXPRESS COMPANY
Mr. Blann. Good morning. Mr. Chairman, as you said, my name
if Jim Blann. I am the Senior Vice President of American
Express Small Business Services. I am very, very honored to be
here today. The testimony I am about to provide represents the
voices of tens of thousands of small business owners who have
played a part in a program we at American Express Small
Business Services have conducted since March of this year, and
that program is called Voices From Main Street.
My testimony will focus on the workforce needs of small
business owners because it was this issue that was identified
as their number one priority. And most specifically, I will
focus on the fact that small firms say today's labor force
suffers from a severe skills gap that inhibits their ability to
continue to grow and prosper.
Let me step back for a minute and describe our program.
Once again it is called Voices From Main Street, and it was
signed to help small business owners interact on a national
level and discuss the issues most important to them. And small
business owners across the country have responded in a powerful
way through a number of channels that we have provided. We
conducted two national research surveys in February and May
that included respondents numbering 2200 small business owners.
We created a Website and are getting many thousands of hits
from small business owners. We have conducted a number of
national Web chats. We put together a nationally televised one-
hour small business forum on CNN that aired May 24 and we have
had several Web cast town halls. So this has been a pretty good
significant effort in terms of trying to get small business
owners to get their issues heard within the country.
We have launched this program because despite, frankly, the
terrific work of organizations like those sitting here today in
this room, too often the concerns and needs of the small
business owner are overwhelmed by the voices of other
constituencies. Small businesses, as you said, Chairman
Bartlett, are the backbone of American economy and given the
contributions they make to this country the situation that we
are describing regarding the workforce are truly perilous. You
no doubt are aware, as you pointed out, that small businesses
employ about half the country's workforce, account for about
half of the country's private sector output, and are by far the
majority of net new jobs added to the economy over the last few
years.
Additionally, I would point out that many large companies
are affected tremendously by the rise and fall of small firms.
My group alone at American Express serves almost 3 million
small businesses and, very frankly, the survival and success of
small business is extremely important to big business.
Now let me get back to what small firms have told us about
the current labor shortage and how it is very troublesome for
them. Small businesses often don't have the resources to
recruit, compensate and train a qualified workforce, resources
often available to larger companies, companies like mine. And
when you compound this disadvantage with the gap in the skills
that are coming through in the workforce needed by the small
business community, it is fair to say that the situation is
reaching crisis proportions. And two of the most significant
findings from the Voices program were, first, that most small
businesses are dissatisfied with the country's workforce
skills. Only a third of small businesses owners say they are
extremely or very satisfied with the skills of employees and
potential employees. And, second, small businesses owners say
that despite the emergence of the Internet economy it is not
the computer or technical proficiency that their employees
need, but more basic soft skills, basic written communications,
verbal skills and interpersonal skills, much more fundamental
skills that are lacking in the workforce that is coming towards
small business.
Mr. Chairman, this situation has truly, we believe, reached
a crisis level for small business owners. And the small
business community is telling us that they need a better
equipped workforce or the entrepreneurial renaissance that has
driven so much growth within the economy will wither.
What are some potential solutions? Well, small businesses
narrowed their short-term priorities to two ideas that I would
like to open for discussion this morning. The first idea is for
more internships for teenagers. The majority of employees in
the small business workforce have only a high school education.
So that means we need to aggressively pursue connecting more
secondary and vocational schools to the small business
community.
The second potential initiative is creating more readily
accessible information on those existing training programs that
work well. When we asked entrepreneurs if they were aware of
local programs designed to improve workforce skills, only about
40 percent said they knew of a program in their community.
The sad thing is that many good programs do exist that
could help small business owners today. Created at the state,
county and local levels through a combination of school
administrators and business groups, many of those programs
unfortunately just aren't widely promoted or easily accessible.
One immediate action could be providing small business
owners with a single convenient place for them to find out
about those existing local programs, and one way to possibly
get at that would be to have the SBA add to its Website a place
where educational institutions and small business owners could
come together to promote their programs, share experiences and
expand on best practices. We at American Express are prepared
to assist in the creation of such a site or perhaps to utilize
our Voices From Main Street program to help with this.
We also would welcome the opportunity to work with the
Committee to hold Internet based Committee hearings on this
issue to allow more small businesses from the small business
community to provide their direct input, and that is very
possible with the Internet today. Small business owners also
know they have a responsibility to get involved. They are
looking for opportunities to assist local schools and other
institutions in preparing the next generation for the working
world, and a broader discussion with other Members of Congress
involved might be a next step.
In closing, solutions will not be easy. Most small firms
need help right now, but small business owners are aware of the
fact that the problem requires both short-term solutions and
long-term planning. They also tell us that solutions do not
necessarily require more legislation or the creation of new
Federal programs. In fact, solutions that require a lot of
paperwork or are difficult to access would not be widely used.
In closing, I would like to thank you for providing us at
American Express the opportunity to share with you some of what
small business owners have told us through the Voices program,
and I am happy to explain more about the research we have
conducted, and I look forward to helping you help small
businesses overcome this dilemma.
Thank you.
[Mr. Blann's statement may be found in appendix.]
Chairman Bartlett. Thank you very much. I am pleased that
Mr. Danny Davis, ranking member of our Subcommittee, has joined
us. Now we turn to John Hexter, Chairman of National Small
Business United.
STATEMENT OF JOHN HEXTER, CHAIRMAN, NATIONAL SMALL BUSINESS
UNITED
Mr. Hexter. Thank you, Chairman Bartlett, Mr. Davis. My
name is John Hexter, and I am the Chairman of National Small
Business United. While I am the President of my own business
consulting firm, Hexter and Associates in Cleveland, Ohio, I am
here today as the representative of our more than 65,000 NSBU
members and over 23 million small business owners across this
great land. I have been immersed in the issues affecting small
business, most recently as a member of the SBA's reg fair
program under the Small Business Regulatory Enforcement
Fairness Act and as a delegate to the past two White House
conferences on small business. My clients are all small
businesses.
Mr. Chairman, this hearing is a grand opportunity to
explore ways to assure the small business sector continues to
drive this wonderful American economic miracle into the 21st
century. We are pleased you have invited some of us here who
operate in the proverbial trenches to express our views today.
Let me focus on those issues our members have stressed as their
most immediate concerns.
In my working activities with any number of small business
related organizations, I am able to get a sense of what
concerns small businesses have across a number of sectors and
regions in the country. While I speak about changes that need
to be enacted in the future, I would like to point out there is
a chance, at least in some cases, that legislation could be
passed before the end of this Congressional session.
Next I will discuss a few items that relate more to longer
term goals and initiatives that we believe our government
should address to facilitate the preservation and growth of the
economic engine we call small business.
Finally, If I am brave enough, I would like to take a
moment for some predictions concerning the future of small
business, first what needs to be done now.
Annually NSBU convenes a membership meeting to solicit
grass roots input on issues of immediate importance to small
business, and NSBU's board is charged with pursuing solutions
to those topics. What follows is our six immediate issues.
Certain provisions of the Ticket to Work Act and Work
Incentives Improvement Act of 1999 require small businesses to
pay all of the capital gains taxes resulting from the sale of
their businesses in the first year, even if payments for the
sale are spread over several years. This requirement inserted
at the last minute targets small firms and family firms. The
smaller the business, the more likely that a sale of the
business could cost more in taxes in the first or second or
even third year that those installments would cover. The
installment sale tax provision is a huge impediment and a
disincentive to those firms seeking to expand by acquiring
other firms and makes a sale impossible for business owners who
have an urgent need to exit their businesses. NSBU is appalled
that this provision ever appeared in the 1999 act; that is,
negative consequences we overlooked and ignored, and we are
still awaiting appropriate redress in this Congress.
There are a number of bills in both the House of
Representatives and the Senate that would correct what was
placed in the 1999 law. They enjoyed broad based bipartisan
support. What is particularly troubling to me as a small
business owner is that such an initiative can have such broad
support and still not be enacted.
Second, as a nation we have collectively wrung our hands
over the number of people without health insurance. The current
presidential campaigns are replete with advertisements and
proposals to address this issue. It isn't rocket science to
know that if you tax a behavior you will get less of it. Taxing
health insurance benefits is simply bad public policy. Why our
Congress doesn't provide immediate tax relief for the health
care benefits provided to the self employed is a mystery to me
and a particularly troublesome issue for the members of NSBU.
Third, NSBU as well as a number of other small business
associations is vehemently opposed to the Occupational Safety
and Health Administration's proposed ergonomic standards and
health and safety rules as they are currently drafted. We
support legislation that would delay OSHA's effort to
promulgate final rules before independent, sound and peer-
reviewed scientific analyses have been conducted. We are not
saying that ergonomic legislation is always a bad thing or even
unnecessary. OSHA should go back to the drawing board and come
back with a proposal that can work and be equitably enforced.
OSHA must be prevented from going ahead full speed with a set
of rules that have not been generally accepted in the
scientific community.
Mr. Chairman, let me digress to explain a basic conflict I
have observed in my role as a SBREFA reg fair panel member. I
view so much of the Federal and regulatory enforcement as
founded on a false premise, that managers and we small business
owners are in conflict with our employees. Small businesses and
family farms most often operate on tight margins and employ
family and friends from the community. To deliberately put
family and friends at risk makes no sense at all. As I will
mention again later, as Jim already mentioned, the single
biggest impediment to the future of small business in America
is lack of skilled workers able to deal with the greater
complexity of the work place. It is a fundamental flaw in the
enforcement of our laws when the regulators whom our tax
dollars pay presume we want to harm our workers and wreck our
environment.
Next NSBU supports the SBA's Office of Advocacy. NSBU
supports S. 1346, sponsored by Senator Kit Bond. The approach
in that legislation does a great deal to protect this office.
We also support expanding its role to include assessment of the
effectiveness of the Federal subsidy and assistance program for
small business, the impact of Federal regulations on small
business and the development or strengthening of minority women
owned and other small firms.
According to a recent study released by the Office of
Advocacy, their work in dealing with agencies through SBREFA
have saved small firms over $5.3 billion in fiscal 1999 alone
and they tell us that is a drop in the bucket.
Elimination of the death tax. Finally, Mr. Chairman, I have
saved perhaps the most important issue for last. In our country
there exists something called the estate tax. This defies all
logic. Individuals and partners who own and operate small
businesses and farms who have worked all their lives to leave a
legacy for their children and grandchildren are being asked
when they die to give a significant portion of those assests to
the federal and state and local government. For many, their
business is the largest asset they have to support their
families after death. The death tax can currently remove up to
55 percent, more than half, of their assets. The same
government that erects unnecessary barriers to
entrepreneurship, the same government that won't allow us to
treat health insurance benefits on an equal basis with other
workers, the same government that taxes us on earnings of our
employees, the same government that doesn't believe we care for
the safety and health of our employees and the very same
government that buries us in paperwork regulations then through
the death tax takes up to 55 percent of what is left after we
have worked with diligence and discipline to earn and save.
These are American values? Is it any wonder that the small
business sector is ambivalent about the role of the government
in the American economy? Relief from the death tax is a
pressing issue for those of us who are aging baby boomers
considering how to provide for our retirement and for our
future economic health.
So what needs to happen? Well, the big issue is a complete
and thorough examination of the Code of Federal Regulations, no
small task. It needs to be undertaken with the intent, the
expressed intent of identifying and eliminating conflicting
laws, rules and regulations that overlap and contradict one
another. Conflicting laws and regulations should trigger an
enforcement exception until the government resolves the
conflict and the burden should be removed from the target of
the enforcement action. Only then will our government employees
and officials understand that they work for us, not the other
way around.
The sheer weight of enforcement action is often an
unbearable burden for small business. The small business
community is also desperately in need of a complete overhaul of
our Nation's tax system. NSBU has come to believe that the
income tax system is broken beyond repair. We have endorsed a
form of the national sales tax called the fair tax, which would
replace all Federal income payroll and gift and estate taxes.
I commend to you NSBU's testimony before Mr. Manzullo's
Subcommittee just three weeks ago and our testimony before the
Ways and Means Committee last April.
I promised you some predictions and, if you will bear with
me just a tad longer, I believe I have some valuable insight
for your consideration. Earlier this year along with American
Express, IBM and RISEbusiness, NSBU published a report
entitled. ``The Future of Small Business Trends for a New
Century.'' Copies are here on the table. I know that they have
been distributed. I would like to take a moment to briefly
touch on five items in that report.
The demographics of the labor force will change
dramatically over the next few years. Over the long term the
shortage in quantity and quality of labor will be one of the
most important constraints on economic growth.
I mention this issue, Jim mentioned this issue, others will
mention this issue. The workforce in this country is shrinking.
Population growth has recently slowed to about 1 percent a year
and in the next 6 years the younger portion of the labor force,
our new workers if you will, will shrink by nearly 2 million
workers, creating significant competition for those employees.
Three, the workforce in this country is changing, not just
shrinking. By 2006, not too many years out, women will account
for almost half of the labor force. Non-Hispanic whites will
account for 73 percent of the labor force, down from 80 in
1996. Small business men and women will have to change their
thinking about hiring and retaining employees of different
cultures, races and ethnicity.
Four, labor demands has shifted dramatically. Good job
growth will occur in professional, managerial and high level
sales in the serve and technology sectors. Increasing demand
for more easily trained workers--the issue you raised Jim about
basic skills--has resulted in a huge increase in the demand for
college educated employees.
Small business will likely have to step up the level of
training. This is the last item. Small business will likely
have to step up the level of training for their existing
workforce to retain employees with technical proficiencies,
hire a greater number of older workers, and create more
flexible and family friendly work policies.
Department of Labor regulations from which government
agencies and Congress are often exempt regularly impede our
efforts to be flexible and family friendly employers.
In conclusion, Mr. Chairman, I would like to be able to
report to you that the future of American business
entrepreneurship is bright because of the benign role of the
government at all levels. That is not the way it is, however.
The role of government as it relates to the small business
sector is like a beaver. It gets in the middle of the stream
and builds a dam. Only with the continuing support of the
Office of Advocacy and the ongoing involvement of diligent
representatives like you can we expect to thrive without
significant change in the attitude and role of the governmental
regulators.
I thank you for your time and attention, and I look forward
to further discussion.
[Mr. Hexter's statement may be found in appendix.]
Chairman Bartlett. Thank you very much for your testimony.
Now we turn to Mr. McCutchen.
STATEMENT OF WOODROW C. McCUTCHEN, EXECUTIVE DIRECTOR,
ASSOCIATION OF SMALL BUSINESS DEVELOPMENT CENTERS
Mr. McCutchen. Good morning, chairman Bartlett, Ranking
Member Davis. I am Woody McCutchen. I am the President of the
Association of Small Business Development Centers. Our SBDC
network operates in all of the 50 States, the District of
Columbia, Guam, Puerto Rico, the Virgin Island and American
Samoa. With more than 1,000 services centers nationwide, we
provide services to more than 650,000 existing and aspiring
entrepreneurs each year.
First, Mr. Chairman, I would like to thank you for having
this hearing and for inviting the ASBDC to participate. I am
going to digress from my written testimony because I see no
need to recite the statistics that you have already so
eloquently stated that demonstrate that small business continue
to drive this economy. If we hope to continue with the strong
economic growth that we are currently experiencing, it is
essential that we maintain a climate where small businesses can
continue to flourish. You will find as we go down the table,
Mr. Chairman, that a lot of the priority issues are repeated in
our testimony, and I would like to give some slight nuances on
some of those issues. And of course we have found also that the
number one concern for small firms right now is the ability to
find and maintain skilled workers. Work force development is
the one overriding issue that our counselors find when we meet
with thousands of small businesses each year. The documented
shift in labor demand towards professional, managerial and high
level sales jobs and the services and technology sectors
complicate this shortage of trained workers and make this a
very urgent issued that needs to be addressed for our small
firms.
Another important shift though, Mr. Chairman, has to do
with the shift in business ownership, and what we have found
out is that baby boomers own a significant percentage of sole
proprietorships and partnerships. That means that in the coming
years there will be an increasing number of small business
closures if those baby boomers are not given some assistance
with ease of succession. The SBDC plans to address this issue
by providing increased succession planning in our training
activities for small businesses. But again as the first two
speakers have mentioned, the ability to turn your businesses
over to your children is impacted by the tax regulations.
Technology represents significant challenges and represents
significant opportunities for small businesses. However, those
firms that are slow to acquire the technology skills that they
need will find themselves really significantly behind the
curve. To address that question, the ASBDC is planning to
launch a major professional development effort for our
counselors and trainers to make sure that we have the skills to
provide credible and viable e-commerce and e-business advice to
our clients. And we plan to make this training available to SBA
field staff so that we are coming from the same page when we
address our clients.
Mr. Chairman, despite the changes in technology and the
changes in the demographic makeup of the workforce and in the
demographic makeup of aspiring entrepreneurs, some things
remain unchanged. One of the things that we have been
discussing in our network has to deal with the definition of
what a technology business is versus a nontechnology business,
and we contend that right now there is no such thing as a
nontechnology business. And we plan to emphasize in our
training not the fact that we are going to provide services to
only high technology firms, we plan to provide services to
businesses that need to effectively utilize technology to start
to grow and to succeed.
The other issues that all of our clients talk about have to
do with taxes, have to do with business regulations and the
impossibility of surviving the regulatory maze that businesses
face. Our association looks forward to the day that H.R. 4946
becomes law and to cooperating with Congress and other
regulatory compliance assistance providers in assuring that our
Nation's small businesses have ready access to the regulatory
and compliance assistance that they need.
I what to talk about another area, Mr. Chairman, and that
is access to capital. Business financing in this country has
traditionally been asset-based financing. One of the
characteristics of this new economy, this new technology, is
that it pays a premium not to bricks and mortar, but to ideas.
So that when we talk about access to capital for small
businesses we need to look at underwriting criteria and
business evaluation criteria, because how do you place a value
on an idea? What is the value of intellectual property rights?
What do you use to collateralize that financing?
Those are the issues that are important to us and to our
small businesses.
I have heard a couple of our earlier speakers talk about
the need for education that addresses the needs for small
businesses. It is interesting, Mr. Chairman, that 47 of our 57
SBDCs are university based or higher education based. In
earlier testimony before you, we talked about the need of
utilizing young people as interns in small firms to bring to
those small firms the technology skills and the comfort with
technology that those young people have. We think that the idea
of interns will not only provide access to technology education
for small businesses, it will provide those small businesses
with access to a potential workforce. And we think that the
extension of the SBDC program and the educational needs of
small businesses below the secondary level down into the junior
high schools, down into the high schools is going to be an
important factor for small businesses.
Mr. Chairman, again I am really happy to be here this
morning, and I appreciate the opportunity to speak before this
hearing. I will be happy to answer any questions you have
later. Thank you.
[Mr. McCutchen's statement may be found in appendix.]
Chairman Bartlett. Thank you very much. Let us to turn now
to Mr. Giovanni Coratolo, Director of the Small Business
Council, U.S. Chamber of Commerce. Thank you very much for
being with us.
STATEMENT OF GIOVANNI CORATOLO, DIRECTOR OF THE SMALL BUSINESS
COUNCIL, U.S. CHAMBER OF COMMERCE
Mr. Coratolo. Thank you very much. Good morning, Chairman
Bartlett and Congressman Davis. It is a pleasure to be here. I
am Giovanni Coratolo, Director of Small Business Policy for the
U.S. Chamber of Commerce. Chairman Bartlett, we applaud this
Subcommittee's dedication and interest in sustaining the
economic expansion that has been led by the Nation's 24 million
small businesses. These are business owners who are faced with
the daily challenges of a dwindling labor supply,
overaggressive Federal regulatory agencies, a tax code that
penalizes savings and investment, and an increasingly litigious
society and competitors from an expanding global marketplace.
Yet these small business men and women in spite of obstacles
have emerged as the primary vehicle by which the new economy
has grown and prospered.
In order to project the future, it is important to touch a
little on the past. Looking back to the fifties and sixties
large goods producing companies dominated the world economic
power structure. We lived in a culture that based prosperity on
the premise, so goes General Motors, so goes the economy. It
was only several decades ago when our big businesses started to
sputter that we sent observers to Japan to understand how they
were able to build a bigger big business, and many
prognosticated the decline of the United States as an economic
world power was inevitable.
It was only during the last decade that the answer to our
national revitalization became apparent. This was found within
the entrepreneurial spirit of our small businesses. The trend
for big business is now to downsize and become more
entrepreneurial. It is the small businesses that are credited
with being the driving force for technological change and
productivity growth. They are the crucial barometers for
economic and social well-being.
Now countries are sending observers here not to find out
how we are running General Motors but how we are fueling the
growth and proliferation of our small businesses. Our corporate
heroes are not those that created jobs from the penthouse of
high office buildings but those that launched enterprises from
their basements and garages.
At the U.S. Chamber of Commerce we have identified five
policy areas that are critical to the impact of the future of
small business. I will list those priorities and underneath
each in your written testimonies are an example or number of
examples or specifics I won't go into for the sake of time.
Number one, as we have heard here, to provide small
business access to a quality workforce. In order to assure the
future growth of small businesses we must provide a level
playing field for small businesses to hire, train and retain a
qualified workforce. According to a recently released survey by
the U.S. Chamber of Commerce, workforce issues are a top
priority for Chamber members, and that study is also included
in your written comments. We have to make sure that we solve
the health care issue so that small businesses are capable of
competing with larger businesses for workers and the solution
to benefits will do that.
We have to make sure our school system--we look at
businesses as a customer to the education system, and that is a
profound difference from where it is now.
Change tax policy. In order to ensure the strength and
vitality of our small enterprises we must promote a tax policy
that allows small businesses the opportunity to reinvest more
money in the growth and continuation of their businesses and
not in the growth of big government. As you heard here a number
of tax issues, I won't repeat them.
Eliminate needless burdensome Federal regulations. Many
small businesses' efforts to expand their enterprises are
hampered by the yoke of needless regulations promulgated by
overaggressive government agencies, and there again I won't
list the number that are there. There are many on the books and
many are proposed to be passed.
Number four, stop frivolous lawsuits against small
business. Outlandish punitive damages are crafted to force
large settlements regardless of the small business' degree of
responsibility for the harm.
And lastly give small business the opportunity to compete
in a global economy. With the advent of technology the world is
increasingly a global marketplace. We must allow small
businesses to compete in today's complex and sophisticated
world market as unrestricted as their international
competitors. In our tendencies to regulate and tax our new
economy small businesses, our first goal must be to do no harm.
In old economy businesses fixed assets and physical location
determined success. For today's businesses intangible assets
such as knowledge, entrepreneurial spirit, management and
innovation are key determinants for market strength. In order
to sustain continued growth within our new economy, new policy
must reflect sensitivity to the paradigm shift, especially in
regards to the small business community.
The growth and vitality of new economy enterprises have
been based on a steady flow of venture capital and the ability
to merge with other companies to complement forces for market
strength and stability. Currently FASB is proposing to
eliminate the longstanding use of the pooling of interest
method of accounting for business combinations in favor of
purchase accounting. If allowed to proceed, this will have a
chilling effect on the ability of small technology businesses
to grow and compete in a fast moving new economy.
Another defining issue that will determine the course of
small business in our knowledge based society is privacy. With
technological ability to track and gather information on
individual and group preferences where do you draw the line in
regarding this potential powerful information?
As innovation drives success with the new economy, small
businesses are in need for the understanding and means to
protect their research and inventions through patent
protection. Often small businesses are unaware of complicated
processes by which these safeguards needs to be used. In some
cases funding becomes a barrier.
In closing, Mr. Chairman, within the headquarters of the
U.S. Chamber of Commerce we have a meeting room called the
International Hall of Flags, where hanging from the walls are
flags from entrepreneurs of the 16th century, Sir Frances
Drake, Magellan, Columbus, just to name a few. Funded by the
nobility of their time and navigating by the stars, they risked
their life and limb to sail the oceans in search of trade and
prosperity.
Today's entrepreneurs have traded their massive ships for
laptop computers, funded by venture capitalists and navigating
with Netscape, they fly their Website home pages high and sail
the worldwide sea of the Internet in search of global trade
routes at the speed of light. Policies that promote, protect
and encourage the entrepreneurial spirit of our small business
community will allow them to continue to lead the exploration
of new frontiers in the future and provide the United States
with unprecedented prosperity. How congress answers this call
will determine the success or failure of these modern day
Magellans.
Again I want to thank the chairman and Congressman Davis
for having the Chamber testify today. Thank you.
[Mr. Coratolo's statement may be found in appendix.]
Chairman Bartlett. Thank you very much for your testimony.
We now turn to Mr. Yancey. I have had a long time feeling
that most things are done better in the private sector than in
government and in SCORE we have a wonderful marriage of the
private sector and government. So I welcome Mr. Yancey.
STATEMENT OF KEN YANCEY, EXECUTIVE DIRECTOR, SERVICE CORPS OF
RETIRED EXECUTIVES (SCORE)
Mr. Yancey. Thank you, Chairman Bartlett. Mr. Chairman, Mr.
Davis, my name is Ken Yancey, and I am the Executive Director
of the Service Corps of Retired Executives, better known as
SCORE. Thank you for inviting me to testify before you today.
SCORE does not survey its small business clients regarding
challenging issues related to starting and running a small
business. However, we can offer comments based on anecdotal and
anonymous information regarding our clients' needs. I will pass
on some of the findings of the National Commission on
entrepreneurship, NCOE, published in their 2000 report entitled
``Building Companies, Building Communities: Entrepreneurs in
the New Economy.'' Patrick Von Bargen, Executive Director of
NCOE, has made copies of the report available to the members of
the Committee and more information about NCOE is available at
their Website www.NCOE.org.
In this robust economy with low employment, complicated by
a shift to a knowledge-based economy, finding and retaining
quality people is a major challenge for entrepreneurs, as you
have heard from all of the previous speakers. The challenge is
at all levels, including management, technical and entry level
positions.
Additionally, the NCOE study brings up the challenge of too
few workers that are ready to work, referring to competence and
attitude of many individuals entering the workforce, including
the basics of commitment and courtesy. Improving math and
science curriculum in grades K through 12 and technology
training would have a positive impact on the future workforce.
The NCOE study provides potential solutions, including
hiring employees from the growing population of senior citizens
and taking advantage of telecommuting. Access to capital has
been a challenge for small firms for years. Today there is
significant venture capital for funding available for
technology related, high growth start-ups. This is not true for
small business start-ups and existing businesses in traditional
industries, particularly companies with capital requirements
less than $1 million. Most of these small start-up
entrepreneurs use personal funds, second mortgages, friends and
family or credit cards to finance their ventures. The Small
Business Administration is attempting to address the needs of
this segment of the small business economy with the SBA Low-Doc
loan, the SBA Express loan program and the SBA MicroLoan
program.
The need for small business-related technical assistance,
mentoring and networking opportunities are also very important
for today's entrepreneurs. SCORE and other programs such as the
Small Business Development Centers and the Women's Business
Centers offer free or low cost access to this type of
entrepreneurial support. SCORE serves over 300,000 existing and
aspiring entrepreneurs each year and has served over 4.5
million since its inception. With continued support from the
Small Business Administration and the Congress, SCORE plans to
increase its outreach efforts to America's entrepreneurs. This
expansion will come online through greater availability of
SCORE's e-mail counseling now available at the SCORE Website at
www.SCORE.org.
We are planning the development of new online community
applications where small business owners can learn from SCORE
counselors as well as from each other. SCORE is also working on
distance learning opportunities with private sector alliance
partners such as the Kaufman Center for entrepreneurial
Leadership, Visa U.S.A., Equalfooting.com and Staples.com.
Additionally, SCORE plans to improve the availability of one-
to-one counseling through the expansion of chapters into fast
growing areas of the communities where they already serve as
well as outreach to underserved and rural communities.
Mr. Chairman the 11,400 volunteer members of SCORE are
committed to assisting in the success of small and growing
companies across the country and to those individuals that wish
to start a business.
Again, thank you for your support of SCORE and for inviting
me to testify today.
[Mr. Yancey's statement may be found in appendix.]
Chairman Bartlett. Thank you very much.
And now Mr. Anthony Raimondo, Chairman and CEO, Behlen
Manufacturing Company, National Association of Manufacturers.
STATEMENT OF ANTHONY F. RAIMONDO, CHAIRMAN AND CEO, BEHLEN
MANUFACTURING COMPANY, ON BEHALF OF NATIONAL ASSOCIATION OF
MANUFACTURERS
Mr. Raimondo. Thank you, Mr. Chairman, Congressman Davis. I
am very pleased to be here this morning. My name is Tony
Raimondo, and I am very impressed with how the chairman could
pronounce that first time around. Thank you, Mr. Chairman. I am
President and CEO of a metal fabricating company in Columbus,
Nebraska called Behlen Manufacturing. I am here this morning to
testify on behalf of the National Association of Manufacturing,
the NAM.
We represent 18 million people who make things in America.
We are the Nation's largest and oldest multi-industry trade
association. The NAM represents 14,000 member companies, 10,000
of which are small and mid-sized, which is a category that I
would fit. We also represent 350 member associations serving
manufacturing and employees in every industrial sector in all
50 states. We are headquartered in Washington, DC. And have ten
additional offices across the country.
Although I am submitting written testimony, I would like to
highlight briefly the top issues facing American small
manufacturers. Specifically, I want to discuss the pro-growth
and pro-workers issues that will benefit the American small
business community and overall economy.
America's economy has expanded impressively over the past
18 years with only one relatively mild downturn in the entire
period. At the NAM we are proud of the disproportionately large
contribution American manufacturers have made to that
expansion. We continue to have an impact in GDP that was
similar in the Industrial Era. That is another whole story that
I would like to share some thoughts on at another time.
Coupled with the fiscal restraint of recent years, our
booming economy has filled Federal coffers beyond expectations
and yielded the first Federal surplus of more than a
generation.
The NAM believes that the Federal tax code is the single
largest obstacle to continued strong economic growth. Federal
tax laws need to be reformed and replaced with a pro-growth
code. At the same time we realize this effort remains a
daunting one. Consequently, under the code itself there is need
for fundamental change. We believe that certain pro-growth
incentives need to be incorporated into the otherwise anti-
growth tax code. For our small and medium sized companies, the
most important tax policy priority is what you have heard
earlier, the repeal of the current estate and gift tax regime,
sometimes known as the death tax, and lower tax rates for S-
corps.
The importance of repealing the death tax to our small and
medium sized companies is no surprise as business spends on
average a staggering $52,000 a year on estate tax planning. The
time and money spent preparing for the death tax similarly do
not help a business in any way. This diversion of valuable
human and financial capital achieves absolutely no economically
useful purpose. It does not increase productivity, expand the
workforce or put new products on the shelf. A business pays
this cost every year, not just at some uncertain future date
when an even bigger bill comes due.
Our members would much prefer spending this money on new
technology, business expansion and additional employees. The
death tax can be devastating to the transition between
generations in a family owned business. A Vermont life
insurance company study indicates that few than one in three
family owned companies survives the next generation.
Furthermore, the 55 percent estate tax does not allow much room
to breather. Very few businesses or business owners have that
kind of liquidity, and almost no manufacturing company does.
Currently there are some special estate tax breaks on the
books for small businesses but qualifying for the family owned
business exclusion is difficult, if not impossible. Business
owners must constantly monitor whether they meet the stringent
ownership and participation requirements in the law, often a
time consuming and expensive endeavor. If the government
determines after the fact, that is, after the owner's death,
that these requirements have not been met, the full estate bill
is due and all those dollars have been wasted.
Complete repeal of the death tax is the best solution for a
pro-growth economy and for family owned manufacturing companies
and all other small businesses that are creating jobs and
securing future for their employees, as you described so well,
the engine of our economy.
As I have noted, the death tax is devastating to the small
business community. So are proposed worker safety regulations
that do more harm than good.
Another issue that would adversely affect small business is
OSHA's $18 billion ergonomics regulation. This proposed
regulation is a window into OSHA's soul, clearly trying to
reach beyond the workplace even into the home to regulate.
Worker safety is one of the top priorities in my factory
and for all members of the NAM. I know--and in this script I
say--all of my employees. I would just like to give you a brief
thumbnail sketch. Behlen has grown in 15 years and I had the
opportunity to acquire the company from 300 employees to 1500
employees. We export product to over 50 nations. Our people are
very involved. We call them partners in progress. No time
clocks, honor system, profit sharing and productivity sharing.
We truly are partners with our employees. We work together and
our best safety programs are led by our partners in progress.
So the work environment has changed, and I am not alone on
this. The overall injury and illness rate is currently at its
lowest level since the Bureau of Labor Statistics began
reporting the information in the 1970's. In spite of BLS's data
showing that repetitive stress injuries, MSDs, have declined by
24 percent since 1944 and despite the lack of consensus in the
scientific and medical communities on the causes of MSDs, OSHA
is moving aggressively forward with ergonomics regulation and
ignoring the intent of Congress. Employers covered by OSHA's
proposed rule, which was published in the Federal Register in
November 1999, would be responsible for taking measures to
reduce all MSDs, including carpal tunnel syndrome, neck and
back strains, by initiating and maintaining a basic ergonomics
program once a single injury is reported in a facility. OSHA
considers an injury work related if working conditions
contributed to the injury or even if non-work factors
contributed as well.
Further, while typical Workers Compensation rules currently
cover two-thirds of an employees pay while he or she is out,
the OSHA rule will require workers to be paid at 90 percent of
their pay if they are claiming an ergonomic injury. OSHA has in
effect created a most favored injury status for ergonomics. If
covered employers must set up an ergonomics program to control
work-related MSDs which must include the following, and it is a
long list of employee hazards and what have you that I am sure
you're aware of, so I will skip that.
In October of 1998, Congress approved $890,000 for the
National Academy of Sciences to conduct an independent peer-
reviewed analysis of the available science on MSDs. The NAM
opposes the rule and urges OSHA to wait until the evidence is
in before moving forward.
I would like to thank Chairman Barlett and Congressman
Davis and the Subcommittee for the opportunity to discuss on
behalf of NAM issues that will impact the future of small
business. We hope that our recommendations to best promote and
sustain an enterprise friendly economy for small manufacturers
are helpful, and we look forward to working with Congress on
these various issues. Although our written list of concerns are
lengthy, we are up to the task to work with Congress and the
administration to encourage economic growth for our Nation's
small businesses, particularly in the manufacturing sector.
I would be pleased to answer any questions and once again
thank you for this opportunity.
[Mr. Raimondo's statement may be found in appendix.]
Chairman Bartlett. Thank you very much for your testimony.
Without objection, your written testimony will be made a part
of the permanent record. As you heard, some bells went off and
we have a bit more than 10 minutes before a vote. What I
proposed to do is recognize Mr. Danny Davis for any statement
he wishes to make and for whatever questions and comments he
might have. I don't know if you want to begin before we vote or
if you want to rush to vote and come back.
Mr. Davis. Let me, if I could, Mr. Chairman, just in case
something gets all fouled up and given the fact that this is in
all probability our last hearing for this session, I first of
all wanted to commend you and also want to express how
delighted I am to work with you through this session. I
certainly appreciate the manner in which you have not only
provided leadership but the manner in which you have conducted
the business of the Committee.
As I listened to the testimony of all our witnesses, I was
struck by the eloquence in terms of some of the terminology,
OSHA's soul, all of these Magellan like global pursuits, but I
really was struck by two issues that you raised. One is the
workforce availability and the difficulty of finding the type
of workers that you fell would be necessary, and maybe there is
time for at least a comment on that.
What is happening to us as a nation is that we are having
this much difficulty finding a skilled, desirable workforce
given some of the areas of tremendous unemployment that exists.
And so if maybe there is enough time for at least a comment on
that question.
Yes.
Mr. Hexter. Let me respond at two levels, first of all as a
former employer. As I say, I am a sole practitioner now. I am
relieved I am a former employer. The problem which Mr. Blann
referred to, which we all have encountered, is that the basic
skills are lacking, not the technical skills. We can teach a
new employee how our businesses work. We can't teach them to
read or write, to come to work on time, to put their best
efforts in, to pace themselves through the day so the work gets
done, and those are issues which I would suggest are not being
taught or learned in K through 12. Now whether it is the flaw
of the teaching cadre, the whole core of teachers who don't
seem to understand those issues--and I can't believe that is
so--or it is the inability to reach out to those people early
enough to teach them that this is what life is about, they get
their education, forgive me, from the television.
Mr. Davis. Anyone else.
Mr. Blann. I would like to expand on what John just said. I
am not an expert but I have heard about a program with junior
achievement that some of our employees at American Express are
involved in where the program operates within local high
schools and gives students, adolescents, exposure to what the
business world is about. And apparently from what I hear from
people, employees at American Express that are involved in
these programs, the kids at the schools get very excited about
this and do get a taste of what the real world is about. And
that, it feels like, is an example of a partnership between the
private and public sector that is working and maybe ought to
receive more focus to get at this issue.
Mr. Davis. Yes.
Mr. Coratolo. 50 percent of our Nation goes to college and
only 50 percent of that 50 percent graduates. Our educational
system at times focus too much or, well, I should say is in
balance in the sense that it focuses so much on the college
graduate and not enough on the person that is not going to
college that needs these skills for the business world. I think
our education system has to be more oriented toward the fact
that businesses are customers of the education system and
regardless of whether they elect to go to college or stay on to
work without college degree, they have to be educated to the
degree that it is going to help business function.
Mr. Davis. Well, let me say--I know we have got to go, Mr.
Chairman--I think that this is really incredible and requires
in-depth analysis and thinking in terms of what is happening
not only to or education system but what is happening to our
value system. And how do we transform desirable values so that
individuals simply understand that as they get ready to enter
the work. I know I have a press conference that I have to
participate in, but I will definitely try to come back, Mr.
Chairman, because I am very interested in this.
Chairman Bartlett. Thank you. We will recess the hearing
briefly for what appears to be only a single vote. We will
return shortly to continue. Thank you very much.
[Recess.]
Chairman Bartlett. We will reconvene our Committee hearing.
Let's spend a few minutes talking about the subject that all of
you mentioned as the number one concern, the subject that was
approached by my colleague, Dr. Davis, and Danny Davis is a
Ph.D., and so he is familiar with the education process, and we
chatted about this on the way to the vote, and that is the
availability of skilled labor. When he asked how come, you
responded that a major factor in this is our education system.
What has happened? My father, who was born in 1895, could
extract the cube root by the long hand method by the time he
was in the sixth grade. By the time I got to school my
professor told me that you got square root by the trial and
error method. Now I knew better than that because I learned at
home how to do the long hand method. I can still do it, by the
way, in spite of calculators and how easy it is to do with
calculators.
But what has happened to our education system? Just
recently there was a test of 19, graduates of 19 countries,
high school graduates. We--I am sorry, 21 countries. We came
out 19th in that. We were thankful for Sri Lanka and Cyprus.
They were the only two countries whose graduates scored lower
than ours. What has happened and what do we do to fix it?
Mr. McCutchen. Mr. Chairman, let me take a stab at that. It
has to do with attitudes. And success in the K through twelve
system is measured by the percentage of those youngsters who
get into college. You get into college based on how you perform
on standardized tests, not based on what you know. Once you get
to college the success of the college is measured based upon
the number of major corporation that you have coming in to do
recruiting trips and as a result of those recruiting trips the
dollar value of support you get from the major corporations. So
what is missing in this whole scenario are the issues, the
concerns, the needs of small business.
My wife works for a major computer company. She is a
technical recruiter. They have the resources to assign
professional human resources people to individual universities
to go in, maintain a relationship and recruit their best and
brightest students for their big corporations. Small firms
don't have those resources. And I think that one of the issues
has to be again alerting not only the colleges and universities
but the K through 12 systems that if the small firms' needs are
not being met there will be no jobs for those young people who
are going through the system.
So I think a lot has to do with how we measure success in
our education system and to make sure that that measurement
includes providing a skilled workforce for the sector of our
economy that provides most of the jobs.
Chairman Bartlett. There are two things that our education
institutions can do, and I taught for 24 years and twelve of
those were in a community college. One of the things that we
can do is to provide specific skills that are needed. In the
community college we did a lot of that. We partnered with
industry. What do you need? We will set up a course to provide
the kind of workforce people that you need to meet your
demands.
But the other thing that education does, and that is the
thing that almost every one of you mentioned in your testimony,
the skills that are really needed is not what you can do in
front of the computer or what you do in front of that lathe or
milling machine, but it is basic communication skills. It is
interpersonal relationships. It is the fundamental things that
schools used to teach like reading, writing and arithmetic.
Now I am a strong opponent of minimum wage increases and
the reason for that is I want to provide that opportunity on
the first rung of the economic ladder for those young people,
and they are mostly young people, who need it most. And
flipping hamburgers at McDonald's is a good job for a young
person because it teaches them, and several of you have
mentioned what it teaches them. It teaches them to show up on
time. It teaches them to work while they are there. It teaches
them to do what they are told. It teaches them to be responsive
to the needs of the customer. Now these are all the kind of
skills that you are looking for in people, isn't it? And those
skills are learned, some of them learned probably better at
McDonald's than they are learned in the school environment,
which is why I am so opposed to increasing the minimum wage
because nobody works at minimum wage in my district. But there
are some places where people do come in at minimum wage and I
don't want to cut off the bottom rung of that economic ladder.
Other comments. Yes, sir.
Mr. Hexter. Let me give you an anecdote because of your
connection to the junior college environment. I was privileged
to sit through a meeting--this was in northern Ohio--and one of
the speakers was talking about the difficulty, the dividing
line between those who pass algebra and those who do not pass
algebra in terms of success down the road, whether it was
academic success or just work success, and they were becoming
the math skills issue. I took exception to that because I think
algebra is the first time that our students are confronted with
solving a problem, solving an unknown. This is taught as a math
issue, not as a life skills issue. If you cannot get through
solving for an unknown in a mathematical sense, you are not
learning to think.
We need to reorient the whole process into forcing the
thought process and evaluating the thought process as part of
our educational outcomes. We don't do that. We ask for answers
and go on to the next question instead of evaluating the
thought process, and it is very difficult. Teachers aren't
skilled to do that. It is hard work. But we can teach our
employees to think, and that is what we have to have when we
come to work, the ability to solve a problem. Otherwise we can
replace them with a machine.
That is really what has driven the automation and
productivity because we have replaced them with machines. The
more you raise the minimum wage, the more likely a machine can
do the job.
Chairman Bartlett. I spent a day in Carroll County in our
district and part of that day I spent at Mirada. That is an
auto parts manufacturing plant. The raw material comes in in
the morning and at a 20-minute time slot in the afternoon it
has to appear on the assembly line or they get economically
punished for that. So it is a very demanding business. They
have replaced people that unload skids with a robot that
unloads the skids.
Mr. Hexter. Exactly right.
Chairman Bartlett. Now that is a very low demand in terms
of skill but because they couldn't depend on the workforce that
robot never calls in sick. It never gets an injury that would
require several days off. And in the afternoon I went to
another industry there and they hired the severely mentally
handicapped. And they bid competitively for their jobs and they
paid their workers on the basis of their productivity. I
remember the things they were doing. One of the things they
were doing--you go into a store, you see that little vending
machine that has those plastic things with fuzzy things in it
and you put a quarter in and get it out and one of the workers
there, he had a box of little plastic balls and he had another
box of little fuzzy things and he was putting the fuzzy things
in the plastic balls and that is what he was doing. There were
some others that were assembling the mulled cider things. You
have the mulled cider in a plastic bag and you have the card
board thing that you staple on that tells the buyer how to make
mulled cider. The third group were collating a little pamphlet.
It had six pages in it and I think there were eight people
collating that. Six of them sat in a line with the page in
front of them in a box. The seventh of them went down the line,
each one of them put their page in the box as it went down and
then the eighth one stapled it at the end. They were now
collating these little pamphlets. The end of the week they got
paid for what they did. I was there at payday, and I will tell
you of the pride of these people when they come up and got
their pay check. The severely handicapped got those contracts
by bidding competitively. In our campaign, and my son ran our
campaign for a lot of cycles, we do a lot of mailings. We have
a local school for handicapped children. We did a lot of our
mailing through them. They would stuff the envelopes, and to
get the job they competed with a local mail shop that did the
whole thing with automated procedure and one guy stood there to
fix the machine in case it did not work. But these kids in the
school did the job and they did it at the same price as the
mechanical mail house did it, and I thought what a contrast in
these two jobs. At Mirada they were replacing every worker they
could with automation. And I went to the other job and they
were going out of their way to find things for people to do
because they knew that work was therapeutic, that it was good
for people. And I thought that somewhere in our society we have
to have a healthy balance between these two things. How do we
get there? What is so wrong with our education system that we
are scoring near the bottom as we compete with every other
country, every other major industrial country and some of them
not very major industrial countries in the world?
Other comments, suggestions. Yes, Mr. Blann.
Mr. Blann. I am not an education expert but I believe that
parents are a part of the educational system, and so I think it
is a little broader than just the school systems. And those
same people coming into the workforce that small businesses are
saying are not qualified for what the economy needs are
increasingly becoming parents. And if you just fast forward
from that, think about what kind of educational environment
they are probably providing for their young children.
So I think we need to think beyond kind of the school
systems within the country but the social systems, the family
environment that kids are growing up in.
And just another thought, it is far easier I think to teach
a young child to read and to communicate than to try to teach
an adult retroactively. So it takes a long time, meaning it is
going to take a number of years for that to then flow into the
workforce to help small business, to help the economy, but I
think we need to think long term on that in terms of how we are
going to turn this around, not just what we are going to do
tomorrow.
Chairman Bartlett. You mention it is far easier to teach
young people. It is an astounding fact but I have heard it from
several psychologists, by the time you are three you will know
half of all the things you will ever know and that is in spite
of really a high tech society. If you think about what the
three-year-old has learned, they know half of things that you
will ever learn. You mention the role of the family. I am
pretty politically incorrect when it comes to education. I
spent 24 years there. I think involving the family is the
single most important thing we can do for education, which is
why I am so supportive of school choice. I don't really like
vouchers. It is not the government's money. They have no
business doing it, giving it back to you with some strings
attached. I want a tax credit. For those who do not make enough
money to get a tax credit, I have no problem with a voucher for
them. I think that everybody in our society needs to have the
kind of options that our President and Vice President had. By
the way, neither one of them sent their kids to a public
school, but both of them want to deny those who need private
schools the most; that is, the poorer people in our society,
want to deny them the right to send their kids to a private
school. I think involving the family is the most important
thing we can do.
I went with Steve Forbes to a school in Baltimore and it
was right in the ghetto area of Baltimore, and they got their
kids from exactly the same socioeconomic level as the public
schools around them. Every one of their kids when he graduates
from high school is accepted in three colleges and has a
scholarship, at least one scholarship. That is a requirement
for graduation. You aren't ready to graduate unless three
colleges have accepted you and you are good enough to get a
scholarship. And he does it for less than half the price of the
public schools. And I was there at graduation. It was not a
graduation, it was a celebration. And he gave the diploma to
the parents, who then gave it to the graduate, recognizing the
essential role that parents play in the education process.
And I asked him how do you do it. He said, well, we won't
accept the kid until the family has made a commitment to the
education process. Now the school that the family chooses that
is different from the public school that the kid has gone to
may be no better and it doesn't matter if it is no better. The
education the kid gets is going to be a whole lot better
because the family has an involvement in the process. They will
find a place for the kid to study. They will turn off the
television. They will ask is your homework done. They will help
him if it is not done.
I think involving the family is the single most important
thing to do for education. I am not sure that throwing more
money at education solves it. If you think about what education
systems do with more money, it is not reading, writing and
arithmetic. The additional money tends to be spent on things
that compete with reading, writing and arithmetic. A band, more
athletics, put a uniform on a little girl, teach her to twirl a
baton, put her on a bus, put her in a parade. These are great
things, but they are not reading, writing and arithmetic.
Our economic competitors in engineering, Japan, their
children spend twice as many hours studying the three R's. We
are bright but we are not that bright that we will keep up to
them when we spend only half as many hours studying the three
R's.
Other comments on where we are in education relative to
jobs and what we can do about it? Yes, sir.
Mr. Raimondo. I would share, Mr. Chairman, that there is
another partnership there that seems to be working and it is
very, very critical in our new global challenges, the business-
education partnership. The School to Career, the School to Work
program especially if you are in a smaller community getting
the kids out into the work environment, interning was mentioned
earlier, but just getting them out to the work environment so
they understand the skill, the needs, the team interfacing, the
people skills is very, very important. I chair that School to
Career program in Nebraska and it is just been one of the most
positive issues both in retaining the brighter students and all
of the students in the community because they understand what
the jobs are that are available in their community, if that is
a librarian, that the dynamics are changing there, or a welder
or an accountant, whatever it is. The kids benefit
tremendously. It changes their level of interest when they
start to know what these jobs really are.
In the business world I think we have had a disconnect
between education and business as we have grown through the
last century because business has not involved their employees
as much. We have gone through some mass productions where
people could walk in the door and theoretically people could
say they asked me to leave my brains at the front door.
Business has changed totally on that subject. We need each and
every person to change globally with this. We need their
thinking, their involvement.
So business is much more critical than it has ever been
because our needs have changed. We need to partner with the
education world if we can support School to Work or School to
Career, which funding is drying up. Somehow we have to get that
partnership continuing to make a difference in our students'
lives.
So we at NAM and my experiences in Nebraska chairing that
has been very positive to get partnered with the schools, get
the kids into business and see the specific jobs, and it has
made a big difference.
Chairman Bartlett. You mention welding. I would like to
spend a moment talking about welding and that kind of job.
There are enormous shortages of workers for these trade skills.
Mr. Raimondo. Exactly right.
Chairman Bartlett. And the reason for that I think is that
there is a perception in our society and in our schools that
these are not good careers, that only the poor learners go into
those jobs. And the truth today is--and I had a small business,
I was a land developer and home builder and I still have a lot
of friends in that business. What they tell me is the kids they
get can't read and write adequately so they can even start
teaching them the technical skills they need.
But what we need to do to turn this around in our society
is to tell our teachers and tell our families that these are
very rewarding careers. I enjoy working with my hands. I
enjoyed building. At the end of the day if I have done it
right, a hundred years from now it is still going to be here.
You do not have that kind of satisfaction, I think, sitting in
front of a keyboard. What you have done today nobody is going
to care about six months from now, let alone a hundred years
from now most probably. So there is a lot of real reward in
these kinds of jobs. But we aren't getting our young people
going into those jobs. And you have to not only be good with
your hands, you have to also be bright. You can't do it today
if you are not smart. And so these are very special kids that
in addition to being smart and being able to handle the
intellectual parts of it, they are also very good with their
hands.
How do we change that culture so our schools and families
are promoting these as rewarding and desirable careers? Yes,
sir.
Mr. Coratolo. One other thing I want to point out. Small
businesses do not compete on the same playing field with big
businesses when it comes to benefits like health insurance and
pension benefits. I hear from a lot of small businesses. They
have lost workers to these larger businesses that actually pay
less for health care, that pay less for pension benefits. And I
know there are bills now to streamline the pension process or
provide small business with easier administrative skills. I
think in the future we are going to have to look toward
providing small business with the same level playing field and
buying these types of benefits for their workers so they don't
have workers matriculating to the larger businesses that
through the economies of scale afford better benefits.
And the solution to the health care crisis in America is
another area that we have to address in order to help small
business. Two-thirds of those uninsured really work for small
businesses. So those are areas that really play into the need
to acquire help for small business.
Chairman Bartlett. The health care insurance companies
through no fault of their own, it began with the interference
of government and wage and price controls after World War II,
but now they are violating the basic premise of insurance. That
is share the risk. What they are trying to do is to avoid the
risk. That is not why you have insurance to avoid the risk. You
have insurance to share the risk. Somehow I hope it can be done
without government intervention. The industry needs to
understand that they have a responsibility to share the risk
and when they do that, then it won't cost more for a small
business person to enroll the employees. Now it does, and it
does because the insurance companies are trying to cherry pick
and avoid the risk. And to the extent that one of them does it,
the other one has to do it or he is disadvantaged because he
has to charge a higher premium if he is trying to share the
risk rather than to avoid the risk.
I would like to challenge the industry to fix that problem
before bungling government tries to fix it for them. You know,
you mentioned those who are uninsured. Of the 55 million
uninsured, about 40 percent of those are simply in between
jobs. And if we had true portability, and true portability will
come when the employee owns the policy and not the employer.
And that started with government meddling when they tried
to fix, legislate wage and price controls after World War II
and employers couldn't offer more money and they offered
benefits. I have no idea why they chose health insurance. They
could have chosen your car payment or your kids' education or
life insurance, but they chose health insurance. And out of
that grew the Big Blues, which for many years were essentially
a regulated utility, a regulated monopoly. Then others came in
and it is now somewhat more competitive.
But still most insurance policies are owned by the employer
rather than the employee. It is part of recompensing the
employee. If you put in their pay check the net amount of what
it cost you to buy their insurance and they get the 100 percent
deduction, which would fix the problem of the discrepancy
between the big employer who is 100 percent, and the small
employer who is getting little or nothing. What is it, 30
percent now? And by and by it is going up more than that. But
it should be 100 percent.
So, if we fix that portability problem by the employee
owning the policy, immediately 40 percent of all the uninsured
drop out. Roughly another 40 percent of those are young people,
who are invincible and they don't need insurance because they
are not going to get sick. So they don't buy it. They would
rather have a better car and better furniture.
And I don't criticize their decision because when they do a
financial statement they are worth significantly less than
nothing because they are renting their apartment. They are
paying for their furniture, which is used and they pay for
their car which is used. If they sold their furniture and sold
the car they could not pay the debts on it. They are worth less
than nothing financially. It is a reasonable risk for them to
say if I get sick I will go bankrupt. There is little stigma
involved with going bankrupt today.
So we need to change this culture. I have a simple solution
to that. You can't avoid your health bill by going bankrupt. We
will hound you for the rest of your life for your health bills.
Tomorrow they will go out and buy health insurance. We need to
motivate them to do the right thing. They shouldn't be moving
the burden of their health care onto those who buy health care
insurance through their employer or through their own policy.
The other 20 percent represent workers who work for
somebody who can't pay it. If we force them to pay it they
simply won't have a job and the job will move to the Pacific
Rim. I have no problem providing health care for those people.
I want to provide for all of those people that are moving from
welfare to work. A family of four on welfare lives as well as
if you made $23,600 a year. That is $11 on something gross pay,
$7 on something take home. Few people who leave welfare to go
into the workforce make 11 bucks an hour in their first job.
They ought to live at least as well working as they lived on
welfare and I want to provide babysitting for them. I want to
provide health care insurance for them. They won't always be
there. They will get seniority. They acquire new skills. They
will move up.
But I think work is therapeutic. My grandmother always said
that an idle mind is the devil's workshop. And you look at
where most of the problems are in our society, it is idle
minds. After you have worked eight hours hard and come home you
are probably not up to mischief, are you? I think work is good
for our society and very therapeutic.
I remember a poem my mother used to recite. ``There is
nothing like work to put flavor in pie'' was one of the lines
in it. And when you are tired enough and hungry enough
everything tastes good, doesn't it?
Other comments.
Regulations. You mentioned regulations and one of you--I
forget who it was--why we have regulations. It is because
government--I think it was Mr. Raimondo, is that correct? When
I started running for office now 9 years ago, I said that there
were two premises for regulations, both of which I reject. One
premise is that every employer, every manufacturer, every
provider is inherently greedy and evil and they are going to
abuse their employees and abuse the public, and we have to make
sure they do not do that. I was an employer. The health and
well-being of my employees was more important to me than any
bureaucrat in Washington. If I lost a member of my team, I was
hurting. If I went out and brought somebody else off the market
to come in, he was not a member of the team. My guys worked
from morning to night and never needed to speak to each other
because they knew what they were doing, what the next step was.
When I injected a stranger in there, that cut my productivity.
I didn't want to do that.
The other premise is every consumer is incredibly stupid
and they will hurt themselves. They will buy the wrong thing.
They will do the wrong thing. They will stick their hand in the
meat grinder and it is obligatory on the part of government to
protect these stupid people so they won't hurt each other. I
think we need education. I am all for truth in advertising. I
want labels on everything I buy, so I know what is in it, but
after that I want to make my decisions, thank you. If you look
at all of our regulations, are they not based on one or both of
these two premises, both of which I think are easily rejected?
Yes sir.
Mr. Raimondo. I think it is also changing, Mr. Chairman.
You are absolutely right. Even in business in the old hierarchy
model or control model we used to absolutely know that people
wouldn't work unless we controlled them, and all of these
dynamics are very interesting to watch it change. We threw away
time clocks in my company in 1984 and people continually looked
at me and thought I was absolutely nuts and it would never
work. And I say why do you have time clocks? Who is going to
cheat? Three to 5 percent of your people. So we have all the
regulations and all the rules. We threw away the rules and 3 to
5 percent of the people, they shouldn't be there if they are a
problem child or whatever you want to call them. And it has
worked just wonderfully. We are an employer of choice because
of some of that trust and respect.
Chairman Bartlett. What do you call your employees?
Mr. Raimondo. Partners in progress.
Chairman Bartlett. Good deal. They are called associates
and partners in progress. They are called almost anything other
than employees, aren't they, in small businesses that are
really moving.
Mr. Raimondo. That is right, Mr. Chairman, it is very
exciting. We make these rules and regulations for the problem
child that is not the good solid employee that is going to help
us grow together and partner with us.
Chairman Bartlett. How do we answer the critics that tell
us when we pass this legislation that permits more skilled
immigrants to come in that we are taking jobs away from
Americans? My answer to that is that these companies cannot
stay here if they cannot find the skilled workers and they will
ultimately pick up and go to where they can find the skilled
workers and the other American jobs that are here will
disappear when they do that. This is not legislation that is
threatening American jobs. This is legislation that is
protecting American jobs. But we need your help in getting that
message out.
Mr. Raimondo. That is good. They are protecting and
supplementing. It is a very positive way to approach it, Mr.
Chairman. Very positive way. And it is a very critical issue
for us. With all the skills shortages and labor shortages, we
need that supply coming in.
I once listened to a manufacturer that said, well, if there
is a wage benefit for 5 years I will go to Mexico, but you
don't see that happening. We can compete right here. Our
company ships products, as I mentioned, to over 50 nations and
we ship it all right out of Columbus, Nebraska, which is in the
heart of the country. So we add the travel to the ports and
then overseas and we can still compete.
Chairman Bartlett. In the district I have the honor of
representing, there is a tannery. They make leather for upscale
Toyota cars. Now this is a very labor intensive industry. There
is almost nothing that is automated in that industry, and they
are successfully competing with companies all over the world.
So it can be done here. But they do it with a workforce that is
really a part of management. And when they were having trouble
meeting their deadlines and they were air freighting the
product over to Japan, whatever profits they might have made
were gone when they paid that bill, Toyota came over here to
show them how to rearrange their production lines. No new
equipment. Nothing new except the philosophy. A team
philosophy. It is very interesting when you see the people that
are there, all with Japanese names, none of which I understood,
but the workers understood them. And productivity went up
enormously. The workers were part of teams. It was fun. They
were competing with each other. This is a very labor intensive
industry, and every year when I go to their picnic, I
compliment them. One year they got from Toyota two awards, an
award for doing it better and an award for doing it cheaper. It
is easier to do one of those at a time, but it is tough to do
both of those at a time. They got two major awards from Toyota.
So it can be done.
We are progressively losing our manufacturing jobs to
overseas. I know people who believe that this is just fine. The
smokestacks are disappearing. It is good for the environment.
We are moving to a service based economy, but if I push this to
the extreme I have trouble understanding how we have a viable
economy if all we do is cut each other's hair. Don't we need
manufacturing?
Mr. Raimondo. Actually, Mr. Chairman, the media will tell
you what you are sharing but in the real world manufacturing
continues to retain the position of 21 percent, in that range,
of GDP from the Industrial Era, as we call it. It is one of the
most misunderstood subjects. The media says there is less jobs
in manufacturing. Well, that is exactly right because we are
leading the Nation in productivity gains. So today we continue
with 21 percent GDP contribution.
Chairman Bartlett. With fewer and fewer people.
Mr. Raimondo. With fewer and fewer people. Our jobs are
getting more technical, the productivity is going up. We are
leading the Nation with productivity gains in the 4, 5, and 6
percent range, and it is a very exciting environment to be in
manufacturing. We have regained our global competitiveness.
Chairman Bartlett. But still last month we had the biggest
trade deficit in our trade history. If that is repeated month
after month, it is nearly $400 billion a year trade deficit.
Shouldn't we be doing more manufacturing here? A lot of it is
oil, I understand that, but that which is not oil is primarily
manufactured goods which is coming in here, isn't it.
Mr. Raimondo. A lot of it is textiles and oil, you are
absolutely right. In the hard goods side we are holding our own
extremely well. Of course in the technology side we are
holding, the computer world we are holding our own very well.
But manufacturing jobs are strong and growing again and the
perception--we have a factbook that we will send you, which is
just a wonderful profile on the real facts in manufacturing,
how we use technology, how we integrate it to get a return on
investment in productivity, and the kind of growth--the last
couple of years our contribution percent of the growth has been
in the 29 percent range of GDP, just looking at the growth
segment. So we need to do a much better job.
We will get you a factbook, and I am sure you will enjoy it
with your interest and your background, sir.
Chairman Bartlett. Who in your community are the most
popular kids in your high schools?
Mr. Raimondo. The quarterback on the football team.
Chairman Bartlett. You have got it. Those who excel in the
areas that are important to their future and our future really
are--oh, what is the word I want to use? They were squares when
I was a kid. What are they now? They are nerds or geeks. Are
those the right words? And they really, you know they can't
date the pretty girls and they aren't popular in school. How do
we change the culture so that what is important, is important.
Mr. McCutchen. You know, Mr. Chairman, one of the things we
have been talking about are the skills that we need in our
workers. And if you look at those skills, those skills are
identical to the skills that you need to be a business owner.
And I think one of the ways that we need to change the culture
is to start educating our young people at a much earlier age
that the purpose of education is not just to prepare you to get
a job. It is to prepare you to have alternatives. And one of
the most viable alternatives is to own a business, so that when
you see a Harty plumbing truck driver you are not looking at a
plumber who works for somebody else. That may be a plumber that
works for himself. I think if we start educating our children
much earlier--we suffer from what I call the syndrome of
preaching to the choir, and all of us on this panel and you and
many of the people in this room can recite the statistics about
small businesses and the importance of small businesses in this
economy because we work with it every day.
We know where the jobs are coming from. People who are in
education don't know that. They have no idea. So there is no
emphasis in education on the importance of owning a business.
And I think if we start providing that kind of education to our
young people at an earlier age, a lot of these things will
correct themselves.
Chairman Bartlett. I visited a fourth grade class a little
bit ago and one of the kids there knew the difference between
an anthropologist and a paleontologist. Now that kid should
have been a real hero in that school. I am sure he wasn't. That
is pretty impressive that a fourth grader even knows the
difference between a paleontologist and an anthropologist. I am
sure that he was not the most popular kid in that school. But I
am dreaming of the day when he is the most popular kid in the
school because that is the kind of skill that will serve him
for the rest of his life.
I am concerned about this for two reasons. One of them is
that in the short term the fact that we cannot turn out quality
graduates from our schools is threatening our economic
superiority. You cannot now hire the kind of young people you
need to continue your business drive. So in the short term it
threatens our economic competitiveness globally. If you go to
any of our graduate schools in the technical area, two-thirds
to three-fourths of all of the students there are foreign
students and most of them Orientals.
Have you been there? I see several of you are nodding your
head in assent. In the long run this is a threat to our
national security because we cannot continue to have the
world's best military unless we have the world's best
scientists, mathematicians, and engineers. I worked eight years
for IBM, and I guess I left there about 1975. We knew at IBM
that we at IBM and our country ran the risk of losing this
superiority in computers for a very simple reason, losing it to
Japan. Every year little Japan was turning out more and better
scientists, mathematicians and engineers. IBM knew they were
not going to be able to compete in this global market if they
could not have access to the same quality and quantity that the
Japanese had access to. Fortunately, that got turned around but
they are still fierce competitors. A little country. We are a
super giant as compared to a country like that.
So in the long term I have national security concerns. We
have got to turn this around because ultimately if somebody
else is consistently turning out more and better scientists,
mathematicians and engineers will they not eventually have a
better military than you have? So I think this is a vital
concern to every American.
As we end this Congress and go into the next Congress, it
is very appropriate that we focus on the kinds of things that
we are focusing on today. What have benefited small business,
what do we need to do to make sure that we have a climate there
that continues this economic growth?
We just want to make sure, in closing, that we have
discussed all of the factors that are important to you all. I
think the number one factor was the workforce, the quantity and
quality of the workforce, and a part of that was education and
what we need to do about that.
By the way, an open-ended question to people in general.
What do you think is the biggest problem in America today? More
of them mention education than any other. To their credit, and
I take hope in this, the number two item that they were
concerned about is the moral climate in our country. They are
concerned about that. I think that is good. We talked about
regulations and one of you mentioned that OSHA on balance does
more harm than good. There is an old country saying, ``I don't
think I would do that; the juice ain't worth the squeezing.''
I think that is true of many, many government regulations.
The juice ain't worth the squeezing. A more professional way of
saying that is they don't meet any cost-benefit criteria. They
cost more to implement it than you benefit from it. And we
really need to take a hard look. I have a Ph.D. in biological
sciences. I ended up getting 20 patents. I am the only person
in Congress with patents, I think. I have been in the small
business community. But we really need to change this
regulatory environment. It is eating the soul out of our small
business people particularly.
I wanted to ask, in closing, your help on one small aspect
of this, and that is taxes. And many of you mentioned, I think
one of you mentioned SBREFA, which I am very supportive of, and
the Office of Advocacy. There is a joke that they always tell
an audience that always gets a rise from the audience. It is
about the guy that comes and knocks on the door and says I am
from the government and I am here to help you. And almost
everyone busts out laughing when they tell that. Jerry Glover
is the head of the Office of Advocacy. Nobody laughs when Jerry
says that. When he says ``them,'' he is talking about
government bureaucrats. When he says ``us,'' he is talking
about the small business community.
We have got to do something to reduce this regulatory
burden. I am a biologist. I really am an environmentalist. I
give low scores to environmental scoring groups because
everything they think is an environmental bill I think is a
bill which infringes on individual property rights and creates
more oppressive government regulations. I think we can help the
environment without doing that. But we need your help in
educating all the people you interface with, so we can have a
majority in Congress to roll back some of these oppressive
regulations that are disadvantageous to our society as a whole.
Now I don't know of a single conservative who wants to
drink dirty water and breathe impure air. All of us are
environmentalists to that extent. But we need your help in
getting education out to the people so that they understand
what is working and what is not working.
Now the one thing I wanted to talk about was adding the IRS
to the SBREFA panel process. Right now that process requires
that when EPA and OSHA comes out with a new rule, that they
have to convene a panel to determine how hurtful that is going
to be to small businesses, and they have to then modify that
rule so it will not unduly affect small businesses. They don't,
IRS doesn't have to do that. And one of the rules that they
came out with, which was killing small businesses, was the
option that they have to determine whether you report on the
cash basis or accrual basis. And I see some heads nodding in
assent. If you are between, what, one million and five million
gross sales--and we had small business people sitting where you
are sitting who were nearly in tears because they were
devastated and being put out of business--and the IRS guy sat
there and I asked him at the end of the day when that business
is finally liquidated will it make any difference to the
taxpayer how much tax was collected whether he operated on an
accrual basis or a cash basis. He said, no, it wouldn't. At the
end of the day you collect exactly the same amount of tax. I
said, then why are you hassling our small business people? Why
would you do this if at the end of the day--and by the way, the
government tomorrow is going to be just as anxious for more
money as the government today. So you know delaying the
collection of those taxes a year or two is not going to hurt
our country because the one thing governments love to do is to
collect and spend money. We would--like to move the House bill
which was passed by this Committee and the Senate bill which
was passed and came back to us a bit more than a year ago and
it sits at the desk. We would be very happy if you would look
at that bill and very quickly, because we don't have much more
time in the session, and tell us if this is a bill that would
work because if it is we want to pressure our leadership have a
vote in the House. It is S. 1156.
Yes, sir.
Mr. Coratolo. The United States Chamber of Commerce does
endorse S. 1156 and we would be fully in back of anything the
House would do----
Chairman Bartlett. If you all as quickly as you can could
get us a letter supporting this. If you will converse with your
colleagues at the table and if all of you could sign a letter,
and we will find somebody to type it for you before you leave
here if you wish. I want to get this on the floor as quickly as
possible. It is sitting there. It would be an enormous benefit
to small business to know that the IRS is not going to be able
in the future to lay regulations on them that are onerous
without them having a voice at the table. So if you could do
that, work with your colleagues and if before you left here if
you could get us something in writing, I will take that to Dick
Armey and see if we can get that on the floor.
Okay. Are there other comments or suggestions before we
close the meeting?
I want to thank you all very much for your contribution.
This record will be read by a lot of people. Your comments were
from my perspective right to the point. And please help us with
the letter of support for S. 1156 so we can get it moving as
quickly as possible. Thank you all very much for your testimony
and we are adjourned.
[Whereupon, at 12:10 p.m., the Subcommittee was adjourned.]
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