[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

                              ----------                              
                                                                   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?

                              ----------                              


                      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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