[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 deg.

         STATUS OF SMALL BUSINESS MANUFACTURING IN THE MIDWEST
                                   

=======================================================================

                                HEARING

                               before the

      SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT & GOVERNMENT PROGRAMS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, APRIL 28, 2003

                               __________

                            Serial No. 108-9

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house



                                 ______

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                            WASHINGTON : 2003
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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Mehan, Dan, Missouri Chamber of Commerce.........................     3
Yawitz, Sheelah, Missouri Merchants & Manufacturers Association..     5
Mittler, Mike, Mittler Brothers Machinery........................     7
Wainwright, Don, Wainwright Industries...........................     9
Poli, Len, M. Carter Industries..................................    11

                                Appendix

Opening statements:
    Akin, Hon. W. Todd...........................................    19
Prepared statements:
    Mehan, Dan...................................................    21
    Yawitz, Sheelah..............................................    24
    Mittler, Mike................................................    28
    Wainwright, Don..............................................    34

                                 (iii)

 
         STATUS OF SMALL BUSINESS MANUFACTURING IN THE MIDWEST

                              ----------                              


                         MONDAY, APRIL 28, 2003

                   House of Representatives
                        Committee on Small Business
     Subcommittee on Workforce, Empowerment and Government 
                                                   Programs
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 1:00 p.m., in One 
St. Peters Centre Boulevard, St. Peters, Missouri, Hon., Todd 
Akin, [chairman of the committee] presiding.
    Chairman Akin. We are ready to go.
    The Small Business Subcommittee will be called to order 
and, as we have done in Washington, D.C., as I have tried to 
run these meetings, we try to bring them in on time, so I would 
ask everybody to help out here. We are scheduling about an hour 
here for the meeting, and so if all of us stick to the times 
that have been indicated ahead of time, I think it will help us 
to get through things, make it efficient and hopefully 
accomplish our objectives as well.
    It is a pleasure to join all of you, but before I begin, I 
would like to recognize some key members of our Small Business 
Administration that we have in our audience today. Mr. Sam 
Jones, Region VII Administrator. Could you put your hand up, 
please. I do not see Sam here. He is delayed. Okay. Wendell 
Bailey. Let us see if Wendell is here. He was here this 
morning. He may be dropping in later. Office of Advocacy for 
Alan Richter, Small Business Development. Alan is over here. 
Thank you, Alan, for being here again this afternoon. We had a 
Manufacturing meeting earlier.
    I am happy to announce that I am going to be dropping a 
bill next week which will hopefully make all of our jobs 
easier. It is House Resolution 1772. It is the Advocacy 
Improvement Bill. It will enable the Small Business 
Administration, Office of Advocacy, to work that much harder to 
help small businesses. What this is, from everything I have 
been able to determine, it is the most popular part of the SBA, 
and that a law that says that the various agencies of federal 
government have to consider the impact of any particular 
changes they make on small business or business in general and, 
if they do not, what is the teeth? Well, the teeth is this 
Office of Advocacy, and we are strengthening that office so 
that you have an advocate to go against large federal agencies 
that are passing laws or rules and regulations which adversely 
affect your industry in ways that are unnecessary.
    That is really why we are here today, to see what we can do 
to help small businesses. I know how hard it is in the 
environment the way it is, and we are very interested in your 
comments, try and help do what we can in our partnership at the 
federal level. It is the small business owners and skilled 
laborers here, the machinists, the engineers that make up the 
life blood of the nation's economy. In the United States, 
manufacturing accounts for 16 percent of our nation's economic 
output. Makes up 81 percent of our exports. It counts for 30 
percent of our national economic growth, and over 60 percent of 
all research and development in this country is sparked by 
manufacturing.
    Missouri is no exception. In fact, we are the only one of a 
few states who can boast our manufactured contributions to the 
defense industry is a top component of our gross state product. 
I would like to use today as a launching pad to ensure Missouri 
and the entire midwestern United States is assured of an upward 
trend for its manufacturing base. It is no secret that I am a 
strong proponent of the President's tax cuts, an even stronger 
advocate for lower taxes for the sake of manufacturing growth. 
These changes alone, however, those critical, are not enough. 
Missouri has lost nearly 10 percent of its manufacturing jobs 
over the last five years. The information we share here could 
help us more firm grasp some of the issues and hopefully 
reverse some of these situations.
    [Mr. Akin's statement may be found in the appendix.]
    With us today we have some people who have a very intimate 
knowledge of this situation. Our panelists have been kind 
enough to give their time and knowledge. It is through this 
knowledge that we, God willing, will arrive at a prosperous 
market for our manufacturers and our communities.
    In addition, I would like to introduce my very good friend 
and colleague, the former congressman from a good part of this 
district and, though Ken Hulshof is not on the Small Business 
Committee, he is on a committee perhaps of even more importance 
to small business which is the powerful Ways and Means 
Committee in the House. They are looking at quite a number of 
different measures which can all have a tremendously positive 
impact on business and industry in general, and we are so 
thankful for Ken's experience, for his good work representing 
the western part of St. Charles in the past. Delighted to have 
you, Ken, and if you have a statement.
    Mr. Hulshof. I do, Mr. Chairman. Thank you very much and I 
especially appreciate the invitation to be a participant, even 
though, as you mentioned, I'm not on the Small Business 
Committee. I look around the room. Your predecessor, our good 
friend, now U.S. Senator Jim Talent, once convened a hearing in 
this same venue and some ideas came from that hearing that are 
now the law of the land. And so I'm encouraged, also knowing 
your advocacy for small business, that perhaps some of the 
things that will be discussed today can also bear fruit in 
Washington, D.C.
    As you know, you and I share St. Charles County. St. Louis 
and the Highway 4061 Corridor are still in the 9th 
Congressional District. But we also have had some sobering news 
as far as the manufacturing sector. You point out some of the 
success stories and yet I think probably our panelists are 
going to talk about some of the challenges, especially that the 
State of Missouri has faced regarding manufacturing and the 
loss of our manufacturing base. Just late last week--as you 
know, we have been on recess--in Kirksville, Missouri, which is 
in my district near the Iowa border, Standard Register just 
announced that they were going to be shutting down in 60 days. 
They employ about 250 men and women who have been there many 
years. Again, this is real tough when you are the largest 
manufacturer in the area to shutter your doors. I agree with 
you completely that when we return tomorrow and we begin to 
take up our work again that we should heed the President's call 
for quick passage of an economic growth package.
    As we have talked about, the ails of the manufacturing 
mirror the problems facing our economy as a whole. We have 
weathered the economic shock, going back to September 11 of 
2001 and yet, we have got a lot of work ahead of us as far as 
trying to revive some economic growth opportunities, whether 
that is accelerating the income tax rate or trying to reduce 
the taxation and lowering the cost of capital for businesses. 
Maybe that is some additional expensing provisions. I look 
forward to hearing from our panelists if, either in your 
written testimony or through questions later on, as to how some 
of these specific tax items might benefit you and your 
companies.
    So again, I'm encouraged by the fact that we have got just 
some strong voices here on behalf of small business and, again, 
my thanks to you in including me in this important hearing.
    Chairman Akin. It is a pleasure, Ken.
    I think, in order to keep things moving along here, I'm 
going to go ahead and introduce our first panel. My first panel 
is on the left and the second one is on the right. Total of 
five witnesses. And first of all, leading off is going to be 
Dan Mehan. He's President and CEO of Missouri Chamber of 
Commerce. And Ken, you mentioned that there was some bad news 
in Missouri. I think Dan may refer to that in his testimony. 
Dan, would you please lead off for us.

STATEMENT OF DAN MEHAN, PRESIDENT AND CEO, MISSOURI CHAMBER OF 
                            COMMERCE

    Mr. Mehan. Thank you very much, Mr. Chairman. It is a 
pleasure to be before you and with our colleagues of both sides 
of the microphone to talk about what needs to be done to 
generate economic activity and prosperity.
    I have a Missouri-specific statement really. I know you 
both deal with issues that impact the entire country, but I 
wanted to call your attention, as Missourians, to a dramatic 
statistic or two that we released in the last two weeks. This 
chart to my right shows that Missouri leads the nation in job 
loss in calendar 2002. These statistics are directly from the 
Bureau of Labor Statistics at the Department of Labor, U.S. 
Department of Labor. It shows that we lost 77,700 jobs in 
calendar '02.
    Chairman Akin. Mr. Mehan, this is something that you just 
mentioned to me earlier this morning. It didn't quite sink in. 
I had heard this before, but it didn't quite sink in. You're 
not talking about per capita jobs, are you? You're talking 
about state by state, just raw number of jobs, that we lead all 
of the 50 states in having lost more jobs, even than, for 
instance, California. Is that correct?
    Mr. Mehan. That is correct. This is raw data. These are 
77,700 people that lost their jobs.
    Chairman Akin. And no other state in the U.S. has lost as 
many jobs as we have.
    Mr. Mehan. Not even close unfortunately. If you notice on 
the chart and in the folder that is been distributed, it is in 
the left side of the folder, it may be easier to read, but the 
closest one behind us is Ohio at 62,300 jobs lost. That is 
obviously over 15,000 people behind us or we are ahead of them 
in job loss by 15,000 people.
    Chairman Akin. And yet they have twice residents in Ohio as 
we do.
    Mr. Mehan. Ohio has twice the population of Missouri.
    Chairman Akin. That is incredible. Thank you. Please go.
    Mr. Mehan. If you look on down the line, the startling 
thing--first of all, it is startling that almost 80,000 people 
lost their jobs. Secondly, that we are that far in the lead in 
this distinction. And I'll try to do this without knocking the 
chart down. But if you look at how we compare with our 
neighboring states, Missouri is bordered by eight states.
    The closest state in job loss is Oklahoma with 19,700. So 
if you look at the region, the midwest region, we are ahead of 
the closest competitor in job loss by almost 58,000 people. 
Now, that is astounding and, as you both know, it is as easy as 
walking across the street to get to another state--in Kansas, 
for example, on the border. So there's even two states, 
Arkansas and Tennessee, that have shown gains in job creation.
    Now, in Arkansas, one of our favorite subjects, two of 
them, workers compensation reform and torte reform, have 
occurred at the state level. I just want to call that to your 
attention.
    Another step to consider is that in Missouri, 70 percent of 
our jobs or 70 percent of our economic activity is on the 
borders and, when our neighboring states are beating us at this 
game, employers and the business community are obviously and 
naturally going to go to that business environment that is most 
conducive to them staying in operation.
    Chairman Akin. Mr. Mehan, I think what the chart I'm 
looking at, what you're telling me is there are eight states 
that surround Missouri.
    Mr. Mehan. Correct.
    Chairman Akin. I haven't done the math but it looks like on 
the surface that if you add up all or the jobs that those eight 
states lost, we have lost more in Missouri than we have when 
you add up all of them together.
    Mr. Mehan. That is correct, and I have not done the exact 
math, but it is astounding. I think it is almost double out of 
the eight states surrounding us, and there are those who have 
said that this is not that significant because in the '90s we 
outpaced other states with our job growth. I do not think that 
is too relevant in 2003 to those 77,000 people that have lost 
their jobs or their livelihood.
    Now, we have, at the Missouri Chamber of Commerce and 
Industry, have advocated reforms to workers compensation, tort 
reform in the state of Missouri. Hopefully the legislature 
won't heed the cry of the spending problem that we have seen 
and the budget shortfall that we have encountered and saddle 
the employer community with paying for that budget shortfall. 
And I think we have made some progress at the state level on 
that. But obviously, you both have paid attention to what to do 
about Missouri's budget shortfall.
    Just to conclude this presentation on job loss, the fiscal 
impact to the state of Missouri is significant as well. Seventy 
seven thousand jobs, using an average of roughly $30,000 as 
wages, generates $2.26 billion in wages. The lost income tax 
from that is $74 million. The lost sales tax is $34 million. 
Other taxes associated with that. The total fiscal impact to 
the state of Missouri is $126 million. Mr. Chairman, you know 
from your work in the Missouri legislature that this time of 
year, what the state would love to--how welcome a message it 
would be to get $126 million in the state coffers.
    There are things under consideration, and I'll be brief. My 
time is running out. But permanent repeal of the death tax we 
would encourage. We hear that from our members quite often. 
That type of tax relief. We had two meetings earlier today 
about accelerated depreciation. Basically, it is an access to 
capital issue to allow especially the manufacturing sector that 
has experienced up to 40 percent of that job loss to retool and 
reinvest in itself and to try to come out of this thing.
    One thing I wanted to mention also is the use of health 
reimbursement accounts which recently have been allowed by the 
IRS to be tax deductible, tax free. The use of HRAs to help 
finance first dollar health care costs combined with a high 
deductible policy. We use that in a program that we run called 
Missouri Chamber Care. We think it is a market-driven solution. 
Won't be perfect for all employers, but it will be a source of 
relief in the quest to find affordable health care and keep 
those costs stable in the long run. So we encourage that usage 
of health reimbursement account. Any sort of assistance from 
Congress to promote that idea or that concept and make that 
more marketable.
    Thank you very much.
    [Mr. Mehan's statement may be found in the appendix.]
    Chairman Akin. Could you submit something along the lines 
explaining that recommendation for the record?
    Mr. Mehan. We would be happy to. Yes. Thank you.
    Chairman Akin. Thank you very much.
    Our next panelist will be Sheelah Yawitz, President of 
Missouri Merchants & Manufacturers Association. Welcome, 
Sheelah.

 STATEMENT OF SHEELAH R. YAWITZ, PRESIDENT, MISSOURI MERCHANTS 
                 AND MANUFACTURERS ASSOCIATION

    Ms. Yawitz. Thank you, sir. Thank you, Mr. Chairman, and we 
certainly appreciate the opportunity of being here. Our 
organization represents small and medium size businesses 
throughout the state of Missouri and basically we work with 
them on legislative issues. So in preparing for the 
presentation today, we polled our manufacturers, and I'm not 
going to go over the statistics which Dan handled so well. I'll 
get to the point of their responses.
    From a large portion of our manufacturers, we heard that a 
major contributing factor to the loss of manufacturing jobs in 
Missouri is foreign competition. U.S. manufacturers are faced 
with workers' comp. costs, health care costs, OSHA, EPA, 
freight costs, that other countries such as China and Mexico 
are not faced with on an equal basis. Another member of our 
organization, Mike Mittler, who is President of Mittler 
Brothers Tool & Machine, will be addressing that issue so that 
you can question him about the loss of Missouri jobs and U.S. 
jobs in general due to foreign competition.
    But the other area that every single one of our 
manufacturers said was priority and a major problem facing them 
was the increasing costs of health care. And I think it is 
easiest if I read from one of our members their response. This 
is the president of a manufacturing company and she says, ``We 
are again looking at a minimum increase of 20 percent and the 
company can no longer absorb these increases. We may have to 
reduce coverage to avoid passing increases to employees. Either 
way, the employees lose and the employers lose.'' She goes on 
to say, ``What makes the health industry need these ongoing 
increases? What makes them so different than other 
businesses?''
    If you look at the pendulum, the past 50 years, it used to 
be 50 years ago, only five decades, which is not that long ago, 
the consumers paid for 100 percent of their health care costs. 
Then we came to employers were paying for basically 100 percent 
or close to that of the health care costs. For the past four 
years, the average increase has been at least 20 percent per 
year for four years. It can't be absorbed any more. So now you 
have employers are saying, we can either pass the costs on to 
the employees, reduce the benefits or absorb it if we can still 
compete and stay in business.
    Now on the positive side, there are some new tools 
available to help in controlling and reducing health care 
costs. One is HRA, Health Reimbursement Arrangements. In 2002, 
the summer of 2002, the IRS came out with rules specifying what 
the tax consequences were. So that was a step in the right 
direction. We are talking about consumer-driven health care 
where employees start to make choices. HRAs are employer's 
money. The employer sets aside a specific, the same amount for 
each employee. Then the employee can choose how they want to 
spend those monies for health care costs. And those costs are 
defined by the IRS. So we are not just making up how you can, 
you know, use those monies.
    Now, the employer can also decide, if there's left over 
monies in the employees' account, to roll them over all or a 
portion of the money for next year's health expenses and the 
employer can also choose to say, we are going to set some of 
that, or a cap thereof or all of it, for retirement expenses. 
So with these type of options available, HRAs dramatically 
differ from high deductible accounts. SO they're a very 
positive tool.
    Now, the problem is HRAs and FSAs, that is flexible 
spending accounts and that is employee money, they both come 
under the same definition with cafeteria plans as to who is an 
eligible employee. And the IRS has said, shareholders of sub-S 
corporations and partners off LLCs can not participate in 
cafeteria plans. So we are asking you today to do three things.
    Number one, change the definition of an eligible employee 
to include shareholders of sub-S and partners of LLCs. Number 
two, remove the use it or lose it from the FSA. If an employee 
has leftover money in the flexible spending account, they lose 
it. They do not get it back. And number three, for all 
cafeteria plans, and that is set-aside pre-tax money, allow the 
employee to make mid-term changes. Right now in cafeteria 
plans, they can only make a decision January 1 of every year. 
They can not change it.
    So consumer-driven health care will control health care 
costs. It isn't a fix-all, but it sure is a good tool, and we 
appreciate the time. We think you can make a difference and 
make it happen. Thank you.
    [Ms. Yawitz's statement may be found in the appendix.]
    Chairman Akin. Thank you very much. I appreciate your 
testimony and also very specific recommendations that you 
provided. It sounds exciting.
    We are going to go ahead to our second panel and leading 
off we are going to have Mike Mittler, President of Mittler 
Brothers Machinery. Thank you, Mike, for joining us today.

    STATEMENT OF MIKE MITTLER, PRESIDENT, MITTLER BROTHERS 
                           MACHINERY

    Mr. Mittler. Thank you, Mr. Chairman and Congressman 
Hulshof. As you said, I'm Mike Mittler from St. Peters, 
Missouri. This is my hometown city hall that we are testifying 
at today. Welcome and thank you for the opportunity to testify 
on behalf of my coworkers and the 2,000 member companies of the 
National Tooling and Machining Association regarding the state 
of U.S. manufacturing and tooling today.
    We feel our industry is under attack. We are faced with a 
very unfair playing field imposed by our own government, 
including unfair tariffs, excessive regulations, an overly 
strong dollar, and unfair competition from China, a communist 
country.
    As you said, I'm President of Mittler Brothers Machine and 
Tool, and I'm the National Secretary of NTMA. I will be the 
National Chairman of that organization in 2006. Mittler 
Brothers is a full service job shop machine shop providing 
custom precision machining, design, engineering and building of 
special machines and a proprietary product line of metal 
cutting and forming equipment for the racing and metal 
fabrication industry. We are located in Foristell, Missouri. We 
currently employ 40 people and our products are sold world-
wide.
    We think that every manufacturing company in the country 
and in the world does business with our industry. The U.S. 
tooling and machining industry employs close to 450,000 people 
nation-wide. We account for shipments of $43 billion. The metal 
working industry includes machinists, dye makers, mold makers 
as well as tool and die designers, and we believe, without 
them, the mass production of manufactured goods would not be 
possible.
    We have already heard the loss of jobs, particularly in 
Missouri, and the loss of jobs in the country, and so we know 
that we are losing industry at an alarming rate. Unlike typical 
down turns of the past when manufacturers simple cut back and 
waited for recovery, in the current down turn, manufacturers 
are rapidly relocating outside the U.S. and large numbers of 
small and mid-sized U.S. manufacturers are closing down 
permanently due to foreign competition. The resulting loss is a 
loss of family-sustaining blue collar jobs, it is undermining 
the U.S. middle class and devastating communities where 
manufacturing is essential to the local economy.
    I think you're aware of the ITC report that tells you the 
bleak outlook of the tooling and machining industry, and I 
think it tells a lot about the future of the U.S. economy. We 
are currently in an over capacity situation, and part of that 
over capacity is caused by American manufacturers moving 
offshore to find lower government regulations, lower taxes and 
cheaper labor. A typical example of that is companies such as 
Emerson Electric based here in St. Louis have moved almost all 
their motor manufacturing offshore. As they move offshore, we 
lose the opportunity to provide them with tooling and machining 
services that we provide, and the result is also, as 
demonstrated by Mr. Mehan, is the loss of good paying wages and 
jobs that go with those, particularly large here in the State 
of Missouri.
    Local tooling companies such as ours have lost from 10 to 
50 percent of their employees in the last two years from this 
lack of work and from these companies moving their 
manufacturing offshore. And this does not count the number of 
companies that have closed altogether, again exemplified by the 
high number of people that have lost their jobs. Foreign 
companies are becoming more technologically advanced, able to 
offer significantly lower prices, sometimes as much as 60 
percent. We believe our industry could see as many as 50 
percent of the shops close their doors in the next couple of 
years. The NTMA has lost 400 members in the last two years, 
many of them a result of companies going out of business, 
simply no longer in existence.
    You heard from Sheila earlier about the cost of health 
care. We have had increases. We echo her comments. We have had 
increases as high as 25 percent in our company and in our small 
company with 40 people, we currently spend in excess of 
$150,000 a year for health insurance costs. That is a very 
large cost for our small company.
    The banking industry we think is part of the problem. Many 
companies are having their working lines of credit withdrawn 
due to the loss of profits in our industry, so we think there's 
a real issue there. Our 1999 National Chairman of NTMA just 
recently was forced to close his business due to losing his 
working line of credit. We have been very fortunate to have a 
strong banking relationship in our company, but only as a 
result of personally guaranteeing all the loans that the 
company has.
    So not only is it important to the economy but, as you 
stated earlier, in Missouri, in the St. Louis area 
particularly, the defense of our nation is very critical and a 
large amount of these jobs in the local area are defense-
related with Boeing as the leading supplier of many of the 
weapons that you just saw our country strong. We are really 
against any work of defense prime contractors sending defense 
work offshore. This practice is going on and is not being 
monitored by the DOD.
    Chairman Akin. We are starting to get a little close on 
time. Are there specific things that you'd want to--other than 
what you just said, that you want to add as recommendations 
or----.
    Mr. Mittler. Well, I think that stemming the tide of loss 
of jobs and the unfair competition from China with the fact 
that they have lower tariffs to bring their product into our 
country. We have very high tariffs and freight costs to try and 
export our products world-wide. So that is one particular area 
that we'd like some help on.
    Chairman Akin. Thank you very much.
    Mr. Mittler. Thank you again for your support of small 
business and thank you for your support of manufacturing.
    [Mr. Mittler's statement may be found in the appendix.]
    Chairman Akin. Thank you very much, Mike, for testifying. 
And now Mr. Wainwright. Mr. Wainwright is Chairman/CEO of 
Wainwright Industries but also was--were you the acting 
president of the National Manufacturers Association, was it 
last year, Don?
    Mr. Wainwright. Chairman.
    Chairman Akin. Chairman.
    Mr. Wainwright. Of the National Association of 
Manufacturers.
    Chairman Akin. Thank you.

   STATEMENT OF DON WAINWRIGHT, CHAIRMAN AND CEO, WAINWRIGHT 
                           INDUSTRIES

    Mr. Wainwright. And thank you for this time, Mr. Chairman 
and Mr. Hulshof. Thank you very much, Congressman Hulshof.
    This is quite an opportunity. I'm the Chairman and CEO of 
Wainwright Industries here in St. Peters and in the St. Louis 
region, of course, where I've spent my entire life. So I've 
seen this area in the manufacturing for 35 years. Wainwright 
Industries is a subcontractor to larger manufacturers in the 
aerospace and automotive industries. We supply steel components 
to those industries. We employ about 200 people in this area of 
two different plants.
    I want to thank you for this opportunity and tell you about 
the unprecedented challenges that today threaten our 
competitive leadership in manufacturing, not only in the state 
of Missouri but in the United States itself. Over the past year 
and two months, we have seen the weakest manufacturing recover 
from the recession since the Federal Reserve started keeping 
tabs on this back in 1919. The data shows that December 2001, 
manufacturing production has edged up only 1.6 percent, 
drastically slower than the first 14 months of the six previous 
recessions and growth in manufacturing has averaged 10.8 
percent and other recessions as we came out.
    But the weakest of manufacturing is perhaps best reflected 
in the loss of employment, as we have talked about previously. 
Manufacturing nation-wide has lost for 32 consecutive months 
more than 2.1 million in all jobs. From July of 2000 through 
last December, the overall attrition of manufacturing jobs was 
11.3 percent or more than one out of 10, and here in Missouri 
during that time we have lost 45,300 manufacturing jobs alone 
or 11.2. Our experience pretty much reflects the national 
experience.
    This is a frightening trend that we can not afford to 
ignore. Manufacturing is essential to the economic growth and 
employment opportunities of the state and the nation. During 
the prosperities of the '90s, manufacturing was the largest 
contributor to economic growth. Manufacturing accounts for a 
quarter of the U.S. economic output, 64 percent of exports, 62 
percent of the research and development and 27 percent of the 
growth of this nation. It is the driving force of technology, 
progress and productivity growth that has made this happen. 
Indeed, during the late half of the 1990s when the overall 
economy recorded respectable productivity gains of 2.5 percent 
a year, manufacturing roared ahead at 4.5 percent a year, 
almost double that of the rest of the economy.
    Loss of manufacturing is particularly critical because we 
are the ones that have the best jobs and we have a major ripple 
effect throughout this economy when we do not have those jobs. 
Manufacturing workers are among the best paid in our country, 
earning 20 percent more than the average wage and more than 80 
percent of them have received health insurance paid by their 
employers. In addition, manufacturing jobs tend to create and 
support more employment than other sectors of this economy. Our 
most conservative estimate suggests that of 16.5 million 
manufacturing jobs, we support at least 9 million other jobs in 
the economy. In other words, for every manufacturing job, 1.8 
jobs are then created.
    It is also essential to emphasize the contribution 
manufacturing makes to the national security, which was already 
brought up, a contribution that has been dramatically 
revisable, of course, in the last few weeks with Iraq. Our 
ability to deal with the regime of Saddam Hussein and the 
minimal loss of civilian lives among Iraqis and relatively few 
casualties among our own troops is based upon the advanced 
digital, laser and communication technology of our industries. 
From the advanced fighter planes to the high tech ordnance 
guidance systems to night vision goggles is all a story of 
manufacturing's genius at work. Manufacturing is our nation's 
laboratory of innovation where our most creative people, 
equipment and breakthroughs in technology and the quest of the 
break-through products and more efficient processes that are 
the heart of our productivity.
    But hundreds of shuttered factories and more than two 
million lost jobs are very short. We have seen this happen 
across our country. We have a problem and we have to deal with 
now. In my view, we face three fundamental policies, challenges 
that must be met.
    One, the economy remains listless and it is uninspiring. 
First step is getting manufacturing back in high gear with tax 
breaks. We need tax breaks. The tax reduction proposed by the 
Bush Administration is a reasonable start. Two, rapidly rising 
business costs stemming from the general indifference and the 
burden of government rules and requirements on business are 
becoming an economic burden on our companies and our workers. 
For some companies, the cost is simply too much. And three, 
while manufacturers must contend with steadily rising costs of 
doing business, unprecedented foreign competition makes it 
impossible for them to keep pace.
    Thank you very much, Mr. Chairman.
    [Mr. Wainwright's statement may be found in the appendix.]
    Chairman Akin. Thank you very much, Mr. Wainwright and I 
appreciate your comments. We have got one more witness. These 
are actually owners of small businesses on panel two, and we 
have Len Poli. He's the President of Carter Industries. Len, 
thank you so much for joining us this afternoon.

 STATEMENT OF LEN POLI, BUSINESS MANAGER, M. CARTER INDUSTRIES

    Mr. Poli. Thank you, Mr. Chairman. My name is Len Poli. I'm 
actually the business manager for M. Carter Industries. M. 
Carter Industries is a small manufacturer of service station 
and liquid handling equipment for the petroleum industry. We 
market our products throughout the United States and to about 
20 countries outside of the United States and throughout the 
world.
    We made a conscious effort to broaden our marketing scope 
into the international arena in the early '90s and today that 
is proven to be a good decision. About 30 percent of our sales 
are international. This business has a stabilizing effect on 
our total business because the U.S. market continues to 
fluctuate. As one of my customers recently commented, if this 
roller coaster ever gets level and straight again, I'm not 
certain I'll know how to handle it.
    Everything that is involved in a small business over a 
large business has a cost. Containing these costs is a major 
part of what I and every manager and owner of small business do 
every day. Some we have direct control over and some we do not. 
Component costs for products we can control to a degree. Labor 
costs we can control, again to a degree. Federal, state, local 
taxes, regulations, certifications and business insurances we 
have very little control over or no direct control. All of 
these have a direct impact on our ability to be competitive in 
the U.S. and world markets.
    At the beginning of this year, we decided that new 
equipment purchases would be necessary to reduce costs of 
making certain components. One machine is now on order and will 
be delivered in June. Another will be ordered later this year. 
This new equipment is more efficient and provides a cost 
savings in the components for our products. This first machine 
is a modest cost of only $40,000. The next will be about four 
times that. Needless to say, we would appreciate the proposed 
accelerated write-off for investment in equipment.
    Additional savings are projected from changes implemented 
at the foundries where we have aluminum castings made. However, 
the costs that we can not control continue to increase. 
Business insurance continues to rise. Our health insurance 
premiums increased 15 percent on last renewal. Workers' comp. 
jumped 20 percent, and just this week we renewed our product 
liability, product casualty and general liability insurance 
policies. The product liability increased 67 percent. This 
sounds high, but it was 83 percent until we increased the 
deductible to a maximum level. I must add in here that last 
year's increase was 30 percent.
    It is also disturbing to have a $1,050 premium addition to 
our property policy to cover acts of terrorism. I thought that 
with the federal government's backing of the insurance 
industry, I thought this was an unnecessary gouge.
    Physician malpractice insurance costs have made headlines 
but liability insurance is a major problem for every business, 
whether it is a manufacturer or not. Some of my distributors, 
my customers in the United States, are forced with a decision 
of whether to maintain a full fleet or cut back, just so they 
can maintain the same level of insurance costs.
    Many of the federal regulations and certifications that 
affect us have appeared to be written for larger companies 
without any tolerances. The EPA sets guidelines that may be 
appropriate to a company with 500,000 gallons of waste water 
per day but the same applies to one with 500. OSHA's rule for 
forklift operations and operators and safety inspections are 
set if the operation was 24 hours a day, not as we do, 30 
minutes every two weeks. No one is against is safety, but 
common sense certainly has a place. If the garment industry 
followed this same line, we'd all be wearing the same size 
suit. Some of us would look okay.
    In our industry, the EPA's related certifications restrict 
the ability of small businesses to compete and strain larger 
ones. We do not manufacture the vapor recovery fueling 
equipment that is common in the St. Louis area at your service 
stations here and in other cities. The certification cost alone 
for each system is $250,000. That is beyond our budget. Some of 
the best ideas and inventions have come from small operations 
such as ours. Research and development is restricted to money, 
personnel and equipment. Over the years, we have been 
successful in developing some new products, some of which have 
been patented. Vapor recovery projects have been shelved 
because of the exceptional high cost of certification. 
Currently, we are involved in reducing static electricity.
    We export to many countries and only a few do not levy a 
duty on the products that we ship. This gives our competition 
unfair advantage. For instance, Turkey has a 15 percent duty on 
all U.S. products coming in. They buy the same product from the 
Netherlands without any. Argentina has an 18 percent. In other 
countries, they're zero.
    To add on to something that just--that Mike was talking 
about. From China, for instance, the duty going into China from 
our product is 12 percent with a VAT tax of 17 percent while 
they can ship the same product here with zero.
    Thank you very much.
    Chairman Akin. Thank you very much, Len. Appreciate your 
joining us today. We could have broken things up in a couple of 
ways, I suppose, and had the industry representatives in a 
sense, then had the actual owners of businesses. I thought it 
was better just to go ahead and let each of you make your 
statement and then proceed with some questions. We have some 
time, and I would defer to you, Ken, if you'd like to take the 
first shot at some questions.
    Mr. Hulshof. I appreciate that, Mr. Chairman. I assume for 
the purpose of the record the entire written statement of the 
witnesses will be included. Is that right?
    Chairman Akin. It will be included.
    Mr. Hulshof. Let me ask, first of all, Ms. Yawitz or you, 
Mr. Mehan, the idea of associated health plans. I assume each 
of you would support or do support associated health plans. Is 
that right?
    Ms. Yawitz. We have concerns. We do support them, but we 
have to also look at the history of association type of plans. 
They weren't called association plans before. They were 
employer welfare--multiple employer welfare plans. Our concern 
is a plan would either take in only good risks that leave the 
not so good risks with where are they going to get coverage or 
a plan that only attracted the negative risks.
    Mr. Hulshof. Okay.
    Ms. Yawitz. So the more options we have on the table, the 
better, but I would like to see how this is going to differ 
from what used to be called the multiple employer welfare plan.
    Mr. Hulshof. Mr. Mehan, I've heard some of those concerns 
expressed by some providers. What--is there a good response 
from the Chamber regarding it? Not to put the two of you at 
odds, but what is a response to the idea that the risk pool is 
going to be skewed were we to enact associated health plans?
    Mr. Mehan. I agree with what Sheila just said with some 
other concerns, as well. I think what you'll find and what--
when the Missouri Chamber had an association plan in the '90s, 
what typically happens is they attract a lot of clients, a lot 
of policies, and they follow a bell-shaped curve of success 
where people will join and then, over the course of time, 
you'll find that the better risk pools or better risk employers 
in there will find other coverage elsewhere or be offered more 
economical coverage by the insurance industry. So then that 
pool is left with a higher degree of risk. That is the--
typically, it is sometimes referred to as the death spiral, 
that sort of thing.
    Now the other thing that I think needs to be in any reform 
or any market-driven reform is health care costs have got to be 
accurately reflected and accurately portrayed to the employees 
who are using them. My concern or one of our concerns on AHPs 
is that it does not necessarily involve the employee in that 
decision. I think employees and users of the program that 
employers are purchasing have to understand, to put it simply, 
that this is not just a $10 payment and the rest is borne by 
the--by someone else. So----
    Mr. Hulshof. Right.
    Mr. Mehan [continuing]. Better data, better utilization of 
data, can help with that.
    Mr. Hulshof. I appreciate that and certainly, as the 
Chairman and I and others understand, this is a vexing problem. 
In fact, the ones having to pay the bills nodding in agreement 
with you as far as providing health insurance which used to be 
a standard benefit and yet now is being costed out of the 
market. And Ms. Yawitz, as you pointed out before and maybe to 
state it in a different way, as someone in a family, we buy our 
own life insurance, car insurance, home insurance, and yet we 
rely upon our employers to provide our health insurance.
    Let me shift gears quickly and ask a tax question. I 
appreciate your indulgence, Mr. Chairman. Actually, Mr. Poli, I 
pulled out. You said common sense has a place. I think I got 
that. That is why we are here in Missouri and not in 
Washington, D.C. That is why we are holding this hearing and 
the Chairman has convened this hearing here.
    Specifically, Mr. Mittler, on this expensing and, Mr. 
Wainwright, you touched on it briefly, as well. The idea that 
if you're on the cusp and you're looking at your books to 
decide whether or not to make an investment in your plant, tell 
us how increasing the expensing provisions or maybe raising the 
threshold because it is not been indexed with inflation, how 
would that directly help you in making a decision that yes, we 
are going to make this capital purchase this year? Mike or Don 
either or Mr. Poli.
    Mr. Wainwright. Yes, sir. The two things you look at, of 
course, your return on your investment. In other words, how can 
you recover that investment? In other words, it has to pay for 
itself. So to go about that--that is one of the provisions. The 
other one is, you know, will this make me more productive, to 
make my entire business more productive for the future? And 
both of those things are tied together.
    So if we look at a new piece of capital equipment, the 
chances are the reason we are looking at it is to cut cost, to 
be more productive, to be able to compete with the foreign 
nations that continue to give us a--put us in a deflationary 
bent in this country. So if you give us a faster write-off, 
what we are going to be able to do is get our money back 
sooner, and that would just as--time is money and that just 
gives us our investment back much quicker. So we have the 
incentive then to go out and spend.
    Let us say back in the 1980s when we went to supply side 
when Reagan put in supply side. You know, we had 100 percent 
write-off in the first year of anything we purchased at that 
time. I mean people were putting in steel mills at $750-800 
million a shot, being very productive. But they were able to 
write that off in the first years or they could recoup their 
investment in the first year of what they needed to recoup. And 
that just flared industry and got it going because once you 
start the supply side, the demand side will then pick up. If 
you give people--I'm not saying we do not need some tax relief. 
But if you give people on the consumption side a tax relief and 
they're afraid they're going to lose their job, they aren't 
going to spend that money because they're worried about their 
job.
    But if you give them--if you give the employer the option 
to be able to invest in his organization to make it more 
competitive in the world markets, to grow their business, and 
there's activity in that business, the people feel very 
confident and you also give them a tax relief on that 
consumption side and they start spending that money. Then we 
get the economy going. We have seen this in seven of the last 
nine recessions, that capital investment has led us out of the 
recession. Yet this time, you see what's happened. We have got 
1.6 percent growth where we have usually jumped out of a 
recession at about 10.8 with capital investment leading us.
    Mr. Hulshof. Thank you.
    Chairman Akin. Thank you very much. Let me first jump to 
one of the things that you made some comment about in terms of 
tax. If you had to choose one particular tax, you could only 
choose one where we would do some reform, I've gathered from 
your comments--this is for any of the five of you--that it 
would be something along the lines of more rapid depreciation. 
You think that would probably do more for the manufacturing 
side to get things going. Am I correct in that assumption and, 
if there were a second thing, what would be your second choice 
after more rapid depreciation?
    Mr. Poli. I agree the more rapid depreciation would be, as 
Don was just saying, that is a primary.
    Chairman Akin. Right. Anything else like double tax and 
dividends would still be second behind the more rapid 
depreciation?
    Mr. Poli. Well, as touched on earlier just for a brief 
second, was the repeal of the death tax also and particularly 
in small business and in Missouri with a large rural and 
farming community also, repeat the death tax to keep the farms 
in the family and keep the manufacturing in the family. To make 
that repeal permanent would be a real benefit also.
    Mr. Wainwright. Mr. Chairman, I would like to say one other 
thing about the capital investment. In manufacturing, which we 
are talking about--this is a manufacturing business that we are 
talking about at our meeting. In manufacturing, we are capital 
intensive. You know, machines--in 1950, we made up 25 percent 
of the GDP. We employed 34 percent of the work force. In the 
year 2002, we are at 25 percent of the GDP and we employ nine 
percent of the work force. That is productivity and that is the 
way we go. That is the only way we can be competitive. And so 
when you talk to heavy investment, capital intensive 
manufacturing, yes, that is the number one.
    Chairman Akin. That has got to be first. It is got to be 
first. I think the second thing that I was hearing--and correct 
me if I'm wrong--but I think I was hearing you say that the 
cost of health care is probably another one that is right up 
there in terms of your list of priorities all the way across 
the board. And if you were going to do some things in health 
care, Ken asked you about the associated health plans and yet 
you mentioned some ideas here that were a little bit different.
    Particularly you, Sheila, talked about, you called them an 
HRA, health reimbursement accounts, and FSAs and things like 
that and some things that we could do to change the way 
cafeteria plans apply and all. Would you say that would be one 
of the top things? We have been working in the House and 
limiting the amount of punitive damages that physicians can be 
held for which, of course, reduced the cost of medicine 
somewhat and we are interested in moving ahead with AHPs. But I 
think what I was hearing you say, there may be some things 
other than the AHPs that you like almost better.
    Ms. Yawitz. Yes.
    Chairman Akin. Is that true or am I putting words in your 
mouth?
    Ms. Yawitz. No. You're exactly on target.
    Chairman Akin. Is that the same for you, Dan? Are you in 
the same boat with Sheila on that, that there may be something 
better than an AHP to give you the flexibility?
    Mr. Mehan. Yes. That is true.
    Chairman Akin. Okay.
    Ms. Yawitz. AHP is an unknown factor.
    Chairman Akin. Right.
    Ms. Yawitz. Okay. So, you know, what we know we have here 
are some good tools that need some refining and the cafeteria 
plan--well, let's back track. I mean everybody, manufacturer, 
this is a global market so anything that reduce and helps us to 
compete with foreign competitors. Let us not repeat that. But 
then the manufacturers themselves. We just represent them. 
Okay. They are their own companies over there, which is, you 
know, the bread and butter. They are the ones. At the bottom 
line is all of these costs that are not on a same ratio with 
Mexico and China, and health care is there.
    When you can allow the partners and the shareholders also 
to participate in pre-tax dollars, taking off whether it is 
health care dependent, medical costs and health care premiums, 
you're going to have more participating in that. Plus, the 
flexible spending account is not coming near to its potential 
by employees. It doesn't come close because of the lose it or 
use it factor. If an employee knows that their premiums are X 
amount of dollars of year, their out of pocket, their 
preventative medicine, da-da-da-da, adds up to $500. Okay. All 
of a sudden, the employer changes their plan mid-year or 
something changes in their personal, and let's say their costs 
at the end of the year are only $300. Do you know where the 
$200 goes? To the employer. So how can an employer promote 
flexible spending accounts when there's the possibility the 
employer is going to be retaining the employee's money at the 
end? It doesn't make sense.
    So as far as the association plans, I think they're there 
on the table but a little refining on what you have already 
available is going to bring it down to consumer awareness, no 
different than we were. When I was a little girl, my dad paid 
100 percent for all of our medical costs. Okay. When my husband 
was employed, the employer made 100 percent and 80 percent of 
the employee costs. We are somewhere in between and the fact is 
I go and I have a $10 co-pay. I purposely asked last time, how 
much does the prescription actually cost? $77. Employees do not 
care because they're not paying. I do not fault them for it.
    Chairman Akin. Yes.
    Ms. Yawitz. It is an educational campaign.
    Chairman Akin. If you were to take a look at some of these 
different line items in a manufacturing business, all of which 
add to your costs and all of which hurt competitive nature, how 
big is health insurance compared to things like workers' comp. 
or product liability or business insurance or these other 
things? Is health insurance the biggest one of that sort of 
insurance package of overheads?
    Ms. Yawitz. Usually you'll see a cycle where workers' comp. 
is high or property, casualty and health care is low. 
Unfortunately for the employer, they're both at their peak. So 
one used to be able to offset the other. Workers' comp., 
there's a few more options out there for self-insurance and 
group self-insurance, so it takes you out of the traditional 
market place to help smaller businesses. Both the Chamber and 
our association have these group self-insured plans. Health 
insurance affects--I do not care if you're an Ameron Huey who 
is sitting here in the company--I think he'd support--down to--
our company has seven employees, when you're talking about 20 
percent increase per year.
    Chairman Akin. So it gets to be pretty--So now, I didn't 
quite get an answer to my question. Do you think health 
insurance is probably one of the biggest in terms of the size 
on your bottom line and also the rate at which it is growing? 
Is that probably one of the worst?
    Mr. Wainwright. I would say so, Congressman. The one thing 
you have to realize is that we do not want to lose the greatest 
health care system in the world. We still are the healthiest. 
It is a great country, the health care system we have. It is 
out of control from a cost standpoint right now. That is the 
thing we need to bring under control. So we do not want to 
federalize this, and that is why we need to get on this because 
that is the way it is heading. And I see some larger 
corporations that are ready to throw the towel in and say, let 
us federalize it. We cannot do any more. And that is the thing 
that has got me worried.
    So we need to really start looking at this and really 
getting involved and making sure, and the things that were said 
by the associations are very true. People need to be involved. 
You need to have your people involved so you understand where 
the costs are and why are there costs and they need to work for 
wellness to try to keep it down.
    But to come to your point on what is the most costly. When 
there is something you cannot control, that is what is costly 
to a business. In other words, workman's comp. You know, we 
work extremely hard in the state to make sure we keep--have one 
of the better states, one of the low cost workman's comp. bills 
in the country but yet still cover our employees, and how do we 
do that? Well, we make sure that our people are safe in those 
plants, they understand the system, they're well taken care of 
and we are able to monitor that and to explain to them and 
they're able to keep those costs down to help us and that is 
how we do that. So we can sort of control that. We can control 
a lot of those. Unemployment costs. We can control those.
    So the type of cost that you can do things to--health 
insurance. They walk in and tell you it is going up 30 percent 
this year. Well, you can shop around a little bit but generally 
it is pretty much across the board and that is it. You have 
either got to have lower health--lower quality health care for 
your people or pay the bill. So we have to pay the bill. 
There's no way to get the high quality and cut the cost in this 
situation and keep it under control. So yes, it is a very 
vexing problem. I probably have four or five people that spend 
six to eight months a year trying to keep costs under control. 
We have been self-insured. We are big enough to be self-
insured. Due to the liability situation over the last couple of 
years, we have moved back to the full insurance. But what 
happens when you're fully insured, it is like being with the 
federal government. Then you drop everything because you do not 
worry about the cost again. You know, you say, well, we are 
taken care of. You need to be involved and yes, it is one of 
the most important and highly escalating costs for business 
right now.
    Chairman Akin. Thank you very much. I appreciate your 
response to those questions and last question goes to 
Congressman Hulshof.
    Mr. Hulshof. Just really more of a comment than a question, 
and I appreciate, Mr. Wainwright, included within your written 
testimony. I know that time did not permit but you also 
referenced a national energy policy which we can't lose site of 
as far as making a sustainable economic growth and the 
manufacturing as far as a reliable supply at affordable price. 
In the House, we had that discussion just before we took our 
Easter recess and, of course, have given to our colleagues on 
the other side of the United States Capital what we think is a 
pretty good energy policy as far as conservation, in addition 
to looking at other reserves, and so I appreciate you 
mentioning that.
    And lastly is a comment. Mr. Mittler, you also pointed out 
in your written testimony the permanent repeal of the death 
tax. You know, the 2001 tax reduction that passed the House and 
passed the Senate that the President signed into law, if it was 
good policy then, it remains good policy now and again, this 
unusual exercise we have gone through where technical Senate 
rules prohibiting us from making tax reductions permanent. If 
we fail to act in Congress, what that means is in a few years 
down the road, we are going to have a substantial tax increase 
and, as a business person, there is really no legitimate way to 
plan ahead to take care of your family business to pass it on, 
not knowing whether or not there will be an inheritance in 2010 
and 2011 or not.
    And so I share--and I know Todd shares your enthusiasm as 
well. And again, I just want to thank you, Mr. Chairman, for 
allowing me to participate in this hearing.
    Chairman Akin. Thank you very much, Congressman. Thank you, 
all of our panelists for your insight and all of the expertise 
that that represents and also thank the others who are here 
participating and interested in what we are taking a look at 
and we have taken your written comments for the record and 
again, thank you all for participating. Have a good afternoon. 
Meeting is adjourned.
    [The meeting was adjourned at 2:15 p.m.]

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