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

                                                       S. Hrg. 102-000 deg.

                  FEDERAL AGENCY TREATMENT OF SMALL BUSINESS

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

                                    HEARING

                                   before the

                SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT

                                     of the

                          COMMITTEE ON SMALL BUSINESS
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                   __________

                          WASHINGTON, DC, MAY 15, 2003

                                   __________

                               Serial No. 108-15

                                   __________

             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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                          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
    Barrera, Michael, U.S. Small Business Administration.............     3
    Olson, Nina E., Internal Revenue Service.........................     5
    Wood, Dorothy, JD&W Inc..........................................    13
    Darien, Kristie L., National Association for the Self-Employed...    15

                                    Appendix

    Opening statements:
        Capito, Hon. Shelley Moore...................................    28
    Prepared statements:
        Barrera, Michael.............................................    32
        Olson, Nina E................................................    39
        Wood, Dorothy................................................    51
        Darien, Kristie L............................................    55
        Hedrick, Robert F............................................    59

                                     (iii)

                   FEDERAL AGENCY TREATMENT OF SMALL BUSINESS

                                  ----------

                             THURSDAY, MAY 15, 2003

                      House of Representatives,
                            Committee on Small Business
                Subcommittee on Regulatory Reform and Oversight
                                                       Washington, D.C.
        The Subcommittee met, pursuant to call, at 10:10 a.m. in
    Room 2360, Rayburn House Office Building, Hon. Shelley Moore
    Capito [acting chairwoman of the Subcommittee] presiding.
        Present: Representatives Capito, Gonzalez, Bartlett, King.
        Chairwoman Capito. Good morning. I apologize for being
    late. I was out with a school group on the Capitol. If anybody
    has been out there, it is mass chaos out there today. Good
    morning. I would like to thank all of you for participating in
    today's hearing on Federal Agency Treatment of Small Business.
        I am honored to have the opportunity to chair this hearing
    today. It is, however, unfortunate circumstances. Ed Schrock,
    who is the Chairman of this Subcommittee, could not be with us
    here today, because his mother is ill and he is tending to her
    needs. So our thoughts and prayers are with Ed and his family.
        This hearing seeks to examine the federal government's
    treatment of small business when it comes to regulatory
    compliance. Our small business sector is heavily burdened with
    extra paperwork and additional costs because of regulation.
    When you add the cost of a possible enforcement action, the
    burden increases dramatically.
        In 2000, a report put out by the Small Business
    Administration's Office of Advocacy calculated the cost of
    regulations to our economy at $843 billion per year or $8,164
    for every household. That number rivals our massive federal
    budget this year.
        Even more troubling than that was statistics gathered on
    the impact of these regulations on small business. Small
    businesses face a regulatory burden that is 60 percent higher
    per employee than larger businesses. The authors estimate in
    their report that the average small business is burdened with
    almost 7,000 per employee in regulatory compliance costs. Now
    the costs further increase when you are unable to comply with
    the federal regulation, either because of lack of knowledge or
    just plain confusion.
        In the year 2000, the National Federation of Independent
    Business released a survey of their members which described
    some 82 percent of their respondents as saying discovering
    regulations in the normal course of business or when an
    enforcement action is begun. ``Gotcha'' regulations on an
    unsuspecting small business are not a good representation of
    attempts at compliance assistance by agencies.
        Dealing with the government once a penalty or fine is
    imposed, can be extremely onerous and can throw a typical small
    business owner's life and livelihood if it's not already in
    chaos throw it into chaos.
        I am pleased to welcome our first two panels of our
    warriors in this fight to ensure fairness for small business.
    The National Ombudsman for small business and the National
    Taxpayer Advocate. They work everyday to help small businesses
    navigate the maze of regulations and help them deal with the
    multitude of regulators.
        In a time when our economy relies so greatly on small
    businesses to keep our country moving, we cannot afford to
    stifle that progress by continuing piling on costly regulations
    that disadvantage these groups. Half of our national work force
    is employed by small business and two-thirds or three-fourths
    of net new jobs are created by small business.
        Now is the time to do everything in our power to limit the
    reach of the regulators and lower the burden of regulation on
    small business.
        [Ms. Capito's statement may be found in the appendix.]
        Chairwoman Capito. I look forward to the testimony and to
    that of our other small business experts on our second panel.
    We now have time for additional opening statements and I would
    like to yield to Mr. Gonzalez.
        Mr. Gonzalez. Thank you very much, Madam Chair. Again, it
    is a privilege to be part of what we are trying to do here and
    that is to bring a little bit of sanity when it comes to
    conducting business for small businesses in our economy.
        I was noting in my opening statement, which I am not going
    to read because I am going to try to keep this very brief, if
    you really think in terms of the federal regulatory scheme and
    the paperwork and its impact on small business, I think you can
    come to the conclusion that it is small business, but a bigger
    burden. Kind of an inverse relationship. It may be small, but
    nevertheless the impact of the regulatory scheme, compliance,
    understanding and such is greater for small business for many
    reasons which we will delve into today.
        So what are we doing to address that? Is it working? We are
    going to hear from individuals who are charged with that
    particular responsibility of assisting small business and then
    we will hear from individuals who are out there in what we
    refer to as the real world.
        We are hoping that in time, when small business
    entrepreneurs hear that knock on the door and someone is there
    to say, we are from the federal government and we are here to
    help you, that they actually will understand that we will be
    helping them. That is the whole goal that we convene and we
    have these hearings. With that, I will go ahead and yield back,
    Madam Chair, and look forward to the testimony.
        Chairwoman Capito. Thank you, Mr. Gonzalez. I would like to
    now yield to Mr. Bartlett for an opening statement.
        Mr. Bartlett. Thank you very much. In a former life, I was
    a small business person. I did land development and
    homebuilding, among other things. I am probably one of maybe 35
    members of the House that belonged to NFIB before we came here.
        When I think about our regulations, they are almost all
    based on one of two premises, both of which I reject and I
    think that most Americans when they think about it reject these
    premises. The first premise is that every employer, every
    provider, every manufacturer is evil and greedy and they are
    going to screw the public or screw their employees and so the
    government has to make sure they don't do that.
        The other premise is that every consumer is incredibly
    gullible and stupid and they are going to make very bad choices
    and they are going to hurt themselves if big brother doesn't
    look after them.
        Now if you think about our regulations, just about every
    one of them are based on one or the other of those two premises
    and I think that the average American, as I do, rejects both of
    those premises. I hope that during this hearing we can
    understand how many of the regulations that bedevil small
    business are regulations prompted by other than these two
    premises.
        If we got rid of all of the regulations that were based on
    those two premises, I think that small business would be freed
    from most of the regulations that are consistently moving more
    jobs from this country overseas. I look forward to your
    testimony. Thank you.
        Chairwoman Capito. Thank you, Mr. Bartlett. I think we are
    ready to proceed. Before we begin receiving testimony from the
    witnesses, I want to remind everyone that we would like to keep
    the oral testimony to five minutes.
        In front of you on the table you will see a box that will
    let you know when your time is running out. Isn't that
    convenient of us? When it lights yellow, you have one minute
    remaining and when five minutes have expired, a red light will
    appear. Once the red light is on, the Committee would like you
    to wrap up testimony as soon as you are comfortable.
        Let us move to the first panel. Our first two witnesses are
    Michael Barrera, who is the Small Business and Agriculture
    Regulatory Enforcement Ombudsman with the U.S. Small Business
    Administration. Welcome. We would like to welcome also Nina
    Olson, who is the National Taxpayer Advocate--I am sure you are
    not busy at all--with the Internal Revenue Service. Mr.
    Barrera.

        STATEMENT OF MICHAEL BARRERA, NATIONAL OMBUDSMAN, SMALL
                        BUSINESS ADMINISTRATION

        Mr. Barrera. Good morning. Congresswoman Capito,
    Congressman Gonzalez and Congressman Bartlett, and other
    members of the Subcommittee, thank you for the opportunity to
    appear before you today to discuss federal agency treatment of
    small business.
        President George W. Bush, Administrator Hector Barreto and
    I, as the National Ombudsman, share your concern on the federal
    regulatory impact on America's small businesses. A fair and
    common sense approach to regulatory enforcement helps save
    businesses time, money and jobs.
        The Office of the National Ombudsman plays a critical role
    in this process by evaluating how federal agencies treat small
    businesses during federal regulatory enforcement or compliance
    actions. Decrease in excessive and arbitrary actions by federal
    agencies, while increasing compliance assistance are the
    primary objectives of our office.
        While the law requires our office to be a neutral party, we
    still seek to ensure that high level federal officials hear and
    address complaints and concerns made by small businesses. In
    other words, the ONO seeks to act as a troubleshooter for small
    business.
        Our office relies on the efforts of its ten regulatory
    fairness boards to conduct outreach to small business.
    Additionally, the Office along with our Reg-Fair Board conducts
    public hearings and trade association round tables in order to
    receive comments and educate small businesses regarding federal
    regulatory enforcement actions and compliance assistance.
        One concern I often hear from small businesses is that
    regulations are confusing and difficult to navigate. Small
    businesses want to comply with the law, but they need to know
    when a regulation will affect them and how to comply. In many
    cases, small businesses just don't know what they don't know.
        Federal agencies cannot merely rely on posting a new
    regulation in the Federal Register and developing a brochure.
    Federal agencies must provide compliance assistance that is
    available, accessible and easy to understand.
        As public awareness of our office grows, cooperation
    between small businesses and federal agencies is growing and
    producing strong, positive relationships that have produced
    results. For example, the IRS was once feared by small
    businesses and still not very popular, but today the IRS has a
    more proactive and responsive approach to the interests and
    concerns of small business. The IRS now attends every one of
    our hearings and round tables. In many cases, the small
    business owner and the IRS representative resolve their
    problems right there on the spot.
        Another example comes from a hearing in Indianapolis,
    Indiana. The owner of Mickey Finn's Restaurant testified that
    the Department of Labor Wage and Hour Division informed him
    that his brewmaster and assistant were not exempt from the Fair
    Labor Standards Act. After spending $7,000 contesting this
    particular action, the owner challenged the decision and filed
    a comment with our office. We then forwarded his comment to the
    Department of Labor for review and within 30 days, the
    Department of Labor and this business reached a resolution
    without further cost to this small business.
        During the past year, federal agencies have demonstrated a
    growing commitment to working with our office to improve the
    environment for small businesses. They are now making better
    use of the Internet, including the SBA's businesslaw.com Web
    site with its Business One Stop Compliance portal. They are
    conducting additional training seminars and working more
    closely with trade associations.
        Agency attendance at our hearings has improved
    dramatically, particularly the Department of Labor and the IRS,
    which have attended each hearing and round table to hear small
    business concerns and to educate them about the compliance
    assistance that they offer. Small businesses also received a
    helping hand with the enactment of the Small Business Paperwork
    Relief Act of 2002.
        Our office is working with OMB to assist federal agencies
    in complying with this Act. The Act specifically requires that
    federal agencies designate a small business point of contact
    within their agency and provide a summary of their compliance
    assistance program.
        The Small Business Paperwork Relief Act will also hold
    agencies accountable, as they must report on the number of
    enforcement actions taken against small businesses in which a
    civil penalty was assessed, the number of actions in which
    penalties were reduced or waived and the total monetary amount
    of reductions or waivers. The first report is due in December,
    2003.
        While we are seeing improvement, challenges still exist.
    Many businesses hesitate to tell us their story, because they
    fear retaliation. In order to address this fear, whether real
    or perceived, our office now rates agencies on whether they
    have small business non-retaliation policies. As a result,
    several agencies have adopted formal, written non-retaliation
    policies. As a result, we have seen businesses feel more
    comfortable testifying, particularly since they know their
    government will now hear from them without reprisal.
        As stated by President George Bush, the role of government
    is to create an environment that encourages risk taking, an
    environment that facilitates the flow of capital and an
    environment in which people can realize their dreams. By
    removing the strangulation of regulation, federal agencies can
    help America's entrepreneur's turn their dreams into successes.
        It is the mission of the Ombudsman's Office to encourage
    federal agencies to adopt a ``help you'' attitude versus a
    ``got you'' attitude. I am grateful for the opportunity to
    testify this morning on behalf of the SBA and Administrator
    Barreto. I will be happy to answer any questions for you and
    other Subcommittee members. Thank you.
        [Mr. Barrera's statement may be found in the appendix.]
        Chairwoman Capito. Thank you, Mr. Barrera. Now we will go
    to Ms. Olson for her statement. Thank you.

     STATEMENT OF NINA OLSON, NATIONAL TAXPAYER ADVOCATE, INTERNAL
                            REVENUE SERVICE

        Ms. Olson. Thank you. Madam Chairman, thank you for
    inviting me here today. As you know, the Office of the Taxpayer
    Advocate has two goals: To help taxpayers solve their problems
    with the IRS and to identify and propose both administrative
    and legislative solutions to those problems.
        Our 74 local taxpayer advocates are on the front lines
    overseeing our work on specific taxpayer cases and listening to
    taxpayers and their representatives about IRS problems and
    successes. They are able to identify systemic problems often
    before they are acknowledged or discovered by the rest of the
    IRS.
        This year we are conducting an extensive outreach campaign
    to small business groups, including truckers, restauranteurs,
    small business forums and the SBA Reg-Fair Hearings. Last year
    the IRS was one of three agencies to receive an A rating from
    the SBA Ombudsman's Office. The IRS received this rating
    because of its attention to small business concerns in general
    and because of our interest in attendance at SBA Reg-Fair
    Hearings.
        TAS contributed to this rating by having our personnel
    attend those hearings and try to assist taxpayers in solving
    their business tax problems as well as listen for areas where
    systemic problems are identified.
        In addition, my staff works on problem cases identified by
    the SBA and drafts correspondence explaining either a solution
    or a reason why a solution is not possible. These letters are
    personally reviewed and edited by me and go out over my
    signature.
        TAS recently conducted a market research study about its
    underserved population. We learned that small business owners
    accounted for 25 percent of the Taxpayer Advocate Services'
    underserved population. Here is some of what we learned: Nearly
    all of the participants said they use a paid prepared for at
    least some part of their taxes for their businesses. Many small
    businesses first try to solve their IRS problems themselves and
    seek professional tax help only as a last resort. Those who
    called IRS customer service directly were frustrated with the
    hot line menus and at having to re-explain their situation to a
    different employee each time.
        Overall, however, about one-third of those who dealt with
    IRS customer service reported that they were satisfied with the
    treatment they received. They noted that when the
    representative was not mechanical, is knowledgeable and is able
    to transfer them to the appropriate person, their experience
    becomes far more positive.
        Most of the small business owners describe themselves as
    IRS intimidated. While they generally trust the IRS, they feel
    it is not always competent in solving problems. Some small
    business owners were concerned that the services of the
    Taxpayer Advocate Service are not available to businesses that
    it is designed mainly for individual taxpayers. Our case
    inventories, of course, show that this latter point is most
    emphatically not correct.
        For fiscal year 2002, small business cases accounted for 35
    percent of our total case closures. Of these cases, 89 percent
    came into TAS because of systemic delays, not because of
    economic hardship. Approximately 80 percent of the cases
    involving the four most common reasons small business owners
    sought our help. TAS obtained a different result from the IRS.
        In my 2002 annual report to Congress, I identified a number
    of issues and made administrative recommendations impacting
    small business. Small business taxpayers have problems with the
    processing of offer-in-compromise cases, federal tax deposits
    and obtaining employer identification numbers. Along with other
    taxpayers and even IRS employees, they have difficulty
    navigating the IRS in finding the right person to talk with.
        In my 2001 and 2002 reports, we recommended several
    legislative proposals of interest to small business. This year
    we propose that a husband and wife who jointly own an
    unincorporated business and who file a joint federal income tax
    return should not be entitled to elect out of the codes complex
    partnership provisions and instead file a joint sole
    proprietorship or farm schedule and report each spouses share
    of the business's self-employment income. This proposal would
    clarify and simplify the status of husband and wife co-owned
    businesses and ensures appropriate Social Security and Medicare
    coverage for both spouses.
        We have also proposed a de minimis exception to passive
    loss and credit limitations, revisions to the S corporation
    election process, a first time waiver of certain penalties,
    what I call the one-time stupid act waiver, a reduction of the
    failure to deposit penalty, where the correct federal tax
    deposit amount was paid, but the wrong payment method was used,
    a health insurance deduction for purposes of calculating the
    self-employment tax and extending the current income averaging
    provisions for farmers to commercial fishermen. We have also
    proposed the repeal of the individual alternative minimum tax.
        As you can see, we have been very busy. We are very much
    aware of the tax problems of small business. We speak with an
    independent and impartial voice in specific cases and on larger
    issues, we try to ensure that taxpayer rights are respected and
    taxpayer burdens are minimized. Thank you for the opportunity
    to appear before your Committee.
        [Ms. Olson's statement may be found in the appendix.]
        Chairwoman Capito. Thank you very much for both of your
    testimonies. I have a couple questions and then we will move to
    my colleagues. Mr. Barrera, you mentioned that you had ten
    regulatory boards that are regionalized; is that correct?
        Mr. Barrera. Correct.
        Chairwoman Capito. Then you also mentioned that in each
    agency there is a small business contact.
        Mr. Barrera. According to the Small Business Paperwork
    Relief Act that is going to be a requirement that they each
    have a small business contact where a small business person can
    actually contact the agency with their question and that person
    should be able to put them with the right person within their
    agency. We are getting that information from a lot of the
    agencies and it is due I think at the end of July when it is
    actually supposed to be posted in the Federal Register.
        Chairwoman Capito. To me I think part of the challenge for
    small business owners and individuals in general is trying to
    find those people. What kind of efforts do you plan to make and
    do you have an outreach effort with your regulatory boards
    across the nation where people know that you are there and are
    you approachable in terms of can small businesses come in to
    your offices around the country and talk to a regulator or find
    out who the contact is? Is a web-based information going to be
    your primary source of information?
        Mr. Barrera. It is really a combination of all of those.
    Our regulatory fairness boards have been great advocates on
    behalf of our office, but also we use them as far as doing the
    outreach because many times, as we stated earlier, we can say I
    am from the government and I am here to help, but that doesn't
    always register with the small business person. These Reg-Fair
    Boards being individual business people themselves, they have a
    lot more credibility with some of these small businesses. So,
    they are very, very helpful.
        We also use our actual hearings, our Reg-Fair hearings.
    According to the statute, we are only required to have one
    hearing per region, but with the backing of the Administrator
    we are now having two hearings per region per year. Over the
    next couple of years we will reach at least 40 different
    states. We work the trade associations. When we go into a town,
    we let them know we are there. So we are doing a lot of
    outreach.
        Also, our businesslaw.gov Web site is an excellent tool
    where they can now go to there and find out who these
    particular people will be.
        Chairwoman Capito. I would like to ask both of you what
    kind of relationship your offices have. Are you working in
    conjunction with one another? I am assuming this is not the
    first time you have met.
        Mr. Barrera. It is actually an interesting story. When I
    first got started, I got a call from the IRS and they wanted me
    to come over to visit them for like a two-hour meeting. If I
    had known that before I had started, I would have gone to
    Mexico and not come back, but we actually had an excellent
    meeting.
        The IRS has actually been a great partner of ours. In fact,
    at one of our hearings they had like six people show up and
    they weren't enforcement people, but a lot of people were
    afraid that there were so many IRS folks there, but they have
    been great as far as coming to all our hearings and they really
    want to know how they can help and improve the environment for
    small businesses.
        Chairwoman Capito. Ms. Olson, you mentioned some
    legislative changes. Have you had any success?
        Ms. Olson. Several of our proposals have been introduced as
    bills. The husband and wife co-owned business proposal has been
    introduced as a bill by the House Oversight Ways and Means
    Committee and I think that there is a provision in the Senate.
        Last year the House passed the one-time stupid proposed act
    and our reduction of the federal tax deposit penalty for the
    wrong payment method from ten percent to two percent, a
    significant change. We are just looking for answering
    legislation that has been introduced again this year and we are
    looking for answering legislation on the Senate side. So we are
    seeing attention to these things.
        Chairwoman Capito. Just one final question. I think you
    mentioned in your statement that in your survey one-third of
    your respondents were satisfied. I am assuming----.
        Ms. Olson. Well, that is one-third were satisfied with the
    IRS. With TAS employees, we have about a 68 to a 70 percent
    satisfaction rate. Interestingly, in 59 percent of the cases
    that are satisfied, taxpayers say that they feel better about
    the IRS after they have worked with my office.
        I would like to make one point about something that my
    colleague here spoke about--fear of retaliation. Congress
    passed, in 1998, a provision that said that when taxpayers come
    into my office, the Office of the Taxpayer Advocate, to discuss
    a problem the local taxpayer advocate has the discretion to not
    tell the rest of the IRS that the taxpayer has called us or any
    information the taxpayer has given us.
        The rationale for that was so that taxpayers in fact could
    come in and whether they wanted to talk about the impact of a
    regulation on them or specifics about a case and they just
    wanted to get another ear that was knowledgeable, that
    protection is there and we take that very seriously. We have a
    whole procedure for protecting the confidentiality of our
    information from the rest of the IRS.
        Chairwoman Capito. Well, that is certainly good to know at
    least from my aspect on constituent service. We get in our
    district offices quite a bit of interest in help and so that is
    a good thing to know. That concludes my questions. Mr.
    Gonzalez?
        Mr. Gonzalez. Thank you very much. The question will be to
    both of the witnesses and I will preface it with an observation
    and that is: In any regulatory scheme, I think there is a valid
    reason that we have it. It is accountability. It is
    responsibility. It is how we execute it and what we do and
    don't turn it into something that is a real burden and that is
    the answer that we really are trying and are seeking to find
    and not necessarily doing away with the responsible and
    efficient regulatory scheme, because that is necessary. That is
    the first observation.
        But the other thing is, I do believe that there is a
    bureaucratic culture out there in every agency and every
    department and despite all of your best intentions and whatever
    we do here, you still have to cope with that.
        So my question is really going to delve into a little
    different area than your own organizations, your own entities
    and that is: When you are working with a department or an
    agency, whether it is IRS or anyone else, what incentive is
    there for that department or agency to cooperate, to listen and
    to act?
        We already know, as you have indicated, once you take it
    out of the mechanical mode and bring in a human being and a
    person, suddenly a third of the individuals are pretty
    satisfied with what is going on as far as the service rendered
    by IRS, which is pretty incredible even a third. So we know
    that there is some real basic things: The human element, the
    personal touch, do not act like a bureaucrat, don't make it
    more difficult.
        But how do we replace something that really is contrary in
    that particular culture to that kind of behavior? What do you
    all see? What would assist you? I mean in other words, I know
    that even in diversity in seeking more employment of minorities
    in departments and agencies, we never succeed. We don't succeed
    unless those individuals in those departments or agencies
    actually promulgate within their own agencies and departments
    those kind of policies.
        What we try to do is we reward them. There is positive
    incentives for these things to happen. Not enough. But how do
    we get into that type of bureaucratic culture to make them more
    receptive to your requests of course and to your intervention
    on behalf of the small business person? Mr. Barrera?
        Mr. Barrera. I think you said it best. It is culture and
    changing an environment. I think what we found what has really
    helped us is the fact that I actually go out to different parts
    of the country.
        If we try to do it strictly from here, that particular
    agent in different parts of the country is not going to be so
    concerned, but now they know if I may be coming to their area
    and a small business may be complaining about them, nobody
    wants to have anything negative said about them.
        I mentioned many times, I think the agencies here in D.C.
    really do get it and a lot of it has been the education that
    small businesses are different from a large business. You can't
    do a one-size-fits-all.
        We often say that even though they get it here, there are
    still thousands upon thousands upon thousands of federal
    agencies out across America. So anything run by humans will
    never be perfect, but as long as we go out there and they know
    that we are coming and that the small business can come and
    talk to us confidentially, I think that has helped a lot.
        Ms. Olson. I have 2,200 people in my organization and the
    IRS has 100,000. I think that many of those employees actually
    do have that personal touch. They do know the problems that
    small businesses face day-to-day and I am not sure that they
    feel permission from the rest of the organization, which goes
    to the culture, that they can show that compassion on a day-to-
    day basis. So I think it has to start from the top.
        To go to Mr. Bartlett's point about people starting regs
    from the assumption that businesses are trying to rob, beg,
    borrow and steal what I see is folks designing regs for one
    specific perceived abuse and they have to stamp that one out.
        The voice that I try to bring at the top level, because
    before I became the National Taxpayer Advocate I represented
    small businesses as a tax attorney, because of a tiny perceived
    abuse you cannot impose a burden on all the others. Is there
    some other way that we can get at that perceived abuse?
        That persistent voice at the top levels of the organization
    and changing minds of the top levels and then getting
    permission down to the people who know it already at the mid
    and lower levels is what you have to do for culture change. You
    have to evaluate people at the top levels of the organization
    on their performance according to these goals.
        Mr. Gonzalez. Thank you very much and hopefully we will
    come up with something. I think sometimes we just really
    neglect to see what the problem may be. Like I said, despite
    our best efforts and whatever we are trying to do, if we don't
    have a receptive ear, if we don't have an environment or a
    culture that will accommodate it, all our efforts will be for
    naught. So thank you for what you do and I appreciate your
    comments.
        Chairwoman Capito. Thank you. Mr. Bartlett, do you have any
    questions?
        Mr. Bartlett. Thank you very much, Madam Chairwoman. I
    would like to return for just a moment to some of the
    statistics in your opening statement, because we read these
    numbers and they are a whole lot bigger than our savings
    account or our paycheck and so they may not register.
        You mentioned $843 billion per year as the cost of
    regulations to our economy. That is more money than our whole
    discretionary budget in the federal government. We don't have
    discretionary authority over that much money in our federal
    budget. That is over $8,000 for every household.
        So the average American household for the first $8,000 that
    they earn, that just goes to cover the cost of regulations, and
    this is a very cruel and regressive tax, because the poorest of
    the poor have to pay that tax.
        There is no way by the way that businesses bear this
    burden. If they do not pass it on to their customers, to their
    consumers, then they are out of business. So when you have a
    regulation, you are not burdening industry. You are not
    burdening a company with that regulation. What you are doing
    though is burdening all of the people that have to buy the
    product or the service of that company.
        I say it is a very regressive tax because the rich, Warren
    Buffet can afford that. That is not going to bother him, but
    the poorest of the poor pay that tax and it is a tax for which
    they get no deduction and there is no exemption for that tax.
        It is about $7,000 for every employee in small business.
    Now this is a major reason that this year we will have a $430
    billion trade deficit. You know as smart as we are, as hard
    working as we are, we cannot compete with the rest of the
    world. When we have a $7,000 per employee regulatory burden,
    the fact that we can't compete just means that more and more of
    these jobs go overseas so more and more of the things that we
    need to buy in this country aren't made here.
        Just go into the store and try and find something which is
    made in the United States and you want to be patriotic and buy
    things. You will have not very many clothes in your cart. No
    clothes. I don't know of any clothes that are made in this
    country. Now that has all moved overseas. They may distribute
    them here. They may have a warehouse here, but they don't make
    them here.
        Just five days ago, if this year is like last year, we
    passed tax freedom day. It was May 10 last year. But today you
    are not working for yourself, to pay the mortgage on your
    house, to put your kids through school, to buy that car or to
    save for your retirement, because from May 10 through July 6,
    if this year is like last year, every American will work full-
    time to pay for the things that we are talking about here
    today, unfunded federal mandates.
        You know I am a fan of the Constitution. I carry one with
    me and I know that the Lord was here when our country was
    established and I know that for a number of reasons, but one of
    them is because our Constitution is so prophetic.
        This is not the Constitution, but it is written by the same
    people. This is the Declaration of Independence and they are
    giving all of these reasons why they should separate themselves
    from England and one of them sounds just so prophetic, it says,
    ``He has erected a multitude of new offices and sent hither
    swarms of officers to harass our people and eat out their
    substance''.
        Now they certainly were talking about a regulatory agency,
    weren't they? ``He has erected a multitude of new offices and
    sent hither swarms of officers to harass our people and eat out
    their substance''. There could be no better description of our
    regulatory agencies.
        When are we going to do a cost benefit analysis? You
    mentioned the perceived abuse that now results in a new
    regulation that burdens everybody. When are we going to do a
    cost benefit analysis and do away with all of those
    regulations, which is going to be about 80, 90 percent of them
    whose cost is certainly not justified by the benefit? Do we
    have to have law that requires these agencies to do that?
        I suspect that most of their regulations are based on a
    perceived abuse that then results in a regulation that burdens
    everybody and if you did a cost benefit analysis, you would
    certainly conclude that the cure is worse than the disease. How
    can we do that?
        Mr. Barrera. I will compliment our Office of Advocacy, who
    works with a lot of the federal agencies before they even pass
    the regulation and they do a cost benefit analysis to see how
    it will affect a small business industry. For instance----.
        Mr. Bartlett. But how about all those that are out there
    now?
        Mr. Barrera. There are still a lot of them out there.
        Mr. Bartlett. We are working through July 6 this year, if
    this year is like last year, to pay the cost of those things.
    We have to look back as well as forward.
        Mr. Barrera. Well, I know the President issued an executive
    order with OMB to start working with a lot of the agencies to
    really check out their regulations to see which ones just don't
    work. We need to get them off the books. I know they had an
    open where a small business can actually comment on some of the
    regulations that were affecting them and as a result of that, I
    believe over 200 were rescinded. So I know that the government
    and the OMB is working with a lot of the agencies to try to
    reduce the cost.
        You make an interesting point, Congressman. We talked just
    about federal regulations, but there are still state
    regulations out there and city regulations that small
    businesses have to deal with. Also, again I want to compliment
    the Office of Advocacy. They have actually come up with model
    legislation so states can pass similar types of laws that
    created my office. So it is an attack on many fronts, not just
    the federal but the state and the cities that we have a need to
    work with also.
        Mr. Bartlett. I don't know the cost of state and local
    regulations, because this July 6 is federal regulations. It may
    be some time in September before you can start working for
    yourself. That is just too darn much government, isn't it?
        Mr. Barrera. Exactly.
        Mr. Bartlett. Thank you. Thank you, Madam Chairman.
        Chairwoman Capito. Thank you. That concludes our questions.
    I would like to say just as another statement that the
    realization that small business has to hire an accountant, an
        torney, an insurance specialist you know drives not only
    the cost of business, but they lose control over their own
    destiny in a lot of ways.
        I think that is a result of a lot of the regulations and I
    would like to say we, as members of Congress, certainly ought
    to bear our responsibility in the way sometimes we micromanage
    in our legislative priorities that places further burdens on a
    lot of our small businesses and large businesses throughout the
    country. So thank you all very much.
        Mr. Barrera. Thank you.
        Ms. Olson. Thank you.
        Chairwoman Capito. Panel two. Very good. We had originally
    scheduled three panelists for panel two, but our second
    gentleman was unable to come, so we will submit his statement
    for the record.
        On panel two, the Subcommittee will hear from Dorothy Wood,
    a small business owner from Virginia Beach, Virginia. It is Mr.
    Schrock's district. So welcome on behalf of him. She is the
    president of JD&W Incorporated, a past president of her local
    chapter of the National Association of Women Business Owners
    and a founding member of Women Impacting Public Policy.
        The second member is Kristie Darien, the director of
    government relations at the National Association for the Self-
    Employed. So Ms. Wood, if you would like to begin.

       STATEMENT OF DOROTHY WOOD, PRESIDENT AND CEO, JD&W INC.,
                        VIRGINIA BEACH, VIRGINIA

        Ms. Wood. Thank you. Good morning. Thank you for inviting
    me today to testify. My name is Dorothy Wood. I am president of
    JD&W Incorporated, located in Virginia Beach, Virginia.
        I want to begin by congratulating the Subcommittee on its
    continued emphasis on reducing the regulatory burden on small
    businesses. Passage of the Regulatory Flexibility Act and the
    Truth in Regulating Act and the Small Business Administration's
    Office of Advocacy vigilance in carrying out the law have been
    a significant force in development of a more business friendly
    regulatory environment for small businesses. I am grateful to
    this Subcommittee for your continuing efforts to fulfill the
    promise of these laws and look beyond the way federal rules are
    written to how they are enforced.
        As the Chairman mentioned, I am a founding member of the
    Women Impacting Public Policy. This is a bipartisan group of
    500,000 women. My testimony today is based not only on my
    experiences, but the experiences of some of my fellow business
    owners.
        With me today is my grandson, Jim Wood, who is a student at
    First Colonial High School in Virginia Beach. He is in the
    legal studies academy. As president of the freshman class and
    president-elect of the sophomore class, I am sure he will be
    occupying a seat in this Chamber one day.
        My company is a commercial construction company. It is a
    small business. We employ around 23 people. We do work
    throughout Virginia in office, retail, industrial,
    institutional and government. Federal regulations cause several
    areas of concern to me and I will attempt to briefly summarize
    some of my experiences and those of others with whom I do
    business.
        First, the implementation of the Federal Privacy Rules
    issued under the Health Insurance Portability and
    Accountability Act of 1996 has had a huge impact on small
    businesses. Compliance may be burdensome for large companies
    with extensive human resource staffs, but is nearly impossible
    for a small company of my size. I have no human resources
    department, no personnel manager and no compliance team, yet I
    am held to the same standards as to a multi-national
    corporation.
        When an employee is out sick, my business is impacted far
    more significantly than a large business. However, I cannot ask
    the employee if he has had a heart attack or if he has the flu.
    So I will have no idea of how long he will be out from work. On
    a personal note, I would like to know if he is critically ill
    so that I might do things to help his family.
        It is my understanding from the health insurance brokers
    that under COBRA the federal government makes no distinction
    between a company like mine with 23 employees and a
    conglomerate that employs 21,000 employees. This doesn't seem
    to be equitable. I believe that the initial compliance with
    HIPAA will cost my company several thousand dollars in
    attorneys fees and probably about $500 a year after that for
    the training necessary for my employees.
        I urge this Committee to continue its pursuit of delaying
    enforcement of HIPAA and to supplement these regulations with
    plain-English guidelines. I thank the leadership of this
    Committee for the letter to Secretary Thompson on this issue.
        On a persona level, I went to my doctor the other day and
    was amazed that I had to stand behind a white line taped to his
    nice, new carpet, even as an established patient I had to sign
    a stack of privacy forms and then I watched with amazement as
    the nurse called out the patients, only using their first
    names. She is not allowed now to call out both names.
        The doctor told me he would have to spend thousands to
    renovate his office, but then consider the plight of the small
    pharmacy who is trying to compete against the big box. Often
    their physical space does not allow room for the distance
    required between customers. What alternatives do they have?
        HIPAA stands in the way of what many health care providers
    have tried to establish for a long time, shared patient files
    among appropriate care givers to provide the best possible care
    for patients.
        I would also like to speak about a charity very close to my
    heart. I started Meals-on-Wheels in Virginia Beach about 30
    years ago. We are a very different Meals-on-Wheels than many
    that you see throughout the country. We accept no federal,
    state or local government funds. We accept no United Way funds.
    We feed 200 people a day with just citizens helping each other.
        It is very difficult now with our 900 volunteers, because
    we have to train each volunteer on what they can do. We need
    time to implement this with our volunteers. We have one client
    who is deaf. We always put on the charts, Mr. Jones is deaf,
    please knock and walk in. We can no longer say that Mr. Jones
    is deaf.
        Last week we had a client who had passed out and they had
    to call the rescue squad. The volunteers came back and relaying
    that story to other volunteers, but that is against the federal
    law for them to come back and repeat this. This is an example
    of how a well-intentioned law can cause hardships for those who
    want to help the elderly and the disabled.
        Also, my business falls primarily under the Virginia
    Department of Labor and Industry. We have had a few experiences
    though with the federal OSHA. I run a $10 million a year
    commercial construction company. My company has not had a
    serious work place injury or death in my 25 years of operation.
    Nonetheless, my company was recently in jeopardy of being cited
    for an OSHA violation when I could not produce our log book for
    injuries within four hours as required by federal law.
        The person on my staff who maintains the log book was out
    of the office because of illness. I did not have immediate
    access to the secure location, even though I am president of
    the company and very honestly I didn't know where the log book
    was kept.
        Although we were able to work things out with the
    enforcement officials, it seems more than a little ironic that
    my company's exemplary compliance record might be marred by our
    inability to produce a report that shows nothing in less than
    half a business day.
        I would be interested in knowing how many inspections of
    OSHA performs each year on small businesses. How many of those
    result in fines? I would like to know if small businesses are
    given the opportunity to correct the problem and then be re-
    inspected. It seems logical to me that small businesses should
    be allowed to correct problems without harsh penalties. After
    all, that is the point of compliance.
        Finally, I urge your Subcommittee to continue its mission
    of overseeing and demanding that the federal agencies take a
    measured and reasonable approach towards small businesses.
    Clearly then regulatory flexibility for small business
    continues to be important as we seek to reinvigorate our
    economy.
        We are Americans pursuing the American dream. We do not shy
    away from following the rules. However, to many of us our
    greatest fear is inadvertently missing a form or a payment or
    failing to properly document something the way a bureaucrat in
    Washington wants it done. Small businesses simply do not have
    the resources to effectively comply with these regulations. We
    need your help. Thank you.
        [Ms. Wood's statement may be found in the appendix.]
        Chairwoman Capito. Thank you, Ms. Wood. Ms. Darien.

     STATEMENT OF KRISTIE DARIEN, DIRECTOR OF GOVERNMENT AFFAIRS,
               NATIONAL ASSOCIATION FOR THE SELF-EMPLOYED

        Ms. Darien. Thank you. First off, I would like to thank the
    Committee for allowing me to participate in today's hearing. I
    am here to testify on behalf of the National Association for
    the Self-Employed and our 250,000 member businesses,
    representing over 600,000 owners and employees nationwide.
        The NASE is the nation's leading resource for the self-
    employed and microbusinesses, businesses with ten or less
    employees. Often a chief speed bump faced by microbusiness
    owners on their road to success is federal government
    regulation. This burden imposed on microbusiness is
    disproportionate to that of larger businesses, because smaller
    firms cannot spread the overhead costs associated with hiring
    accountants and attorneys and the general costs of paperwork
    burdens and staff needed to try and comply with the maze of
    federal regulations.
        The NASE strongly feels that federal agencies must take
    into consideration the fact that a microbusiness owner, due to
    his or her size of business, is responsible for every aspect of
    business management, thus their time is very precious.
        Regulations and compliance assistance materials must be
    readily accessible and available to the small business
    community in plain English in order to minimize the time and
    mental energy needed for compliance by the microbusiness owner,
    whose time is best spent running their business.
        The NASE membership is from a diverse array of industry
    sectors, from consultants to manufacturers to farmers, yet with
    each of these industries we represent, the chief agency they
    interact with on a continuous basis is the Internal Revenue
    Service. The NASE is very pleased with the recent efforts made
    by the IRS to become small business friendly. In fact, I can
    personally attest to their efforts to reach out to groups like
    the NASE in order to better serve their small business
    taxpayers. Yet outreach and education are only reactive
    measures to the ever looming problems caused by a complex tax
    code.
        The IRS must take proactive measures to better determine
    the effect of their regulations on the microbusiness taxpayer.
    The NASE agrees with the SBA Office of Advocacy's comments that
    the IRS should seek to identify costs and hardships imposed by
    their regulatory approaches and look for alternatives to
    achieve their objective with fewer burdens prior to publishing
    rules and regulations.
        A large percentage of the self-employed and microbusiness
    owners prepare their own taxes. This, the IRS' ambiguous and
    complex rules can ultimately mean the demise of their business.
    One specific IRS regulation that is exceedingly burdensome to
    the microbusiness and self-employed communities is the employee
    versus independent contractor classification issue.
        Many NASE members either utilize independent contractors or
    are themselves independent contractors. Disputes about worker
    classification have cost small businesses more than three-
    quarters of a billion dollars in IRS penalties and back taxes
    during the past ten years.
        The IRS has a complicated 20-point checklist that can be
    used as a guideline in determining whether or not an
    individuals is an employee or an independent contractor, yet
    using this checklist does not guarantee that the person is
    correctly classified. Other IRS materials published to assist
    in classification are equally as convoluted.
        N.A.S.E. members have indicated when utilizing the IRS' tax
    assistance help line on this issue they have gotten different
    answers from different agents on the same issue. There is no
    clear and concise manner for a self-employed individual or a
    microbusiness owner to easily determine when a worker should be
    classified as an independent contractor or an employee, thus
    putting them at risk to be penalized if audited.
        If a microbusiness owner has been selected for an audit,
    the IRS is supposed to provide employers with relief from
    potential IRS reclassification, if the employer has met various
    relief requirements. Section 530 requires small business owners
    to prove that they had a reasonable basis for treating the
    workers as independent contractors rather than employees. A
    reasonable basis includes reliance on judicial precedent, IRS
    rulings, a past IRS audit and a longstanding industry practice.
        A microbusiness owner is typically an owner whose office
    occupies the corner of their bedroom, whose warehouse is their
    garage, whose CFO, CEO and janitorial staff share the same desk
    and business card. Is it reasonable to believe that after
    making a good faith effort to classify an employee utilizing
    the IRS' unclear 20-point checklist that they would have the
    time and understanding to research IRS rulings and judicial
    precedent to make certain they have a reasonable basis for
    their worker classification?
        Due to the regulation's vagueness and complexity, it is
    very easy for the IRS to arbitrarily reclassify workers and
    thus require microbusiness owners to pay enormous sums of back
    taxes and penalties, which ultimately force them out of
    business.
        The worker classification issue of employer versus
    independent contractor is one of those issues that Congress can
    easily help small business with. The NASE strongly feels that
    the IRS regulation must be updated to provide straightforward
    rules for classifying workers and relief from reclassification.
        We strongly support the reintroduction of last year's
    Independent Contractor Determination Act, which clearly defined
    the rules for classification of workers, provided certainty for
    businesses that enter into the independent contractor
    relationships and minimize the risk of huge tax bills for back
    taxes, interest and penalties, if a worker is misclassified.
        The NASE also feels that a continued push towards tax
    simplification and paperwork reduction would greatly alleviate
    the IRS regulatory burden on small business. We very much
    appreciate all the work that the Subcommittee has done.
        One last final remark is, we feel strongly that a
    microbusiness owner should not be penalized with an unfair
    regulatory burden just simply because they are small. Thank you
    very much.
        [Ms. Darien's statement may be found in the appendix.]
        Chairwoman Capito. Thank you both for your great testimony.
    I appreciate it. I have a couple questions. Ms. Wood, you have
    been in the business for how long?
        Ms. Wood. Twenty-five years.
        Chairwoman Capito. Twenty-five years. I am sure you have
    seen a lot of changes.
        Ms. Wood. Yes, I have.
        Chairwoman Capito. In this particular area of regulatory
    overburden, what is your perspective of it over the years?
    Increasing?
        Ms. Wood. It does seem to be increasing, particularly with
    the two rules that I talked about. Particularly the HIPAA
    rules. It certainly is expensive for me.
        Chairwoman Capito. Have you seen any results of any
    regulations or regulatory oversight that has decreased?
        Ms. Wood. Well I have certainly seen where the federal
    government has given more opportunities for work for women and
    minor businesses. I don't happen to choose to work in the
    government arena, but I do see my fellow business owners with
    more opportunities to do federal contracts.
        Chairwoman Capito. Okay. We have heard from the Ombudsman
    and the National Taxpayer Advocate. Have either of you, A,
    heard of them before and B, have you used their services?
        Ms. Wood. I have not used their services, but I have heard
    of them and I applied to be one last year.
        Chairwoman Capito. Did you?
        Ms. Wood. I was not selected, but I did apply.
        Chairwoman Capito. Okay.
        Ms. Darien. We actively advocate those two programs with
    our members. I think one of the biggest problems is that we
    feel that agencies need to be more proactive in reaching out to
    the small business community. Again, despite the complex tax
    code, the IRS has done a really great job in reaching out to
    small business associations, to other groups and organizations
    that have direct contact with small business, but that is not
    the case with a lot of the other federal agencies.
        They need to get out there. You know reach out to
    associations that work directly with our members in order to
    get out the information about how to better comply with federal
    regulations.
        Chairwoman Capito. I certainly think at least from my
    perspective that a lot of the times when we become involved it
    has reached a crisis point where the business is on the point
    of having to close because of citing from a violation that had
    it been put in proper perspective or had they had the proper
    help, the small business owner had the proper help, could have
    been easily acquitted.
        Like every American, at least in small business, it is a
    day-to-day life for many small business people and it is
    difficult to anticipate what the future will bring. So I
    applaud your hard work and certainly your work in advocacy for
    a lot of small business.
        My sister is a self-employed small business owner and I
    feel her pain everyday. So I hope that some of our efforts and
    some of the results of the testimony will result in easing that
    burden. I would like to yield to Mr. Gonzalez for any
    questions.
        Mr. Gonzalez. Thank you very much, Madam Chair. The first
    question would be to Ms. Wood. First of all, I want you to know
    that that experience you had with the OSHA review and the
    missing log, which wasn't missing at all, that was recounted to
    me over lunch by Chairman Schrock. Anybody at lunch there was
    just absolutely shocked and I do want to delve into that just
    for a second.
        That individual basically that came for the inspection and
    you indicated the person in charge was out, was sick, how was
    that resolved? I mean there on the spot? Did they finally
    believe you?
        Ms. Wood. We called the person who was out and found out
    where it was located. It was in her office. I cannot run the
    business and take care of everything, plus know where the log
    book is and very honestly, I didn't know that we had a log
    book.
        Mr. Gonzalez. Sure.
        Ms. Wood. We do have people that do it. We have never had
    an accident so our log book is empty. But, we did find it and
    we went back and found it. We were able to produce it. One of
    the few times we had done a government job was this job and he
    had gone to the job site and everything was perfect, no fines,
    nothing. He said it was very safe. But since I could not find
    the book, he was quite unhappy with me and he kept saying, you
    know it is the law. You have to have it. That is very
    intimidating to a small business woman or man.
        Mr. Gonzalez. Did that representative indicate to you that
    there would be some sort of immediate noncompliance finding?
    That that is the way it would be reported?
        Ms. Wood. Well, he was very serious that I had to have the
    book, but I did find it within the four hours. But if my
    employee had been unconscious or in the hospital, of course I
    could not have asked why she was there, but I would not have--
    --
        Mr. Gonzalez. You have got to remember that.
        Ms. Wood [continuing]. Been able to have found that and
    then I would have been fined I am sure.
        Mr. Gonzalez. I am just real curious and I think I speak
    for each member, I think the small business person out there
    when you have that type of unreasonableness by someone
    representing any agency or department, you do pick up the phone
    and you do call your Congressman. Obviously, Ed knew about the
    problem and he was outraged by it and I think all of us would
    be, but they do listen to us believe it or not once in a while
    they do respond, don't they? It does mean quite a bit. They
    understand what it means at the end of the process.
        My question to you though is: How does a small businessman
    or woman acquaint themselves with the new regulations and what
    is required? Let us just start off with what is new. I know we
    all run campaigns and sometimes we will get notices and such
    and we don't try to understand them. We hire somebody for that.
    But what do you do?
        Ms. Wood. Well, recently I was just faced with the prospect
    of training every employee that I have in CPR and first aid.
    While I am sure we should probably all know first aid, I spent
    about $4,000 and two full work days in training my employees. I
    hired some off-duty firemen to come in and now in my industry
    everyone is required to be trained each year.
        This seems to be a severe burden. It is just a lot of money
    for us to have to pay. I am sure that it is necessary. They are
    considering and I am not sure it has passed yet, requiring me
    to have a defibrillator on each job site. I am required to have
    a first aid kit. But wouldn't you hate to have a heart attack
    and one of my foreman or my electrician come up there with a
    defibrillator, even though they have had two hours of training?
    That is one of the recent that I didn't know. As I said, I
    didn't know about the log book, although my office did know.
        Mr. Gonzalez. Yes.
        Ms. Wood. That is a law that you have to produce it in four
    hours, because I looked at the OSHA Web site to find that out.
        Mr. Gonzalez. I am sure there is always going to be some
    mitigating circumstance that if you don't meet the four hours
    that anything within reason in the practical world needs to be
    in consideration.
        I don't believe in the arbitrary rules, but I venture to
    guess after hearing your story that most small businesses, as
    they receive notices of a new regulation and new order of
    whatever it is, they probably put it aside, because they can't
    afford an expert, either an accountant, lawyer or whatever and
    then they just hope that they are going to be in compliance to
    the extent that they understand it and hope that nothing ever
    happens, which is no way to do business, but it really imposes
    on us a real burden and a responsibility that as we promulgate
    in the agencies and the departments that have that authority
    that it is made very simple, very clear so that you do not
    require some sort of expert assistance that you can probably
    not afford.
        You may be able to afford it. You have been very
    successful, but there are so many other businesses obviously as
    when you started, what you could do then as what you can do now
    is two different things, but I do thank you.
        Ms. Wood. Thank you.
        Mr. Gonzalez. I want you to know that you were the topic of
    conversation at lunch.
        Ms. Wood. Thank you very much.
        Mr. Gonzalez. Real quick to Ms. Darien. You pointed out an
    IRS reg on defining independent contracts and believe me, in
    the law that has always been a problem. I used to be a Judge so
    we always had, was that an employee, was that an independent
    contractor, because of the liability issues.
        I think we see something here that something we could do
    with the code that would address it, but when it comes to those
    individuals within the department, within IRS, it seems to me
    that you have been somewhat pleased with the cooperation and
    the personnel. How would you characterize the relationship in
    your experiences with individuals from different departments
    and agencies?
        Ms. Darien. Well, we have worked quite a bit with the
    taxpayer education and outreach department, as well as the
    small business self-employed division and they have really been
    phenomenal in trying to assist us. I think with this issue, the
    problem lies with the regulation and its complexity. I mean
    they try to give us information and assistance and guidance,
    because this actually is one of the top three issues that our
    members complain about quite often.
        They give us this brochure and I try to read it. You know I
    think that I am somewhat of an intelligent person and it really
    did not help me at all. So I can't imagine an even more
    educated small business person running their business that this
    would assist either. In terms of their effort and the extent
    that they have gone to try and be more small business friendly,
    they have really done a great job.
        In reference to your comment about where does small
    business people go to find out about regulations, I think
    obviously it is our job as an association to do our best to
    help our members.
        So I think associations have a responsibility to help
    educate our members on regulations, but I think that
    responsibility should lie with the federal agency. They are the
    ones actually releasing these regulations and rules and they
    want people to comply to them. So, shouldn't they make them
    easy to understand? It only seems like common sense to me. I
    really do feel like more of the onerous should be on federal
    agencies to make their regulations clear and concise and in
    plain English.
        If they have to be in bureaucratic speak for the record,
    fine, but let us have some translation for the purposes of
    small business so they are easy to read and easy to understand.
    Most small business owners, as Congressman Bartlett said, they
    want to do the right thing. They want to follow the rules and
    they want to run their business successfully, effectively and
    the way they are supposed to. They are not trying to get away
    with anything, but we need to make it simple and clear for
    them.
        Mr. Gonzalez. I think we all agree with you that we need to
    make it understandable. The other thing is thank you very much
    for your testimony. When I think someone is doing a good job,
    Mr. Barrera, Ms. Olson, we really need to hear that it is
    working.
        Ms. Darien. They have been doing a great job.
        Mr. Gonzalez. Thank you very much.
        Chairwoman Capito. Thank you. Mr. Bartlett, do you have any
    questions?
        Mr. Bartlett. Thank you very much. As I mentioned, I was a
    small business owner, and when you have people working for you
    for eight, ten years they become almost like family. The idea
    that you can't know why they are in the hospital is just
    preposterous. You know that goes beyond silly.
        I noted with interest that the two witnesses in this Small
    Business Committee hearing are women and that is of interest
    because, as many people don't know, women-owned small
    businesses are growing at twice the rate of male-owned small
    businesses. They are on average better employers. That doesn't
    surprise me. Men are different than women. Our military is
    having some trouble figuring that out, by the way, but they are
    different.
        Women are more compassionate, more empathetic than men and
    that doesn't surprise me they are better employers. They are
    also better corporate citizens for exactly those same reasons I
    think. Women-owned small businesses also have a lower
    bankruptcy failure rate. Our bankers need to listen up, because
    access to capital is still a big problem for women-owned small
    businesses.
        You mentioned the independent contractor rule and this 20-
    point checklist that the IRS has. They are now telling my small
    business people that a drywall finisher is an employee. Now, I
    ran a home construction business. There is no more independent
    person on earth than the drywall finisher. First of all, he can
    carry all of his tools in his back pocket. So he doesn't have a
    lot of capital. He is about as independent as a hog on ice. To
    list them as an employee just goes beyond silly.
        I will tell you the silliest one is saying that the
    subcontractor who owns his school bus is really an employee,
    because he has to follow a schedule and that is one of their 20
    points on their checklist. If they have to follow a schedule,
    they are an employee. You know that is when the kids go to
    school and that is why he picks them up then, but because he
    has to follow a schedule, the IRS says that he is now an
    employee. He owns his own school bus.
        I want to spend just a moment, it will only take a very
    brief amount of time, because this is really a very small
    document, to go back to the Constitution. I want you to stop me
    when I come to that point in Article 1, Section 8, which is all
    of the permissible functions of the federal government. Stop me
    when I come to that point in the Constitution that justifies
    all of these federal regulations.
        The government shall be empowered to lay and collect taxes.
    We sure do that don't we? Borrow money. We are doing a lot of
    that. To regulate commerce with foreign nations among the
    several states and with the Indian tribes establish a uniform
    rule of naturalization and laws on bankruptcy. To coin money.
    Somehow we gave that way to the Federal Reserve, without a
    Constitutional amendment. I don't know quite how we did that.
        To provide for the punishment of counterfeiting. To
    establish post offices and post roads. Promote the progress of
    science and useful arts. That is copyrights and patents.
    Constitute tribunals inferior to the Supreme Court. That is our
    lower Federal Courts.
        Define and punish piracies. To declare war. To raise and
    support Armies. To provide and maintain a Navy. To make rules
    so the government regulation will enable forces to provide for
    calling forth the militia. To provide for organizing, arming
    and disciplining the militia. Big confusion to what the militia
    is. It is not the National Guard.
        To exercise exclusive legislation all cases whatsoever over
    the District of Columbia. I have no idea how you get self-rule
    without a Constitutional amendment when it says to exercise
    exclusive legislation all cases whatsoever. Now I am a great
    supporter of home rule. I just think that we needed a
    Constitutional amendment before we did that.
        To make all the laws that shall be necessary and proper for
    carrying out the above. Now, you didn't stop me. Where in
    Article 1, Section 8 is there even a hint that the federal
    government has a right to all of these regulations? What part
    of this?
        Our founding fathers concerned that we might not understand
    what they meant, came back four years later, in 1791, with ten
    amendments. Twelve started to the process. Ten made it and the
    tenth one, the most violated and ignored amendment in the
    Constitution says, the power is not delegated to the United
    States by the Constitution nor prohibited by it to the States
    are reserved to the States respectively or to the people.
        What that says in common everyday English, since this is
    written in old English and legalese that if you can't find in
    Article 1, Section 8, the federal government can't do it. Now,
    our regulatory burdens would be enormously reduced if we just
    went back to Constitutional government.
        Nobody stopped me in reading. That is all there is in
    Article 1, Section 8, what is between my two thumbs. There
    isn't even a hint there that most of these regulations are any
    Constitutional business of the federal government. How come we
    are doing it if it is none of our business and prohibited by
    the Constitution? Have you asked that question why we are doing
    it?
        Ms. Wood. No, I have not. I just assumed that they were
    allowed the regulations. I did spend last year I think it was
    $34,000 in professional fees with CPA's and lawyers and
    different professionals to help me run my business and that is
    a lot of money.
        Mr. Bartlett. For a small business, that is a lot of money.
        Ms. Wood. A lot of money.
        Mr. Bartlett. But I am very serious. I don't know and I
    have looked and looked through this. I carry this Constitution.
    I read it frequently. I can't even find a hint in Article 1,
    Section 8 that most of our regulations are any business of the
    federal government.
        Now the states can regulate you to death, as far as this
    Constitution is concerned, because they are free to do that,
    but those people are closer to where the rubber hits the road
    and they are more accountable to you. You know your federal
    guys are way off there in Washington, particularly if you are
    in Oklahoma or somewhere and there isn't even a hint here in
    the Constitution that is any of our business.
        Don't you think we need to ask that question: What is the
    Constitutional basis for this regulation? If there isn't any,
    then the federal government shouldn't. Does that seem
    reasonable? I hope people, other than Senator Robert Byrd and I
    start asking that question. Thank you very much. I very much
    appreciated your testimony.
        Chairwoman Capito. Thank you, Congressman. I would like to
    yield to Congressman King and see if he has any questions.
        Mr. King. Thank you, Madam Chair. I haven't even started
    yet and I am having fun. I am not going to do it, but I am
    tempted to ask Congressman Bartlett to yield and go down
    through this conversation. We have had it in the past and it is
    always instructive and I know the argument. The argument is:
    The power to regulate interstate commerce. Well, that is an
    awful stretch to get to some of the things we are talking about
    here today as a creation out of old cloth.
        Just a minute about my background. I started a construction
    business in 1975, bought a bulldozer and went out and began
    doing work by the hour. My business was my checkbook in my
    shirt pocket and throughout those 28 years and meeting payroll
    for 28 years, I came face-to-face with many of the things that
    you talked about here this morning and certainly all of you
    have experienced far more than we would have time to dredge up.
        Although I would say this, that throughout those years I
    made those adjustments day-by-day and week-by-week and at some
    point, I was doing a seminar at a convention of small
    contractors and as I did that seminar I really came unprepared
    that day and so I thought let us find out how many agencies
    regulate our trade. People with similar business to mine. I put
    up a chalkboard and sat there with 60 to 70 contractors in the
    room. I split it into federal, state and local regulations.
        That day, the following day with a different group of
    people cross-reference, we came to the same number. This was
    about 1991 or 1992. Forty-three different agencies. Now, I
    don't know how a large corporation can deal with that kind of
    regulation, let alone a small company, a sole proprietorship or
    a sole proprietorship that grew into 23 employees.
        How do we incent new businesses, the incubator companies,
    the sole proprietorships? Why in their right mind would anybody
    step in and start out with their hammer and their saw or their
    bulldozer and go into a business when they had to face 43
    agencies and all their regulation? Is there anybody here in
    this panel that believes that there is a single moment in time
    that you have been in compliance with all the agencies that
    regulate your business? I guess I would direct that first and
    if you decline to answer it I understand why, Ms. Wood.
        Ms. Wood. We talked about retaliatory action today, but I
    do try very hard. That is why I spend so much money on
    professional fees. But getting back to the regulations, I guess
    I should have listened to my father, who was a good Virginian
    who told me when I started this business that I shouldn't go
    into business because I might take a job away from a man. Had I
    listened to him perhaps I wouldn't be facing these regulations.
        Mr. King. I also appreciate the remarks that Congressman
    Bartlett made about how efficient women are. You left out one
    thing. That is the effectiveness in political campaigns as
    well.
        So we can't be in compliance with these regulations and we
    can't really anticipate that we are going to see the incubator
    businesses that grow up into the competitive businesses that we
    need so that we have some kind of economic evolution in all of
    our industries. When we talk about regulations, what I am
    hearing is well let us maybe suspend or repeal the last thing
    that we did to you, but what about all the things that we have
    done? What about the cumulative effect of this? Is there anyone
    that has a broad approach?
        Ms. Wood. I do not.
        Ms. Darien. I think with the amount of regulators
    regulating certain industries, we will see declines in various
    industries in terms of small business growth. To be optimistic,
    I don't think you can sort of quell the entrepreneurial spirit
    in some people who have a dream and really want to go out and
    pursue it. What we see happening is they have this dream, but
    they tailor the dream to fit into a certain niche so that they
    won't have to deal with certain regulations.
        Like, for example, maybe they don't become a full-fledged
    construction company. Maybe they become the independent
    drywaller so all they have to do is worry about themselves.
    What we see happening with a lot of our members is they don't
    want to hire anyone else. They don't want to grow. They want to
    grow in profits, but they don't want to grow in size because
    they don't want to have to deal with the regulatory burden,
    most specifically the IRS burden in terms of dealing with
    employment taxes and everything else that they have to deal
    with, with employees.
        So what happens is you have a little bit of a stifling of
    the economy, in terms of growth of businesses, because there
    isn't that incentive for a small business to grow into
    something bigger.
        Mr. King. I will pose the question first to Mrs. Wood and
    then back to you and that is this: I am a supporter of going to
    a national consumption tax and eliminating the IRS entirely and
    eliminating the office. We can do that. It is a very legitimate
    thing to do. Every time I turn that Rubik's Cube around and
    look at it, it looks better and better and better. I am not
    sure I have looked at it from every angle, but I have tried
    over the last 20 years.
        I came to that conclusion from the seat of a bulldozer,
    independent from anybody else's input. So if we could eliminate
    the IRS, if we could eliminate the Davis-Bacon wage scale and
    if we could eliminate affirmative action and go with individual
    rights, what kind of a dynamic impact would that have on your
    business, Ms. Wood?
        Ms. Wood. It would have very much of a dynamic. Let me just
    say one personal thing. What is it, 2011 when the estate tax
    goes back in? Gee, I hope I am still living at the end of that.
    I am 65 years old. You know you might think this is funny, but
    there is going to be a lot of deaths that year, because of
    people who have worked hard and amassed a nice estate. When
    they go beyond that year, the estate tax comes back. So maybe
    with your ideas we could also do away with the estate tax
    permanently.
        This is a real concern if you have worked hard and you know
    25 years of being in construction is not easy, as you know and
    I would like to be able to pass my business on to my children
    without having them have to sell it in order to continue. Sell
    portions of it.
        I certainly would like any type of tax reform. It certainly
    is a burden on my business and part of my 25 to $30,000 a year
    I spent, a great part is in professional fees to help me deal
    with the IRS and their regulations.
        Mr. King. These goals that you have laid out, I just want
    to assure you and for the record that we either get that done
    or I will die trying.
        Ms. Wood. Thank you.
        Mr. King. If you could also answer that same question. How
    dynamic an impact would that have on the small incubator
    businesses that you represent, if we eliminated the IRS and the
    burdens of Davis-Bacon wage scale, affirmative action and that
    load of government burden which is the core?
        Ms. Darien. Well obviously a large impact, though you know
    I am weary to think we can sort of dig ourselves out of the
    quagmire we have already sort of gotten ourself into. It is
    hard to sort of turn back after we have gone down a certain
    path, but again I think this all goes back to Congressman
    Bartlett's perspective in that why is it that the federal
    government just assumed that small business owners want to try
    and get away with something.
        In fact, if left to their own devices, they are more likely
    to do the right thing for their employees, to provide them the
    benefits they need, to do the right thing for their business,
    to contribute to the greater good in terms of community work
    and even taxes for the federal government. So we really need to
    expel the notion that they are somehow trying to get something
    for free or get away with something. That is not the case with
    small business owners.
        Mr. King. I will just conclude with this that in the sum
    total of all this, our job here in this Congress is to try to
    contribute to the quality of life in the United States of
    America and what some of these regulations do, in fact most of
    them do is it erodes your ability to have that quality of life
    and that family relationship, whether they are related or not,
    in these small businesses. I think it is something that we are
    trimming at the bushes instead of chopping at the roots and
    also for the record, I agree with Congressman Bartlett on the
    Constitution. Thank you, Madam Chair.
        Ms. Darien. Thank you. Mr. Gonzalez?
        Mr. Gonzalez. Madam Chair, thank you very much. Why I feel
    like the defenders at the Alamo at this moment I don't know,
    but being the only Democrat present obviously I am going to
    disagree quite a bit with the interpretation of the
    Constitution and the philosophies expressed by my colleagues.
        Nevertheless, of course I respect it and if we had a good
    healthy debate here in Congress and the rules and the procedure
    and the mindset allowed it, we would progress and probably help
    all Americans, because somewhere in the middle lies the truth
    and the answer. That is a very difficult lesson for individuals
    here on Capitol Hill.
        Let me ask you, Ms. Wood. You have worked very hard. At one
    time, and this is not a criticism of your father, now my father
    didn't feel that way, but my grandfather did about a woman
    taking someone's place, when I went to law school, many years
    ago, but a female student everyone would look at her and say,
    well she is never going to practice full-time. She is taking
    some guy's slot. It is a horrible way of thinking.
        Believe it or not, we try to address it. So even in the
    context of small business, we have policies and programs that
    encourage women to become entrepreneurs because we recognize
    patterns of discrimination as was expressed by certain mindsets
    and philosophies years past, but still impact the opportunities
    presented to minorities and women. It is out there. That is the
    reality of life. We live in a great society, but it has its
    imperfections and government does have a duty to level the
    playing field and that is what we really attempt to do.
        The problem is when we go overboard. I see government
    really governed and should be inspired by the same maxim that
    the doctors follow and that is, first do no harm. That our
    policies do no harm, but sometimes we have to be proactive to
    make sure that there is a level playing field for women,
    minorities or others, but just by the definition of a small
    business we want to make sure that small businesses have a
    level playing field out there in competing with big businesses.
        Why do we have rules on independent contractors? Because
    the truth is, if someone could they would not have any
    employees, because when you have an employee there are all
    sorts of additional burdens. It is not a simple matter of
    whether someone is following a schedule that determines whether
    it is independent or employee, it is about control. I am not
    going to go into a hundred years of law into this thing.
        What we are trying to achieve is accountability and
    responsibility so that an individual that does not enjoy the
    reputation that you have in your area of commercial
    construction, someone who is not as forthright, is not as
    caring, is not as responsible can unfairly compete with you,
    who is following the rules and such.
        The rules really attempt to impose an equal burden and
    responsibility on everyone so that they will conduct themselves
    accordingly and hopefully aspire and attain the position that
    you have. You very naturally have gone that route. Others need
    encouragement. Others need actually to be watched and that is a
    terrible thing, but it is true because it is called human
    nature.
        If all of us in this room today, if I said don't worry
    about your local state or federal tax, we are never going to
    check on them, this year for 2003 we are not going to check
    whether you pay it or not, how many of us would pay taxes
    realistically? Think about it.
        So there is a scheme out there and there is a reason. What
    we attempt to do is find some reasonable balance and that is
    what we really need in this Congress, in the state Houses and
    our city council chambers.
        With your help, we can identify where we have gone
    overboard and are counterproductive, but please understand that
    a reasonable regulatory scheme does make sense and it will
    assist you in your success so that there are individuals out
    there that are not as competent, may be dishonest and never
    attained the fine reputations that you have that would be able
    to compete against you and actually underbid you and everything
    else and produce a lesser quality of a product or service and
    run you right out of business because that is the way things
    are, but we are not going to allow that to happen.
        We want you to prosper. We want you to represent the best
    there is out there in the small businesses and that is what we
    attempt to do in Congress, whether Republican or Democrat. So
    to that extent, I do disagree with some of the points of view
    that have been expressed earlier.
        Chairwoman Capito. All right. I think that wraps up our
    testimony and our hearing. I again appreciate all of your
    input. I would like to tell you that I will pass on to Mr.
    Schrock that everything went well and that I will tell him as
    well that your grandson will be coming after him for his seat
    in the next several years.
        Ms. Wood. Thank you.
        Chairwoman Capito. Thank you very much.
        [Whereupon, at 11:30 a.m., the Subcommittee was adjourned.]

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