[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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