[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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