[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




            SMALL BUSINESS PRIORITIES OF THE 109TH CONGRESS

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, MARCH 8, 2005

                               __________

                            Serial No. 109-4

                               __________

         Printed for the use of the Committee on Small Business


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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
SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri                  ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania           DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado           DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire           ED CASE, Hawaii
STEVE KING, Iowa                     MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan          MICHAEL MICHAUD, Maine
RIC KELLER, Florida                  LINDA SANCHEZ, California
TED POE, Texas                       JOHN BARROW, Georgia
MICHAEL SODREL, Indiana              MELISSA BEAN, Illinois
JEFF FORTENBERRY, Nebraska           GWEN MOORE, Wisconsin
MICHAEL FITZPATRICK, Pennsylvania
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Deputy Chief of Staff/Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Pierce, Mr. Jerry, Owner, Restaurant Equipment Sales, Orlando, FL     5
Coratolo, Mr. Giovanni, Director, Small Business Policy, U.S. 
  Chamber of Commerce............................................     7
McCracken, Mr. Todd, President, National Small Business 
  Associaton.....................................................     8
Kasoff, Ms. Barbara, Co-Founder, Women Impacting Public Policy, 
  San Francisco, CA..............................................    10
Kerrigan, Ms. Karen, President & CEO, Small Business and 
  Entrepreneurship Council.......................................    12
Brooks, Ms. Sheila, President, SRB Productions Inc...............    14

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    30
    Velazquez, Hon. Nydia........................................    31
Prepared statements:
    Pierce, Mr. Jerry, Owner, Restaurant Equipment Sales, 
      Orlando, FL................................................    33
    Coratolo, Mr. Giovanni, Director, Small Business Policy, U.S. 
      Chamber of Commerce........................................    42
    McCracken, Mr. Todd, President, National Small Business 
      Associaton.................................................    51
    Kasoff, Ms. Barbara, Co-Founder, Women Impacting Public 
      Policy, San Francisco, CA..................................    63
    Kerrigan, Ms. Karen, President & CEO, Small Business and 
      Entrepreneurship Council...................................    67
    Brooks, Ms. Sheila, President, SRB Productions Inc...........    77
Attachments:
    WIPP Letters.................................................    82

                                 (iii)

 
            SMALL BUSINESS PRIORITIES OF THE 109TH CONGRESS

                              ----------                              


                         TUESDAY, MARCH 8, 2005

                   House of Representatives
                                Committee on Small Business
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 3:15 p.m. in Room 
311, Rayburn House Office Building, Hon. Donald A. Manzullo 
[Chairman of the Committee] presiding.
    Present: Representatives Manzullo, Keller, Sodrel, Gohmert, 
Velazquez, Lipinski, Case, Bordallo, Grijalva. 

    Chairman Manzullo. The Committee will be in order. Today 
the Committee examines the small business priorities for this 
Congress.
    Representative Ric Keller has authored a commendable 
resolution based on input he has received from his small 
business constituents, which expresses the sense of the House 
of Representatives the top challenges facing small businesses 
are staggering health care costs, high tax, regulatory and 
paperwork burden and frivolous lawsuits.
    Surveys of small businesses continually show similar 
priorities. These priorities should be the focus of 
Congressional action to improve the climate for small 
businesses.
    I am pleased that one of Mr. Keller's constituents has 
taken the time out of his busy schedule to be with us today.
    On many fronts, Congress is making progress addressing 
these issues. Last month we were finally able to break the log 
jam in the Senate on class action litigation reform and it is 
now the law of the land.
    This Committee held two hearings on health care in recent 
weeks and I am optimistic that we can build on the success in 
the previous Congress that established health savings accounts 
to break the impasse in the Senate on association health plans 
and medical liability reform.
    I am pleased the President's fiscal year 2006 budget 
request includes making the tax cuts we already passed into law 
permanent, including the important estate or death tax repeal 
so that small businesses can be passed on to the next 
generation.
    Next week we will most likely see a budget resolution 
adopted by the House to make the tax cuts permanent. Finally, I 
am going to work hard this Congress to see meaningful reform of 
Regulatory Flexibility Act and Equal Access to Justice Act to 
ensure that no federal agency bypasses the concerns of small 
business in the regulatory process.
    As a first step, the Committee plans a hearing on 
legislation to approve the Regulatory Flexibility Act next 
week.
    I look forward to learning of the priorities of the small 
business groups here before us today, based on input from their 
membership.
    I now yield for an opening statement from distinguished 
Ranking Democrat Member from the State of New York, 
Representative Velazquez.

    Ms. Velazquez. Thank you, Mr. Chairman. As the economic 
engines of this country, small businesses play a vital role in 
job creation and economic growth.
    As the main job creators, creating three out of every four 
new jobs, small businesses make up nearly 99 percent of all 
employers.
    This sector is responsible for making up over half of the 
gross domestic product. Despite their overwhelming impact on 
our economy, small businesses unfortunately continue to face a 
myriad of challenges.
    The number one challenge facing small businesses today is 
their ability to access affordable health care. These costs 
have only continued to skyrocket over the past few years, 
increasing by double digits.
    Every one out of six uninsured Americans are in families 
headed by the self-employed or a small business employee. This 
is simply unacceptable.
    However, it is important to recognize that there is no one 
size fits all solution to this health care crisis facing our 
nation's entrepreneurs.
    In addition, this nation's small businesses continue to be 
overburdened by regulations and paperwork. In fact, the Bush 
Administration holds the record for the largest increase in 
paperwork burdens in a single year in history.
    According to OMB, Americans spend 720 million more hours a 
year on federal paperwork than they did before President Bush 
took office.
    Also, a serious concern for many aspiring entrepreneurs is 
their ability to access affordable capital. Whether it is bank 
lending, seed capital or venture capital, small businesses rely 
on this capital to start and grow their enterprises.
    However, they are oftentimes unavailable to qualify for 
traditional bank loans and depend on help from the federal 
government to access affordable capital.
    Another way for small businesses to increase their capital 
is by doing business with the federal government. 
Unfortunately, the $285 billion federal marketplace has not 
been open to small firms. For the fourth year in a row, the 
federal government missed their small business contracting 
goal, costing small businesses $45 billion in lost contracting 
opportunities over the past four years.
    In addition, we need to ensure that SBA and its programs 
will be modernized and adequately funded so small businesses 
have a vibrant and strong agency at their disposal.
    Over 50 vital small business programs has been slated for 
cuts and elimination in the President's latest budget request. 
We must ensure that small businesses have access to all of the 
tools they need in order to succeed.
    Small businesses also face obstacles, in regard to their 
pension plans. Right now, they simply do not have the same 
types of options as their larger counterparts.
    Only a quarter of workers at firms with fewer than 25 
employees participated in an employer sponsored retirement plan 
in 2003. This is compared to nearly 70 percent of works at 
firms with 100 or more employees.
    The priorities of our nation's small businesses have been 
pushed aside for far too long in favor of measures like the 
dividend tax cut, which cost nearly $200 billion, but did 
nothing to help small firms. Entrepreneurs are in need of 
permanent targeted tax relief.
    In order for small businesses to drive our economy, these 
challenges need to be overcome. Today we will be examining 
House Resolution 22 that intends to put this Congress on the 
record as to what the real priorities should be for this vital 
sector.
    A few of these challenges are addressed in the resolution, 
but many are not. There are also some questionable priorities 
listed, such as frivolous lawsuits, where it is not clear if it 
is truly a tough concern for small firms.
    I look forward to hearing the testimony of all the 
witnesses today and to hearing what truly are the top 
priorities for small businesses. This Committee and Congress 
needs to truly champion all of the top priorities for small 
businesses, if we want to see them continue to do what they do 
best: Create jobs and spur economic growth.
    Thank you, Mr. Chairman.

    Chairman Manzullo. Thank you. I am going to recognize the 
author of this legislation, Mr. Keller, for five minutes to 
explain this resolution and the hearing we are having on it 
today. Mr. Keller?

    Mr. Keller. Thank you, Mr. Chairman and I want to 
especially thank all of the witnesses for being here today.
    The goal of the Small Business Bill of Rights is to provide 
a blueprint for Congress to help small business employers 
create more jobs.
    A job is the best social program in the world. It provides 
income, health insurance and dignity. Significantly, 70 percent 
of all new jobs in the U.S. are created by small businesses.
    In light of the fact that small business employers are the 
engine that drive this economy, I decided to meet with 20 very 
successful small business people in Orlando, Florida to learn 
firsthand what Congress could do to help small businesses to 
create even more jobs.
    One of the individuals I met with was Mr. Jerry Pierce, the 
owner and CEO of Restaurant Equipment World, a family-owned 
small business in Orlando, Florida. In Orlando, there are three 
famous worlds. We have Disney World, Sea World and Restaurant 
Equipment World.
    It may not be the most entertaining, but it has the 
shortest lines I assure you.
    I am very pleased that Mr. Jerry Pierce is here today as 
one of our witnesses and I especially, having flown up with you 
this morning, thank you for giving up the Florida sunshine to 
come here to this D.C. snowstorm.
    I learned a lot by sitting down and listening to these 
small business people. First, I learned that the number one 
issue facing small business people today is the skyrocketing 
cost of health insurance.
    In fact, a growing number of small business people today 
are not able to provide health insurance to their employees, 
primarily because of the surging cost. Of the 45 million 
Americans without health insurance, 60 percent are small 
business employees and their families.
    Right now, small businesses are unable to achieve the 
bargaining power of large corporations and unions, when 
negotiating with insurance companies to obtain affordable 
health insurance.
    The premiums that small businesses pay for health insurance 
are typically 20 to 30 percent higher than those of large 
companies or unions.
    According to the Congressional Budget Office, small 
businesses that obtained insurance from association health 
plans can save up to 25 percent.
    These small business people told me that they needed the 
right to be able to join together to purchase affordable health 
insurance for their employees so that their workers would have 
the same opportunity to get the same health care benefits now 
reserved to employees of Fortune 500 companies.
    The second thing I learned is that many of these small 
businesses are family-owned. Unfortunately, the death tax 
causes one-third of all family-owned small businesses to 
liquidate, after the death of the owner.
    If Congress does not undertake any meaningful reforms of 
the death tax laws, then small business people will go back to 
paying up to 55 percent in tax rates in the year 2011.
    Understandably, these small businesses want the right to 
tax laws that allow family-owned small business people to 
survive over several generations and offer them incentives to 
grow.
    The third thing I learned is that frivolous lawsuits and 
the rising cost of liability insurance represent a very serious 
threat to small business owners. Unlike large multinational 
corporations, small business owners do not have the resources 
to defend themselves against frivolous litigation and are often 
forced, for business reasons, to settle a claim for five to 
$10,000, rather than pay a defense lawyer $100,000 to 
successfully defend the claim in court.
    Finally, I learned that burdensome regulations and 
paperwork costs small businesses more than $5,500 per employee 
and these small business owners, understandably, want the right 
to be free of unnecessary restrictive regulations and 
paperwork, which end up wasting their time and energy and 
prevent them from creating additional jobs.
    After listening to the challenges and solutions proposed by 
various small business people, I worked with some of my 
Democratic colleagues to craft a Small Business Bill of Rights.
    I want to particularly thank Congressman Bud Cramer of 
Alabama, as well as Congressman Ed Case of Hawaii for their 
cosponsorship of this legislation.
    I want to again thank the witnesses for taking time out of 
their busy lives to come testify before Congress and I look 
forward to listening and learning from your testimony today.
    Mr. Chairman, I yield back the balance of my time.

    Chairman Manzullo. Thank you.
    We have a five-minute rule. There is no trap door that if 
you exceed that you fall into the story below us, but if you 
could, when you see the yellow light on there, try to begin to 
sum up.
    I would encourage you to explore as many personal anecdotal 
stories as possible. The testimony of many of you is going to 
be almost the same. That is okay. It reinforces what we are 
trying to do today, but if you have a small business, 
personalize this.
    Tell us how this impacts you directly. That makes your 
testimony even more powerful.
    Our first witness is Jerry Pierce. You don't even want to 
say Wally World you know, but from Orlando, Florida testifying 
on behalf of himself and the National Federation of Independent 
Businesses.
    The testimony of all the witnesses will be made part and 
the written testimony will be made part of the permanent record 
and we look forward to your testimony.
    Mr. Pierce?

     STATEMENT OF JERRY PIERCE, RESTAURANT EQUIPMENT SALES


    Mr. Pierce. Thank you. Good afternoon, Mr. Chairman and 
members of the Committee.
    Thank you for inviting me here to speak today on House 
Resolution 22, the Small Business Bill of Rights, sponsored by 
Congressman Ric Keller and Bud Cramer.
    I am pleased to be here on behalf of the National 
Federation of Independent Businesses to represent their 600,000 
members.
    My name is Jerry Pierce and I own and operate Restaurant 
Equipment World, headquartered in Orlando, Florida.
    I founded the company in 1976 in Cleveland, Ohio selling 
restaurant equipment to small delicatessens and restaurants. We 
eventually began furnishing equipment and services to theme 
parks, such as Sea World and Cypress Gardens and later to chain 
restaurants, such as Applebee's and Denny's and many others.
    We offer a full range of employee benefits, including 
health insurance. Concerning small business health plans, the 
small business community is struggling each year to afford the 
cost of increasing health insurance premiums.
    One way to solve the cost problem is through the use of 
small business health plans. These plans would allow small 
businesses to band together across the state lines to purchase 
health insurance as part of large groups, thus ensuring greater 
bargaining power, lowered administration cost and the freedom 
from costs of complying with 50 different sets of state 
insurance mandates.
    When compared with large corporations, small businesses 
face dramatic disparities in the health care marketplace. For 
instance, my own daughter, who works in our company, does not 
participate in company health care plan, because she can be 
added to her husband's plan. He works for a large corporation 
and she can be added to his plan for only $40 a month.
    If, however, her husband quit his job and wanted to join 
under our company plan with her being insured, the cost to add 
him onto our plan would be $428.51 per month, a very dramatic 
difference.
    Concerning the death tax repeal, the death tax threatens 
the livelihood of small businesses and their employees.
    Annually small businesses pay income taxes, pay personal 
property taxes, employment taxes, social security, excise 
taxes, just to name a few.
    After small businesses pay all those taxes with their after 
tax dollars, they then have the choice of investing in people, 
equipment, plant and inventory in order to make their 
businesses more efficient.
    If these businesses do not have the cash available, they 
will be forced to sell critical parts of their businesses or 
the entire business outright in order to cover the tax 
liability.
    I remember when my father-in-law was in his 70's and stated 
it was time to cash in his chips and to close his businesses 
and liquidate assets so that his family would have money to pay 
the death tax.
    This certainly hurt the family, but it also destroyed a 
life's worth of work, where he created a company that built the 
machines that made machinery. He had highly paid craftsmen and 
built a reputation in the tool and dye industry.
    The employees of that company lost their jobs and so did 
our society lose, because that company is gone and I can assure 
you that the employees who lost their jobs, none of them were 
named Warren Buffet or Bill Gates.
    In my personal case, I wasted money on setting up a trust 
and by encouraging my children to purchase second-to-die 
insurance on my wife and myself in addition to other 
strategies. I urge Congress to permanently repeal the death 
tax.
    In terms of legal reform, another issue, the escalating 
numbers of lawsuits threatened or filed are having a strong 
impact on small business owners. For a small business owner 
with five employees for us, the problem is not the multi-
million dollar settlement, it is the five to $10,000 settlement 
or the threat of one.
    When you consider that many of these small businesses only 
maybe make 40 to $60,000 a year, a $5,000 settlement on a case 
would be ten percent of a business' annual profit.
    Small business owners are troubled by the fact that they 
are often forced to settle a case at the urging of the 
insurance company and then what happens is the insurance 
company raises the premium next year. So many owners of 
businesses simply settle, pay the $5,000 or ten and don't 
bother filing the claim with their insurance company.
    Regulatory reform, another issue. Simple government 
regulations, particularly when it comes to paperwork they 
generate, can create a burden on small businesses.
    Regulatory costs per employees are debilitating for small 
firms. A report commissioned by the Small Business 
Administration's Office of Advocacy estimates that the 
regulatory compliance costs for firms with fewer than 20 
employees is nearly $7,000 per employee per year.
    According to the NFIB research foundation, the best thing 
for small businesses--

    Chairman Manzullo. How are you doing on time, Jerry? You 
are over.

    Mr. Pierce. I am sorry. I didn't notice that. I apologize. 
I am just about done on that and all I do at this point is like 
to thank you for the opportunity to testify and in closing to 
thank the members who have been supporters of small business 
health plans, particularly Chairman Manzullo, Ranking Member 
Velazquez and Congressman Case. Thank you very much.
    [Mr. Pierce's statement may be found in the appendix.]

    Chairman Manzullo. Thank you.
    Our next witness is Giovanni Coratolo with the Small 
Business Division as part of the U.S. Chamber of Commerce. We 
look forward to your testimony.

  STATEMENT OF GIOVANNI CORATOLO, SMALL BUSINESS POLICY, U.S. 
                      CHAMBER OF COMMERCE


    Mr. Coratolo. Thank you, Chairman. Chairman Manzullo, 
Ranking Member Velazquez, members of the Committee, I thank you 
very much for inviting me here to give testimony on small 
business priorities.
    My name is Giovanni Coratolo and I am Director of Small 
Business Policy for the U.S. Chamber of Commerce.
    Quite frankly, I have written testimony and I am not going 
to sit there and read it. What I would like to do is give you a 
few remarks off the cuff about H.Res.22, which we find very 
important to small business.
    I have seen the Chairman and this Committee and Ranking 
Member do a lot for small business through this Committee. 
Unfortunately, this Committee doesn't have jurisdiction over 
those issues that most affect small business and those are the 
issues that are encompassed in H.Res.22.
    Health care is number one. We just got back from a small 
business council meeting. I am constantly bombarded. This is no 
secret. Health care for small business is important. Solutions 
for that are important.
    If you look, obviously in the eyes of small businesses, 
they don't understand why they can't pool and provide or obtain 
health care for them and their employees, as large businesses 
do.
    It is just unbelievable to them that Congress has not 
enacted some measures to help them belong in health care policy 
issues.
    Health care is currently 15 percent of our GDP. It will be, 
in the year 2013, 18 percent. It is absorbing our ability to 
compete.
    Internationally if you look at any of the industrialized 
nations, other industrialized nations, it is eight or nine 
percent. So we are at a competitive disadvantage to those we 
are trying to compete against.
    Going on to tax relief. The small businesses that are 
members of the Chamber, when they get extra money, it is not so 
they can have a better house. They reinvest it. They reinvest 
it in jobs and the growth of their businesses.
    They need some permanency to these tax cuts that were made 
in 2001 and 2003. Section 179 is very important to them. They 
use that for reinvestment. So this is a very important feature 
to our small businesses.
    Reduction of red tape. All these issues are the four most 
prominent issues. All the polls we have done, these are the 
four most prominent issues that come up in all the polls, 
whether it is our members or outside our membership.
    Red tape reduction, frivolous lawsuits, tax relief and 
health care, those are the four top issues that perennially 
poll for small business.
    Congressman Keller is correct. It is a mirror of what we 
have seen in our membership.
    Red tape. We have had four bills pass in the last decade 
that have mandated for agencies to reduce the paperwork 
burdens. That has not taken place. It has only grown.
    If you talk to the agencies and I have been in many 
roundtables and panels, you see that the agencies say we can't 
provide compliance assistance. We cannot provide the help and 
they talk about lack of resources, yet they expect small 
businesses to use their limited resources to understand these 
regulations.
    We need to have further regulatory controls to hold the 
agencies feet to the fire when it comes to adhering to the 
regulations that Congress imposes to them. It is very 
important.
    Lastly, frivolous lawsuits or tort reform. Prior to me 
going with the Chamber, for 25 years I owned and operated 
businesses. I know what it is like to be sued and I know what 
it is like to have a frivolous lawsuit, one that is baseless.
    It is not only a financial drain, it is an emotional drain. 
It makes you want to take a defensive posture. It makes you not 
want to expand and grow like you should.
    This is something that is important. We have to reign in 
this. We have to do something. There is a tort tax of $845 per 
person that is also eroding our ability to compete.
    I thank you very much for inviting me to this. We hope that 
you will be able to pass this and send a clear message to the 
House that this is important for small business. Thank you.
    [Mr. Coratolo's statement may be found in the appendix.]

    Chairman Manzullo. Thank you.
    Our next witness is Todd McCracken, President of National 
Small Business Association. I look forward to your testimony.

     STATEMENT OF TODD MCCRACKEN, NATIONAL SMALL BUSINESS 
                          ASSOCIATION


    Mr. McCracken. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here. The National Small Business Association 
is the nation's oldest small business advocacy organization and 
we have only come back from a conference last month where we 
biannually develop our priorities for the Congress. This 
hearing is particularly timely.
    As the two witnesses before me have indicated, you can look 
at any survey of a small business community and you will see 
that absolutely the top issue concern is health care, health 
insurance and the affordability of health insurance and the 
ability to get health insurance to their employees.
    Certainly everything we have seen supports that notion of 
something absolutely must be done to fix the health insurance 
situation.
    Also as you probably know and the panel probably know, I am 
probably alone up here in saying that we don't think that 
association health plans is the way to go to accomplish that.
    Health care does take 15 percent of our GDP. It is going to 
take 18 percent of our GDP and AHP's aren't going to change 
that. They will rearrange who pays how much of that 15 percent 
and 18 percent, but at the end of the day we have got to tackle 
head on those enormous costs that are really driving a health 
care crisis we have now.
    We hope we can get started in this Congress, who really 
needs to begin to address that. Really look at the overall 
health care picture. We have got to inject new market forces 
into the health care system.
    We have to hold providers and insurers' feet to the fire. 
Make sure they are insuring everyone. I mean we have got to 
take a much bigger look at this than just nibbling around the 
edges.
    I don't have time to get into all of that today, but there 
is a lot more detail in my testimony and a lot more detail that 
we can get to you as well.
    The other really huge issue that faces a small business 
every year, of course, is taxes. All forms of taxes and we are 
encouraged that the President has a commission on tax reform. 
We hope that the Congress and the President will be able to 
step up and be very bold and propose that this year as well.
    We think that we need to fundamentally get rid of the tax 
system that we have and replace it with something new. We favor 
a consumption tax, called the fair tax, that we think is, after 
years of study, we think is absolutely the best system for the 
small business community. We hope you will move in that 
direction.
    That said, those are two very big ideas and while we are 
trying to promote them, we are also realists in knowing that 
what needs to get done really maybe what can get done.
    You look at what can get done realistically in this 
Congress in the tax field. Absolutely we need to take the 
opportunity again in this Congress to repeal the death tax once 
and for all and again not nibble around the edges. It is a tax 
the American people don't support.
    It is very difficult to find ways to reform it or change it 
that really solve the underlying problems. We need to get rid 
of the death tax.
    Then I would also point you to a series of changes that 
really discriminate against small businesses. I put them under 
the rubric of tax equity for small companies. One is the self-
employment tax on health care. I mean for a self-employed 
individual, they can't deduct against self-employment taxes, 
their FICA taxes, the cost of the health insurance.
    For a family policy, that is maybe $2,000 a year in health 
insurance. No other worker in the economy pays today. That 
needs to change.
    I want to thank Chairman Manzullo and Congresswoman 
Velazquez for sponsoring a bill in the last Congress that would 
fix that, but that is not the only way that small businesses 
are discriminated against in the tax system.
    They also can't save as much in their 401-K's, so-called 
simple plans, that larger employers can. Small businesses just 
don't have the wherewithal to put together a full 401-K plan, 
if they are very, very small and if they only have a simple 
plan, they can't save as much and their employees can't save as 
much. We think that is wrong and it ought to change.
    Also, small business owners, just because they are small 
business owners, can't put any money into a 125 plan. I mean 
they can have a 125 plan for their employees. These are so-
called cafeteria plans, but they can't put any money in them. 
That ought to change. That is a fundamental unfairness in the 
system I believe and that would change the scenario for the 
small business community.
    Then on health care, we ought to reform the medical 
malpractice system now. We ought to pass the tax equity 
provision I mentioned before. Both those two things would give 
some, not substantial, but very real cost relief to the small 
business community on what they are really paying for health 
care costs.
    Finally, as I begin to wrap up, many small businesses still 
have real problems with access to capital. We think that the 7A 
program in particular ought to be funded at a higher level than 
what the Administration has proposed, because we think 
ultimately it does return money, both to the federal coffers 
and it really helps the small business community get real 
capital into their businesses and create jobs.
    Finally, I had mentioned continuing great need for reg 
reform and there is a lot of detail in my written testimony 
about what needs to happen there and tort reform, but I am out 
of time.
    [Mr. McCracken's statement may be found in the appendix.]

    Chairman Manzullo. Thank you.
    Our next witness is Barbara Kasoff, co-founder with Terry 
Neese of Women Impacting Public Policy.
    How many members do you have now, Barbara?

    Ms. Kasoff. 505,000 members and 29 affiliate organizations 
that belong to our organization.

    Chairman Manzullo. I look forward to your testimony.

   STATEMENT OF BARBARA KASOFF, WOMEN IMPACTING PUBLIC POLICY


    Ms. Kasoff. Thank you so much, Mr. Chairman and Ranking 
Member Velazquez for inviting me to testify.
    The subject of this hearing is very near and dear to my 
heart, small business priorities for the 109th Congress. This 
hearing coincides with the upcoming release of WIPP's annual 
poll.
    We poll our members annually to gain insight and 
information from WIPP's business owners on a number of economic 
issues.
    It also gives our members the opportunity for them to gauge 
the importance of several policy issues to their business.
    We sought information on a number of issues, such as health 
care, tax reform, tort reform, social security, estate tax and 
federal contracting, but let me take a few minutes, if I can 
right now, to share with you some of the results and the 
highlights of the poll.
    It is not going to come to any surprise to any member of 
this Committee that 71 percent of our members identified health 
care as their top issues. Our members overwhelmingly agree that 
AHP's would be very helpful to them, but here is an important 
statistic for you.
    42 percent said that if Congress took away their deduction 
for health care coverage, they would be forced to cancel the 
employer's sponsored health care and an equal percentage said 
that they would be forced to decrease the employer paid portion 
of the health care coverage they now offer to their employees.
    An overwhelming 84 percent of our members believe that a 
total overhaul of the health care system is necessary and what 
that is saying to quote Todd [McCracken] is ``we need to 
address this issue head on.''
    The second highest priority identified by our membership 
was having an energy policy. Seventy-eight percent are in favor 
of the development of alternative energy sources to providing 
tax and monetary incentives to manufacturers and users.
    We haven't heard this issue before as a priority in 
previous polls so we have to think that the price of energy is 
inhibiting small business growth.
    The third highest priority was social security reform. 71 
percent of our members believed that we need to address this 
issue now. 46 percent were not in favor of private retirement 
accounts. 19 percent need more information and 37 percent said 
that market fluctuations are a serious concern in this.
    The fourth highest priority identified by our members was 
in reform of the tax code. 57 percent believed that 
simplification is the route to tax reform. 48 percent favored 
flat tax. 71 percent of our members believed that any changes 
to the tax code must be revenue neutral and 56 percent of our 
members said that the federal tax deficit is an issue of major 
concern to them.
    Lastly, tort reform was identified by 40 percent of our 
members as a priority. Although most respondents had not been 
sued and 50 percent weren't too concerned about being subjected 
to a frivolous lawsuit, our members believe that the legal 
system should be structured to discourage frivolous lawsuits.
    Our members also listed fairness in procurement and repeal 
of the estate tax as important issues.
    Our members are very optimistic about the economy. In fact, 
72 percent expect their revenues to increase in 2005 and this 
is good news for this Committee and for our economy.
    As you set your priorities, we urge you to take a look at 
what our members have said. Without a doubt, we are going to 
have to work together to make rising health care costs a 
priority.
    We are pleased that this Committee is working in a 
bipartisan way to enact AHP's and to look at this issue in a 
full and comprehensive way.
    In last week's hearing on health care, everyone agreed that 
affordable and accessible health care for small business is in 
dire need of fixing and we urge you to continue to pressure 
your colleagues for action. Also, please take a second look at 
energy costs and their impact on small businesses.
    With regard to social security reform and tax reform, no 
solution is complete unless small business has a seat at the 
table. We will continue our efforts to educate our members on 
the various proposals before Congress, as it deliberates on 
these important policy changes.
    We believe it is critically important that a woman business 
owner be at the table when any of these issues are discussed.
    With H.Res.22, we thank you and commend Representative 
Keller for identifying the issues, which are so important for 
small business. We spoke of three or four of the issues that 
were mentioned and with regard to reduced paperwork, our 
members know firsthand the overwhelming amount of paperwork 
that is required.

    Chairman Manzullo. We are overwhelmed by time.

    Ms. Kasoff. Thank you very much for the opportunity in 
allowing me to testify.
    [Ms. Kasoff's statement may be found in the appendix.]

    Chairman Manzullo. Thank you.
    Our next witness is Karen Kerrigan, President and CEO of 
the Small Business and Entrepreneurship Council. I look forward 
to your testimony.

        STATEMENT OF KAREN KERRIGAN, SMALL BUSINESS AND 
                    ENTREPRENEURSHIP COUNCIL


    Ms. Kerrigan. Thank you, Chairman Manzullo, Congresswoman 
Velazquez, members of the Committee for inviting the SBE 
Council to have input into this important hearing today.
    For the most part, our organization will continue to focus 
on what we call the bread and butter issues of the small 
business community. That is issues that continue to present 
cost, competitive and certainty challenges to our members.
    With respect to H.R.22, the Small Business Bill of Rights, 
we believe that piece of legislation, that sense of the House 
legislation, does capture the key issues that our members are 
concerned about, namely taxes, affordable health coverage, 
regulation and frivolous lawsuits.
    Advancing H.R.22 will serve to underscore the need for 
Congress to continue to focus on the small business sector, so 
that we can continue to grow, to innovate and to create jobs.
    On taxes, we will be pushing for tax cut permanence, when 
it comes to 2001 and 2003 tax relief packages. The measures 
within those packages made a significant difference for our 
members, both in terms of having additional resources to keep 
and hire employees, to provide or to maintain coverage for 
their employees, to purchase and upgrade equipment and 
technology and the things that a small business needs to stay 
competitive in the domestic and the competitive marketplace.
    Certainly making those packages permanent adds to 
certainty, allowing small businesses to plan for both their 
short-term and their long-term capital and business development 
needs.
    Tax system overhaul is something that we hear over and over 
and over again and we are very pleased to see that the 
President did put together the advisory panel on federal tax 
reform.
    The principles that he outlined in terms of making it fair, 
simpler and more growth oriented, is something that certainly 
our organization has supported since our founding. Congressman 
Keller, one of your constituents, I know one is here today, but 
also an SBE Council member, was at Tampa for the advisory 
panel's hearing today where he talked about the tax system 
impact on business and entrepreneurship. That was Todd Fleming 
of Infosafe.
    You have star witnesses today, represented both in the 
south and certainly inside the beltway.
    On the issue of affordable health coverage, certainly some 
progress has been made with respect to HSA's. Enhancing HSA's 
through tax credits and incentives certainly will give small 
business owners and individuals more access to this new 
features.
    Our comprehensive approach really is enacting what we 
talked about in the hearing last week, Chairman Manzullo, which 
is to bring more equity to the system and make it more 
competitive, the adoption of AHP's, giving tax credits to 
individuals, the FICA deduction for the self-employed and 
creating a nationwide marketplace and certainly enhancing 
HSA's.
    All these things will give greater access to the system, 
make it more competitive and in the end, more accountable to 
health care consumers.
    On the issue of regulation, really a bane for small 
business, certainly, we will be pushing for broad reforms that 
make the regulatory system more flexible, more modern, more 
accountable for small businesses and certainly we will be 
focusing on very specific items as well, in terms of OSHA 
reform, flexibility in the workplace, independent contractor 
reform.
    One of the issues that we are hearing more and more about 
from our members is the issue of Sarbanes-Oxley, particularly 
small public companies and their ability to comply with that.
    We are very happy to see that the SEC extended the filing 
for accelerated filers, mostly small businesses, for another 
year. That is something that we proposed and that they recently 
adopted.
    But even if you aren't a small public company, the 
downstream impact is being felt by small firms, particularly 
those who do audits every year where they are absorbing and 
they are adopting some of these Sarbanes-Oxley elements in 
their auditing procedures, which obviously raises the cost for 
small businesses.
    What that all--

    Chairman Manzullo. You got a red light.

    Ms. Kerrigan. I am going to wrap up right now and there are 
plenty of other things in my testimony I echo on the energy 
front that Barbara [Kasoff] brought up, that is also included 
and I look forward to our dialogue. Thank you.
    [Ms. Kerrigan's statement may be found in the appendix.]

    Chairman Manzullo. Thank you.
    Our last witness is Sheila Brooks, who is the President and 
Founder of SRB Productions. I bet that stands for Sheila R. 
Brooks Productions and we look forward to your testimony.

       STATEMENT OF SHEILA BROOKS, SRB PRODUCTIONS, INC.


    Ms. Brooks. Thank you, Mr. Chairman, as well as thank you, 
Ranking Member Congresswoman Nydia Velazquez and other 
Committee members for the opportunity to testify before the 
U.S. House of Representatives' Committee on Small Business.
    Mr. Chairman already told you who I am, Sheila Brooks and 
SRB Productions is a full-service communications firm here in 
Washington, D.C..
    We provide original programming for the networks, as well 
as streaming interactive media services, advertising, 
marketing, PR and an in-house production facility.
    I am here today to address H.R.22 and offer my testimony in 
some respect for legislation towards the efforts of 
revitalizing the 8(a) program.
    I am really proud to be one of the 10.6 million women-owned 
firms in this country, doing business in our nation's Capitol 
and today I am sincerely humble to share with you my successes, 
a minority business leader and a graduate of the 8(a) program.
    My vision for my business was instilled and my mission for 
myself I found many years ago that the media, specifically 
television and broadcasting, was an environment of which I 
could survive in. After working for 13 years as a television 
newscaster, I decided to start my own business, because I had a 
vision that creating a firm, creating a business opportunity 
for myself would be one that I could be self-satisfied with.
    I am grateful for the leadership skills that I developed in 
the corporate world, because it provided me the framework to 
create a professional small business.
    As you know, nearly half of the privately held U.S. firms 
are women-owned, according to the Center for Women's Business 
Research and they are growing faster than the nation's average.
    Let me share with you a little of my success. SRB 
Productions has experienced significant growth in the last few 
years, since graduating from the 8(a) program.
    This year we will celebrate 15 years of communications 
excellence and we also are sincerely proud of our 
accomplishments, not only to move into a half million dollar 
facility that we constructed a year ago, but last year we also 
expanded our services in the area of advertising, marketing and 
public relations, not only to one of the largest utilities, 
Pepco Holdings in this area, but as well as to a couple of 
federal government agencies.
    We are proud to be a federal government contractor, 
particularly in these last 14 years. But we know that with each 
accomplishment come continuing challenges and we realize that 
in order to achieve our goal, it is important to continue to 
break down the barriers that continue to face minority and 
women-owned businesses. We still face intolerable obstacles to 
access to capital, credit worthiness, increased procurement 
opportunities in the federal government and for far too long, 
as you all know, women-owned businesses haven't received their 
fair share of federal contracts. Most women entrepreneurs, 
especially women entrepreneurs of color, have trouble 
maintaining business profitability, managing cash flow, 
maintaining growth and attracting and retaining qualified 
employees.
    What I know is that determination, perseverance and faith 
ultimately prevail and I also know that it was programs like 
the 8(a) program that contributed to my company's success.
    It was the first loan from the U.S. Small Business 
Administration that we received five years after we were in 
business, allowed us to make our first equipment purchase.
    So I believe it is critical that women business owners are 
a part of this dialogue. I will continue to be a staunch 
advocate of women business ownership and will continue to work 
tirelessly to champion minority and women business owners on 
how they can procure more contracting opportunities in the 
federal government. My work won't stop here.
    I will continue to be a strong voice in organizations that 
support minority and women business issues. Doing business with 
women and particularly doing business with women of color, is 
the right thing to do.
    Let us just not pay lip service to small business issues. 
Let us be part of putting a full, realistic plan of action into 
place and I know together we can succeed.
    Thank you very much.
    [Ms. Brooks' statement may be found in the appendix.]

    Chairman Manzullo. Thank you very much. I have got to leave 
for some meetings that are conflicting. What I am going to do 
is have Mr. Keller take over the chairmanship and then start 
with Mrs. Velazquez five minutes and then Mr. Keller, you would 
have the five minutes after that.
    Ms. Velazquez, you are recognized for five minutes.

    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Brooks, thank you for coming before our Committee 
today. Regarding the resolution that we have, it talks about 
four areas: Health care, regulations, estate tax and frivolous 
lawsuits.
    Do you think that these issues reflect small businesses' 
priorities?

    Ms. Brooks. Let me address, Congresswoman, each of those 
areas, particularly and briefly. Health care and regulatory 
relief are certainly very, very important issues for small 
business owners.
    Income taxes are more the problem than a real estate tax or 
I should say the estate tax for business owners. So I am not 
really sure why the estate tax is singled out in that 
legislation.
    You know when you look at reducing frivolous lawsuits, that 
is not really on the radar for small business owners right now, 
because they are many, many more important issues that we face.
    As I mentioned in my testimony, access to capital and 
access to the federal government marketplace.

    Ms. Velazquez. Mr. McCracken, you talk about, in your 
written testimony, about SBA and its programs. Many people 
often minimize the impact of this agency and its initiatives.
    Can you talk to the Committee about the important role that 
the SBA programs play for your members?

    Mr. McCracken. Sure. I do think it plays an important role 
and often the SBA I think has criticism, because in any given 
year, whether it is a 7(a) program or the small business 
development center program or whichever one it is, it only 
reaches a fraction of the small business community and that is 
true.
    I would argue that is as it should be, frankly, because the 
Small Business Administration ought to be targeted at places 
where businesses need the help, rather than a full service, 
one-stop-shop for any business problem.
    But that creates a situation of where if you survey the 
small business community and asked them, did you use an SBA 
program this year, most of them are going to say no, they 
didn't.
    But if you look at the life cycle of the business, if you 
look at the impact of a small business community overall, you 
see something very different. I mean because banks, for 
instance, we are looking at the 7(a) program, have a limited 
portfolio of the amount of loans they are going to make. Having 
a guarantee available, greatly increased the amount of loans 
they can make to a lot of other companies. So the impact is 
bigger than just the direct loans that are made.

    Ms. Velazquez. Regarding the 7(a) program, you talked in 
your testimony about re-engaging an appropriation for this 
program, which will reduce the increased costs associated with 
the program to basically the borrowers and the lenders.
    Many individuals maintain that the $3,000 additional costs 
that doesn't represent a lot of money for a small business 
person who wants to start up their business or expand their 
business.
    Can you please comment? Is $3,000 a lot of money for an 
entrepreneur to come up with?

    Mr. McCracken. It is a great deal of money. Also, you look 
at what the bank has to pay as well. I mean, you are also 
creating disincentives for banks to participate in the program 
everywhere. Some banks obviously will continue to participate, 
but not all of them.
    So loans could become less available and the small business 
owners themselves, what we are going to see are particularly 
the higher end loans going away and our concern is the default 
rate on the program overall will begin to go up also over time.

    Ms. Velazquez. As you note in your testimony, the SBA 
continues to make smaller loans, declining from $211,000 in 
2001 to only $153,000 in the first quarter of fiscal year 2005.
    That represents a decline of 30 percent. So this decline 
has occurred while the cost of operating a business has 
increased and we talk about energy costs.
    Are these shrinking loan sizes a good thing?

    Mr. McCracken. No, I don't think it is. I mean obviously 
there is a market for loans in the smaller end, but sometimes 
the most difficult loan for businesses to get is those midrange 
loans. They are not really a big company yet, but it is still a 
substantial risk for the bank. There is a lot of paperwork 
involved in the bank's end of things.
    So sometimes the most difficult loan are the ones that are 
sort of getting carved out of the program.

    Ms. Velazquez. Thank you.
    Ms. Brooks, while the average size for the 7(a) loan in 
2004 was nearly $170,000 across the entire program, the average 
loan for the loan to an African American firm is only $86,000.
    The average for a loan for a Hispanic firm is $128,000 and 
the average loan to a women-owned firm is $123,000. What is 
your perspective on why minorities and women received 
substantially smaller loans than non-minorities?

    Ms. Brooks. Congresswoman, minority firms as well as women-
owned firms need just as much capital as any non-minority firm. 
In fact, I believe that there is too little capital could 
really actually hurt us even more, both minority and women 
entrepreneurs and leave us undercapitalized.

    Ms. Velazquez. Mr. Chairman, I have just one more question 
and then I will be done.

    Mr. Keller. Yes, ma'am.

    Ms. Velazquez. Based on your testimony, Mr. McCracken and 
Ms. Brooks and our discussion here today, would you all agree 
that funding for the 7(a) program and cutting the costs 
associated with this program really represents priorities for 
small businesses in this country?

    Mr. McCracken. My view is that clearly access to capital is 
an important issue to the small business community. I don't 
know if the typical small business owner however realizes the 
important role of the 7(a) program plays in that.
    So yes, I think it should be an important priority 
representing small business. I think if you poll the small 
business community, it wouldn't show up, because they don't 
know that 7(a) program.

    Ms. Velazquez. Would you want to see this as part of this 
resolution?

    Mr. McCracken. I think probably it would be a good idea, 
but there are other things I would add too. I don't know that I 
would add just--

    Ms. Velazquez. In any survey that we see conducted by any 
organization, access to capital and health care costs and 
energy costs, those are priorities and especially if we look at 
the face of small businesses in this country, in terms of women 
and minorities. Access to capital is important.
    Ms. Brooks, would you like to see this as part of the 
priorities that should be included in this Congress?

    Ms. Brooks. Absolutely, Congresswoman.

    Ms. Velazquez. Thank you.

    Mr. Keller. I want to thank the Ranking Member for 
excellent questions.
    Mr. Pierce, let me start with you. To get an idea for the 
health care costs paid by small business people, when I was a 
lawyer practicing in a law firm, which some would consider a 
small business here in D.C. I guess, back in Orlando, we paid 
about $800 a month for health insurance for a family of four.
    Give me an idea of about what employees would have to pay 
at your company for a family of four, in terms of monthly 
health care costs.

    Mr. Pierce. Currently right now our company would be paying 
the base part for the employee of $204 and month and the 
current quote that we have right now for a family would be in 
addition to that of $797.12 per month, in addition to the $204 
paid for by the company.

    Mr. Keller. So about $900 a month?

    Mr. Pierce. Almost a thousand.

    Mr. Keller. Okay. Have you ever had a situation, because of 
the surging cost of health care, where it has been necessary 
for you to have to change insurance plans, just to be able to 
keep affording health insurance for your employees?

    Mr. Pierce. We have had to do that regularly and as we have 
changed from different staffing companies, which are very 
popular in Florida.
    When one coverage we get dropped with one company to have 
to switch onto another one. Yes. That has happened several 
times.

    Mr. Keller. I want to direct this question to a couple of 
our ladies, because our small business had to do that and it is 
more than just about money, because as a partner in a law firm 
to sit down and tell one of my paralegals or secretaries, I 
know you are happy with your ob/gyn and I know you love your 
kids' pediatrician, but we are switching plans and by the way, 
they aren't on the new plan.
    Is that a concern, let me start with Ms. Kerrigan, to women 
in the workforce?

    Ms. Kerrigan. Absolutely. You know just the whole issue of 
health security and health insurance security is a huge issue 
for women and any type of uncertainty or instability in 
coverage plans is a major issue.
    The short answer is yes. I mean having good coverage, at 
affordable prices and having the type of coverage that women 
need is very important.

    Mr. Keller. Ms. Kasoff, would you agree with that?

    Ms. Kasoff. Totally. I am a small business owner as well as 
the co-founder of Women Impacting Public Policy. Our premiums 
rise yearly and it becomes more and more difficult for us to 
provide our employees the same quality and the same portion of 
paid insurance coverage for them.
    The quotes that we have and that we pay are significantly 
more than you said for a family. It depends where you live and 
if God forbid one of your employees has a serious health care 
issue, it increases the cost significantly.

    Mr. Keller. It seems like there is a general consensus that 
the health care issues are a number one priority. A lot of 
small business people are concerned about red tape.
    Ms. Velazquez questioned what about frivolous lawsuits? Do 
they belong here? What about the death tax repeal? Do they 
belong here?
    Mr. Coratolo, let me direct a question to you on the death 
tax to start with. In 2010, the death tax will be zero. In 
2011, back to 55 percent.
    I am no expert on predicting the future, but as far as I 
can tell, the only family-owned small business that knows for 
sure which family members are going to die in 2010 is the 
Sopranos at this point.
    From your polling at the Chamber and talking with members, 
is the death tax issue a real issue for them and is frivolous 
lawsuits a real issue that comes up as a top tier issue for 
small business people?

    Mr. Coratolo. Sir, it is. We find at the Chamber that the 
numbers that we poll, legal reform is number two for small 
business, number one for big business.
    Health care is always number one for small business. Also 
tax reform, some permanency. The overhead cost to maintain and 
try to forestall the death tax in a sense of paying for the 
insurance costs so that they can pass this on to their heirs is 
just horrendous.
    It eats up valuable assets so they cannot expand their 
businesses and grow jobs.

    Mr. Keller. Thank you, sir.
    Just to address the frivolous lawsuit issue, I wrote this 
specifically in a bipartisan way. One of the things obviously 
John Kerry, John Edwards on the one hand and President Bush and 
Dick Cheney on the other hand, didn't agree with every legal 
reform issue. Some supported caps and others didn't, but the 
one thing they were in complete agreement was cracking down on 
frivolous lawsuits.
    John Edwards wrote a great piece in the Newsweek that said, 
three strikes and you are out for frivolous suits, because it 
is not the superstar attorneys like John Edwards who file the 
frivolous suits, but it is the others who repeatedly do it.
    I think there is some bipartisan consensus there. Without 
me taking up any more time, let me yield now to Ms. Bordallo 
for five minutes.

    Ms. Bordallo. Thank you very much.
    First, I want to thank Congressman Keller for his strong 
support of small business and of course the co-sponsor, Mr. Ed 
Case and I also want to thank the members for their testimonies 
today.
    On H.Res.22, I agree that we do need to look at innovative 
solutions, such as the AHP's and the state high risk pools to 
improve the availability of health care to our small 
businesses.
    As a member of the Subcommittee on Regulatory Reform and 
Oversight, I am also very sympathetic to appeals for paperwork 
reduction and regulatory flexibility for our small businesses.
    I have no doubt that this resolution represents the 
priorities of small businesses. However, we have heard a few 
different versions of it here, but I am concerned that it is 
not necessarily representative of the small business priorities 
nationwide.
    Now, for example, in my district I come from the territory 
of Guam, way out in the Pacific. Small businesses indicate to 
me that their highest priorities, in addition to health care 
and regulatory burdens, would be access to federal contracting.
    I think Sheila Brooks mentioned this very emphatically. We 
have large military bases and now they are outsourcing and I 
want to make sure that the small business gets a part of this 
piece of pie.
    Since there is consensus on the need for small business to 
have access to health care and for reducing regulations, there 
are opportunities to make a strong unified statement on small 
business policy of some of the other issues that I just 
mentioned, important to small businesses in districts such as 
mine are included.
    My question to you, Mr. McCracken, is in your testimony, 
you cite access to capital as a priority of National Small 
Business Association members. You also mentioned the need to 
allow for parity between simple 401-K plans and traditional 
defined contributions for large businesses.
    Would this Congress, in your opinion, be remiss if we 
passed a resolution defining the priorities of small businesses 
without recognizing some of these other issues?

    Mr. McCracken. Well, obviously that depends on how broad 
the Congress wants to be in drafting a resolution. I think it 
is pretty clear Mr. Keller was trying to capture the very top 
tier that affect a broad cross section of the small business 
community.
    As crucial as issues of contract bundling and other access 
to procurement opportunities are for many of the small business 
community, the reality is it is still a fraction of the small 
business community that does or would do any government 
contracting.
    In some places, like Guam, that is obviously quite acute. 
You would see a very different scenario.
    I suppose if you wanted to be more expansive in the nature 
of the resolution, it would make sense to include those. If you 
want to talk about those things that only affect a very broad 
cross section of all businesses, no matter what kind of 
business they have, probably not.

    Ms. Bordallo. I would like to ask Ms. Brooks, because she 
really went into this federal contracting. How do you feel 
about this?

    Ms. Brooks. I just don't believe the bill addresses the 
critical issues that are facing small businesses. Health care, 
yes. Mr. Keller, as well as other Committee members, it does.
    Prior to 9/11, I offered all of my employees 100 percent 
medical care. After that, after 9/11 the business climate 
changed and we had to change things.
    But when I take a look at around the issues that are listed 
here in H.R.22, it just is clear to me that there are more 
things that we need to be talking about. We need to be talking 
about access to federal government procurement opportunities.
    We know that these federal agencies aren't meeting their 
goals and yes, I can sit here as an entrepreneur who does 40 
percent business with federal government agencies, but it is 
still not enough and I am only one of the few.

    Ms. Bordallo. Thank you very much.
    Thank you, Mr. Chairman.

    Mr. Keller. Thank you. The gentlelady yields back.
    We will now recognize Mr. Gohmert for five minutes.

    Mr. Gohmert. Thank you and the witnesses for being here and 
participating in this process. A couple of quick comments.
    I want to address a comment earlier that tax cuts cost the 
economy 200 billion. I hate for that to go unchallenged, but 
actually the tax cuts added all that money to the economy and 
by all rights 9/11 should have sent us in a depression, but 
fortunately it was a mild recession, from which we continue to 
recover.
    With regard to the Chairman's comment that only the 
Soprano's know what family members may be expiring, anecdotally 
I was talking to a constituent in Jefferson last year and he 
mentioned that he was scared to death. We had to do something 
about the death tax.
    He had a lot of land in agricultural use and he said his 
family members, all adults, had been to an accountant. They had 
been told that the death tax would be reduced each year until 
2010 and in 2010 it would go away and he said. They are kind of 
hinting that if I don't have the decency to expire by December, 
2010, they may have to help me along, you have got to do 
something and I agree with him. I think we do need to make that 
permanent.
    Mr. McCracken, you made an interesting comment that we must 
introduce new market forces in health care. I agree. The 
associated health plans, Mr. Pierce, I think those are a great 
thing. Those will help it.
    They seem to me to just be a bandaid. They are not going to 
help for the long-term. They will help short-term. That is my 
impression.
    Health savings accounts seem to be a way that we could 
introduce market forces, because there aren't any right now in 
health care, very little and that is what is allowing the price 
to continue to go up.
    I am wondering about your impression. I don't know how we 
get past that first year where we are talking about $12,000 a 
year or $10,000 a year going for somebody's health insurance, 
but if five or 6,000 of that could go into a health savings 
account in the next year the deductible is 5,000, the next year 
10,000 and before you know it we may have $20,000 deductible 
and only need catastrophic care, puts all the power back in the 
individual hands of the patient so they talk directly to the 
doctor. New market forces. You charge too much, I go to a 
different health care provider.
    It seems that is a solution. I don't know how we get past 
that first year without costing 1,500 a month or something like 
that, but it seems to me that may be a way to introduce free 
market forces, if we can get there. What are your thoughts?

    Mr. McCracken. I agree. I think we move to a system 
something like HSA's, rather than having a special program.
    I mean the tax incentives we have in our current system are 
totally messed up. I mean if you work for a large company and 
the employer pays someone else to pay your medical bills, all 
of that is totally tax free.
    If you are in a small business that can only afford to pay 
half of that or has a much, much more scaled back plan, then 
you have got to pick up more on your own. If you don't have an 
HSA, then it is totally after tax dollars and if your employer 
can't pay for anything, then what you pay either for your 
health insurance or for your care is totally after tax dollars.
    It doesn't make any sense. It is a system that really 
discriminates against small businesses and their employees. I 
mean we have already established roughly half of small 
businesses aren't able to provide health benefits for their 
employees.
    So all those people have no tax incentives whatsoever to 
have insurance and they get no subsidy through the tax system 
for what they actually provide, but we can't stop there, 
because that only talks about utilization of the system at the 
front end.
    We also have to look at what happens to people when they 
are in the hospital. They have had a heart attack. They have 
had a big health issue. I mean the way we pay providers through 
our third party reimbursement systems is insane.
    If they don't make people healthier, if they are still in 
the hospital, they get an infection, guess what? They still get 
paid and they get paid again to do more care. I mean we need to 
move to a system for pay for performance where we pay 
providers, we pay physicians to keep people healthy and keep 
them out of the hospital, rather than the opposite, which is 
what we do today.

    Mr. Gohmert. I appreciate that observation. Thank you. I 
would challenge each of you, I am out of time nearly, but to 
think about what specifically could we do in a concrete way to 
help get you to where you are paying less for health care and 
yet you empower your workers with more power, more money in 
their hands, their control and then ultimately cost you less.
    I would really be interested. That would seem to be a great 
help.
    Thank you, Mr. Chairman.

    Mr. Keller. Gentleman yields back.
    At this time, we yield five minutes to Mr. Lipinski for 
questions.

    Mr. Lipinski. Thank you.
    Last week Ms. Kerrigan was here talking about health care 
and one thing I just wanted to add, I had asked you a question, 
but I want to thank you for your testimony supporting the fair 
care for the uninsured bill that I have introduced with Mark 
Kennedy that would give the refundable tax credit for those 
people who are not offered insurance through their employer to 
purchase that.
    I know that is something also that others of you have 
mentioned in your testimony is supporting something like that.
    What I wanted to ask a couple of questions about today is 
the consumption tax and I know Mr. McCracken, in your testimony 
you talk about this.
    I am intrigued by the idea of the consumption tax. There 
are certainly some things that I find appealing about it, but 
some things that I think are very problematic.
    I just want to ask some questions on that and get your 
response, Mr. McCracken and anyone else, any of the other 
witnesses on this.
    If we eliminated the income tax or however we did it, let 
us just say put in a consumption tax, would this put an 
increased administrative burden on small businesses if we had 
this? Would that make a difference?

    Mr. McCracken. Well, I think actually it would be 
dramatically less administrative burden on the small business 
community, because even though small retailers and large 
retailers, but retailers have had to collect the taxes, 
essentially collecting all tax at that point, but they wouldn't 
be doing anything that they don't do today and they would be 
doing it at a bigger level, but they would have exactly the 
same responsibilities, in terms of tax collection that they 
have right now under state sales tax systems.
    The only exception would be those states and there are only 
a handful that don't have state sales taxes and not only that, 
but they and every other small business would get from under 
the oppressive nature of the income tax system that we have 
right now.
    You could also establish a system where you would actually 
give a very small rebate, essentially compensate the businesses 
that collect the tax for their trouble and time.
    It could be a very small fraction, but essentially enable 
them to be made whole from their collection efforts.

    Mr. Lipinski. The other more general question I have, let 
us talk about the consumption tax, is to increase savings. Do 
you think there would be any negative impact on consumption 
when you start taxing consumption? Obviously you would think, 
believe that consumption would go down. Do you think that it 
could possibly hurt the economy?
    A lot of people promote the consumption tax as helping 
savings. Well if you are helping savings, you are decreasing 
consumption. Could this possibly hurt small businesses?

    Mr. McCracken. Well, the economic models that I have seen, 
I mean there is the old saying that you know whatever you tax 
you are going to get less of, so if you tax consumption you are 
going to get less consumption. This is the logic.
    However, the studies that I have seen and I would point you 
to one that was done by Dale Jorgensen who is the chairman of 
or was the chairman of the Economics Department at Hartford, 
that basically looked at the long-term impact of the 
consumption tax on consumption and what you did see, you did 
see a small decrease in consumption in the initial years, first 
two to three years as I recall, of the imposition of the tax, 
but after that you saw that there was either no change in 
consumption or there began to be increases, because of the 
economic stimulation effects of changing to that tax system and 
getting out from under the income tax.
    So what you actually saw was a net gain of economic growth 
that actually wound up increasing consumption. Now if you 
assume that economic growth is static and that the move to a 
consumption tax would do absolutely nothing to stimulate 
additional economic growth or opportunity in the country, then 
you are right. It would decrease, but that is not what is going 
to happen.

    Mr. Lipinski. Does anyone not favor a consumption tax? 
Universal approval here of moving in that direction then.

    Ms. Kerrigan. As to not upsetting the flat tax people, the 
position of our organization is the flat tax or the consumption 
tax, either beats the current system. I agree with everything 
Todd said with respect to the consumption tax, but certainly 
the flat tax has its attributes as well.

    Mr. Coratolo. We looked at it and we saw that there would 
be $7 trillion worth of legacy costs and the transition between 
one system to another could be very devastating. So that is our 
concerns and this is from the U.S. Chamber of Commerce.

    Mr. Lipinski. Could you explain what you mean by legacy 
costs?

    Mr. Coratolo. Currently there is $7 trillion worth of 
assets on the books of businesses right now that would have to 
be written off immediately. These are investments. Actually, 
tax investments in businesses that need to be addressed and you 
can't go from one day of having one tax regime to another day 
of having another, without addressing those legacy costs.

    Ms. Kerrigan. But I think in moving towards any system, the 
whole issue of the transition rules is very important and that 
is something that scholars and researchers and folks like that 
have developed these certain transition rule or transition 
costs scenarios.
    You are not moving from one system to the next the next 
day. There would be a transition period. How long that is, I 
don't know, but you know certainly that needs to be taken into 
account.

    Mr. Lipinski. Thank you.

    Mr. Keller. Thank you.
    Now we will recognize Mr. Poe for five minutes.

    Mr. Poe. Thank you, Mr. Chairman. I have two questions. One 
for Mr. Pierce and then one for Mr. McCracken.
    Mr. Pierce, you listed four issues that were of concern to 
you and the NFIB: Red tape, lawsuit reform, tax structure and 
health care. Is that the order you list them in is that the 
concern or is that just the four topics?

    Mr. Pierce. No. That would be the order of concern from 
anybody that I have talked to in small businesses. Clearly, 
health care issue is number one, death tax and tort reform and 
then the burden.
    Now for me personally, the regulatory burden is far 
greater, but that is just for me, not for everybody that I 
know.

    Mr. Poe. You listed red tape first. So would you give me 
the order again?

    Mr. Pierce. Okay. I am sorry.

    Mr. Poe. The other witnesses listed other things first. 
What is the number one priority and the number two and three 
and four?

    Mr. Pierce. Health care is absolutely number one. Number 
two would be the death tax. Three, tort reform. Four, the 
regulatory aspect.

    Mr. Poe. It is puzzling to me, as you mentioned why we have 
more and more rules about the government bureaucracies getting 
rid of red tape and paperwork and they just ignore the law for 
some reason. Now we have to pass another law ordering them to 
follow the law that has already been imposed. Hopefully we can 
deal with that.
    Mr. McCracken, I noticed you mentioned that you were 
opposed to AHP's. What are your solutions then, since you are 
opposed to those in the area of health care?

    Mr. McCracken. Well, I went into this in some length. We 
had moved more of a market based system for health care to 
address the real underlying costs of health insurance and we 
have come to the conclusion organizationally that that is going 
to require to do that meaningfully, to really make a 
difference, both for small businesses and for consumers across 
the nation, to address the system in its totality and there are 
a host of reforms that have to happen to bring equity on a tax 
basis to the provision of health insurance, try to get 
consumers more into the game than they are now, to hold 
providers and health insurers feet to the fire.
    In the short-term, while we are waiting for all that to 
happen down the road, obviously malpractice reform has to 
happen, not just to reduce the cost of the insurance, but to 
reduce the amount of care that is going on that is going on 
that is unnecessary in defense of medicine and all of that. We 
think it will have a real impact on health care costs.
    We would also strongly advocate that the self-employment 
tax on health insurance costs needs to be changed so that small 
business owners are not taxed on what they pay for health 
insurance.
    That could easily save a small business owner $2,000 a year 
or more on his or her own health insurance. I mean real relief.

    Mr. Poe. Have you followed the tort reform and medical 
malpractice in Texas? The laws have changed there any?

    Mr. McCracken. A little bit and I couldn't say I have any 
expertise in it.

    Mr. Poe. Finally the results are starting to come in and 
insurance companies are dropping their insurance rates 12 to 25 
percent. Shock. Anyway, thank all of you for being here.

    Mr. Keller. Thank the gentleman.
    Now we are going to have a second round of questions. You 
have five minutes, Ms. Velazquez.

    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Kasoff, I was very pleased to see that you mentioned 
fairness in procurement in your testimony as an important issue 
for your members and this is another item that is omitted from 
H.R.22.
    As you know, last year for the fourth year in a row, none 
of the small business goals were achieved, costing small firms 
$45 billion in lost opportunities.
    Why do you think that the federal government has such a 
difficult time accomplishing its small business procurement 
goals?

    Ms. Kasoff. Well, it is a difficult question to ask. There 
doesn't appear to be enough accountability in terms of the 
agencies to be able to reach out.
    There is no question that women business owners and 
minority business owners are prepared. They have the expertise. 
They have the size of the business and the capabilities to 
enter into federal contracts and they are not there.
    The interesting statistic that I find is that many will not 
even attempt to enter into the federal contracting arena. They 
are concerned that they are not going to be able to make the 
connection with the buyers. They are concerned about the 
complexity. They are concerned about the financial resources 
required.

    Ms. Velazquez. We all know that people are discouraged from 
trying to even get into investment with the federal government. 
What I am most concerned is the fact that those who are trying 
that there is no intention, at least from the federal 
government, to achieve the goals that have been set by the 
United States Congress.
    In fact, that what they are doing is counting large firms 
as small firms so that they could claim that they achieved the 
small business goal. We know that this is not true and it is 
particularly for women.
    Women lost $22 billion in contracting opportunities over 
the past five years. So my question to you is: What about the 
women's procurement program that we passed into law?

    Ms. Kasoff. That goal has not been reached, as you all 
know. It is an issue that we work on tirelessly and every 
single day on behalf of our constituency.
    We ask for accountability from the agencies so that we make 
sure that we have a seat at the table and we have an equal 
opportunity for those federal contracts.
    You are correct. Size standards are not correct. Women 
business owners are not being given their opportunity. Large 
companies are getting the contracts and it is a huge problem.

    Ms. Velazquez. Why is it then that I don't see your 
organization taking the lead to put the pressure on the Small 
Business Administration to have the women's procurement program 
up and running?

    Ms. Kasoff. I think I beg to differ with that. I think we 
are there virtually everyday in the SBA, working this issue and 
working in Congress on this issue. That is an issue that has 
been on our top priority for a number of years. We have been 
there for a long time.

    Ms. Velazquez. Apparently SBA is not feeling the pressure 
or the organization is not having effectiveness, because we 
look at the fact that the federal marketplace increased by $100 
billion last year, 35 percent and yet the women's share of that 
has increased by less than half of one percent, from 2.47 
percent to 2.89 percent.
    This represents $22 billion in lost contracting 
opportunities for women. I would like to see your organization 
taking a more aggressive role and asking the Small Business 
Administrator to implement a program that was passed into law 
by this Congress.

    Ms. Kasoff. We have done so. We have letters on record and 
statements on record to that effect and we will continue to 
work to have this goal implemented.

    Ms. Velazquez. Thank you, Mr. Chairman.

    Mr. Keller. Gentlelady yields back.
    I will just recognize myself and not take the full five 
minutes, but there seems to be a consensus by a lot of folks 
here that these are four major issues that come up with small 
business people and then there are a few folks who say, hey 
what about this issue or that issue? Why wasn't that included?
    Let me just close by addressing that head-on. I don't 
pretend to know everything about small business. I probably 
know a lot less than everybody testifying. Probably a lot less 
than people like Ms. Velazquez, who has been on this Committee 
a long time.
    I am a lawyer by training and so when I sit down with 20 
small business people, I didn't tell them, isn't this the 
answer? I said, you tell me what your top issues are and not 
having any preconceived ideas and those were the four issues 
that came up over and over again. Skyrocketing health 
insurance, death tax, concern about frivolous lawsuits and red 
tape relief.
    In fairness, other issues came up, some that I didn't 
include. For example, I had a guy named Bruce O'Donahue, who 
has a small business that installs traffic control lights and 
he said the biggest problem for me is when I contract with the 
government. They jerk me around and don't pay me for five or 
six months. That is a big deal for me. I have got 40 or $50,000 
of work and I don't get paid.
    I think it is probably the biggest deal in the world to 
him. Probably more than AHP's. Probably more than death tax. I 
don't discount that. I don't discount the fact that some groups 
believe they need access to capital and they are not getting 
it.
    What I am saying is, I didn't include it because it didn't 
come up across the board. There are some people that feel way, 
but these are the four issues that across the board came up and 
there is pretty much a bipartisan consensus that something 
needed to be done to deal with those issues.

    Ms. Velazquez. Mr. Chairman?

    Mr. Keller. Yes?

    Ms. Velazquez. If I may?

    Mr. Keller. Yes.

    Ms. Velazquez. I guess one vehicle that we have to perfect 
the bill is having the mark up so that other issues that have 
clearly been exposed here, such as energy and access to 
capital, as well as procurement practices, are included in this 
bill. We look forward to having mark up in the Committee.

    Mr. Keller. We certainly will, after this hearing, have a 
mark up and discuss those further, but those are the four 
issues that came up directly over and over with small business 
people and it is interesting as I hear from both 
representatives from the NFIB and the Chamber of Commerce today 
the same four issues come across to them, almost in that order.
    I appreciate and I know Congresswoman Velazquez does and 
other Members here today, thanks so much you all taking time 
out of your busy lives to come here today and let us listen and 
learn from you.
    The hearing is adjourned.
    [Whereupon, at 4:39 p.m., the Committee was adjourned.]

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