[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                    SUBCOMMITTEE ON FINANCE AND TAX
                   HEARING ON HOW THE COMPLEXITY OF
                 THE TAX CODE HINDERS SMALL BUSINESSES

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                              MAY 7, 2009

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-020
Available via the GPO Website: http://www.access.gpo.gov/congress/house



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                        PARKER GRIFFITH, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)

  
?

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 (iii)

  




                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page

Schrader, Hon. Kurt..............................................     1
Buchanan, Hon. Vern..............................................     2

                               WITNESSES

Chin Ryan, Ms. Christine, Synergy Consulting, Inc., Portland, 
  Oregon, On behalf of The Oregon Small Business for Responsible 
  Leadership.....................................................     3
Blackledge, Mr. Eric, Blackledge Furniture, Corvallis, Oregon....     5
Hall, Mr. Keith, National Tax Advisor, NASE, Grapevine, Texas....     7
Stathis, Mr. Stam, CPA, CPA Associates, Bradenton, Florida.......     9

                                APPENDIX


Prepared Statements:
Schrader, Hon. Kurt..............................................    29
Buchanan, Hon. Vern..............................................    31
Chin Ryan, Ms. Christine, Synergy Consulting, Inc., Portland, 
  Oregon, On behalf of The Oregon Small Business for Responsible 
  Leadership.....................................................    32
Blackledge, Mr. Eric, Blackledge Furniture, Corvallis, Oregon....    36
Hall, Mr. Keith, National Tax Advisor, NASE, Grapevine, Texas....    52
Stathis, Mr. Stam, CPA, CPA Associates, Bradenton, Florida.......    59

                                  (v)

  


                    SUBCOMMITTEE ON FINANCE AND TAX
                    HEARING ON HOW THE COMPLEXITY OF
                 THE TAX CODE HINDERS SMALL BUSINESSES

                              ----------                              


                         Thursday, May 7, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:02 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Kurt Schrader 
[chairman of the Subcommittee] presiding.
    Present: Representatives Schrader, Moore, Kirkpatrick, 
Ellsworth, Halvorson, Buchanan, Luetkemeyer and Coffman.
    Chairman Schrader. Well, I would like to call the first 
meeting of the Subcommittee on Finance and Tax to order here on 
May 7, 2009.
    Welcome everybody in attendance, especially our guests, 
many of which have come a long ways. I appreciate their efforts 
to come here and give us a little background on small business 
tax simplification issues and perhaps some other points they 
might want to bring up.
    Talk to any entrepreneur, and they will tell you the same 
thing: Whether it is good times or bad, the Tax Codes become a 
huge obstacle to any efficient business. In an effort to 
untangle that complexity, the current administration has 
recently launched a bipartisan reform panel. That group will 
work to overhaul the Tax Code and make sure it meets current 
economic standards and demands. For entrepreneurs, this is 
going to be extremely important.
    In its current ever-expanding state, the States' tax codes, 
maze of write-offs, and regulations restrict small business 
growth, as does the Federal. Whether talking about tax to 
dollars or tax complexity, it is an enormous drain on small 
firms. This should come as no surprise. Over 3.7 million words 
and over 70,000 pages, the Tax Code is just a nightmare to 
navigate.
    In an average year, individuals and companies spent close 
to $265 billion just doing their taxes; and small businesses 
paid the lion's share of that sum. In fact, entrepreneurs spend 
an estimated $1,304 per employee, roughly twice the amount that 
big companies pay. In today's hearing, we are going to examine 
some of these costs and look for ways in which the Tax Code can 
be simplified for small businesses.
    When it comes to tax compliance, mounting expenses are 
compounded by an element of uncertainty. Many small firms 
struggle to determine what they owe and what they can write 
off, just like we do in our daily lives. With the Tax Code 
changing at a rate of roughly one alteration a day, it is no 
wonder entrepreneurs find it very difficult to follow.
    In the face of daily tinkering, undefined deadlines, 
expiring provisions, small firms struggle to calculate these 
long-term budgets. Given this uncertainty, it is next to 
impossible to even plan for the future. That confusion 
translates into postponed investments and, without a doubt, 
fewer new hires.
    At a time when we are counting on startups to jump-start 
our economy, we just can't afford that sort of setback. Tax 
regulation should not be a stumbling block. For many 
entrepreneurs, they have the potential to encourage growth. In 
fact, small firms often make decisions based on the promise of 
write-offs alone. We could discuss that. For that reason, we 
need to be sure entrepreneurs are aware of every incentive 
available to them.
    Just as importantly, they should know how to take advantage 
of these provisions. A good example of this is the home office 
deduction. Fifty-two percent of entrepreneurs operate out of 
their homes, and yet only a small handful even claim the 
deduction.
    To address this disconnect, Representative John McHugh and 
I introduced the Home Office Deduction Simplification Act. That 
bill should go a long way, hopefully, to streamline the 
compliance process for entrepreneurs.
    Whether it is creating a standard home office deduction or 
just generally modifying the Tax Code, there are ways to ease 
the small business burden. Of course, everyone has an opinion 
on how to make this happen. We will hear some today.
    I am also pleased that our small business representatives, 
as I said before, from all over the country could join us from 
the Far West, the Far South and some that are here on a little 
more regular basis to share their wisdom. So at the very least, 
hopefully as a result of this hearing, we will find out ways to 
blunt the burden in the short term and set the stage for long-
term reform as we go forward.
    I would like to recognize the ranking member, Congressman 
Buchanan, for his opening statement now.
    Mr. Buchanan. Thank you, Mr. Chairman Schrader, for calling 
this important hearing for simplifying the Tax Code for 
American small business.
    I would also like to extend my thanks to our witnesses 
today, especially my constituent from my district, who have 
taken the time out of their schedule to provide us some 
important testimony today.
    The present Tax Code--it is hard for me to believe, but I 
wanted our people to look at that--is 67,000 pages long--67,000 
pages. The Internal Revenue Service says it takes an estimated 
37 hours to complete the 1040 short form. The most basic tax 
form that--return that we have. So it should come as no 
surprise that a recent survey conducted by the Tax Foundation 
revealed that four out of five adults think the Tax Code is way 
too complicated and complex, while 85 percent say the system 
needs to be completely overhauled.
    Small business are the most prolific job creators, creating 
70 percent of the jobs nationwide, but small business have 
taken the blunt of this current recession downturn. I know my 
experience being involved with the Florida Chamber, the 
chairman of that, about 4 or 5 years ago. In our federation, we 
had 137,000 businesses. Most of them were small business, 90 
percent 50 employees or less. As I stated earlier, created 70 
percent of the jobs.
    It does concern me that the administration has proposed 
several tax changes or policy changes that I think will have a 
very, very negative impact on small business. Instead of 
raising taxes, we should be encouraging an environment that 
creates jobs and investment.
    I know myself, being in business for 30 years, as someone 
self-employed, I can tell you most small businesses have pass-
through income. So someone making 200--a lot of these small 
businesses might make 400, but they only take home 60 or 70. 
They are putting the money back in there. They are paying their 
taxes. Most small business are sub-S, LLCs, partnerships, sole 
proprietorships. And that is all pass-through income. It is a 
job they can't create. It is a piece of equipment they can't 
buy.
    While Fortune 100 businesses hire an army of lawyers and 
accountants to find loopholes, exemptions, deductions of the 
Tax Code, small businesses are forced to dig deep into their 
pockets for help in simply just trying to comply with the law.
    So I look forward to the hearing today with our witnesses, 
and I yield back.
    Chairman Schrader. Thank you very much, Ranking Member 
Buchanan.
    Well, let us move to the testimony from our witnesses. The 
witnesses will have 5 minutes. We have your prepared remarks. 
They will be included in the record.
    You will have 5 minutes, basically, to summarize your 
testimony. The timer begins when the green light goes on, 1 
minute of time remaining is the yellow light, and the red light 
means I have got to interrupt you if you are still talking. So 
I apologize for that up front. We are trying to get to 
everybody and allow for good questions to hopefully get us some 
good policy.
    Chairman Schrader. The first witness today will be Ms. 
Christine Chin Ryan. She is President and Founder of Synergy 
Consulting, Incorporated, located in Portland, Oregon. She is 
also the first woman and Asian American to serve as chairperson 
of the Governor's Small Business Council. She is here to 
testify on behalf of the Oregon Small Business for Responsible 
Leadership group. It is a nonpartisan advocacy organization 
committed to the creation, promotion, and preservation of small 
business in Oregon. She is a good friend and a good friend of 
small business.
    Ms. Ryan.

                STATEMENT OF CHRISTINE CHIN RYAN

    Ms. Chin Ryan. Thank you, Chairman Schrader and members of 
the Committee. For the record, I am Christine Chin Ryan; and I 
have been a small business owner since 1988.
    First, I want to give you some statistics on small 
businesses in Oregon. Small businesses' definition is 100 
employees or less and account for 51 percent of the private-
sector employees in Oregon. Ninety-eight percent of the 
approximately 112,203 employer firms in Oregon are small 
businesses. The 20- to 49-size class provides the largest 
number of small business jobs, around 203,339. The source is 
the Oregon Employment Department for the Oregon Economic and 
Development Department.
    The main issues addressed in the written testimony that 
affect small business owners are the complexity of the Tax 
Code, the true cost of Social Security, and the AMT. Most small 
business owners need to hire a tax professional because of the 
complexity of the Tax Code. The time spent on keeping records 
to make sure they are in compliance with the law is extremely 
time consuming for small businesses and takes away from the 
day-to-day operations.
    I spend approximately $10,000 to $15,000 a year for my CPA 
and bookkeeper services. This money can be spent on capital 
costs towards hiring a part-time employee.
    The Tax Code is written in Congress, the regulations are 
written by IRS, and the Tax Court cases memorandum interrupts 
the law. This has contributed to the complexity.
    In addition, the IRS generated revenue procedures, revenue 
ruling, circulars, and on and on. Originally, some forms were 
only 2 to 3 pages, example, form 990 and 5500. Now there are 9 
to 11 pages, plus schedules. Originally, the tax rates were 
high and the Code was simpler.
    The government needs money to operate. When the tax rates 
were lowered, then the amount of money the government got was 
less. In order to increase tax revenue, the government put in 
rules to limit the deductions, thereby increasing taxable 
income and tax revenues and adding to complexity. As a result, 
the past 3 to 4 decades, the complexity of the Code rules have 
been compounded.
    I have two examples in my written testimony that I will not 
go through because of time limitations.
    The next one is the true cost of Social Security. The true 
cost of Social Security also adds to complexity. Currently, 
sole proprietorships automatically have to pay 15 percent of 
income up to $100,000 into Social Security and Medicare before 
any itemized deductions and then pay tax on that income again 
at the regular tax rate.
    Why does this affect small businesses? 15.3 percent is a 
significant percentage to operating capital. The income is 
taxed again, and this takes away from the small business 
owner's ability to plan for retirement.
    Another issue is the alternative minimum tax, AMT, which 
adds another level of complexity. The AMT was originally 
established to ensure that wealthy individuals paid enough 
taxes. However, it has not been indexed to inflation. Many 
individuals fall into AMT. This is due to the adjustments for 
taxes, excess medical deductions, and miscellaneous itemized 
deductions which include a deduction for unreimbursed business 
expenses.
    Another example not in my written testimony that Chairman 
Schrader mentioned is the home office deduction. Standardizing 
home office deduction would be huge for small businesses. 
Currently, the home office deductions are complex. It depends 
on the square footage you use in your home for your business, 
and that percentage is used to calculate other expenses. So it 
will make it a lot easier for home business; and thank you, 
Chairman Schrader, for doing this.
    This testimony was not intended to be how much we know 
about the Tax Code as written in my written testimony but to 
identify the complexity and frustration for small business 
owners. It has become apparent to us that most businesses, 
large and small, recognize their civic responsibility and are 
willing to pay their fair share for their business footprint. I 
would like to underscore the word "fair", as a fair Tax Code 
ensures participation, rather than encourages searching for 
intricate ways to pay as little as the law allows.
    Thank you.
    Chairman Schrader. Thank you very much. Good testimony.
    [The statement of Ms. Chin Ryan is included in the appendix 
at page 32.]
    Chairman Schrader. Well, our next witness is Mr. 
Blackledge. He is the President of Blackledge Furniture in 
Corvallis, Oregon. Founded in 1901, Blackledge Furniture is 
Corvallis' oldest and largest home furnishing center.
    Mr. Blackledge has served as the regional tax advisory 
chair to the SBA Office of Advocacy and has chaired the U.S. 
Chamber of Commerce Small Business Council on Tax Policy; and I 
know from his work in Oregon, an avid proponent of 
simplification of tax law across the spectrum.
    Mr. Blackledge.

                  STATEMENT OF ERIC BLACKLEDGE

    Mr. Blackledge. Thank you, Chairman Schrader and Ranking 
Member Buchanan, for inviting me to talk today about 
simplification of the Tax Code.
    There have been many suggestions to simplify the tax system 
by completely changing our tax structure to a consumption tax, 
a value-added tax or a flat income-based tax, but the potential 
negative economic impacts of the transition make such a major 
systemic change unlikely in the near future. I will therefore 
limit my comments to eight key principles for good tax 
legislation that could make the current tax system simpler and 
easier for small businesses and all taxpayers to comply with.
    I will also suggest priorities for legislation that 
implements these principles. The details for each proposal are 
included in my written testimony. Many of these proposals have 
been supported by Committee members and the Congress in the 
past, and I hope you will continue to support their passage in 
this Congress.
    Principle number one is to remove outdated and unnecessary 
recordkeeping burdens that don't significantly impact tax 
revenues. The top priority would be removal of the outdated 
"listed property" recordkeeping requirements and deduction 
limiting on business cell phones and computers.
    Principle number two, periodically update all dollar 
limitations and rate break points in the Tax Code by a single 
and standardized inflation factor. This could be done with a 
one-time adjustment for inflation that has occurred since each 
provision's adoption or last change, and the addition of a 
standard inflation adjustment provision for all dollar limits 
in the Code that do not have a greater specific adjustment. 
Examples of this with provisions needing modernization are the 
badly outdated $25 business gift limitation and the very poorly 
written luxury automobile depreciation limitation.
    Principle number three, as much as possible, take tax 
considerations out of the issues involved in choosing a 
business entity by applying the same equitable rules and 
offering comparable tax advantages to all forms of business 
organization. A top priority is the equal and simple 
deductibility of group health insurance for all small 
businesses at the entity level. Another priority would be 
removing the inequitable limitations on small businesses other 
than C Corporations offering a cafeteria benefit plan to their 
employees. And a third priority would be to correct the 
inequitable impact for the personal alternative minimum tax on 
the business income of pass-through entities such as S 
Corporations and partnerships which are impacted at a much 
lower level than is true of C Corporations.
    Principle number four, do not create new tax expenditure 
benefits and then take them away from any taxpayers through 
complicated phaseouts, limitations, adjustments, recapture or a 
lack of matching exemptions in the alternative minimum tax 
provisions. A prime example is the ineffectiveness now of 
Section 1202 small business stock, which is largely negated by 
the AMT impact.
    Principle five, reduce cost recovery periods and complex 
recordkeeping for all small business equipment purchases and 
facility improvements. Keep the current section 179 small 
business expensing provisions, which are a key factor in 
helping small businesses survive and grow, but recognize that 
the changing needs of small businesses now would call for the 
inclusion of nonstructural real property improvements under 
Section 179 property.
    Principle number six, provide alternative simple provisions 
in the Tax Code that provide equitable tax deduction benefits 
to small businesses without excessive administrative 
requirements and costs that often become a barrier to small 
businesses using a tax benefit. A high priority would be 
passage, as has been mentioned, of a simple home office 
deduction and a change of the outdated and unrealistic 
requirements for physical customer presence and exclusive use 
that prevents most small businesses from deducting their home 
office.
    Principle number seven, reduce the burden on taxpayers to 
create complex legal arrangements to preserve family businesses 
for their children. It is important this year that we finally 
enact the provisions in the recent budget reconciliation for a 
permanent unified gift and estate tax exclusion of $3.5 million 
per individual and a maximum tax rate of 45 percent, while 
still maintaining the current Code provisions intended to help 
family farms and businesses survive generation transfers.
    Principle number eight, and perhaps the most important one, 
is that it is important for Congress to regularly evaluate the 
actual impacts of the tax system and the financial and 
regulatory environment on the ability of small businesses to 
succeed and grow. The Congress and administration should seek 
broad-based input from small businesses about the problems that 
they face and the ideas they can develop for improving the 
small business economy by authorizing a National Small Business 
Summit on Economic Recovery for 2010.
    If we are going to rebuild a growing and sustainable 
economy, government needs to better understand and address the 
unique needs of the small business community, particularly in 
the area of taxation and regulation.
    This year marks the beginning of a new presidency, with 
many new leaders in the administration and in Federal agencies 
and in the Congress. For these leaders to be effective in 
helping rebuild the small business economy, they need to better 
understand its needs. Yet it has been over 14 years since the 
Federal Government last sought broad-based and balanced input 
on the problems affecting small businesses through the 1995 
White House Conference on Small Business.
    To implement a restart of this summit process, I ask that 
the House Small Business Committee add a provision to an SBA 
reauthorization bill matching the provision that currently 
exists in the Senate reauthorization bill which would authorize 
a National Small Business Summit on Economic Recovery in 2010.
    Thank you very much, and I would be happy to answer any 
questions later.
    Chairman Schrader. Very good. Thank you, Mr. Blackledge.
    [The statement of Mr. Blackledge is included in the 
appendix at page 36.]
    Chairman Schrader. Well, our next witness is no stranger to 
this body, Mr. Keith Hall. He serves as a National Tax Advisor 
for the National Association for the Self-Employed.
    As owner of his own accounting firm, Mr. Hall has been 
involved in providing consulting and tax services to small 
businesses for the last 10 years. The National Association for 
the Self-Employed was founded in 1981 and represents hundreds 
of thousands of entrepreneurs and micro businesses.
    We welcome you to the hearing.

                    STATEMENT OF KEITH HALL

    Mr. Hall. Thank you. Mr. Chairman, Ranking Member Buchanan, 
members of the Committee, thank you so much for holding this 
hearing and mostly thank you for the chance to be here myself.
    Again, my name is Keith Hall; and I am a small business 
owner. I have a small accounting practice in Dallas. I am here 
on behalf of myself but also on behalf of the National 
Association for the Self-Employed, which represents 250,000 
members and over 500,000 workers.
    These are micro business owners from all 50 States, all 
ages, all races, all sexes, any other demographic that you want 
to name. But all of them have one thing in common. They all 
struggle with their tax return. Most don't like to do their tax 
return, but they know they have to deal with it. Everyone does.
    The IRS is the one government agency that all micro 
business owners must deal with at some level; and, quite 
frankly, most of them are a bit intimidated, maybe even a 
little bit scared of the big bad IRS. That is not because the 
IRS intends to be intimidating or scary but because the Code is 
so complicated. I understand there are three times as many 
words in the Internal Revenue Code as there are in the Bible. 
There are not a lot of books out there that are longer or more 
pervasive than the Bible, but apparently the Internal Revenue 
Code is one of those.
    Again, the fear is not because of the IRS itself but 
because of the Code.
    I feel that the IRS has done a great job in helping small 
businesses with their Web site, with access to education. They 
have done a lot of good things to help us, and they have been 
successful. But still the IRS--
    Ranking Member Buchanan mentioned that there is 37 hours to 
fill out a 1040, but the IRS says that it takes 57 hours to 
fill out a Schedule C with a 1040. For a small business owner, 
that is over one workweek. That is roughly 2 percent of their 
work year. That doesn't sound like a lot. But if we could all 
have a 2 percent growth in our 401(k) plan or 2 percent growth 
in the economy, we would be really happy with that. So that is 
a big chunk of their work.
    Now, in my opinion, the answer is pretty simple. But, 
apparently, simple can be complicated, which is also 
complicated. For micro business owners, simplifying the Code is 
the right answer for them in growing their business. But it is 
also the answer for the tax gap as well, $353 billion in taxes 
that should be paid that aren't. I believe a big chunk of that 
is because people just don't know how to do the taxes the way 
they should.
    I believe most people want to do the right thing and will 
do the right thing. They just don't know which line to put the 
right thing on, and I think that is where simplifying the Tax 
Code comes into play.
    Now, everybody recognizes that. I think the administration 
has a new tax force working on tax simplification. We are here 
today meeting for it. So I think we are heading in the right 
direction, and I believe we are on the right track.
    There are three bills right now that you guys are working 
on: One, H.R. 946, the Plain Language Act. Its sole purpose is 
to simplify language in all government forms and publications. 
We strongly support that bill. Just making the forms easier to 
read will be a good first step.
    Second is H.R. 1562, as Chairman Schrader had mentioned. 
That is the Home Office Deduction Simplification Act. It 
basically provides a $1,500 standard home office deduction.
    Ranking Member Buchanan also mentioned that only a handful 
of people who qualify for the home office deduction actually 
take the home office deduction. Now, the very purpose of that 
rule is to make the playing field level, because big businesses 
clearly deduct their facility expense. But some of the small 
guys don't just because it is so complicated.
    Again, on that form, the home office deduction form, 14 
different times appears the phrase "see instructions". That is 
very difficult.
    Now the NASE has done a survey with its members back in 
2008. You mentioned only a handful of people claim the 
deduction. Of the people who qualify for the home office 
deduction, only 27 percent actually take the deduction, and 
that is because it is so complicated. That is just not fair.
    A third bill is H.R. 1470, which is Tax Equity for Our 
Nation's Self-Employed Act; and that basically just moves the 
self-employed health insurance deduction over to Schedule C. 
Mr. Blackledge mentioned that, taking the deduction at the 
entity level. That just levels the playing field and removes a 
significant complexity in the Tax Code.
    The last thing I will mention is we need some continued 
work, I believe, and the NASE supports a continued 
clarification on the definition of independent contractors. 
Lots of small businesses really struggle with whether they have 
an employee or have an independent contractor. There is a 20-
point checklist that the IRS gives us. Each of those points is 
very difficult. Even if you answer all 20 of those questions, 
you are still not sure you get to the right answer. So 
additional work on that clarification would be very useful.
    Again, thank you very much for everything you guys do; and 
thanks for the chance to be here.
    Chairman Schrader. Thank you much, Mr. Hall. Good testimony 
again.
    [The statement of Mr. Hall is included in the appendix at 
page 52.]
    Chairman Schrader. For our last witness, I will defer to 
Ranking Member Buchanan to introduce him.
    Mr. Buchanan. Thank you, Mr. Chairman.
    It is a pleasure--we have a gentleman from one of our local 
firms, a constituent in my district, Stan Stathis to the 
Committee today. We appreciate you coming.
    He is a certified public accountant with CPA Associates in 
Bradenton, Florida. They are one of the larger regional firms 
in the area, highly regarded and respected certified financial 
planner. He also does a lot of personal financial planning, 
specialist in terms of small business, an expert in financial 
planning and consulting. He does all different types of small 
businesses and some larger businesses, including construction, 
manufacturing, real estate, medical, legal, and agriculture.
    I want to welcome you today to the Subcommittee and look 
forward to hearing your testimony.

                   STATEMENT OF STAM STATHIS

    Mr. Stathis. Thank you, Ranking Member Buchanan and 
Chairman Schrader and Committee members.
    Name my is Stan Stathis. As you heard, I am a partner in 
the firm of CPA Associates located in Bradenton, Florida. It is 
my honor and pleasure to come before you today to testify.
    During the span of my career, I have gone from posting 
manual books to the computer age. As you have heard, you have 
many thousands of pages in the Internal Revenue Code. When I 
first started, we had two small books. We could carry the 
entire Internal Revenue Code basically around in our hand. The 
regulations were three separate books. So you literally could 
walk in and place on your table a stack of books about this 
high.
    I have no idea how large that would be now. I don't want to 
know. I have it on my computer, and I can access it in a much 
more expedient manner.
    You would think that with the advent of the computer age 
that you could have more quickly and accurately prepared 
information. The problem that we have found is that you are 
only as good--the information is only as good as the people who 
input the information. So that if you put a lot of garbage in, 
you get a lot of garbage out; and you just produced a very 
easily readable piece of garbage. So we have had a large change 
in the way we report information, but we don't have the 
knowledge that has gone along with it.
    I spend hundreds of hours every year reading material just 
to keep abreast of the current tax law and trying to understand 
currently what is going on; and it is darn well near impossible 
for me, let alone a small business owner, to be able to keep up 
and not run afoul of the Tax Code.
    So what have they done? With the added complexity of 
preparing an accurate tax return, many small business owners 
have either been forced to hire a competent professional to aid 
them in preparing their tax return, at considerable expense, I 
might add, or go it on their own and hope they don't prepare a 
return with too many inaccuracies.
    However, incorrect preparation of tax returns is not the 
only risk the business owner faces. The Internal Revenue Code 
as currently written has very complex and in some cases arcane 
rules for the uninformed small business owner.
    If there is one thing I want you to take away from what I 
am going to talk about on some of these issues is that if you 
could sit in my seat and feel the anger and frustration from 
the small business owner and the anger at how much they have to 
pay me a lot of times to come in and fix things to make sure 
that they are not running afoul of the Internal Revenue Code, 
If you could do that, this Code would be changed tomorrow. It 
is just way too complex, and it has way too many rules.
    I have identified 13 different areas in my testimony that I 
thought were pertinent; and we will start with the first one, 
which was choice of entity.
    Choice of entity, what you have there is you have LLCs, you 
have corporations, you have S Corporations. One of the things 
we could do there is even out the playing field on what the 
benefits are to make sure that we have more consistency. One of 
the things you would also like to do is allow partners and sole 
proprietors to participate in the system so they could pay 
their taxes on a regular basis.
    Capital formation, as you heard, most owners plow their 
money right back into the business. They don't understand how 
come they owe so much in taxes, and that is because they are 
putting their money back into the business.
    Shareholder health insurance for deduction on the return. 
It is passed out for S Corporations, and it is deductible in a 
full corporation, and then you have sole proprietor rules. 
These things should be evened back and put into the business. 
We don't need to just change paper here on things like that.
    Shareholder loans to an S Corporation, they need to be part 
of basis for losses.
    Inadvertent S Corporation terminations, we need have much 
more relaxed rules in being able to maintain your S 
Corporation.
    Listed property record keeping is way too onerous for most 
people. I mean, the cell phone, I understand we had bills 
introduced a number of times to get that corrected.
    We have automobile records that have been mentioned, 
business gifts and promotion, home office deductions. I could 
go on hours about that. Unless you get rid of the exclusivity 
of use provision in there, you are going to have problems.
    Fiscal year flexibility to go to other than a counter year, 
fixed asset addition, retirement plans, they all need reform to 
be equalized among the different kinds of entities.
    I would also like to say my spouse is a small business 
owner, and I spend hours preparing her own tax return, which is 
included in ours. It is a Schedule C, and it is difficult to do 
every year. And I have her maintain automobile records, and I 
have had her tell me that other attorneys laugh at her when 
they see her out in the car writing down the mileage. Because I 
won't go without having those records kept on a contemporaneous 
basis.
    So it is very difficult for a small business to keep those 
kind of records; and if anybody has any question, I would be 
more than happy to answer them. Thank you.
    Chairman Schrader. Thank you very much, Mr. Stathis. 
Excellent testimony.
    [The statement of Mr. Stathis is included in the appendix 
at page 59.]
    Chairman Schrader. Let us move into some questions of our 
witnesses, and I guess I will start off.
    Let us start with Mr. Blackledge. You have referenced the 
National Small Business Summit. Could you elaborate on that? 
And is there any precedence for that before?
    Mr. Blackledge. Yes, actually, there have been three small 
business--they were called White House Conferences on Small 
Business in the past, the last one being in 1995. But it has 
been 14 years now since that last summit, and a lot has changed 
for the world of small business in that time. The Tax Code has 
changed. The regulatory environment has changed.
    What is particularly important now is that the world of the 
economy has changed with the result of our current recession. 
Businesses are radically impacted by the recession. Many of 
them are failing, and there are many things that government 
could do and has been trying to do to help small businesses. 
But, at the moment, it is flying blind, because it doesn't 
really understand what is happening in the small business 
community and isn't getting as much input directly from small 
businesses as it could.
    That would be the purpose of a White House Small Business 
Summit on Economic Recovery, would be to let small businesses 
actually, just as we are today, talk to the Congress, talk to 
the administration, talk to Federal administrators and the 
agencies about what needs to be done to help small business. It 
would allow the Congress to spend the money that it spends to 
assist small business more wisely and would also certainly 
improve the small business economy.
    Chairman Schrader. Thank you.
    Mr. Hall, your organization represents millions of home-
based businesses. In your view--could you elaborate a little 
bit more? You testified on it somewhat already. Why they are 
not taking this home office deduction? How complicated is that, 
really?
    Mr. Hall. I think it is very complicated.
    Again, the form itself has--I think I mentioned in my 
testimony has "see instructions" 14 different times. There is a 
publication, Publication 957, that is designed to help complete 
one form. So there is an entire publication that you can read. 
I think the publication is 57 pages. That 57 pages goes along 
with the one-page form. So I think it is very complicated.
    I think there is also this fear of the IRS that I talked 
about as well. There is this--I heard at the library or heard 
at the water cooler that if I take the home office deduction 
there is a better chance I am going to get audited. So it is 
that fear of not putting the right thing on the right line that 
just becomes more and more cumbersome, and they choose to just 
forego the deduction. And I think that clearly is not what the 
intent of the Internal Revenue Code was for, nor was that 
deduction to discourage taking that deduction. It was designed 
to recognize their facility's expenses there at their house and 
should be recognized on their tax return.
    I think that is the best thing about the standard 
deduction. You know, let the scoring work out so that it can be 
revenue neutral. If $1,500 is not the right number, $1,400 
might be the right number. But whatever number should recognize 
the cost of operating a business out of that office in the 
home. There ought to be a deduction for that.
    Chairman Schrader. So Congressman McHugh and I have 
introduced that simplification act, H.R. 1509. Would you hazard 
a guess as to how many more small businesses might take 
advantage of the home office deduction if that bill is enacted?
    Mr. Hall. It would be difficult to say, but, depending on 
which paper you read, there are 20 million small businesses out 
there. I think that the IRS estimates there will be 23 million 
tax returns with a Schedule C attached to it. If only 27 
percent of those, which is what the NASE survey indicates, only 
a fourth of those people actually take the home office 
deduction, just using those numbers there, that is another 15 
million small business owners out there that would benefit from 
that bill and that standard deduction.
    Chairman Schrader. I appreciate the comments on the tax 
neutrality, too. That is very, very good.
    Ms. Ryan--Chin Ryan. I will get it correct. Sorry, 
Christine--the Tax Code is pretty darn complex. You alluded to 
having professionals prepare tax returns. A lot of small 
business folks can hardly do that on their own. What has been 
your experience since you have been in business starting and 
now at this point in time and where do you think we need to be 
heading for many small businessmen and women?
    Mr. Blackledge. When I first started, I knew infrastructure 
was very important, so I hired a consultant to help me with my 
financials. So that has enabled me to set everything in place 
that I currently use now.
    I used to be an 8(a) firm through SBA, so I had four 
different entities to account for in my accounting system, not 
only through the SBA but also through the IRS and Federal 
Government contracts. There are some allowable and unallowable 
costs. And then my banks for a credit line, which was required 
for an 8(a) firm, for my 8(a) application is when I get a 
contract, how will I be able to meet payroll and expenses 
before I get my first payment.
    So I had all these different entities to report to, 
especially the Federal Government, what was not allowed as 
expenses or not. So I pretty much had to have infrastructure. 
So I hired a consultant, and through the SBA also they have had 
consultants to help me. So, fortunately, I had help and I had 
the vision to know that infrastructure is very important. But 
it does cost me.
    I at one point had 31 employees in the 1990s through the 
tech boom, and I needed that infrastructure. So I have also 
been audited by the IRS because they thought I was a 
professional services corporation, therefore, higher tax 
bracket. I passed with flying colors. I have been audited by 
the Federal Government internal audit group, passed with flying 
colors. So, fortunately, I have no issues. Every penny is 
accounted for.
    But as Chair of the Governor's Small Business Council and 
the Oregon Small Business Responsible Leadership, many small 
businesses around the State don't have the advantages I did, do 
not really understand that infrastructure is very important.
    I have had friends who started businesses that really 
couldn't even go to the banks for loans because their 
financials were not in order, and it is because a lot of them 
really didn't graduate with an MBA. They are entrepreneurs. 
They had the creativity. They were either technical folks that 
started the business. And, like many of us, we learned the hard 
way; and we then, of course--what you hear a lot--we started 
loaning ourselves money to start the business.
    So I think that is the majority, small businesses out 
there. Even though it has improved, there is a lot--at least in 
Oregon, there is a lot of free consultations that are very 
inexpensive through the SBDCs and through the targeted service 
providers and so on in the community colleges. But there are 
still a lot out there that do not know these services are 
available and do start off on a shoestring.
    Thank you.
    Chairman Schrader. Thank you very much.
    I was one of those 30 years ago when I did my own taxes and 
started my own business, because I felt I could do that. I 
hazard to guess, as a budding veterinarian coming out of 
veterinarian college right now, I would not be starting my own 
business in large part because of some of the rules and 
regulations we now have upon us that are so onerous.
    I am going to switch over to Ranking Member Buchanan and 
let him ask some questions.
    Mr. Buchanan. Thank you, Mr. Chairman.
    Ms. Chin Ryan, let me ask you, Mr. Stathis said something 
about people being angry and upset, a lot of small business, 
that passion about taxes being as complex as they seem to be or 
they are. What is your sense of that, I mean, when you are 
dealing with a lot of different small business people?
    Ms. Chin Ryan. First, as myself, when I first started and 
my accountant and the CPA tried to explain to me some of the 
accounting rules, I pretty much told them that this is not for 
me, it is way over my head, and whatever you say is fine with 
me. You just give me direction.
    So I still remember that from almost 20 years ago, and I 
think small businesses feel the same way. I don't think 
anything has changed. And I just think it is too complicated. I 
gave some examples with solutions.
    By the way, one of my steering committee members was a CPA 
that helped me prepare my testimony, and he could have gone on 
and on and on, and I just said, let us hold it. So it is still 
very complicated. I just think it needs to be simplified in all 
aspects. I don't think it has really gotten any better.
    I don't know if I answered your question.
    Mr. Buchanan. Yeah. The other thing that--the chairman and 
I were having lunch yesterday, talking about different things. 
But, you know, you look at, of course, States like Oregon, a 
great State, California. But now--this is a little off of tax 
simplification, but it is one of my big passions.
    As we are looking at taxes being 39 percent or so, 40 
percent Federal, a State like Oregon--California I know is 10 
plus percent, maybe as high as 15. So if someone starts out, 
takes the risk, puts up their house, all these--your personal 
guarantees, where is the incentive anymore for someone to do 
all this? Then they have got to pay property taxes and all--
assuming you have got property taxes now--other taxes on top of 
that.
    And it is one thing if you are making less than 100, but I 
know people that end up being when they become successful, they 
start making 3 or 4 or 500. They need that capital to reinvest 
for jobs. And that is the big thing I think we need today for 
small business.
    What is the sentiment out there, just out of curiosity? 
Someone said when they get successful and big, they move to 
another State or something. But what do you sense of that? 
Because a lot of that is pass-through income. Is that a factor 
or are people concerned about that?
    It is one thing when we were at 33 and now we are at 40, 
39. Now you add 13, 12 on top of that. Where is the incentive 
to take the risk and all the personal guarantees and 
everything? I think it is going completely in the wrong 
direction. I really feel like it hurts small business. But that 
is just my opinion.
    Ms. Chin Ryan. I think most small businesses that are what 
you call true entrepreneurs that start up that do not have the 
formal education like an MBA, I don't think they think about 
that. I certainly didn't. And we go into it because it is a 
chance to be your own boss, be creative, make decisions based 
on what you think is right or good for the company. And I think 
we think about that first, less about the negative aspects of 
your businesses.
    Personally, I felt after about 10, 15 years, I still had 
the--how do you say--the spirit of being a business owner. Now 
that wears you down as time goes by. But I--you just don't 
think about it. When you started--and most of us were younger 
then--you are fearless. You are going to succeed. You have that 
mentality. Until it really hits you, that is when you start 
being mature and seeing what the responsibilities are and the 
decisions that you have to make.
    So I don't really see a lot of that changing, except for 
those who have gone on to higher education and who have, like 
you say, MBAs, who have formal training in marketing plans, 
business plans that can then take it to more of a structured 
type of approach, which is a little different than lot of the 
entrepreneurs that start off based on passion.
    Mr. Buchanan. I think you are right on that. Probably 
especially at startup, you are not thinking about that. You are 
thinking about surviving.
    Mr. Blackledge, your company is in Oregon, a more mature, 
generational family business, I assume. Does that affect 
businesses that are out there that are more mature and starting 
to make some money? Is that a big issue or not?
    Mr. Blackledge. Clearly, it does. Frustration with the 
level of taxation is obviously an issue.
    In Oregon, we have a problem with that, just as you have in 
Florida. The State right next to us has no income tax. And one 
of the problems that we encounter in Oregon since Oregon has 
adopted--although at the moment we are disconnected from the 
Federal Tax Code. We normally follow the Federal Tax Code. As a 
result, a lot of businesses who are successful leave the State 
of Oregon, unfortunately, and move to Washington to escape that 
high level. We have about a 9 percent income tax rate in the 
State of Oregon. So the level of taxation is important.
    But one of the other issues that Ms. Ryan was talking 
about, that is, the frustration of small businesses is 
important, too. When you go back to the tax gap, some of it 
results from just the complexity of the Code and the fact that 
businesses just can't completely comply with it. Even IRS staff 
people designed to help taxpayers fail 25 percent of the time 
to get the right answer to tax questions based on GAO audits.
    But some of it also is just frustration with the Tax Code 
in the sense that when the Code becomes so outdated and 
illogical, issues like having to report cell phone use and 
computer use, for example, when businesses know that there is 
no additional cost for the personal use of it, or the outdated 
limitations on many of the deductions, businesses have a 
tendency to rebel.
    Business people are very practical people; and when the Tax 
Code gets so out of sync with the reality of the world today, 
business people rebel and sometimes fail to properly pay the 
taxes as they should. And, unfortunately, even though those 
items may be forgivable, once that process starts, it gets much 
easier for them to make the next decision not to comply with 
the Tax Code and the next one after that. So it is really 
important that Congress keep the Tax Code fair and logical.
    Mr. Buchanan. Thank you.
    Mr. Hall, the self-employed, did you say how many folks are 
in that group?
    Mr. Hall. Two hundred and fifty thousand members, about 
half a million workers.
    Mr. Buchanan. And you brought up a lot of different things, 
but if you distill it down to one or two of the top things we 
could do in terms of simplifying the Tax Code, what would they 
be? And I am sure there are 10 things, but if you were to say 
one, two, or three or something like that just off the top--
    Mr. Hall. One, because the bill is pending, which is the 
home office deduction, I think that makes a big difference. 
That makes an immediate help.
    Maybe the more pervasive of the issues I talked about was 
clarification of the worker status, independent contractor 
versus employee, and what we were just talking about here.
    Back in the day, I started my career with Peat Marwick, 
which is a giant accounting firm. And I have been through a lot 
of Presidential elections and congressional elections and 
everybody always talks about creating jobs. And I know when I 
decided to start my accounting practice, I was thinking about 
that. A little bit naive again. We won't talk about how long 
ago that was. But about creating jobs.
    And my firm supports four families. There are four jobs 
that I created, and I am very proud of that, and I think that 
is the incentive to start businesses. And I think that back in 
the day that was always the incentive to start business.
    That has changed a little bit. Back in March, I did a tax 
seminar in connection with the SBA's Small Business Development 
Centers; and I spoke to 62 small businesses. And during that 
seminar, we would ask a question and there were 16 of those 62 
that had just started their new business within the last 30 
days. And most of those had started that business not because 
they wanted to go out and create a job or because they had a 
great idea. It is because they had been laid off.
    And they didn't choose self-employment. They became self-
employed, and they spent a day with me trying to figure out how 
to run their business and not let the Tax Code get in the way 
of them creating jobs. And not knowing the difference between 
an employee or an independent contractor, my real fear for that 
complexity is that they choose not to hire the person. And 
choosing not to hire the person when you have the economic base 
to create a job, if you choose not to create a job just because 
the Tax Code is complicated, now we truly have cost all of us 
money based on just that choice. So that would be very 
important.
    Mr. Buchanan. The sense is today--and I want to pick up one 
point--is that a lot of these kids are coming out of some of 
the top schools, there is not job opportunities, so they will 
probably have the next guy, the next Microsoft and all that. 
You are going to see a lot of people--but we have got to make 
sure we have incentives for the people willing to take the 
risks, create the jobs, go out and guarantee notes.
    Because a lot of these businesses--I have seen the U.S. 
Chamber put out 20 years ago, 100 people go in business; in 5 
years, there is only 90 that are--there is only 10 left or 8 
left. So they are taking big risks to create jobs to help move 
the economy forward.
    Let me just--Mr. Stathis, one of the things that in tax 
simplification also got mentioned was fairness. I know like in 
our businesses or friends that have businesses, they will have 
a building or something and they write the building off 39 
years. But the CPAs will come and say, look, you can take 
component depreciation, take it over 5, but that is going to 
cost you 5 grand. It is more complicated. You have got to get 
involved. But the small businessperson that is starting out 
can't afford that.
    But yet if you don't have the documentation--so I am just 
thinking about things like that, again, where small businesses 
don't have the same advantage. These are not loopholes. They 
are just legal. But because they don't have the lawyers and the 
CPAs, they can't have the same advantages as businesses a 
little bit larger.
    What is your thought on that?
    Mr. Stathis. What you are talking about is a cost 
segregation study that is done on a building and its components 
in order to write it off over a shorter period of time; and, 
hopefully, we usually show that you save the money in income 
taxes to pay for it. The small business owner who is uninformed 
who goes into business and doesn't get the proper advice will 
not be able to take advantage of those things.
    When I deal with most small business people, they are risk 
takers. I once had a very wealthy individual sit down with me; 
and he said, you could never do what I do, and I could never do 
what you do. And I asked him why. And he said, you are a wage 
slave. You take wages. You don't want to take the risk of not 
having a paycheck.
    Well, I do take that risk now with owning my business. But 
at the time I was just a salaried employee.
    He, on the other hand, said he could lose everything every 
day. He was always rolling the dice. He was always taking 
risks. And that is what made him an entrepreneur.
    And the older I have gotten, the more I have gotten to 
appreciate that, that small business owners will cut corners. 
They will be ignorant of the law. One of the sayings in our 
office is ignorance is cheap. Because if you know what the law 
is and you have got to comply with it, you have to spend the 
hours and time and get it right. Because if you don't and you 
get caught, then you have a problem. And that is what most 
people hire like a CPA for or another financial advisor that is 
helping them with their business, is to keep them from running 
afoul of these arcane rules is what I want to call them.
    Going back to the home and the office deduction, I have a 
former agent in my office; and he said a home in the office 
deduction is like taking candy from the baby. Very few people 
are able to actually meet all the rules that are in place in 
order to have a home office deduction. And the fear of that 
that has been permeated through the public is why it is not 
taken. Because most people feel that it is an audit flag. And 
it is an audit flag. Just plain and simple, it is an audit 
flag. You put it on your return, and chances are you are going 
to have an audit.
    And it should be legitimate business reasons to have it, 
and you shouldn't have to have exclusive use of that for 
business use. I mean, you use your business 8 hours a day. 
Sometimes, like I am in there maybe 15, 17 hours. But why 
should you have to maintain that office for 24 hours as an 
office in your home?
    I mean, people can't afford to have all that space go to 
waste. So if they keep storing personal items in there, that 
would be a reason to disallow it as an office if you have got 
personal items stored in there.
    I have known people that have legitimate reasons for having 
home office businesses, and in our society today many people 
are employed at home. That is where they work. You talk to 
them, and they are at home. That is where they are. That is 
where their business is located. And I have even seen some of 
those not take the deduction.
    So when you are looking at the small business owner and 
what they have to comply with as far as regulations are 
concerned, most of them are going to take the risk and say, I 
am not going to know what that law is and I am just going to go 
ahead; and if I get caught, then I will work on it. And it is a 
shame that they get put in that position, and they shouldn't be 
put that position. They should be able to simply understand 
what the law is and simply comply with it.
    Mr. Buchanan. Can you expound just a little bit more on the 
frustration and anger? What are the top one or two things you 
see--because you guys deal with a lot of small businesses--in 
terms of tax simplification that outrages people the most in 
the small business community that--over the last 5 or 10 years 
or whatever? I know there is probably a lot, but can you 
distill it down to two or three that really come to mind for 
you?
    Mr. Stathis. I will give you the major one. The major one 
is that they come in and they look down at the return and they 
go, I made how much and I owe how much? They are incredulous at 
the number. Because they go, I didn't take that home. They 
equate income with cash. Okay? So if they don't have the cash, 
they didn't make it.
    And if you are sitting there and you are looking at a K-1 
say from your business and it says you made half a million 
dollars, well, $350,000 went back into the inventory, went back 
to pay debts, went to purchase other pieces of equipment. And 
then by the time you pay taxes on the other $150,000, you are 
back down to where you are making a hundred. If you are paying 
State taxes, it is even lower. So it much less than you really 
think.
    People that are entrepreneurs are always constantly taking 
that money and putting it back into their business. So they get 
very angry and frustrated when they are saying, where am I 
going to come up with this money? I don't have it. It is in the 
business. So then they are put in a position where they have to 
go borrow money to pay the taxes, and that gets them 
frustrated.
    The second part that I see a lot of anger with is Social 
Security tax. You can actually have a profit on a Schedule C, 
have no taxes, no income taxes, yet have substantial taxes for 
self-employment tax; and that is very hard to explain also to 
individuals, alternative minimum tax.
    That one, when that pops on there and I am going down my 
sheet in explaining it to them, well, this is the alternative 
minimum tax. What is that? Well, what the government giveth the 
government taketh away. So you get a deduction here, but 
because you got too many deductions now we are put in a 
position to have to pay taxes for that. So you actually lost 
that for this year.
    That is another one that really just rankles them 
immensely. Probably when I sit there and explain to them that 
they can't take a deduction for something that they think is a 
legitimate deduction, they get angry at that.
    Gifts are an item. Currently, when I sit there and say--
they come in and say, well, I want to give some Christmas gifts 
out to some of my friends that are referral sources to my 
business; and I tell them, well, you are limited to $25. And 
they go $25? You can't buy anything for $25. What am I supposed 
to give them, movie tickets?
    Really, you should be looking at what the promotional value 
of those items are. Because, really, you are promoting your 
business. You are promoting yourself. You are promoting being 
able to get more business from them. And that should be a 
legitimate expense. I don't advocate giving away lavish gifts, 
but there should be the ability there to do that. And you have 
a hard time explaining that.
    I think that probably the other thing is when I start 
getting into record keeping, talk about cell phones, cell phone 
usage, personal use, it is de minimis. It has no business being 
listed property.
    Telling them they have to keep records for their automobile 
log, and I am calling them on the phone, what was your 
beginning mileage, what was your ending mileage, you know, how 
much was business, how much was personal. When I start going 
into that and they go, I don't know. You got that last year. My 
bookkeeper has it.
    And that is another point that should be brought up. When 
you are in a large business, it is very easy to maintain the 
proper records because you have an accounting department. You 
have people that are responsible for saying, hey, give me those 
expense slips, give me your records. And there is a real threat 
of not getting your money back because you are an employee in 
the business and you don't get paid if you don't give them the 
proper records.
    But when you are the owner and you look at yourself, yeah, 
give me the records and you stick your head around the other 
corner, no, sir, what are you going to do? Fire yourself? It is 
not going to help. And the self-discipline part is there.
    And then when they come in and they are talking to me and I 
say, we have to have this. My other accountant didn't want 
that. Why do you need it? I say, well, I am trying to keep you 
out of trouble.
    And so it really gets down to--like I said, ignorance can 
be cheap. Because if you don't require certain things, it is 
more expensive. Because then I have to spend the time chasing 
this stuff down and making sure they are in compliance.
    Mr. Buchanan. One thing you are saying is that as a CPA you 
also have to have a little expertise in anger management?
    Mr. Stathis. Yes, sir.
    Mr. Buchanan. I yield back. Thank you.
    Chairman Schrader. Thank you. Good discussion.
    Well, let us recognize the gentlelady from Arizona, Mrs. 
Kirkpatrick.
    Mrs. Kirkpatrick. Thank you, Chairman Schrader. Excellent 
panel, excellent.
    Chairman, like you, I established my own law firm, and so I 
went through the business formation myself, and I was a 
managing partner. So I have dealt with all of these issues. I 
understand.
    But also part of my law practice was advising clients on 
business formation, and it is so difficult when you are 
comparing the various entities to really come up with a clear 
picture of what is best.
    I also found out--I practiced in a small town--that it was 
hard to find bookkeepers and that the level of advice from 
accountants varied and not--and they were all competent, but it 
is just that it is hard to understand the Tax Code. So you talk 
about these provisions, but interpretation can vary.
    I have three questions. The first one is about retirement 
plans. We haven't really talked about that. And of course that 
is part of what you look at in setting up the small business. I 
think the last time I counted there were more than 20 IRA plans 
to consider.
    So I guess my question is for the entire panel. If you 
could just maybe touch on your thoughts about what we could do 
to help small businesses with retirement planning. Maybe, Mr. 
Stathis, start with you.
    Mr. Stathis. Well, you know, the major thing that you see 
with retirement plans is a structure that they are set up for 
in order to get various benefits back to the owner. We went 
from a period of time back in the late 1970s and early 1980s 
when we had very complex plans being written in order to skew 
benefits to the owner, and we went to very simple plans and we 
did away with a lot of the skewing that went on. And now we are 
going back again the other way, where there is a lot of 
complexities that are involved.
    The cost of maintaining these different plans is horrendous 
for the small business owner. A lot of small business owners 
will get talked into putting in plans, and they will drop them 
after a couple of year, simply because it costs so much to 
maintain them. Not only for the benefits that are going to the 
employee but also the benefits that they are not getting 
because they are putting the cash into there and they are 
having to maintain them and do tax returns.
    There needs to be a lot fewer plans, and they need to be 
more level across the playing field as to the benefits that are 
available to not only the employee but to the owner. So I would 
say that when you are looking at plans, the fewer, the better.
    And I know my actuarial friends are going to be screaming 
at me for that. But, really, they are way out of control; and 
it is hard to explain them. I am not an expert in them. I don't 
pretend to. When a client of mine wants to go that way, I go 
and send them to people that are experts in that arena. But, 
really, it is just--I think personally it is out of hand.
    Mrs. Kirkpatrick. Any other thoughts?
    Mr. Hall. I know we are supposed to be simplifying things 
today, so I am going to take the opposite opinion.
    Part of the difference, though, with the NASE, we have so 
many micro business owners, mom and pop shops. I think the 
retirement plan options is a prototype for simplification that 
the IRS and Congress have done a great job with over the last 4 
or 5 years.
    Because, just taking one example, self-employed pension 
plans, SEP accounts, are as easy to set up as opening a bank 
account. If you know where your Edward Jones office is or your 
Charles Schwab office is, you walk in there, fill out a form, 
give them a check, and you have a plan.
    The key for retirement planning for most small business 
owners is that they do it. Pick something and do it. So I do 
agree that the more plans you have, 20 different IRAs, it is 
cumbersome, it is complicated, lots of options. But, in this 
case, part of what the plan should be is to just make sure you 
do something. Pick it and then do it every year.
    Because we can talk about the Social Security system, we 
can talk about whether it is going to be available for us or 
even for our kids, and that is very scary. But, regardless of 
what happens, what is funded, what is unfunded, if we can 
encourage people to put money aside for their own future, that 
is exactly what we should do. So the SEP plans, the IRA plans 
for the smallest businesses I think are outstanding.
    I think when you get to bigger businesses with lots of 
employees and you have pension calculations and guaranteed 
funded amounts and unfunded amounts and possibilities of losing 
your qualified status, those things become very complicated. I 
think it is fortunate that the more complicated the plans are, 
typically the companies are bigger, and those are the ones who 
do have the accounting departments and the resources that 
perhaps maybe that cost is allocated appropriately.
    But what I would hate to see happen is take away some of 
those options like the SEP plans that are available to the 
micro business owners, because that is the way they are 
investing in their own retirement today, And I like that part.
    Mrs. Kirkpatrick. In the interest of not consuming too much 
time, let me go to my other question. Thank you, Mr. Chairman.
    And, Mr. Blackledge, I will ask you this. There is a 
requirement that the small business show that it is a going 
concern, and I am concerned about that right now with our 
economy. And I just would like your thoughts about should we 
address that as well.
    Mr. Blackledge. You are talking about the hobby business 
rules?
    Mrs. Kirkpatrick. Yes.
    Mr. Blackledge. I think that is an ongoing issue, one that 
IRS has tried over the years to try and define. But, 
unfortunately, it is a very complex area for adjudicating 
whether or not it truly is a small business effort or not. And 
it is more complicated now because the economy has made many 
businesses that might have been successful, might have been 
generating revenue over the short period of time required for 
the analysis but, unfortunately, because of the economy, they 
are simply not able to.
    I think that is something that can be handled. I think the 
IRS is moving--in fact, I have seen some things in the IRS 
publications that they are trying to take a little more 
understanding look at that. And I suspect you will see they 
will be pushing that issue less this year internally because 
they understand the nature of the economy.
    I want to raise one other point in terms of your first 
question. That, too, a lot of the complexity comes from the 
fact that we are connecting together things that people do as 
individuals. In this case, you are talking retirement plans, 
but the same analogy applies to health care. Those are things 
that really impact an individual. And the kind of business they 
work for shouldn't necessarily determine what options an 
individual has to have a retirement plan or to have tax-
subsidized medical care; and for pass-through entities, which 
most small businesses are, that greatly complicates the tax 
structure. And it also forces on us a lot of decisions we don't 
want to make about what kind of retirement plan to offer our 
people or what kind of health care plan.
    And because small businesses are inherently small and we 
have very few people to spread the administrative cost over, 
there also is a very high administration cost which makes us 
uncompetitive with the large businesses. So as much as 
possible, simplification could be disconnecting those things 
from the business and applying things such as health care 
deductibility and retirement plans at the individual level 
where they really belong.
    Mrs. Kirkpatrick. Thank you.
    My last question is for Ms. Chin. Thank you.
    Do you see incentives for savings in the current Tax Code 
for businesses? And let me explain this to you. We were an S 
Corporation, and I am a big saver. But every year the 
accountant would say, you need to zero out your balance. So we 
would start the first of the year with nothing in the bank, and 
that was really difficult. And I just wondered if you have had 
that same experience, if you think we should put incentives for 
savings into the Tax Code.
    Ms. Chin Ryan. Well, actually, Oregon is trying to do that 
right now at the State legislation, to deduct I think $1 or $2 
from the employees. Right now, it is focused on employees for 
paid family leave, because, right now, it is unpaid. I don't 
know if it is going to pass or not. There are numerous issues.
    Personally, I have had years where I have lost it because 
it was a decision whether to lay off an employee or keep them. 
And that really is the decision, whether you make a profit or 
not for me.
    With my responsibility, I decided to keep them and have a 
loss. So you carry the losses over. And the years that I do 
have a profit, I have gladly paid. Because there are many years 
I don't pay the taxes because I carry over the losses.
    So as far as the savings, I don't really--it is just 
business fluctuates. I don't really remember coming across 
that. This year, I will show a profit, and I will pay taxes.
    But I do want to address very quickly the 401(k). I 
instituted a 401(k) in the first few years of my businesses, 
because I wanted to also put the maximum deductions. The rules 
have changed, where officers can only put 2 percent more than 
with the formula. I would like that to go back the way it was, 
because that really hindered my ability to actually put what I 
can in retirement. Because, as was mentioned before, small 
business owners, we invest back into the business. And that is 
what I have done. And so comparable to actually some of my 
employee, I have less in my 401(k).
    It also is a very enticing employment benefit, especially 
in my industry which is high salaries and very excellent 
benefits, that I do have a match. And most financial planners 
say number one for retirement is 401(k) with employer matching. 
So I do offer all of that. I do entice my employees. I do try 
and have an employee-based type of company.
    So it is one thing if you were to look at it as to, if 
possible, take out the limitations for officers. Because I 
would actually be pretty good off now for almost 20 years if I 
didn't have that limitation.
    Mrs. Kirkpatrick. Thank you.
    Mr. Chairman, may I have the prerogative to go over my 
time?
    Chairman Schrader. You are already over your time. A short 
statement might be acceptable.
    Mrs. Kirkpatrick. I just saw the other members shaking 
their heads about the incentives for savings; and I don't know, 
Mr. Blackledge, if you want--
    Chairman Schrader. Very quick comment.
    Mr. Blackledge. We also zero out our Triple A account every 
year. And I would agree that the nature of the IRS view of 
small businesses, particularly S Corporations, is that they 
should not be saving a lot. And I think some provisions in the 
Code to allow small businesses to accumulate more capital so 
they didn't have to constantly be borrowing from banks would 
certainly be beneficial. But it is a complex issue.
    Mrs. Kirkpatrick. Thank you, panel. Thank you, Chairman. 
Thank you very much.
    Chairman Schrader. The Chair now recognizes the 
distinguished gentleman from Missouri, Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    You know, the title of our discussion today is How the 
Complexity of the Tax Code Hinders Small Businesses. I would 
like to ask Mr. Hall, do you have any statistics on how many 
small businesses are deterred from even getting started as a 
result of the Tax Code or as a result of the complexity of 
trying to get started with all the different rules and 
regulations and besides taxes that--do you have any idea of 
that?
    Mr. Hall. I, unfortunately, don't have any statistics on 
things that haven't happened, but that is very scary to me.
    And back to my comment in Boston with that seminar, those 
16 people who started small businesses, my concern is that 
there are lots of people out there who may also have been laid 
off or changed positions and may have an idea for a consulting 
service or a small business, even a manufacturing idea, 
something that they may have in another economic setting, may 
have chose to do that because the economy is down now, 
availability for credit is down now.
    Maybe some of those things are not happening more today--
this is strange--but they are not happening more today than 
they have never not happened before, and that is very 
concerning. Because, again, I think the ranking member had 
talked about 70 percent of all jobs come from small business; 
and every piece of discouragement to starting that small 
business is another discouragement for a new job. So although I 
don't have statistics on that, I would be afraid to know what 
that statistic is.
    Mr. Luetkemeyer. A lot of people think being the owner of 
your business is a really great thing. And it is. Whenever you 
start looking at all the problems that are associated with 
being a business owner, especially a small business owner, 
having to deal with the tax situation, getting an accountant, 
working with the insurance side of it, the financial side of 
it--then you have to deal with the employee side of it and the 
egos and the mismatch of all of the stuff. And then you wind up 
with trying to either produce or sell a product to the public 
on the whims of the public.
    I mean, people think it is really neat to be a small 
business person. Just sit in their shoes for a little while, 
and I am sure all of you can empathize with that. As a small 
business owner myself, it is quite a chore.
    But I was just curious if you had some statistics on how 
big a barrier the Tax Code actually was to people actually 
getting into this.
    Along that line, then, I guess--at least my next question, 
what would be an alternative to the Code we have right now? We 
realize it is cumbersome, and I appreciate the efforts of the 
chairman. I simply support his efforts in trying to simplify it 
and having this hearing. Are there other things that we can do? 
Are there other types of taxation that we can go to?
    I know a couple of you alluded to in your testimony--if 
each one of you would take just a couple of quick seconds to--
and I will start with Mr. Stathis on the end.
    Mr. Stathis. They run the gamut. You have heard VAT tax, 
similar to what they use in Europe. You have heard of a flat 
tax.
    Mr. Luetkemeyer. Do you have a preference? I am under the 
clock here. So I apologize for jumping in.
    Mr. Stathis. A preference? I think that one of the other 
gentleman alluded to what the upheaval would to be the economy 
and the way it is right now that if you tried to make a massive 
change to, say, a flat tax, it could cause I think more damage 
than it did good. I think that is where we are right now. What 
we need to do is simplify what we have and maintain the 
structure, the simple structure but just simplify it.
    Mr. Luetkemeyer. Great.
    Mr. Hall.
    Mr. Hall. I think the same thing. I think not only would it 
not be practical, but it probably couldn't pass. I think 
simplification like the home office standard deduction. Back in 
the day, there was no standard deduction in lieu of itemized 
deductions. That is a nice roadmap for other potential 
standardized deductions.
    There could be standard deductions for appreciation. There 
could be easier deductions for retirement plans that we have 
talked about. Moving some of those deductions to the entity 
level, like Mr. Blackledge mentioned on the self-employed 
health insurance deduction.
    I think the Code itself accomplishes so many different 
things, not just revenue but social issues as well. I think 
just simplifying the issues now to make it easier to comply 
with is the path to go.
    Mr. Blackledge. I would concur, obviously. Other tax 
systems have advantages. They have been beneficial to other 
countries. But the cost of transition could be horrendous.
    Our tax system of many of the decisions that have been made 
in this country over the last 50 to 100 years have been based 
on this Tax Code; and if we changed it, just as when we changed 
the passive activity rules on business investments back when we 
had the savings and loan crisis, there could be some unintended 
consequences. But I think you can simplify the existing Code. 
Congress has made it complex.
    One of the things overall that I think would help, in 
addition to the specifics of simplifying, would be to have a 
better process for Congress to vet potential changes in the Tax 
Code. The problem is that this Code has been built by 
individual Congress people and their staffs; and, in many 
cases, they are not well connected. We do not have common 
definitions. They have not been vetted either with any kind of 
cooperative body or particularly with the IRS that is going to 
have to administer them. Often, the IRS ends up--and I have 
served on the IRS Advisory Council for a number of years, and 
often the IRS is thrown a tax law that they really don't know 
how to administer. And that has added to that complexity.
    Mr. Luetkemeyer. This is a follow-up that you piqued my 
interest in, and I will let Ms. Chin Ryan here in a second. But 
it would be neat if we would have a time frame within which you 
could plan for your future with your accountant to say this tax 
is only going to go into force 2, 5, 10 years from now so that, 
all of a sudden, we in Congress decide tomorrow we are going to 
change the Tax Code and your whole future plans are screwed up 
because of what we did. I think something like that.
    Mr. Blackledge. If you do make a change, it is absolutely 
imperative that it somehow be transitioned in over a period of 
a number of years, which, unfortunately, will, of course, add 
to the complexity for that transition period.
    Mr. Luetkemeyer. Ms. Chin.
    Ms. Chin Ryan. In my written testimony, the examples I 
gave, I gave a solution. For example, the definition of 
accounting method, cash versus accrual, a solution could be if 
a business is 5 million or less, anyone can use the cash basis 
regardless of the type of entity. That would help reduce it.
    The different categories of income, a solution would be to 
eliminate the passive income and go back to earning other 
income. The same with Social Security is to--based--
    Mr. Luetkemeyer. So you prefer to keep the present system 
and simplify it with changes and improve it?
    Ms. Chin Ryan. As a business owner, you have long-term and 
short-term goals; and I think to completely rehaul the Tax Code 
is going to take a long time. But in the short term there could 
be a possible solution as we are parallel doing the long-term 
fix.
    Mr. Luetkemeyer. I appreciate it.
    Thank you, Mr. Chairman.
    Chairman Schrader. Thank you very much.
    Let us go to the gentlelady from Illinois, Congressman 
Halvorson.
    Mrs. Halvorson. Thank you, Mr. Chairman; and thank you, 
panel, for being here. This is very informative.
    I grew up with a self-employed father, and my husband and I 
are--we are owners of two small businesses ourselves. And I get 
quite angry at my husband when he doesn't save receipts, and we 
are constantly scrambling at the last minute, and I try to keep 
everything in a shoe box, and it doesn't always work. So I know 
how all of this happens at the last minute. You are trying to 
keep people like you in business.
    In fact, I tell everybody, become a CPA, because there is 
always going to be work for you. Not that we want to take 
business away, but in the economy the way it is, we are trying 
to simplify things. So some of the things you can do yourself.
    With talking about the itemization and keeping such 
records, whether it is about cell phones or all the different 
receipts you have to keep, what would you suggest or if you 
could elaborate? We may have touched on it a little bit, but 
how would you suggest we do things differently with regards to 
keeping receipts or how to report things to make it easier on 
the business owner because of all the hours and hours we have 
to keep all the records straight? I don't know if anyone wants 
to specifically elaborate on that.
    Mr. Hall. Again, I think the prototype is there. I think 
there are standard amounts that the IRS uses for a lot of 
things. There are standard deductions. We hope there is a 
standard home office deduction this term. There are per diem 
rates for travel. There is per diem rates for meals. It costs 
you a different amount to eat lunch in New York than it does in 
Sheboygan. So the per diem rate in Sheboygan is lower than the 
per diem rate in New York.
    So I think there are lots of opportunities, again based on 
the math, scoring methods to determine how much a cell phone 
should cost in a certain area, allocate what your expected 
business percentage is. I think a standard amount for a lot of 
deductions, it could be an option for simplification, and all 
of those things would alleviate recordkeeping.
    Mr. Blackledge. I think you just have to look at what the 
true impacts are on the Tax Code. In the Tax Code, you never 
collect every last dollar; and sometimes the complexity adds 
far more impact than the amount of revenue that is generated 
from it. On cell phones and computers, for example, there 
really is no marginal cost to the personal use of those cell 
phones. Plans now are unlimited. Cost of cell phones is 
inexpensive.
    The Code just needs to be updated and put thresholds that 
are reasonably high on all of those items. And if someone is 
buying a $50,000 computer, perhaps you would require them to 
keep records of it. But certainly not with the kinds of 
computers and the kinds of equipment used by most small 
businesses. So setting lots of safe harbor thresholds below 
which you simply don't need to keep records would be a good 
approach.
    Mrs. Halvorson. The only other thing I want to touch on, I 
heard many times someone bringing up the difference between an 
employee and an independent contractor. When I was a State 
legislator, I had a bill that made it specific what an 
independent contractor was versus an employee; and we brought 
along a lot of businesses kicking and screaming. They were very 
angry with me.
    But, in the end, I think people found out that I did not 
try to change anything. I did not try to make someone who was 
an independent contractor into an employee. And so it has 
really worked out. We have got step by step. And if there is 
anything I can do to help, maybe that is something we need to 
look at. It is written into the Illinois Tax Code, and it is 
really specifically stated what--if you follow these steps, you 
are automatically an independent contractor. It didn't hurt 
anybody. It specifically told you who was who.
    Mr. Blackledge. I have worked with IRS and Treasury on that 
for probably 10 years, and I think the IRS is doing a good job 
now with their on-line determinator. Some of that could be 
further clarified, but it is always going to be an issue that 
is complicated. But I think the Congress and the IRS have done 
a good job of trying to clean up that issue.
    Mrs. Halvorson. Thank you all again for being here.
    I yield back.
    Chairman Schrader. Thank you.
    Well, let us go to the Congressman from Colorado, Mr. 
Coffman.
    Mr. Coffman. Thank you, Mr. Chairman.
    One of the issues I think that is of concern to everybody 
is that of health care. We have had the health care savings 
account, which to me seems somewhat complicated for a small 
business to maneuver, but maybe it is not. And I wonder if you 
all can respond to that, how difficult it is to navigate or how 
simple it is to navigate for a small business.
    Mr. Blackledge. I have looked into HSAs now for the last 
four or five renewals of my insurance, and the problem is not 
so much the complication, although there clearly is some 
complexity. It is that a lot of the insurance companies are 
simply not offering combinations of high-deductible insurance 
policies that, when combined with the cost of an HSA, assuming 
the business was to subsidize the HSA, saying that they really 
come out to be that much more inexpensive.
    So I think that was a short-term step to try to make health 
insurance more affordable for small businesses, but a lot more 
needs to be done to really bring down the cost of health 
insurance overall. And HSAs I think are not proving to be the 
salvation that many people hoped they would be.
    Mr. Hall. I think I agree that HSA, the big limitation--I 
think the processing, the administrative part works pretty well 
with having a credit card, a debit card. The process itself is 
relatively simple. It is the limited plans. You have to have a 
specific type of a health plan in order to take advantage of an 
HSA. Whether that plan works for your family or not then 
becomes the issue, and it becomes difficult.
    That is why I like so much what H.R. 1470 does, which 
basically moves the self-employed health insurance deduction 
from page 1 of the 1040 over to the Schedule C. Most businesses 
pay for health insurance for their employees and get a full 
deduction for that, for Federal income taxes and FICA and 
Medicare and Social Security, everything. It is deductible for 
everything. But since that deduction is on Page 1 of the 1040, 
the small business owner does not get an SE tax deduction for 
it, which, basically, pure and simple means it is a 15.3 
percent increase in health costs for the sole proprietor. And 
that is just not fair.
    So, regardless of what type of plan, there is no limit. You 
don't have to have a high-deductible plan. Just moving that 
deduction, passing H.R. 1470, moving that to Schedule C is an 
immediate 15 percent reduction in health care costs for as many 
as 23 million small business owners out there.
    Mr. Stathis. I have seen similar results in my practice. We 
have HSAs, and our employees have been happy with it, and we 
have seen some real savings from it. And the administration of 
it is not very onerous. I have also seen smaller businesses 
that have put it in where they have not received as much 
benefit.
    So I am kind of torn between--I think there is a size limit 
there, where a little bit larger businesses may be seeing some 
benefit than the smaller ones are. And that all gets down to 
cost. I don't think it is an administration thing. It is more 
about are you saving money on the plan overall as compared to 
offering a traditional insurance plan.
    Mr. Coffman. If you were going to offer--if the Congress 
were to offer a tax deduction for the sole proprietor, for the 
individuals purchasing health insurance to take the pressure 
off of the small business owner and to cover more people, what 
do you think that should look like? Should it be 100 percent? 
Should it be 35 percent? What would you--25 percent?
    Mr. Stathis. Are you looking at that time where he is only 
covering himself and not his employees?
    Mr. Coffman. Correct.
    Mr. Stathis. If you are going to do that, it is not going 
to be on a level playing field with what other businesses have, 
because they are providing all of their employees health 
insurance benefits; and I think that probably the more correct 
answer would be to provide them incentive to cover their 
employees. Because uncovered employee health costs is rampant 
in this country. I deal with a lot of physicians, and they are 
frustrated in that, basically, they end up giving free medical 
care to a lot of people. And they look at that as their burden 
on society, but they do that.
    Mr. Coffman. We are talking really about the independent 
contractor that doesn't have employees. The person that is out 
there or an individual that for some reason doesn't have COBRA 
and they are in between jobs, what would you offer them? It is 
getting a little beyond our discussion here.
    Mr. Stathis. If you are an independent contractor that has 
one employee, then you should be able to have the same full 
deduction that someone has that runs a multi-person company.
    Mr. Coffman. Okay.
    Mr. Blackledge. I think the real issue, too, is that health 
care is a tax expenditure; and every taxpayer, whether they 
work for a large business or a small business or no business at 
all, pays that cost of the tax expenditure. And I think every 
individual at the individual level should have the right to 
deduct a certain amount, with limitations, of health care 
insurance. There is no reason why a large corporation should be 
able to get a tax advantage and the small business or an 
individual should not.
    Mr. Coffman. Okay. Mr. Chairman, I yield back the balance 
of my time.
    Chairman Schrader. Well, thank you very much. It is very 
timely. We have been called for votes. So I appreciate the 
panel very, very much. A lively discussion. A lot of interest 
by members, and I appreciate the thoroughness of your 
responses.
    I will ask unanimous consent that the members have 5 days 
to submit statements and supporting materials for the record. 
Without objection, so ordered.
    This hearing is now adjourned. Thank you all very, very 
much.
    [Whereupon, at 11:27 a.m., the Subcommittee was adjourned.]

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