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


 
                       FULL COMMITTEE HEARING ON 
                        EXPIRING TAX INCENTIVES: 
                       EXAMINING THEIR IMPORTANCE 
                      FOR SMALL BUSINESSES ON THE 
                      ROAD TO AN ECONOMIC RECOVERY 

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                           SEPTEMBER 30, 2009

                               __________

                  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 111-048
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)

  


                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                W. TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama

                                 ______

                    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               W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama

                                 (iii)

  


               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
PARKER GRIFFITH, Alabama             Ranking
MELISSA BEAN, Illinois               STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             GLENN THOMPSON, Pennsylvania
BOBBY BRIGHT, Alabama                MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                 HEATH SHULER, North Carolina, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)

  

















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Bernstein, Ms. Rachel, Vice President and Tax Counsel, National 
  Retail Federation..............................................     3
Dwyer-Owens, Ms. Dina, Chairwoman and CEO, The Dwyer Group, 
  Chairwoman of the Board, International Franchise Association, 
  Waco, Texas....................................................     5
Feraci, Mr. Manning, Vice President, Federal Affairs, National 
  Biodiesel Board................................................     8
Frenz, Mr. John, Owner, Frenz & Schmidtknect, Incorporated, On 
  behalf of The National Restaurant Association..................    10
Hall, Mr. Keith, National Tax Advisor, National Association for 
  the Self-Employed..............................................    12

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    24
Graves, Hon. Sam.................................................    26
Bernstein, Ms. Rachel, Vice President and Tax Counsel, National 
  Retail Federation..............................................    28
Dwyer-Owens, Ms. Dina, Chairwoman and CEO, The Dwyer Group, 
  Chairwoman of the Board, International Franchise Association, 
  Waco, Texas....................................................    34
Feraci, Mr. Manning, Vice President, Federal Affairs, National 
  Biodiesel Board................................................    41
Frenz, Mr. John, Owner, Frenz & Schmidtknect, Incorporated, On 
  behalf of The National Restaurant Association..................    47
Hall, Mr. Keith, National Tax Advisor, National Association for 
  the Self-Employed..............................................    55

Statements for the Record:
Clarke, Hon. Yvette D............................................    60
Associated Builders and Contractors, Inc.........................    62
International Franchise Association..............................    63

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                        EXPIRING TAX INCENTIVES:
                       EXAMINING THEIR IMPORTANCE
                      FOR SMALL BUSINESSES ON THE
                      ROAD TO AN ECONOMIC RECOVERY

                              ----------                              


                     Wednesday, September 30, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:07 a.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Dahlkemper, Schrader, 
Ellsworth, Graves, and Fallin.
    Chairwoman Velazquez good morning, everyone. This hearing 
is now called to order.
    Part of the tax relief has played a key role in our 
Nation's recovery efforts. Since February, we have worked to 
deliver $15 billion in credits and deductions to entrepreneurs. 
These measures are ensuring every small firm has the tools it 
needs to grow from within. When coupled with existing 
incentives like tax extenders, Recovery Act tax relief has 
created real momentum. But with expiration dates looming, many 
of these provisions will soon run out, putting the brakes on 
much of our progress thus far.
    In roughly 2 months' time, a wide range of tax provisions, 
from R&D credits to clean energy incentives, will sunset for 
small firms. In today's hearing we will examine those measures. 
In doing so, we will look for ways to ensure effective efforts 
are continued and ineffective ones are either allowed to sunset 
or enhanced to spark growth.
    Whether we are talking about home office deductions or 
bonus depreciation for equipment purchases, entrepreneurs rely 
on tax measures to expand their ventures. This is the case in 
both bad times and good times, but rings particularly true in 
today's economy.
    For small firms facing tightening credit and shrinking 
capital, incentives can make all the difference. In some 
instances, they are a deciding factor for things like hiring 
workers and making investments. That is why targeted relief is 
so important, and that is why we need to be reauthorizing 
measures that work for small firms.
    There are a number of valuable, soon-to-expire tax 
extenders. Perhaps the best example is the R&D credit, an 
incentive that has been reauthorized 13 times since 1981. This 
provision yields $2 in research for every $1 in investment, and 
helps create high-wage jobs for workers like engineers and 
scientists. Yet, despite its obvious economic benefits, the R&D 
credit is slated to expire in December, leaving countless small 
firms in the lurch.
    The R&D credit is just one example of an expected but 
endangered tax provision. Reauthorizing this credit could ease 
the anxiety associated with last-minute extensions. It could 
also provide small firms with the stability they need to plan 
budgets and attract investments. In that same vein, extending 
certain recurring incentives could also go a long way in 
stimulating small businesses.
    While not considered extenders in the traditional sense, 
Recovery Act tax breaks are also set to expire. These 
incentives were designed to boost consumer spending and spur 
investment. Credits for first-time home buyers, for example, 
are sparking growth in the real estate and construction 
industries. The $8,000 incentive has already contributed to a 
rebound in the housing market, one that some experts say could 
drive an additional 400,000 home sales this year. Reauthorizing 
this particular provision will undoubtedly stimulate future 
growth. Failure to do so, however, could create greater 
uncertainty in the marketplace and dampen recovery for small 
businesses.
    Entrepreneurship is an inherently high-risk, high-reward 
endeavor, one that is often characterized by uncertainty. Since 
the beginning of the downturn, that uncertainty has been 
compounded. Now, more than ever, small firms need stability and 
incentives to grow. But, unfortunately, the lack of finality in 
our tax policy may be undermining these very goals.
    As we look for ways to strengthen small businesses, we need 
to be focused on the tools that are already sparking progress. 
By extended and expanding these measures, we can give small 
firms the certainty they need to make new investments and the 
encouragement they need to help grow our economy.
    I would like to take this opportunity to thank all the 
witnesses for coming here today to shed some light on how these 
tax credits have helped businesses and especially the small 
businesses that you represent. I would like to thank the 
witnesses in advance for their testimony, and I will now yield 
to Ranking Member Graves for his opening statement.
    [The statement of Chairwoman Velazquez is included in the 
appendix.]
    Mr. Graves. Thank you, Madam Chair. And I too would like to 
thank the witnesses for coming in today for this very important 
hearing.
    Year after year, taxes rank as a top concern for small 
businesses. According to the IRS National Taxpayer Advocate, 
small firms must deal with a particularly complex array of 
laws, such as depreciation, employment taxes, and independent 
contractor rules. It is even more difficult for companies to 
operate when tax provisions are temporary, because they cannot 
effectively budget or plan for the long term. Small businesses 
pay more per employee to comply with the Internal Revenue Code 
and often can't afford to hire tax experts to help them.
    For small businesses, these are difficult times. 
Unemployment is rising, credit is tight and energy prices 
remain steep. Every expense is an added burden and can make the 
difference between whether a firm stays open or is forced to 
close.
    The tax provisions we are considering today are critically 
important to entrepreneurs. Because small businesses are 
constantly squeezed by ever-growing costs, tax relief is 
essential. I would prefer that Congress pass permanent tax rate 
reductions rather than narrower, temporary provisions that must 
be renewed by Congress year after year.
    I am particularly concerned that we extend the 2001 and 
2003 tax cuts. Although not the topic of this hearing, these 
provisions are scheduled to expire in 2010; if they do expire, 
working families will see their taxes increase and their 
prospects for employment decline. For entrepreneurs, these 
provisions are a necessary incentive to keep our economy 
moving.
    I support temporary tax relief, but we need to go further. 
Making the 2001-2003 tax benefits permanent would give small 
firms the confidence to purchase new equipment and hire more 
workers. That is why I introduced legislation to permanently 
extend the 2001-2003 provisions. I hope Congress will act to 
provide this predictability for our Nation's small businesses.
    Finally, a word about the alternative minimum tax, which 
has been called the most serious problem faced by taxpayers. 
The AMT hits many small business owners very hard. It reduces 
business deductions, is needlessly complex, and increases tax 
uncertainty. I would prefer that we repeal it, but failing 
that, we should at least extend AMT relief.
    So again, thank you, Madam Chairwoman, for holding this 
hearing. I look forward to the testimony.
    [The statement of Mr. Graves is included in the appendix.]
    Chairwoman Velazquez. Thank you.
    Chairwoman Velazquez. And I welcome Ms. Rachel Bernstein. 
She is the Vice President and Tax Counsel for the National 
Retail Federation. Ms. Bernstein joined the organization 13 
years ago and specializes in tax matters facing the retail 
industry.
    NRF represents an industry with more than 1.6 million U.S. 
retail establishments and more than 24 million employees.
    Welcome. You have 5 minutes to make your statement.

                 STATEMENT OF RACHEL BERNSTEIN

    Ms. Bernstein. Thank you, Chairwoman Velazquez, for the 
opportunity to provide testimony to evaluate the impact tax 
provisions scheduled to expire at the end of 2009 and other 
stimulus measures.
    I am Rachelle Bernstein, Vice President and Tax Counsel for 
the National Retail Federation which represents 1.6 million 
U.S. retail establishments, about one in the five American 
workers, and had 2008 sales of $4.6 trillion. Most retailers, 
as you know, are small businesses.
    In 2008, retailers' holiday sales, which typically 
represent 25 to 50 percent of their annual sales, declined by 
2.8 percent. During the past year, consumer confidence hit its 
lowest level since records have been kept. For the first time 
in its long history, NRF is forecasting a decline in annual 
retail sales for 2009. Retailers lost 835,000 jobs since the 
beginning of 2008. Retail sales for the past 3 months continue 
to show sharp year-over-year declines.
    The tax proposal that would provide the most immediate and 
beneficial help to retailers that are struggling to survive is 
the 5-year net operating loss carry-back. In our current 
recession where access to credit is so severely limited, the 
NOL carry-back will provide an important source of capital to 
finance ongoing operations and retain employees.
    An NOL can be used to obtain a refund for taxes paid in the 
past and/or carried forward to offset tax obligations that 
arise in the future. Under current law, taxpayers may carry 
losses back 2 years and forward 20 years.
    Although both the House and Senate versions of the 2009 
economic stimulus legislation would have permitted all 
businesses except those that have received TARP funds to carry 
their losses back for 5 years, the final version of that 
legislation permitted only businesses with less than $15 
million in gross receipts to carry back their 2008 losses for 5 
years. This provision needs to be expanded so that the size of 
business is not a factor in limiting the benefit of the carry-
back. It also should be extended to cover losses incurred in 
2009, because it appears that the sales decline for 2009 will 
be worse than it was in 2008.
    NRF strongly supports H.R. 2452, bipartisan legislation 
introduced by Representatives Richard Neal and Pat Tiberi, the 
chairman and ranking member of the Select Revenue Measures 
Subcommittee of the House Ways and Means Committee, which would 
permit businesses to carry back losses from 2008 and 2009 for 5 
years. President Obama included a similar proposal in his 
fiscal year 2010 budget.
    Because current law allows taxpayers to carry losses 
forward for as many as 20 years to reduce future tax liability, 
allowing for this longer carry-back period is merely an advance 
on a tax refund that would be due to them in the future. This 
advance of a future tax refund provides a much-needed source of 
cash for operations, as businesses are struggling through this 
recession.
    This problem can be illustrated with the stories of two of 
our smaller chain retail members. These retailers are too large 
to be able to qualify for loans from the Small Business 
Administration, too small to have been able to negotiate large 
enough lines of credit to carry them through this recession, 
not creditworthy enough to qualify for TALF, and too large to 
be eligible for the NOL carry-back permitted to only small 
businesses earlier this year. In both of these situations, the 
retailers are struggling to find ways to finance their 
inventory for the holiday season, which is their greatest 
opportunity for revenue this year.
    In the first case, a retailer in business for 45 years 
suffered its first-ever loss in 2008. For them, the ability to 
use a modest 2008 NOL carry-back to finance inventory worth 
five times that carry-back could mean the difference in staying 
in business for its 2,000 permanent employees and 6,000 
additional seasonal employees.
    In a second situation, a regional specialty chain operating 
in four Western states predicts that it will close one-third of 
its remaining stores if it does not get a cash influx from its 
2008 NOL carry-back. That will result in a loss of 800 jobs.
    For businesses that are not on the brink of survival, the 
NOL carry-back will allow them to make some new investments, 
like improvements to their stores, for which there is no 
capital to finance in this current environment.
    Another provision that will help create jobs is the 
extension of the 15-year depreciable life for improvements made 
to retail stores, restaurants, and leaseholds. If this 
provision is not extended, the depreciable life of these 
improvements will revert to 39 years, which will drive up costs 
and hurt investments and jobs.
    Both the NOL carry-back and the extension of the 15-year 
life for improvements to retail, restaurant, and leasehold 
property will have a direct and positive impact on employment 
in the current economy. It is not only important for Congress 
to extend these provisions, but also it is important that these 
extensions be enacted soon. Delaying action will impact 
thousands of jobs. We urge the Small Business committee to lend 
its support to extension of these important tax provisions.
    Thank you for the opportunity to participate in this 
important hearing.
    Chairwoman Velazquez. Thank you, Ms. Bernstein.
    [The statement of Ms. Bernstein is included in the 
appendix.]
    Chairwoman Velazquez. Our next witness is Ms. Dina Dwyer-
Owens. She is the chairwoman and CEO of the Dwyer Group. The 
Dwyer Group is a family-owned business that has grown into a 
holding company of service-based franchise companies.
    Ms. Dwyer-Owens is also chairwoman of the board for the 
International Franchise Association. With more than 10,000 
members, IFA represents all aspects of the franchise community.
    Welcome.

                 STATEMENT OF DINA DWYER-OWENS

    Ms. Dwyer-Owens. Good morning, Chairwoman Velazquez, 
Ranking Member Graves, and all the committee members. My name 
is Dina Dwyer-Owens, and I am grateful to have the opportunity 
to speak before you today. And during my statement, I have 
three key points that I would like to make.
    Number one, extending certain elements of the American 
Recovery and Reinvestment Act of 2009 and the Emergency 
Economic Stabilization Act of 2008, which are helping to 
strengthen the foundation of our economic recovery;
    Number two, enacting legislation to put veterans returning 
from service overseas into business for themselves; and
    Three, bolstering the ability of franchisees to obtain the 
capital necessary to expand their operations thereby creating 
more sustainable jobs for the economy.
    I am the chairwoman and CEO of the Dwyer Group, franchisor 
of six service industry concepts, including Rainbow 
International, Mr. Rooter, Air Service, Mr. Electric, Mr. 
Appliance, and Glass Doctor.
    Across these brands, the Dwyer Group provides support and 
opportunity to 1,200 franchisees in the United States and 
Canada and additional franchisees in seven other countries. My 
father founded the Dwyer Group in 1981 with the intent to build 
a system of related businesses that would provide high-quality 
residential and light commercial services; and through the 
systems, we have enabled thousands of entrepreneurs to own 
their own small businesses.
    I also have the privilege of serving as the chairwoman of 
the International Franchise Association. The IFA represents 
more than 85 industries, including more than 11,000 
franchisees, 1,200 franchisors, and 600 supplier members. This 
is nationwide.
    According to the 2008 study conducted by the IFA 
Educational Foundation, there are more than 900,000 franchise 
establishments in the U.S., creating 21 million American jobs 
and generating $2.3 trillion in economic output.
    Since the economy went into recession, Congress has enacted 
numerous provisions designed to help small business. The Nation 
is only now starting to see signs of recovery, and those 
fragile businesses that operate in your communities need these 
programs to continue. Bonus depreciation and a shortened, 
straight-line cost recovery for qualified leasehold 
improvements, qualified restaurants, buildings and 
improvements, and qualified retail improvements provide 
valuable benefits to franchise businesses.
    In addition, the Recovery Act added a 15-year schedule for 
new construction and improvements placed in service in 2009. It 
is clear that our recovery will not be fully under way in this 
tax year, and these provisions must be extended beyond 2009. 
Extending these provisions will entice franchise business 
owners to reinvest and expand their businesses. This will 
create a tremendous spillover effect on other industries.
    Madam Chair and members of the committee, I sincerely hope 
that Congress can also address the upcoming expiration of the 
important estate, or death, tax that is set to expire in 2010. 
The estate tax has long cost our economy more than the revenue 
it generates for the Federal Government. The IFA has advocated 
for a permanent solution to the estate tax, and I urge Congress 
to address the situation now before the tax returns to its pre-
2001 level.
    There is another policy objective that I would like to 
discuss, and that idea was inspired by a provision in the 
Recovery and Reinvestment Act, but not included in the bill.
    The Recovery Act included a provision providing a tax 
credit to employers to hire qualified military veterans. Taking 
this concept and expanding it to the entrepreneurial level, 
Congressmen Leonard Boswell and Aaron Schock proposed a bill 
that creates an incentive to not only give our veterans jobs, 
but to give them the keys to the front door.
    H.R. 2672, the Help Veterans Own Franchises Act, 
establishes a tax credit for franchise businesses that choose 
to offer qualified veterans a discounted initial franchise fee. 
The tax credit would amount to 50 percent of the total 
franchise fee discount offered by the franchisor to the 
franchisee and would be capped at $25,000 per unit. More 
importantly, the bill would also provide a tax credit to the 
veteran who chooses to purchase a franchise and open a business 
in their local community equal to 25 percent of the remaining 
fee.
    So just to kind of net it out for you, in our business, for 
example, we give approximately a $6,000 discount on the initial 
franchise fee to the veteran. So we are asking for a 50 percent 
credit back to one of our brands for giving that discount to 
the veteran, and then the veteran would pick up another $4,500 
tax credit. So, basically, he is buying the franchise for about 
$14,000.
    Given the current economic climate, many franchise 
businesses are finding it harder to access the capital they 
need to open new stores and recruit investors. In order to 
encourage economic growth and to make it easier for veterans to 
own their own businesses, the IFA supports enactment of this 
tax credit for the franchise systems that choose to offer 
qualified veterans a discounted franchise fee.
    Assisting the transition of military veterans from active 
service to civilian life holds a special place for me, since it 
was my father, Don Dwyer, Sr., who helped launch a program with 
the IFA nearly 2 decades ago as the United States was in the 
midst of the first Gulf War. At that time, nearly 100 members 
of the IFA stepped up to show their gratitude to our men and 
women in the military, to provide financial incentives and aid 
them in acquiring their own franchises.
    We relaunched that program in 2002, and to date, there have 
been 1,500 veterans who have become franchisees through these 
generous franchisors that have given discounts. The Dwyer Group 
of companies alone are responsible for 170 of those veterans 
becoming franchisees.
    The same leadership qualities and adherence to established 
structures of operation that make our military the finest in 
the world translate perfectly into the successful operation of 
franchise businesses. I thank Representative Schock for his 
leadership in introducing this bill together with 
Representative Boswell, and I ask you to help support the Help 
Veterans Own Franchises Act.
    Before I close, I cannot pass the opportunity to impress 
upon you ongoing concerns of the franchise community that we 
have with access to capital. Credit is the lifeblood of small 
business, as you know. Beyond the daily credit needed to keep a 
small business afloat, franchise investors need access to 
capital to expand their brands and create jobs.
    Unlike many jobs created by the Federal infrastructure 
spending, we firmly believe that franchise jobs are 
sustainable. They will be here when the asphalt dries. As 
tourism recovers, franchise jobs will provide services at 
hotels and restaurants, at rental car counters and travel 
agencies. When Americans resume buying and fixing up their 
homes, franchise jobs will be there to broker the sale, remodel 
the kitchen; they will also be there to paint the house and 
beautify the yard.
    A recent study of the IFA Foundation revealed that for 
every $1 billion in lending to franchise businesses, 34,100 
jobs--sustainable jobs--are created, which will help our 
economy recover faster.
    And I am just about out of time here. But while Congress 
and the administration have taken important steps to address 
the challenges of small businesses in assessing credit, 
franchise businesses and prospective franchise investors with 
strong credit histories continue to have loan applications 
denied or delayed. In fact, according to the 2009 Senior Loan 
Officer Survey conducted by the Federal Reserve, more than one-
third of these bankers reported tightening terms for small 
business loans, while one reported easing terms. These tight 
standards continue to keep capable and willing franchise 
business owners on the sidelines.
    Chairwoman Velazquez. Time has expired, so you will have an 
opportunity during the question-and-answer period to expand on 
any idea that you feel hasn't been covered. Thank you.
    [The statement of Ms. Dwyer-Owens is included in the 
appendix.]
    Chairwoman Velazquez. Our next witness is Mr. Manning 
Feraci. He is the Vice President of Federal Affairs for the 
National Biodiesel Board. Before joining NBB, Mr. Feraci had 
more than 14 years of experience working for Members of the 
U.S. House of Representatives.
    The NBB is the national trade association representing the 
biodiesel industry.
    Welcome.

                  STATEMENT OF MANNING FERACI

    Mr. Feraci. Chairwoman Velazquez, Ranking Member Graves, 
members of the committee, I appreciate having the opportunity 
to testify this morning. I am here today on behalf of the 
National Biodiesel Board, the national trade association for 
the U.S. Biodiesel industry. Our membership produces a 
renewable, high-quality diesel replacement fuel that is readily 
accepted in the marketplace. The U.S. biodiesel industry is the 
only game in town when it comes to the commercial-scale 
production of biomass-based diesel as defined in the renewable 
fuel standard.
    The production and use of biodiesel is consistent with an 
energy policy that values the displacement of petroleum diesel 
fuel; and there are significant energy, security, 
environmental, and economic public policy benefits associated 
with biodiesel use. In this regard, the biodiesel tax incentive 
has achieved its desired goal of promoting the domestic 
production and use of biodiesel. In 2004, the U.S. produced 25 
million gallons of fuel; last year, that number rose to 690 
million gallons.
    The biodiesel tax incentive is primarily structured as a $1 
per gallon blenders' credit that is triggered when biodiesel is 
blended with petroleum diesel fuel. The incentive can be used 
to offset excise tax liability and is refundable to the degree 
that the credit exceeds an excise tax owed by a taxpayer. The 
liquidity of this structure is designed to make biodiesel price 
competitive in the marketplace with diesel fuel.
    Biodiesel must meet both the ASTM B6751 fuel specification 
and the EPA's Clean Air Act registration requirements to 
qualify for the incentive. Last year's tax extender package 
provided a 1-year extension of the credit, and thus the 
incentive is currently set to expire at the end of this year.
    Due to volatile commodity prices, unfavorable market 
conditions, difficulty accessing operating capital, and 
uncertainty regarding Federal policy, the U.S. biodiesel 
industry is facing severe economic challenges. The industry's 
viability and the Nation's ability to reap the policy benefits 
associated with domestic biodiesel production will be seriously 
compromised if the biodiesel tax incentive is allowed to lapse 
at the end of the year.
    It is difficult for small businesses and investors to make 
long-term business decisions based on year-to-year extensions 
of the biodiesel tax incentive. A multiple-year extension of 
the incentive is absolutely necessary to provide the certainty 
and stability that is needed in the marketplace.
    NBB also supports a structural reform of the tax incentive. 
Restructuring the current blenders' credit with a production 
excise tax credit of equal value will streamline administration 
of the credit and promote tax compliance while preserving the 
liquidity of the existing incentive. This reform proposal is 
encompassed in S. 1589, the Biodiesel Tax Incentive Reform and 
Extension Act of 2009, which has been introduced in the Senate 
by Senators Cantwell and Grassley. Representative Pomeroy will 
be introducing the House version as legislation in the near 
future.
    There are several shortcomings associated with the current 
blenders' credit that will be remedied by restructuring the 
incentives of production credit. Since biodiesel blending can 
occur at multiple stages in the distribution chain, it can be 
difficult to ensure that only qualifying fuel receives a 
credit.
    This also makes it difficult for both taxpayers and the IRS 
to determine when a fuel becomes subject to the Federal 24.3-
cent-per-gallon diesel fuel excise tax. The IRS is currently 
pursuing several courses of action designed to collect this 
excise tax liability, and what they are pondering would be 
particularly burdensome and onerous on small business. A change 
to a production credit in tandem with treating biodiesel as 
regular diesel fuel for tax purposes would remove the need for 
these regulatory burdens while improving tax compliance. A 
change to a production credit would also stop abusive 
transshipment schemes.
    With NBB's full support, Congress last year closed the so-
called "splash and dash" loophole that had previously allowed 
foreign-produced fuel to enter the United States, claim the 
biodiesel tax incentive, and then be sent to a third country 
for end use. Now, if you think about that, there is clearly no 
energy or tax policy justification for these sorts of 
transactions.
    With that said, the current blenders' credit could still 
inadvertently allow for other potential abuses associated with 
the transshipment of foreign fuel through the U.S., and a 
change to a production excise tax credit would remedy this 
problem in a WTO-consistent manner.
    In conclusion, the biodiesel tax incentive has helped 
achieve the desired goal of increasing domestic production and 
use of biodiesel. These benefits, however, will be lost if the 
biodiesel tax incentive is allowed to lapse at the end of the 
year. The NBB, on behalf of the U.S. Biodiesel industry, urges 
Congress to provide a multiyear extension of the reformed 
incentive.
    Again, Chairwoman Velazquez, Ranking Member Graves, members 
of the committee, I really appreciate having the opportunity to 
testify this morning.
    Chairwoman Velazquez. Thank you, Mr. Feraci.
    [The statement of Mr. Feraci is included in the appendix.]
    Chairwoman Velazquez. And the Chair recognizes Mr. 
Ellsworth for the purpose of introducing our next witness.
    Mr. Ellsworth. Thank you, Madam Chair. It is a pleasant 
surprise for me this morning to welcome Mr. John Frenz. He is 
not only a constituent, but he is a very good friend of mine 
from Indiana.
    Mr. Frenz is owner of Frenz & Schmidtknect, Incorporated, 
which includes two Montana Mike's family restaurants. The 
restaurants are located both in Illinois and Indiana. Mr. Frenz 
today, though, is testifying on behalf of the National 
Restaurant Association, which represents more than 380,000 
member-restaurant establishments.
    John also sits on my small business advisory committee, so 
we are in close contact all the time. And if you are ever in 
Indiana, I can recommend Montana Mike's with the highest--it is 
a four-star in my book.
    And, John, when you go home, tell them I was at work today, 
if you don't mind telling the folks in Knox County.
    But I would offer Mr. John Frenz.

                    STATEMENT OF JOHN FRENZ

    Mr. Frenz. Thank you.
    Chairwoman Velazquez, Ranking Member Graves, Congressman 
Ellsworth, and other members of the Small Business Committee, 
thank you very much for this opportunity to testify before you 
today for the National Restaurant Association. As Brad has 
said, my name is John Frenz and am part owner of Frenz & 
Schmidtknect, Incorporated.
    My business partner of 28 years now, Greg, and I, we 
operate two Montana Mike's Steakhouses in Vincennes, Indiana, 
and Danville, Illinois. I am here today to strongly urge this 
committee and Congress to extend certain expiring tax 
provisions before the end of this year.
    The 15-year depreciation schedule for leasehold 
improvements, restaurant improvements, and new construction is 
stimulative and creates jobs. It should be extended and is the 
tax revision on which I will focus my comments today. However, 
I just want to touch on a couple other areas that are also very 
important. One is about the deduction for charitable donations 
of food.
    At the end of the night, you have got food left over. We 
have got to throw it away. If we go and extend this on, it goes 
and allows the small business the same deduction that the C 
Corp already gets. It is extended already for them, but for the 
small business it is the same whether we throw it in the trash 
or whether we give it to charity. It is the same unless we 
extend this, and that helps out.
    Second of all is about, as she had touched on, about the 
net operating loss carry-back 5 years and two. When we get in 
trouble in economic times, you get those years. Business is 
down, dollars didn't come in like you expected. If you can 
carry that back, you can still make the payroll, you can still 
make the withholding deposits on time, and you can make it 
through. That cash flow matters, and especially in these times.
    And then--I have been in the restaurant business many 
years, but 28 in business myself. I still remember back when 
businessmen visited, we got--they could take a 100 percent 
deduction of that business expense. I remember when it went to 
80 and then it went to 50, and you saw it drop off more. That 
three-martini lunch doesn't exist anymore. Maybe it did exist 
30 years ago.
    That doesn't exist anymore. If a businessman can bring 
another businessman to close a sale, to potentially find new 
customers, if they can go and deduct that meal as a business 
expense, it brings in business to the restaurant industry, 
generates dollars, generates jobs, generates income tax.
    And the main thing that hits me is the extension of the 15-
year rather than the 39-year depreciation schedule, and there 
are further details on that stuff on my written form that I had 
turned in. But for restaurateurs, this provision has made 
significant capital available for expenditures with the tax 
savings that result. Those capital expenditures for expansion 
and remodeling translate into jobs in the rest of the economy, 
as well as increased sales and employment at the restaurant, 
all of which are really needed right now.
    When restaurants invest in construction and renovations, 
the impact spreads throughout the economy. Before the economic 
downturn, the restaurant industry spent more than $10 billion 
in 2007 on construction of restaurant buildings. According to 
the Bureau of Economic Analysis, every dollar spent in the 
construction industry generates an additional $2.39 in spending 
in the rest of the economy, and every $1 million spent in the 
construction industry generates another 28 more jobs in this 
economy. That means the restaurant industry construction 
spending created 280,000 jobs in 2007.
    In fact, Congress has frequently enacted shorter 
depreciation schedules to stimulate the economy and create 
jobs. As far back as the 107th Congress, shorter depreciation 
schedules for different pieces of this entire provision for 
leasehold improvements, restaurant and construction have been 
included in various economic stimulus bills.
    Even during those difficult economic times, some business 
owners are in the position to expand. In fact, 42 percent of 
restaurateurs like me and my business partner are planning to 
make a capital expenditure for equipment over the next 6 
months. In our business, Montana Mike's in Vincennes, right now 
we are planning to put on an addition. We have those times--on 
Friday nights, Saturday nights, and Sunday at lunchtime, we 
have people waiting for 20 minutes to 30 minutes. Well, when we 
have got those customers, we have got to expand and take care 
of those customers.
    This 15-year depreciation expires at the end of this year, 
so we have a short period of time to get the financing 
arranged, get the building built and put into use. Depreciation 
doesn't start until the project is actually put into use. So if 
it doesn't get done until January 1, first time used, then we 
will be on the 39-year depreciation schedule.
    What does that mean? Over that 15 years on, say, it was--I 
will just take a figure of $150,000 to add that addition on--
that will allow us to have an additional $6,154 in depreciation 
a year now for those first 15 years.
    It all equals out. You pay less taxes now, but you pay more 
taxes later. The same amount of taxes will be paid over that 
period of time. It is just so when you start out, that is when 
the cash flow is needed.
    And, once again, I want to thank you for the opportunity to 
testify before you today regarding these important tax 
provisions in the restaurant industry. I strongly urge Congress 
to extend and, in some cases, expand these benefits before the 
end of this year. Doing so will give small business owners like 
me--certainly when it comes to those tax provisions, that will 
not only help my business's employees, but will also help 
create jobs in construction and stimulate the overall economy. 
Thank you very much.
    And, when it is appropriate, I will be open for questions. 
Thank you very much.
    Chairwoman Velazquez. Thank you, Mr. Frenz.
    [The statement of Mr. Frenz is included in the appendix.]
    Chairwoman Velazquez. Our next witness is Mr. Keith Hall. 
He is the National Tax Advisor for the National Association for 
the Self-Employed. Mr. Hall is the primary consultant available 
to the self-employed of microbusiness owners.
    NASE was founded in 1991, and represents hundreds of 
thousands of entrepreneurs in microbusinesses.
    Welcome.

                    STATEMENT OF KEITH HALL

    Mr. Hall. Thank you. Madam Chair, Ranking Member Graves, 
members of the committee, thank you for the opportunity to be 
here. My name is Keith Hall, and I am a small business owner. 
That is what I do, and I am very proud of that.
    On behalf of the National Association for the Self-Employed 
and the 250,000 microbusiness owners it represents, I would 
like to say thank you, guys, for your commitment to small 
business owners everywhere. You guys really do make a 
difference.
    I don't want to be overly dramatic today, but I want to 
talk about commitment. I have been fortunate enough through my 
association with the NASE to see the commitment of thousands of 
small and microbusiness owners--both to their families and to 
their businesses.
    I have also been extremely lucky to be able to see the 
commitment to those same families and those same small 
businesses from this committee, from you guys. Today, I am here 
to ask you to continue that commitment. I know you guys have a 
tough job with lots of challenges trying to help people, trying 
to help the economy, trying to find new ways to meet the needs 
of so many people, and then trying to figure out some way to 
pay for it all. I know that is not easy.
    The Tax Code has always been an effective tool in helping 
you guys to meet those goals, not just funding the government, 
but encouraging or discouraging activities and actions; and I 
believe Congress has used that tool well. But a number of those 
tools are scheduled to expire, as we talked about. Bonus 
depreciation options, increased expensing under Section 179, 
accelerated recovery periods, as Mr. Franz has talked about; 
all of those things have been extremely effective at creating 
jobs for small business and have contributed greatly to the 
economic recovery that I believe is under way. These tax 
incentives show a commitment to small business that shouldn't 
come to an end.
    So the real question today that we need to evaluate is 
whether or not we want to continue that commitment to small 
business. The country finally seems to be seeing a light at the 
end of the tunnel. Taking away these incentives that clearly 
are making a difference seems to be the wrong signal at the 
wrong time.
    Now, I could spend my whole 5 minutes talking about any one 
of those areas, but I would like to concentrate on just one, 
and that is the Alternative Minimum Tax exemption amount. I 
want to talk about this one in particular, because I think at 
the end of the day this cost really is levied almost 
exclusively on the small business guy.
    The original idea behind the AMT was to prohibit the 
taxpayers with the most resources at their disposal, the 
wealthiest of Americans, from taking advantage of loopholes in 
order to avoid paying any tax at all. However, the effects of 
inflation, the growth of earnings and expenses weren't taken 
into account.
    Now, Congress has recognized this over time and adjusted 
the exemption amount to keep track with inflation, but now that 
adjustment is scheduled to end. If we allow that adjustment to 
end, then the tax burden for many Americans who had no increase 
in earnings year over year will be paying more tax 
immediately--the same level of earnings, but more tax. A 
penalty.
    And why? Many would pay the extra tax simply because they 
live in a State with a higher-than-average State income tax. 
Others would pay more simply because they have a larger-than-
average family. Clearly, that was not the intent of the AMT 
when it began so many years ago; and ending that provision now 
would punish the people that the original AMT provision set out 
to protect.
    Here is the real kicker: Even if the AMT system does not 
result in any additional tax, it still has to be calculated. 
Allowing this provision to end would force many Americans to do 
the math even if they don't meet the test and end up paying any 
tax. So the AMT requires a completely different set of rules.
    Now, this committee, particularly, has continually promoted 
the need for simplification in the Tax Code; yet, here is the 
single topic that results in a completely new tax return, a 
second tax return, a second set of records, a second tax 
liability, and a second set of headaches. The instructions for 
the AMT form actually say, and I quote: "Therefore, you need to 
refigure items for the AMT that you have already figured for 
the regular tax. In some cases, you may wish to do this by 
completing the applicable tax form a second time." Really, two 
times?
    Now, the very concept of having a second set of records, a 
second set of tax forms, a second set of calculations goes to 
the very heart of the need for simplification. Again, even if 
no tax results from the AMT, a system that requires two 
calculations is a tax in itself. And, worse, it is a tax that 
doesn't even generate any money for the Treasury. And without 
this increased exemption, many more small businesses will be 
stuck in this trap.
    So getting rid of the AMT altogether would be my first 
choice, but that may not be an option. At a very minimum, the 
exemption amount that is included should be indexed to 
inflation, and this fallback should not be allowed.
    Now, my most concerted point here is that the wealthiest of 
taxpayers will still be affected by the AMT, regardless of this 
exemption amount. But those taxpayers who have had no real 
increase in earnings, no other resources to call upon, those 
are the small businesses and the individuals who will pay this 
price. And I know that wasn't the intent of the AMT, and 
certainly not the intent as we consider these expiring tax 
incentives.
    The bottom line: Keep these incentives, keep the 
commitment.
    Thanks again for the chance to be here. And, more 
importantly, thank you guys for your commitment to small 
business.
    Chairwoman Velazquez. Thank you, Mr. Hall.
    [The statement of Mr. Hall is included in the appendix.]
    Chairwoman Velazquez. And if I may, I would like to address 
my first question to Ms. Bernstein.
    For the first time, the 15-year depreciation schedule also 
applies to qualified retail improvements. What impact has this 
change had on your industry? And even in the current economic 
climate, are more retailers undertaking construction projects?
    Ms. Bernstein. That is a good question.
    It has had a positive impact. I actually was recently 
talking with a small business member in Montana who is putting 
in a $1.5 million dollar improvement to the retail store that 
they own as a result of this provision, and actually looking to 
maybe improve--they have got a total of three stores--their 
other two stores down the line.
    Unfortunately--that would probably be something they would 
have to do in 2010--and cost is going to be a factor; and if 
the cost goes back up to 39 years, that is going to be very 
difficult to do in these times.
    I will tell you, though, that when I talk to the vast 
majority of our retail members, they have cancelled whatever 
plans they could cancel for projects in 2009 because of their 
very slim earnings or loss situations.
    As you know, with all businesses, but especially retail, 
sales have been down so much that the businesses really are 
cutting back everything that is not essential. Now, that builds 
up more pent-up demand for improvements that must be made and 
that they are trying very hard to be able to make in 2010, at 
least to put some more of those projects on the line; cost is 
going to be critical. And if the cost is--if they can only 
depreciate 1/39th of the cost per year, which is virtually 
nothing, then it is going to make a big difference.
    Chairwoman Velazquez. Let me ask you, has this provision 
been used in concert with bonus depreciation and 179 expensing?
    Ms. Bernstein. I don't think that--you can't use the 179 
expensing, I don't think, for the same, exact property. I don't 
think you can double--that would be a double benefit.
    So I do believe that the leasehold improvement did qualify 
for bonus depreciation, though.
    Chairwoman Velazquez. Thank you.
    Mr. Frenz, IRS Commissioner Shulman recently said that he 
expects to see a record number of tax refund requests, and this 
jump can be attributed to the Recovery Act provisions that 
allow small firms to carry back losses.
    Have restaurants been taking advantage of that provision, 
and has it helped them survive for the last 12 months?
    Mr. Frenz. Yes, especially in these economic times.
    You can be operating for many years--the restaurant 
industry, you have heard before, our median bottom line or 
median percentage is 3 to 5 percent. It is very low compared to 
other industries because there is so much competition.
    You can be doing fine for years. You get in tough economic 
times, the manufacturing facility in your area gets shut down 
or laid off, and all of a sudden your business drops down. And 
you are on such a thin margin, all of a sudden, boom. You are 
in that provision--or in that situation where you have got to 
decide whether to talk to the employees.
    Either you need to reduce hours so you have to--everyone, 
do you want to just take a little reduction in hours or are we 
going to have to lay some people off? What do you want to do? 
You work with them on that.
    But then the bottom line comes negative. And if you have 
got that, where you can carry back--this is what they are 
talking about the carry-back, that is, taxes you paid on 
income; you can't get any more than that, than what you have 
already paid. It is just allowing that credit or that deficit 
to be carried back.
    And, yes, it is very important, especially in these 
economic times. You can't operate in the red all the time or 
you are out of business. In these situations when business gets 
tough, if you have that possibility, it really helps them. And 
it is used.
    Chairwoman Velazquez. Ms. Dwyer-Owens, this committee has 
always been very concerned about helping those returning 
veterans from the Iraq and Afghanistan wars, including 
provisions on the small business lending programs under SBA 
that we specifically instructed to be in place for returning 
veterans.
    Can you talk to us about what is so unique about returning 
veterans, that helps them succeed in becoming small business 
owners?
    Ms. Dwyer-Owens. Especially as it relates to franchising.
    Franchising is a set of systems, so--in the military they 
are trained to follow systems, so it is a perfect fit. And they 
are also disciplined. So we find that franchisees who come into 
our businesses, that have that strong discipline to follow 
systems, do very well in business.
    So they have got strong ethics. They have been trained to 
have strong ethics in business, so it is a perfect fit for 
franchising.
    And I have not heard of many of them getting benefits from 
the SBA.
    Chairwoman Velazquez. Well--
    Ms. Dwyer-Owens. I should only speak for my franchisees; I 
shouldn't speak for others. My own franchisees are having a 
terrible time, even those that are veterans, getting help.
    Chairwoman Velazquez. I don't know if any person here is 
from SBA, but that is the story that we hear not only for 
veterans but other small businesses. And we are working very 
hard to make sure that the sensitivity is there. So this is the 
time to make sure that the system is provided.
    As we look at moving a tax bill, one revenue offset that 
some have talked about is changing the taxation rules for 
carried interest. How would changing the tax rate for such 
interest impact private equity investment in your industry; and 
how would this impact private equity investment?
    Ms. Dwyer-Owens. I think it would be a big challenge.
    Entrepreneurs are the ones really driving the economy, from 
my perspective. And in my own personal situation--I am a 
private equity owner, and I will tell you with certainty that 
today we would not be where we are as an organization without 
the help of the private equity owner because we finance our 
franchisees. So we will have a record year in new unit sales 
for our franchise companies because we finance in house, and we 
would not be doing that without the support of our private 
equity partner.
    So this is not the time, from my perspective, to make that 
kind of a change.
    Chairwoman Velazquez. Mr. Feraci, in your statement you 
stated that if the biodiesel tax incentive is not extended, 
production in the U.S. will stop completely.
    Have you made any analysis as to how many jobs we stand to 
lose if we don't extend the tax credit?
    Mr. Feraci. Thanks for the question, because that really 
does kind of highlight the importance of extending the tax 
incentive and not having there--letting there be a lapse.
    Right now, the U.S. biodiesel industry supports, directly 
and indirectly, approximately 52,000 jobs in the United States. 
And if you look and think about how the tax incentive is 
structured, what it does is, it makes the fuel price 
competitive with diesel fuel. So absent that incentive, the 
fuel is selling at a premium to diesel fuel.
    And the fuels business, in general, is a very high-volume, 
low-margin business. So if you have that much of a disparity in 
the price, it is going to be hard to move any product in the 
marketplace and get contracts. You know, you put that in tandem 
with the fact that there is not--the renewable fuel standards 
not yet in place, I don't think it is being alarmist to say 
that you would see production in the United States come to a 
screeching halt.
    Chairwoman Velazquez. In order to give your industry 
certainty, the extension should be how for how long? Two years? 
Five years?
    Mr. Feraci. What you see in the legislation that I 
mentioned in my testimony is calling for a 5-year extension. 
And if you look back to the Recovery Act, you had similar-
length-duration extensions for wind and other section 45 tax 
incentives. And the idea is the same; you want to provide that 
certainty and reliability to businesses so they can make 
planning decisions; to the investment community so you can have 
capital come in to continue to grow the business.
    Chairwoman Velazquez. Mr. Hall, I heard you make your case 
on AMT, but I would like to ask you what other tax policy 
should we be looking at to encourage entrepreneurship among the 
self-employed?
    Mr. Hall. I think, consistent with some of the other 
panelists, small business continues to have issues with access 
to credit. So whether they are financing restaurant equipment 
or they are financing a franchise fee, whatever they are 
challenged with, whether they are a veteran or just like me, 
still finding access to invest in their new idea, their new 
effort, their contribution to the economy is still difficult.
    And when I look at the bonus depreciation items, section 
179 limits, the recovery periods that Mr. Frenz talked about, 
all those things seem to be tax comments or tax issues, but I 
view those as credit issues as well. Because, as Mr. Frenz said 
also, that I agree with, those issues really are just timing 
issues. They don't increase the deduction or the expense of an 
item over time; it just puts the small business in the position 
of more readily financing their new idea.
    And, again, it is my belief that is where the economic 
recovery comes from. That is where the jobs come from. And so 
having access to those tax incentives helps with the credit 
issue as much as having better rates at the bank even.
    Chairwoman Velazquez. Thank you.
    Now I recognize Mr. Graves.
    Mr. Graves. Thank you, Madam Chair.
    The estate tax expires next year, goes back to the way it 
used to be, with much higher rates and lower exemptions.
    I don't know if you, Mr. Feraci, want to comment.
    But I would ask each of you--and I would start Ms. 
Bernstein--how you feel about that and the state of the estate 
tax. Obviously, it doesn't have that much effect on running 
your business. But it does if something happens to you and you 
pass it on; it has a huge effect. But I would be very curious 
about that and including it in the extenders.
    Ms. Bernstein. It is very important that something be done 
about the estate tax--obviously, you know, for small 
businesses. Everybody here represents small businesses; the 
businesses are very often family businesses that are passed on 
to children, and it is important to be able to pass that on 
without having to pay so much in tax that you don't even have 
the ability to pass on that business because it all has to go 
to the Federal Government.
    There also is some certainty that is needed here. The 
situation that we are in right now is one where the tax would 
be repealed completely for next year and then go back up to 
pre-2001 levels, which is obviously an absurd thing and 
something needs to be done before that happens.
    We are very hopeful that this is something that Congress 
will put on the fast track and deal with the permanent 
solution, so that people can plan on something that clearly is 
not as onerous as the levels that we remember, pre-2001, which 
were really confiscatory.
    Ms. Dwyer-Owens. I had a personal experience.
    My father died of a sudden heart attack at the age of 60 in 
1994. And thank goodness my mother survived, because our family 
would have lost probably almost everything that he worked so 
hard to build in our organization. So we would have lost 
employees; our family members wouldn't have had anything to go 
forward with. And our franchisees would have been very upset in 
that whole process as well.
    So I agree. I think we just have to find a permanent 
solution to this. And going back to this is not the solution.
    Mr. Feraci. Your average biodiesel plant has an average of 
about 15 million gallons of production and less than 20 
employees, which is a way of saying they are small businesses. 
So to the degree that you could have an impact on estate 
planning and the costs associated with that, and then not being 
ready for that if you do get hit with the estate tax, it would 
have an impact on some of these businesses in our industry.
    Mr. Frenz. Very good question.
    In the restaurant industry, seven out of ten restaurants 
are single-unit, family-owned/operated restaurants, and that 
has a huge effect on the estate tax in its current form.
    And I fully agree with you, something needs to be done.
    Mr. Hall. And it is complicated, because it is a revenue 
issue. It certainly speaks straight to budget issues, and it is 
very complicated for most small businesses, I think--the 
uncertainty--and that may be the same thing with so many tax 
issues, not being able to plan, not knowing exactly what is 
going to happen.
    Finding some permanent exemption amount, whether that is $5 
million--our microbusiness base, that seems to be the right 
amount that I think the NASE would support.
    But the key point there is finding some remedy that is 
permanent so that people could then actually plan and then know 
what they are facing so that they can make the appropriate 
decisions.
    Mr. Graves. Thank you.
    Chairwoman Velazquez. Mr. Schrader.
    Mr. Schrader. Thank you, Madam Chair.
    I guess I would like to open with a general question here. 
I mean, one of the things that has concerned me--I like a lot 
of what I have heard, and I appreciate the succinctness of the 
testimony from all the witnesses; it has been very, very good 
and on point, and hopefully our committee will have an 
opportunity to deal with some of these.
    But all of these cost money. And when I go back to the 
district, I keep getting hit up on, How much money are you all 
spending? And then I also get hit up on, How come you are not 
doing anything for small business? And I would suggest that, in 
the Recovery Act, we did a lot of the things, at least during 
this past year, that are good for small business.
    And how do we--and I guess I would ask, how do you get the 
message out to your Members that this Congress has stepped up, 
at least in the very near term of the Recover Act, and done a 
lot of these things already, to make sure they didn't expire 
this year so they can continue on and, hopefully, during this 
year at least, be all right?
    And I guess my question: If we extend some of these things, 
like we already talked about doing the estate tax, we are 
already talking about doing the AMT, we are talking--I think 
there is some discussion about the net operating loss issue, 
particularly for smaller businesses. If we do go down that 
road, how do you and we communicate that successfully to small 
business so that they realize this Congress has helped them?
    Because we have not done that so far. I need your help, and 
I would ask each of the members of the panel here, maybe 
starting with Mr. Hall, and go the other way.
    Mr. Hall. Well, I still would use--I am not a PR person, so 
I apologize for that.
    Mr. Schrader. But you are still a businessman.
    Mr. Hall. I would still use the word "commitment." That is 
one of the things I talked about in my oral comments, and I 
think that is the word small business wants to hear.
    And I think it is easy to say that word, but when you pass 
things extending these types of things for investment in 
property, for useful lives of equipment, for the AMT 
exemption--and, again, that represents a situation that only 
the people caught in that middle bracket are going to be 
affected by if it is not extended.
    Passing those type of things, I think, says commitment to 
small business. And I think that is the way to communicate it 
to small business. I think--I am sitting here in this chair and 
that is what I hear; I hear a commitment to that.
    Mr. Schrader. But do you communicate back to your 
membership that Congress has done X, and this should help you; 
please take advantage of it?
    Mr. Hall. Absolutely. In fact, I would love to selfishly 
say, because of our testimony, some things happened to promote 
small business. But absolutely we communicate procedures like 
that, and we communicate again back. We communicate that the 
commitment to this committee, to small business, is very 
important.
    Mr. Schrader. Thank you.
    Mr. Frenz. It is real easy with the restaurant industry, 
because for every dollar spent in the restaurant industry it is 
another $2.34 that expands out. And the issue with accelerated 
depreciation, the same amount of taxes does need to be paid, it 
is just paid later. More cash flow early on when you need it, 
and then you pay it later. So there is no loss of tax dollars, 
it is just when it is paid on that speed-up of depreciation.
    On the other issues, when you save a business on the block, 
especially the family-operated restaurant, you are saving a lot 
in that neighborhood, a lot of that in the economy. And those 
are jobs that are saved.
    Mr. Schrader. Well, I agree with all that. But my problem 
is, I don't think we have communicated that successfully to our 
restaurants on the street. They don't realize we have already 
done some stuff. And if we do more stuff, if we have already 
failed in communicating the first part, what is the--
    Mr. Frenz. I am a restaurant operator and I am--I have a 
very big smile when my restaurant is full and the dollars are 
being spent and the employment is up and dollars going out. As 
far as the actual taxation dollars, I don't know.
    Mr. Schrader. Talk to some of your buddies, if you wouldn't 
mind. Thank you, though.
    Mr. Feraci. The biodiesel tax incentive plays such a 
critical role for the industry. Our membership is keenly aware 
in terms of what is going on with the incentive, when it is 
going to expire. You just have to check my voice mail to see 
that they are very aware of what is going on with that.
    They have been very appreciative of what this committee has 
done in providing a forum to discuss renewables and talk about 
the benefits that come from displacing petroleum with renewable 
fuels, and in terms of communicating to--you know, good policy 
will trickle down and our membership will understand and 
benefit and country at large will benefit if you have a longer-
term extension and continue to get the benefits of displacing 
petroleum with renewables.
    Ms. Dwyer-Owens. I was here just 2 weeks ago with about 450 
other franchisors and franchisees on the Hill, and one of the 
big messages we pushed at is, we need to thank our 
representatives, especially the Small Business Committee, for 
all the good work they are doing for us. So we recognize.
    And it is constantly pushed. We have a government relations 
side, of course, on our franchise association Web site, and we 
are pushing the positives as well as where we need help. But I 
would say that we try to keep a lot of balance there; and on 
the Hill, we have probably said as many thank-yous as we have 
said, "We need more."
    Ms. Bernstein. I can tell you that when Congress enacted 
the NOL carry-back, 5-year, for the businesses with less than 
$15 million in gross receipts, the IRS put out some very quick 
advice on how to go for a quick refund on that. We put that 
material into our newsletter on our Web site, so that our small 
retailers could figure out how to take advantage. Because, as 
was pointed out, they don't have the advisers who are right 
there to say, Let's go right away and apply.
    And I did get phone calls with people asking how to use it, 
and we tried to help them through it. So we certainly do that.
    But I do want to stress that in this economy, from the 
retail side, obviously what all of our small business and large 
business members need is more consumer spending. It is 70 
percent of GDP. Until the consumer comes back, the economy 
can't come back. And what probably is going to help the most 
with that, we all know the answer: It is more employment. The 
employment numbers are making people who have good jobs afraid 
to go out and spend in the retail stores, in the restaurants 
that are represented at this table and with your members. So we 
need to give them the confidence. We need to do that through 
employment. So, with that, I urge you also to support expanding 
that NOL carry-back for larger than $15 million in gross 
receipts.
    I have talked about some not very big businesses today 
because of the slim margins in the retail industry. You would 
be surprised how little money it is that some of these 
companies need for their NOL carry-back. But they have got a 
lot of employees, and I think that we wouldn't want to see more 
of those jobs cut.
    And I think it is an important issue across the board, and 
I urge your support.
    Mr. Schrader. Thank you.
    I yield back.
    Chairwoman Velazquez. Ms. Dahlkemper.
    Ms. Dahlkemper. Thank you, Madam Chair. And thank you. I 
apologize for coming in late. I had a hearing in another 
committee to go to first. So I hope I am not actually repeating 
questions that were already asked.
    But, Mr. Hall, as part of the Recovery Act, Congress 
increased the AMT exemption to spare nearly 20 million 
taxpayers from the AMT liability. And if we are unable to reach 
a deal on AMT, how would it slow the recovery process?
    Mr. Hall. Well, again, I think the key issue there is, 
depending on estimates, the original AMT impacted about 1 
percent of taxpayers. And that was 1 percent by definition of 
the more wealthy taxpayers, and I think that was its intent.
    Recent estimates, particularly in States like New York, New 
Jersey, California, who have a higher State income tax, as many 
as 8 to 10 percent of taxpayers are affected by AMT.
    Ms. Dahlkemper. And how many of those are small business 
owners?
    Mr. Hall. Again, back to one of my original comments, the 
thing that scares me most about the impact of this exemption on 
small business is, all of them have to do the calculation 
anyway. Even if it doesn't have a revenue impact to the 
Treasury, it still causes a drain on the small business because 
they are having to go through the process.
    But estimates have been as many as 10 percent of small 
businesses will be affected by AMT, and overall, one out of 
five, 20 percent, would be affected by AMT.
    And, again, the biggest concern there for me, back to your 
original question: Is that is going to be tax out of their 
pocket? That is money that they would be using to finance 
business investment. And whether that is dollar for dollar, or 
that kind of changes that their perception or their optimism on 
their future, the uncertainty involved, all those things put an 
optimism strain on small business, which then translates back 
into lower investment.
    So that is my real concern, uncertainty.
    But then also having just the exemption amount being the 
only thing that is changed, it is only going to capture people 
in the lower-income levels, anyway, which again wasn't the 
original intent of AMT to begin with.
    Ms. Dahlkemper. Thank you.
    Mr. Feraci, the biodiesel industry is clearly facing 
challenges in the current economy. But despite these obstacles, 
I know you are very aware of the producer in my district, Lake 
Erie Biofuels, who has actually now changed their name. But 
they are finding a way to thrive in these really tough business 
conditions.
    Can you maybe elaborate on the role of tax incentives in 
the successes of firms such as Lake Erie Biodiesel?
    Mr. Feraci. Sure.
    They have done a fantastic job. And when you talk to them, 
they have a business model that is utilizing some feedstock 
that other providers own, and that is a huge component of the 
input cost. And they make a quality fuel.
    The State of Pennsylvania, as well, has done some good 
things at the State level to promote biodiesel use, which is 
building a market there. And we have several other biodiesel 
producers in the State who are weathering what is a pretty 
difficult storm for the industry right now.
    All that said, the tax incentive still plays a key role 
because it is performing that role in the marketplace of making 
biodiesel price competitive with conventional diesel fuel. And 
you have to have that, especially in the absence of the RFS 
being in place right now, to have consumers purchase the fuel 
and actually use it in the marketplace.
    So absent that tax incentive, I think that any biodiesel 
producer in the country is going to have--would have a 
difficult time making ends meet.
    Ms. Dahlkemper. Do you think any of them would be able to 
survive in the long term if there was not the short-term tax 
credit?
    Mr. Feraci. I think you would see people--to the degree 
that you couldn't claim the incentive, I think you would see 
people start to mothball their production facilities, waiting 
to see if the incentive were to come back.
    But if it were to disappear for a long period of time, 
that--you would see the production cease, and then you would 
start to lose the production capacity in the country that we 
have built up since 2004 when we put the incentive in place. 
And that would be a real shame, because we do have the capacity 
now.
    We have commercial-scale production of low-carbon, clean-
burning diesel replacement fuel. We are going to be able to 
meet the RFS standards in terms of making volume and displacing 
petroleum. And if that tax incentive goes away, you are just 
not going to be able to do it.
    Ms. Dahlkemper. Thank you.
    I yield back.
    Chairwoman Velazquez. Ms. Dwyer-Owens, the committee has 
conducted so many hearings regarding access to capital and the 
condition, the climate, the downturn in our economy. And the 
biggest issue that small businesses are facing right now is 
access to credit, tightening standards by lenders, and so on.
    So I am interested to hear, what are the advantages of the 
franchise business model in a bad economy? And how can 
franchisors help franchisees weather the storm?
    Ms. Dwyer-Owens. There are numerous benefits, but just to 
hit on a few of them: In franchising, you are in business for 
yourself but not by yourself. So if you think about somebody 
starting a business from scratch and trying to figure it out 
along the way, there are going to be a lot of costly mistakes. 
And if somebody becomes part of a franchise organization, a lot 
of those mistakes have already been made. So, again, if you 
follow the system, you should find success in a franchise 
organization.
    There are other things, too, like buying power. So when you 
become part of a franchise organization, there are pooled 
buying dollars. You know, whether you are buying vehicles--in 
our business, we have a lot of vehicles out on the road, and we 
get much better prices for our franchisees because we are 
buying those vehicles together versus independently.
    So those are two of the top things that I would focus on.
    Chairwoman Velazquez. Mr. Frenz, we know how important 
consumer spending and consumer confidence is to getting this 
economy turned around, and we hear reports that the retail 
spending has increased.
    My question to you is, can you say the same with the 
restaurant industry, food traffic has increased?
    Mr. Frenz. I wish I could. We are currently on the--at the 
location in Indiana, it is riding about--I am trying to 
remember, because I ran those figures for last month last week. 
And it is right around 12 percent, down, sales from last year, 
the same period of time.
    And in the store in Illinois, it is down 5 percent.
    The price of fuel is much lower this year than last year, 
so that has helped on some of the expenses. And the price of 
the beef is much lower this year, and part of that is the fuel 
cost.
    So the bottom line is approximately the same as last year, 
but the sales are currently down.
    Last weekend--this last weekend, we were packed. And 
whether it was the cooling-off or whatever that the people, 
less people went out to the park to eat and came in and ate at 
the restaurant, or less people ate on the patio at home, I 
don't know.
    But last weekend sales were up, and I hope with--the 
government reports that the recession is over. I hope that word 
gets out to the people and they back them up on it.
    Thank you very much for that question.
    Chairwoman Velazquez. Thank you.
    Well, let me take this opportunity to thank all of you for 
being here today. And when it comes to tax policies, especially 
in Ways and Means, small businesses are an afterthought. So we 
will be there to remind them as to the importance of this 
provision when it comes to small businesses.
    I intend to send a letter to Ways and Means, and especially 
to the chairman, about keeping and extending and expanding some 
of these provisions.
    So, with that, I ask unanimous consent that members will 
have 5 days to submit a statement and supporting materials for 
the record. Without objection, so ordered.
    Chairwoman Velazquez. This hearing is now adjourned. Thank 
you.
    [Whereupon, at 11:15 a.m., the committee was adjourned.]

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