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


 
                       FULL COMMITTEE HEARING ON 
                      TAX INITIATIVES THAT PROMOTE 
                         SMALL BUSINESS GROWTH 

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                              May 5, 2010

                               __________

                  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                              

            Small Business Committee Document Number 111-066
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

                      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

                                 ______

                    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

                                 (iii)


               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


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

Koenig, Mr. Dave, Director of Tax and Profitability, National 
  Restaurant Association.........................................     3
Joyce, Mr. Hugh, James River Air Conditioning, Richmond, VA. On 
  behalf of Air Conditioning Contractors Association.............     5
Collins, Mr. Chad. Bone Dry Roofing Company, Director, Athens, 
  GA. On behalf of National Roofing Contractors Association......     7
Green, Mr. Christopher J., AIA LEED AP, AGO Studios, Inc. Avon, 
  CO. On behalf of The American Institute of Architects..........     9
Dubay, Mr. Curtis, Senior Policy Analyst, Tax Policy, The 
  Heritage Foundation............................................    11

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    22
Graves, Hon. Sam.................................................    23
Joyce, Mr. Hugh, James River Air Conditioning, Richmond, VA. On 
  behalf of Air Conditioning Contractors Association.............    25
Koenig, Mr. Dave, Director of Tax and Profitability, National 
  Restaurant Association.........................................    32
Collins, Mr. Chad. Bone Dry Roofing Company, Director, Athens, 
  GA. On behalf of National Roofing Contractors Association......    39
Green, Mr. Christopher J., AIA LEED AP, AGO Studios, Inc. Avon, 
  CO. On behalf of The American Institute of Architects..........    44
Dubay, Mr. Curtis, Senior Policy Analyst, Tax Policy, The 
  Heritage Foundation............................................    53

Statements for the Record:
H.R. 4841: "Small Business Tax Relief and Job Growth Act of 2010"    62
Associated Builders and Contractors, Inc.........................    66
Associated General Contractors of America........................    68

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                      TAX INITIATIVES THAT PROMOTE
                         SMALL BUSINESS GROWTH

                              ----------                              


                         Wednesday, May 5, 2010

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Moore, Dahlkemper, 
Clarke, Ellsworth, Bright, Graves, Thompson, and Coffman.
    Chairwoman Velazquez. This hearing is now called to order. 
In recent weeks, our economy has shown promising signs of 
recovery. Gross domestic product grew at 3.2 percent during the 
first quarter of this year, marking the third straight quarter 
of economic growth.
    Consumer spending is on the rebound. March saw the sixth 
straight month with a rise in individual spending. Most 
importantly, the U.S. economy added 162,000 jobs in March, the 
largest increase in nearly 3 years.
    The American Recovery and Reinvestment Act fueled much of 
this progress. Not only did that measure boost infrastructure 
spending. It provided billions of dollars in tax cuts, 
including $15 billion in targeted tax relief for small firms.
    Today's hearing would allow the Committee to analyze how 
tax policies can sustain and further accelerate our economic 
recovery going forward.
    Since the Recovery Act's passage, we have built on its 
momentum, extending many provisions that would have otherwise 
expired at the end of 2009. More recently, the Hire Act was 
enacted, providing a tax credit for small businesses that bring 
on new employees. It also extended a credit for entrepreneurs 
purchasing business equipment, helping firms to expand and 
stimulating demand for everything from trucks to computers to 
machinery.
    Our witnesses today will be able to give us an assessment 
of how well these initiatives are working and how to improve 
them. In every previous economic recovery, small firms have led 
the way, creating more jobs and generating them more quickly 
than their big business counterparts.
    Following the recession of the early 1990s, small firms 
created 3.8 million jobs. After the recession of 2001, micro 
businesses alone generated one million jobs. Entrepreneurs will 
be just as important to bringing our nation out of today's 
downturn but only if they have the right tools.
    While showing promising signs, today's recovery is in its 
earliest, most fragile stages. As our recovery gains traction, 
it is vital that our tax policy promotes small business job 
growth and does not hinder it. In that vein, it is my hope that 
today's hearing will help improve existing tax programs while 
generating new ideas for targeted tax relief.
    With that, I would like to take this opportunity to thank 
all of the witnesses in advance. And I now yield to Ranking 
Member Graves for his opening statement.
    Mr. Graves. Thank you, Madam Chair, for calling this 
hearing on the critical topic of tax incentives that promote 
small business growth. I would also like to thank our 
witnesses. Some of you have come from a ways away and obviously 
taken time away from your company to be here with us today. So 
thank you very, very much.
    The economy is still struggling. And outlook is still 
uncertain. We have got foreclosures, credit card defaults, and 
bankruptcies that still remain high. And unemployment is still 
hovering around 10 percent. For businesses and especially small 
ones, capital markets remain tight. Few are expected to hire or 
expand. Companies remain skeptical about a lasting economic 
recovery.
    Small businesses are reeling from the news. And under the 
new health care law, they are going to be forced to provide 
health insurance or pay a penalty. And that is in addition to 
the myriad of new regulations and reporting requirements.
    Just one example, in section 9006 of the new law, it 
requires businesses to submit a form 1099 for every business-
to-business transaction at $600 or more of property of 
services.
    Small businesses already bear a heavy burden of paperwork 
compliance. And this is just another example of forcing small 
business owners to take time away from the business to comply 
with an unnecessary mandate.
    Of course, small business owners could choose to outsource 
the paperwork to an accounting firm, but either way, the 
entrepreneur loses scarce resources that could be spent gaining 
more customers or producing more product.
    Higher taxes, more mandates, new regulations, and piles of 
paperwork do not foster an environment that is conductive for 
creating jobs. Taxes are a constant concern for small 
businesses. In this economic climate, every expense is an added 
burden. Small businesses pay more per employee to comply with 
the tax code and often can't afford the experts to help 
navigate through it.
    Entrepreneurs depend on tax incentives to offset some of 
the costs of innovation and expansion. While I support 
temporary tax provisions or entendres because I know they are 
critical to small businesses, their temporary nature causes 
uncertainty.
    Not knowing whether these tax provisions are going to be 
renewed makes it very difficult for small businesses to plan 
for future growth. And I also believe we must make permanent 
the 2001 and 2003 tax provisions, which lowered marginal rates. 
And that is why I have introduced legislation to do just that.
    Finally, I want to say a word about the estate tax. In my 
support for complete repeal, if Congress does nothing, the top 
marginal rate of 55 percent and an exemption of just a million 
dollars is going to take effect in 2011.
    Small businesses and farms are often operated by families 
who transferred from one generation to the next. And to pay the 
estate tax, their heirs could be forced to sell the very land 
or equipment that is needed to operate that family business. As 
you have heard me say before, death should not be a taxable 
event. We must kill the death tax.
    Again, thank you, Madam Chair, for holding this hearing on 
the vital subject of taxes. I look forward to that testimony.
    Chairwoman Velazquez. Thank you.
    And now it is my pleasure to welcome Mr. Dave Koenig. He is 
the Director of Tax and Profitability for the National 
Restaurant Association. Mr. Koenig has over two decades of 
experience in the tax and regulatory areas. The National 
Restaurant Association, founded in 1919, represents more than 
380,000 restaurants and suppliers. Welcome. And you have five 
minutes.
    Mr. Koenig. Thank you.

  STATEMENT OF DAVE KOENIG, DIRECTOR, TAX AND PROFITABILITY, 
                NATIONAL RESTAURANT ASSOCIATION

    Mr. Koenig. Chairwoman Velazquez, Ranking Member Graves, 
members of the House Committee on Small Business, I appreciate 
the opportunity to testify before you today on behalf of the 
National Restaurant Association.
    My name is Dave Koenig, Director of Tax and Profitability 
at the Restaurant Association. I am here today to ask Congress 
to make permanent the 15-year depreciation schedule for 
leasehold improvements, restaurant improvements and new 
construction, and retail improvements. In addition, I ask that 
Congress increase the business meal deduction from its current 
level of 50 percent to 80 percent to provide additional 
stimulus to the economy.
    The restaurant industry plays a significant role in this 
nation's economy. There are 945,000 restaurant and food service 
outlets in this country. Seven out of ten restaurants are 
single-unit operators, which means the restaurant industry is 
an industry of small businesses.
    Most eating and drinking establishments employ 50 or fewer 
employees. Restaurants also serve as the conference rooms for 
many of the self-employed and other small businesses.
    This year the restaurant industry is estimated to generate 
$580 billion in sales, with an overall economic impact of $1.5 
trillion. Every dollar spent dining out generates $2.34 in 
business for other industries.
    The 15-year depreciation schedule for leasehold 
improvements, restaurant improvements and new construction, and 
retail improvements expired at the end of 2009 and must be 
retroactively extended through the end of 2010 and, in fact, 
should be made permanent. Bipartisan legislation, H.R. 4306, 
introduced in December 2009 by Representatives Kendrick Meek 
and Pat Tiberi would make the 15-year depreciation schedule 
permanent.
    The 15-year depreciation schedule has made significant 
capital available for restaurant owners to make capital 
expenditures with the tax savings. These capital expenditures 
translate into jobs in the rest of the economy.
    In addition, a faster, more accurate depreciation schedule 
has a direct impact on a restaurant's bottom line. The 
shortened depreciation schedule provides restaurateurs 
additional cash flow to reinvest in their businesses, allowing 
them to expand restaurant jobs and contribute to the community.
    Even during these difficult economic times, restaurateurs 
are planning capital expenditures to improve or expand their 
businesses. According to the National Restaurant Association's 
most recent tracking survey, last month, 47 percent of 
restaurant operators plan to make a capital expenditure for 
equipment, expansion or remodeling in the next 6 months. The 
ability to plan for these expenditures and know what the tax 
treatment will be in subsequent years, particularly during 
these tough times, is important to those making such decisions 
right now.
    This provision is an important driver of economic stimulus. 
Making the depreciation schedule for restaurant improvements 
and new construction permanent will fuel economic activity and 
create jobs.
    It is important to note that 15 years, rather than the 
current law, 39 years, is also a much more accurate time frame 
for depreciating or writing off restaurant buildings. With 133 
million Americans patronizing restaurants every day, restaurant 
building structures experience a daily human assault, unlike 
that borne by any other type of retail building. In fact, our 
research shows that most restaurants remodel and update their 
building structures every six to eight years.
    The other issue I would like to talk about in my oral 
statement is the need to increase the business meal deduction 
to stimulate the economy. We strongly urges Congress to provide 
economic stimulus by increasing the deduction from 50 to 80 
percent for spending on business meals and entertainment.
    For many small companies, the ability to conduct business 
over a meal is their only means of advertising and marketing 
their business. While officially the recession may be ending, 
the restaurant industry is still feeling the effects of 
decreased consumer spending and increased unemployment. 
Increasing the business meal deduction to its previous level 
would encourage consumers to dine out and would also benefit 
small businesses.
    This Committee has been a long-time supporter of increasing 
the business meal and entertainment deduction as a means of 
providing a boost to the economy and tax relief for a 
legitimate business deduction incurred by our nation's small 
businesses.
    Last Congress this Committee included a provision to 
increase the deduction from 50 to 80 percent in the Small 
Business Tax Modernization and Stimulus Act of 2008.
    In closing, I greatly appreciate the opportunity to testify 
on behalf of the restaurant industry before you today. And I am 
happy to answer any question that you may have later on. Thank 
you very much.
    [The statement of Mr. Koenig is included in the appendix.]

    Chairwoman Velazquez. Thank you, Mr. Koenig.
    Our next witness is Mr. Hugh Joyce. He is the owner of 
James River Air Conditioning located in Richmond, Virginia. The 
company was founded in 1967 and now has over 150 employees. Mr. 
Joyce is testifying on behalf of Air Conditioning Contractors 
Association, ACCA, representing over 4,00 air conditioning 
contractors.
    Welcome.

     STATEMENT OF STATEMENT OF HUGH JOYCE, JAMES RIVER AIR 
    CONDITIONING, ON BEHALF OF AIR CONDITIONING CONTRACTORS 
                          ASSOCIATION

    Mr. Joyce. Good afternoon, Chairwoman Velazquez, Ranking 
Member Graves, and members of the Small Business Committee. 
Thank you for the opportunity to provide testimony on behalf of 
small business service contractors that make up the heating, 
ventilation, air conditioning, and refrigeration industry.
    My name is Hugh Joyce. I am the owner of James River Air 
Conditioning, a family business that offers commercial, 
residential heating, cooling, plumbing, and electrical services 
started by my dad in 1967.
    I come before you this afternoon as a former Board Member 
and Member of Air Conditioning Contractors of America. Every 
day, more than 4,000 ACCA small business contractor members 
across the nation help homeowners and small businesses and 
building managers realize the comfort, convenience, and cost 
benefits of energy-efficient HVAC equipment.
    My comments this afternoon summarize my written submitted 
testimony and focus on energy conservation tax incentives and 
how they benefit not only residential homeowners and commercial 
building owners but also the small businesses of the HVACR 
industries that serve them.
    Financial incentives, such as tax credits, tax deductions, 
and accelerated depreciation, are a powerful way to encourage 
homeowners and building owners to reach for and obtain higher 
efficiency HVAC equipment. Financial incentives, like section 
25C, the homeowners tax credit, help soften the initial cost of 
installation and shorten the payback period.
    The residential tax credits in the stimulus bill have been 
crucial in driving investment. They have incentivized 
homeowners to retrofit their homes with higher-efficiency HVAC 
appliances, saving energy, and creating jobs, particularly in 
my business.
    In response to a survey conducted in preparation for my 
testimony today, 75 percent of ACCA contractors have seen such 
an increase in the sale of qualifying higher-efficiency 
equipment.
    Sugar, in this case tax credits, is very effective with 
consumers and businesses. It gets them to take action and helps 
them overcome inertia, particularly in the recessionary time. 
It is an excellent catalyst for investment. Financial 
incentives to install energy conservation measures are a 
quadruple bonus. They save consumers and small businesses 
money. They create jobs. They result in less greenhouse gas 
emissions. And they help the environment.
    Our company helps consumers aggregate credit programs and 
assists them in finding what they qualify for. And, in fact, 
right now our firm is reconstructing 2 1940s homes, deploying 
every practical energy durability, sustainable strategy that we 
are aware of, including things like rainwater recovery, high-
efficiency HVAC, solar voltaic panels, super insulation, et 
cetera.
    These homes will serve initially as model idea homes so our 
clients can see, feel, touch, and experience near net zero 
living. And since over 50 percent of American homes were built 
prior to efficiency standards, there is a huge opportunity to 
reduce energy consumption and increase sustainability with 
retrofit programs and incentives.
    The gains as a result of the tax code changes in the 
stimulus bill could come to a halt at the end of this year. 
ACCA urges Congress to extend these important incentives. ACCA 
also encourages a robust rebate program in Home Star to 
complement the 25C tax credit incentives.
    There is also no doubt tax credits in the stimulus bill 
have made high-efficiency HVAC equipment more affordable for 
homeowners. However, the stimulus lacked a companion incentive 
for commercial and small business building owners.
    We expect the commercial market to be sluggish for some 
time. And incentives to upgrade and improve can make 
significant impact quickly. Just look at my state's solar and 
wind tax credit program, which sold out in hours. There is an 
appetite for these types of investment assistance.
    Additionally, I encourage Congress to reinstate the 50 
percent bonus depreciation allowance that expired at the end of 
2009, which could also be used for HVAC equipment.
    There is a significant amount of deferred maintenance of 
this type of work that will drive growth while the new 
construction market sorts itself out over the next two to five 
years, which is how much time we think it is going to take.
    Let me finish by saying fear is crippling American business 
managers and owners, fear of the unknown and what will come up 
next. The people I speak with on a day-to-day basis are afraid 
to do anything right now because they are concerned with the 
impact of limited credit, new taxes, new rules, health care, 
and other regulations. We just don't know what will happen 
next.
    We feel we have few advocates other than this Committee. 
You can help us by sending the right signals and reduce that 
fear for us as business people. And I can assure you we will 
work hard to create jobs.
    [The statement of Mr. Joyce is included in the appendix.]

    Chairwoman Velazquez. We have done that in the past. And we 
will do it again.
    Mr. Joyce. Thank you.
    Chairwoman Velazquez. Thank you.
    Our next witness, Mr. Chad Collins, is the co-owner of Bone 
Dry Roofing Company in Athens, Georgia. Bone Dry Roofing 
Company is a full-service residential and commercial roofing 
contractor. Mr. Collins is also a Director in the National 
Roofing Contractors Association. NRCA is a nonprofit 
association that represents all segments of the roofing 
industry. Welcome.
    Mr. Collins. Thank you.

   STATEMENT OF CHAD COLLINS, BONE DRY ROOFING COMPANY; AND 
       DIRECTOR, NATIONAL ROOFING CONTRACTORS ASSOCIATION

    Mr. Collins. Madam Chair, distinguished members of the 
Committee, I would like to thank you for the opportunity to 
testify on behalf of the National Roofing Contractors 
Association. I am Chad Collins, President of Bone Dry Roofing. 
And we have offices in Augusta and Athens, Georgia.
    Established in 1886, NRCA is one of the nation's oldest 
trade associations and the voice of professional roofing 
contractors worldwide. NRCA has roughly 4,000 members from all 
50 states and 54 countries. And our members are typically small 
businesses.
    Unemployment in the construction industry is an alarming 
24.9 percent according to recent government statistics. While 
it was recently reported that the economy grew at an annual 
rate of 3.2 percent during the first quarter, the data also 
show that both commercial and residential construction continue 
to struggle. Clearly the construction industry is one of the 
hardest hit sectors of the economy.
    NRCA urges Congress to take immediate action on targeted 
policy measures that will spur job growth. We strongly support 
the Green Roofing Energy Efficiency Tax Act and Small Business 
Tax Relief and Job Growth Act and believe that the passage of 
these initiatives will help create jobs in the construction 
industry, particularly among small businesses.
    The roofing industry is uniquely positioned to play an 
important role in creating high-quality jobs. One of the ways 
that this can be done is by enhancing the energy efficiency of 
our nation's buildings.
    The Green Roofing Energy Efficiency Tax Act will 
immediately create an estimated 40,000 new jobs within our 
industry while also helping to conserve energy and reduce 
carbon emissions. GREETA also will provide savings to small 
businesses of all types through a simpler and more equitable 
system of taxation and lower energy costs.
    Passage of GREETA is necessary because between 1981 and 
1993, the depreciation schedule for nonresidential property was 
increased from 15 years to 39 years. However, the current 39-
year depreciation schedule is not a realistic measure of the 
average life span of a commercial roof, which we estimate to be 
approximately 17 years.
    The large disparity between the 39-year depreciation 
schedule and the average life span of a commercial roof serves 
as a major incentive for building owners to delay the 
replacement of failing roofs as long as possible.
    An owner who replaces a roof before 39 years have elapsed 
must continue to depreciate that roof for tax purposes, even 
though it no longer exists. This incentive to delay roof 
replacement is slowing the adoption of more advanced energy-
efficient and environmentally beneficial roofs in today's 
marketplace.
    GREETA will rectify this situation by reducing the 
depreciation schedule from 39 to 20 years for roofs that meet a 
benchmark energy efficiency standard.
    Given GREETA's unique combination of job creation and 
environmental benefits, this legislation enjoys strong support 
among both business groups and organized labor. NRCA is also 
working with our union and industry partners on a targeted 
version of GREETA that is designed to maximize job creation and 
energy efficiency in commercial buildings in the short term. 
Under this targeted proposal, 20-year depreciation would be 
made available to building owners for energy-efficient roofs 
only in 2010 and '11 and would adopt the more stringent energy 
efficiency standards contained in the Energy-Efficient 
Commercial Roofs Act of 2009.
    I want to emphasize that GREETA will create jobs, not 
through a special tax incentive but by the removal of an 
obstacle in the tax code which restricts economic growth and 
impedes the movement towards green buildings that can help us 
achieve important environmental policy objectives.
    NRCA wishes to again thank Chairwoman Velazquez and 
Representative Moore for your continued support for GREETA. And 
we urge other members of the Committee to sponsor GREETA as 
well.
    Like other small businesses, many NRCA members have 
experienced great difficulty in obtaining access to credit in 
the current economic environment. The scarcity of credit is a 
key factor in preventing entrepreneurs from expanding 
businesses and creating jobs.
    NRCA wants to commend Chairwoman Velazquez for introducing 
the Small Business Tax Relief and Job Growth Act, which will 
help create jobs by providing tax relief targeted at helping 
entrepreneurs start and grow businesses.
    This legislation will increase the tax deduction for 
business start-up expenditures; will allow businesses to 
expense structural improvements to buildings, including roofs; 
and will reduce the capital gains tax rate of small 
corporations from 35 to 15 percent. NRCA believes these target 
measures will significantly increase the capital that 
entrepreneurs need to grow their businesses and create jobs.
    To conclude, NRCA urges Congress to address the alarming 25 
percent unemployment rate in the construction industry by 
approving the Green Roofing Energy Efficiency Tax Act and the 
Small Business Tax Relief and Job Growth Act.

    Thank you for your time, and I will be glad to answer any 
questions.
    [The statement of Mr. Collins is included in the appendix.]

    Chairwoman Velazquez. Thank you, Mr. Collins.
    Our next witness is Mr. Christopher J. Green. He is 
President of AGO Studios in Avon, Colorado. AGO Studios is an 
architectural firm with commercial, hospitality, and 
residential clients.
    Mr. Green is testifying on behalf of the American Institute 
of Architects. AIA is the leading professional membership 
association for licensed architects, emerging professionals, 
and allied partners. Welcome.
    Mr. Green. Thank you.

 STATEMENT OF CHRISTOPHER J. GREEN, AIA, LEED AP, AGO STUDIOS, 
    INC., ON BEHALF OF THE AMERICAN INSTITUTE OF ARCHITECTS

    Mr. Green. Chairwoman Velazquez, Ranking Member Graves, and 
members of the Committee, I am Christopher J. Green, AIA, 
President of AGO Studios, a two-person architectural firm based 
in Avon, Colorado. I want to thank you for giving me the 
opportunity to testify today on behalf of my firm and the 
American Institute of Architects.
    The written testimony I have provided you describes in 
detail the economic challenges facing our profession and 
proposals to help bring about the economic recovery, but today 
I would like to use my time to talk about what this crisis 
feels like in my community and in communities around the 
country.
    We, like everyone else, see the stock market moving up and 
down and hearing the analysis about the positive signs of the 
economy, but what we see on Wall Street is not what we are 
seeing on Main Street with regard to the architects.
    First of all, the architects in our organization are, by 
and large, small business people. And, in fact, 95 percent of 
those architecture firms employ 50 or fewer people. They are 
truly the engine that drives the design and construction 
industry.
    Today my industry and colleagues are suffering. Our 
unemployment rate is 25 percent. That is one of four people is 
looking for work. That is only counting those who have applied 
for unemployment insurance.
    Many of my colleagues report being underemployed or working 
without pay for more than a year. And many of those small 
business owners are not able to get unemployment because they 
own their firms and, therefore, are not able to be seen in the 
numbers that we see at the federal level.
    It is a huge burden to bear for the workers who have 
families to feed, mortgages, and tuition bills to pay. At my 
firm, billings are down significantly from a year ago. 
Construction starts are few, primarily because the clients I 
work with are either unable to get the necessary credit to help 
finance new construction or the remodels that they are 
contemplating, and they are facing falling property values that 
are skewed by comparables to short sales or foreclosures that 
are unnecessarily offsetting the real value of their property.
    And in a number of instances, municipalities have cut back 
so heavily on budgets, personnel, and services that capital 
projects are not being considered unless absolutely necessary. 
And in some cases, those are the life blood of some of the 
firms that do work in our area.
    These problems are not unique to Colorado. They are being 
repeated in virtually every community around the country. And 
while there are glimmers of hope in the economic figures, I am 
here to tell you that for our industry, the light at the end of 
the tunnel is still a distant flicker. Our data shows that we 
are still at least a year away from having a healthy business 
environment in the design and construction industry.
    A colleague recently came back from a conference with the 
Associated General Contractors, who indicated that some of the 
large firms that do large construction work have a nine-month 
backlog at best. Our industry provides the work that they use, 
and it takes 9 or 18 months to get stuff off the drawing boards 
for these guys to build.
    With that in mind, there are a number of tax-related policy 
incentives that Congress should take and ones Congress should 
avoid in order to help small business get on their feet.
    First, Congress needs to extend and expand clean energy tax 
incentives. That is why the AIA with a broad coalition of 
environmental, business, real estate, design and construction 
groups strongly supports H.R. 4226, the Expanding Building 
Efficiency Incentives Act of 2009. In particular, the AIA has 
long backed increasing the energy efficient commercial 
buildings tax deduction from its current $1.80 per square foot 
to $3 per square foot.
    Because the provision allows for the deduction to be 
assigned to the designer in the case of a public building, many 
architects have been able to take advantage of it to lower 
their tax burden.
    In fact, one accounting firm has reported it has secured 
almost half a billion dollars in tax deductions for firms in 
the last year alone, and this with nearly half going to firms 
with 50 or fewer employees. This means greener buildings, lower 
energy costs, and money back in the pockets of small design 
firms.
    Second, Congress needs to expand tax incentives for small 
businesses. I am very pleased that Chairman Velazquez has 
introduced H.R. 4841, the Small Business Tax Relief and Job 
Growth Act of 2010, which would help small businesses gain 
access to capital and create jobs.
    And, third, Congress needs to oppose tax increases on small 
businesses. It is my understanding there is a proposal being 
floated in the Ways and Means Committee to significantly 
increase the payroll taxes paid by S corporation shareholders. 
This proposal would hurt small firms, like mine, who are 
struggling to get back on their feet.
    In conclusion, I would like to thank Chairwoman Velazquez, 
Ranking Member Graves, and the members of this Committee for 
giving me the opportunity to testify before you today. And I 
will be happy to answer any questions you may have.
    [The statement of Mr. Green is included in the appendix.]

    Chairwoman Velazquez. Thank you.
    The Chair recognizes Mr. Graves for the purpose of 
introducing our next witness.
    Mr. Graves. Thank you, Madam Chair.
    Madam Chair, I am pleased to introduce Curtis Dubay, who is 
a Senior Policy Analyst for the Heritage Foundation, where he 
specializes in tax issues.
    Before coming to Heritage, Mr. Dubay was a Senior Associate 
with PricewaterhouseCoopers, previously has served as Senior 
Economist with the Tax Foundation, and has done research on a 
wide range of tax issues, including income tax, sales tax, 
capital gains dividends, and corporate tax.
    Welcome to the Committee.

 STATEMENT OF CURTIS DUBAY, SENIOR POLICY ANALYST, TAX POLICY, 
                    THE HERITAGE FOUNDATION

    Mr. Dubay. Madam Chairwoman, Ranking Member Graves, members 
of the Committee, thank you for the opportunity to testify on 
what can be done through federal tax policy to help small 
businesses.
    My name is Curtis Dubay. I am a tax economist at The 
Heritage Foundation, a non-profit research organization based 
in Washington, D.C. with over 650,000 members nationwide and 
growing rapidly.
    The views I express in this testimony are my own and should 
not be construed as representing any official position of the 
Heritage Foundation.
    Many small businesses are struggling to survive as economic 
recovery remains precarious. There is much the federal 
government can do to help them, mostly by allowing the recovery 
to continue without the threat of punitive new taxes and 
burdensome new regulations. Eliminate these threats, and small 
businesses will then thrive as the recovery quickens its pace.
    Unfortunately, Congress is threatening to do the opposite 
in four ways. The first threat is a scheduled increase of 
income tax rates. On January 1st, 2011, the top two income tax 
rates will rise from 33 percent and 35 percent to 36 and 39.6 
percent. According to the Treasury Department, the 8 percent of 
small businesses that pay the highest 2 tax rates earn 72 
percent of all small business income and already pay 82 percent 
of all income taxes paid by small businesses.
    Higher tax rates on these most productive small businesses 
would drain the businesses of cash flow, the lifeblood of any 
business, and would diminish the incentives to grow and add new 
workers.
    Instead of raising these rates, at the very least, Congress 
should drop its plan to increase top tax rates on small 
businesses and make permanent the current-law tax rates for all 
taxpayers. This would be the best stimulus for the economy to 
date.
    The second threat is the impending increase of taxes on 
capital. Under current law, the tax rate on capital gains will 
increase to 20 percent. And that on dividends will increase to 
39.6 percent on January 1, 2011.
    Congress should at the very least hold these rates at 15 
percent and make permanent President Obama's sensible plan to 
provide immediate small business expensing of all capital 
purchases.
    The third threat is the planned increase of the death tax. 
The death tax returns to life in full force on January 1st, 
2011. Despite the common misconception that the death tax 
impacts only wealthy estates, economists now generally agree 
that the death tax is actually a tax on capital because of its 
impact on businesses and workers.
    The death tax is a drag on America's small businesses, 
destroys jobs, and lowers wages while raising little revenue. 
As such, Congress should kill the death tax once and for all to 
remove an unfair burden from the backs of American small 
businesses and their workers.
    The fourth threat is the burden of new regulation. A little 
noticed provision added to the new health care law will harass 
small businesses with new paperwork. Section 9006 of the new 
law requires businesses to issue 1099s whenever they do more 
than $600 of business with another entity.
    Small businesses will now have to issue reams and reams of 
new forms to the IRS. While large businesses can absorb the 
cost of this new bureaucracy with their large legal and 
accounting teams, the new requirements will inundate small 
businesses with an avalanche of paperwork. The paperwork burden 
will force small businesses to redirect scarce resources from 
productive activities that could grow the business, add jobs, 
and pay higher wages to complying with the onerous new 
reporting requirements.
    Now, many in Congress would prefer to offer targeted tax 
credits to specific small businesses, instead of keeping income 
tax rates and taxes on capital low for all small businesses. 
The targeted tax cuts are no substitute. Of course, the 
businesses that receive the targeted tax cuts will benefit, but 
Congress should not be the arbiter of which businesses succeed 
and which do not.
    Its track record of making such choices is far from 
exemplary. And further efforts to manipulate the market based 
on the whims of the moment could actually prevent breakthroughs 
that would benefit the economy and the United States.
    Thank you. And I look forward to your questions.
    [The statement of Mr. Dubay is included in the appendix.]

    Chairwoman Velazquez. Thank you.
    I would like to address my first question, if I may, to Mr. 
Koenig. A true economic recovery is going to rely on improving 
consumer confidence and overall spending. Recent reports 
indicate spending is on the rise. Can you comment, please, on 
where your industries stand today, as opposed to 12 or 18 
months ago?
    Mr. Koenig. Certainly, Chairwoman Velazquez. The restaurant 
industry was certainly not immune from the economic troubles of 
the last couple of years. We have had well-documented in the 
public media stories about demand being way down because of 
consumer spending and unemployment. Recently--and we do regular 
surveys--we see an up tick. Anecdotally speaking, we see an up 
tick in overall business in the industry.
    Not to say that conditions are ideal, but I think it is 
safe to say that from the restaurant industry's standpoint, we 
are cautiously optimistic that things are on the up turn, at 
least with our business.
    Chairwoman Velazquez. I have noticed it in my district.
    Mr. Koenig. Glad to hear it.
    Chairwoman Velazquez. You know, I didn't have to make 
reservations two, three months ago.
    [Laughter.]
    Chairwoman Velazquez. Mr. Collins, can you explain how 
outdated depreciation schedules for commercial roofs affect 
economic activity within your industry? And do you find that 
these businesses are choosing to repair older, inefficient 
roofs because they do not have the necessary incentive to do 
so?
    Mr. Collins. Yes, ma'am, absolutely. And we see it time and 
time again, regardless of reason, whether it is a facility that 
is being held for an investment and going to be turned or 
whatever the reason, the current depreciation schedule has 
created a disincentive for the owner to be proactive in 
addressing the issues. And it is literally as simple as that.
    Activity like GREETA that would provide incentive would 
immediately create results. I mean, there is no doubt about 
that at all.
    Chairwoman Velazquez. And how would decreasing the recovery 
period encourage more businesses to upgrade their 
infrastructure?
    Mr. Collins. Well, it would encourage the activity by the 
tax breaks, by the incentives that would be present.
    Chairwoman Velazquez. Mr. Joyce, I have introduced the 
Small Business Tax Relief and Job Growth Act, which will expand 
section 179 to include roofs, electrical systems, HVAC systems, 
and other structural improvements.
    Do you believe that these incentives would encourage 
businesses to make those investments now? And is it enough to 
help businesses overcome the challenge of up-front costs?
    Mr. Joyce. Absolutely. And by allowing that early and quick 
depreciation, it is just enough to bump them off doing nothing. 
And right now we see businesses make repairs to old, 
inefficient machines that if there was just a little extra 
incentive out there for them to go ahead and buy a new 
efficient machine with better refrigerant, more environmentally 
friendly operating characteristics, they would do that.
    What I have told some folks, the way the depreciation 
schedule is on HVAC now, you almost have to pay for the 
equipment twice when you buy it. You write a check to me when 
it is put in. But then you have got to gross up your income 30, 
40, 50 percent to offset that because it is after-tax money. 
And then you have to depreciate over such a long time you never 
recoup it. So it is almost like a double payment where the 
changes that you have introduced would give immediate relief.
    And folks are sitting there waiting for an excuse to act. 
And we see and we saw it residentially with the $1,500 credit 
for energy efficiency upgrades that literally kept us from 
laying off a single person over the past year. So yes, 
absolutely.
    Chairwoman Velazquez. Thank you.
    Mr. Graves?
    Mr. Graves. Thank you, Madam Chair.
    My question is to all of you. And whether it is your 
individual business or your members, you can comment. We have 
got the 2001-2003 tax cuts expiring, which is going to raise 
the marginal rate structure.
    I am curious how it is going to affect your members, 
specifically if you are filing. You may have your business, but 
you may be filing as an individual or as a couple, whatever the 
case may be. But I would be very curious, Mr. Koenig.
    Mr. Koenig. Thank you, Ranking Member Graves.
    Certainly the National Restaurant Association, we represent 
all restaurants, from the local entrepreneur with one 
establishment to multinationals. As I said earlier in my 
testimony, most of our members are your traditional small 
businesses.
    Almost two-thirds of our membership operate as so-called 
subchapter S corporations. So for those who are in the 33 
percent or 35--and, of course, for tax treatment purposes, S 
corporations, the income flows through to the individual 
shareholders. For those in the 33 percent rate and the 35 
percent rate, they will see their taxes increase if nothing is 
done before the end of the year.
    Mr. Graves. Mr. Joyce?
    Mr. Joyce. It is a very difficult time. It is a very 
difficult time to see any type of increase because, you know, 
most of us are living right on the edge, whether profitable or 
not profitable.
    If that rate goes up, all of our banks sit and look at our 
financial statements and our balance sheets. And we may have 
made commitments to buy capital and things that we are paying 
with after-tax dollars.
    Maybe it is a business buyout from a family member or 
whatever. And every time these things change, they have 
dramatic impact on our cash flows, what we are showing in our 
banks, and how we move forward, whether we can invest, buy that 
next truck or whatever that is.
    So I can't say enough how important it is to get some 
stability across the board in some of these tax areas. And I 
think the velocity--you know, if we can get business growing, 
the velocity of new business and paying at a little bit lower 
rate will far outpace what you would get from an increase.
    And, again, I feel so backed in a corner as a business 
person because every penny of my after-tax money is committed 
to do something with. So if taxes go up ten percent and we 
expect a tough couple of years, it really puts me in a jam, 
particularly on the credit side. A lot of people don't think 
about that.
    So anything you can do to help and just get stability 
there, just don't increase it. If you leave it where it is, we 
will make it work, but if you keep going every which way 
because we have already got, you know, health care increases 
and other areas that we have got to pay. So anything that can 
be done to stop that will be a big help.
    Mr. Graves. Mr. Collins?
    Mr. Collins. And to echo, NRCA membership as a whole, you 
are roughly talking about 97 percent of our membership would 
fall in what the government would quantify as a small business. 
So when I speak to the effect personally, I am speaking to the 
effects of the association as a whole and its membership base.
    And it would be the same. I mean, the fear that is out 
there is stagnating growth. And uncertainty is compounding that 
problem. And whether it is through stability or whether it is 
through stimulating activity like GREETA, those are the things 
that we are looking for and trying to encourage.
    Mr. Graves. Mr. Green?
    Mr. Green. I would echo those comments. I think anything we 
can do to keep the tax rates from going up would be beneficial 
to all the small business owners, not just the architects but, 
as we have heard at this table, anybody that is working hard 
right now to keep food on their table that lower tax rates 
would be critical.
    Our industry is absolutely subject to the credit market. 
And, in addition to keeping the taxes low, what we really need 
to do is we need to get control of the credit markets so that 
we can be putting projects on the boards that these gentlemen 
can be working on. And until we get those credit markets 
stabilized and we get strong rules on them, it is not just the 
taxes, but it is the credit markets that are affecting our 
industry in an enormous way.
    Mr. Graves. Mr. Dubay?
    Mr. Dubay. Raising taxes on small business at any time is 
not a good idea, but doing so now seems particularly unwise. We 
often hear it argued that raising the top two rates wouldn't 
impact small business because only a few of them will actually 
pay that.
    Well, like I said in my testimony, according to the 
Treasury Department, it is true that only eight percent of 
small businesses pay at the top two rates, but those small 
businesses earn a vast majority of the income earned by small 
businesses and pay almost all the taxes paid by small 
businesses.
    They are the biggest ones that create the most economic 
activity. They are the ones we need to help pull us out of this 
recession or get the recovery going and creating jobs. Now is 
not the time to raise taxes on them.
    Mr. Graves. Okay.
    Chairwoman Velazquez. Mr. Moore?
    Mr. Moore. Thank you, Madam Chair.
    None of you want to see tax increases on small business or 
tax increases generally, I think. And I don't personally like 
tax increases either. When I came into Congress in 1999, the 
national debt was about $5.8 trillion. The next two years, 
there were balanced budgets both years and no additional debt. 
The next 8 years under the President Bush, we accumulate more 
than $5 trillion more debt, almost double, almost doubled.
    What do we do? How do we get back to fiscal responsibility 
and start living within a budget like most, not all but most, 
American families do if we are not going to do something with 
this tax situation to try to deal with this horrible debt that 
we have and passing this horrible debt onto future generations, 
our children and grandchildren?
    We start down here and just move down the line.
    Mr. Koenig. Congressman Moore, I wish I had an answer for 
you. Obviously--
    Mr. Moore. I do, too.
    Mr. Koenig. Obviously it is a difficult situation, so 
difficult that the President has gotten a commission together, 
a bipartisan commission, to try to examine all of the issues 
and putting everything on the table. I would say that that is 
probably what needs to be done, is having everything examined 
at once and hopefully a solution.
    Mr. Moore. Thank you. Can I stop right there and go back 
here and then go down this way, please? And we have 3:19. I 
sure would like to hear from all of you. If you can each take 
just about 45 seconds or something, we can get this in. Thank 
you. Mr. Dubay?
    Mr. Dubay. Well, if you look at the projections from the 
Congressional Budget Office for the end of this decade, tax 
revenues will be back to 18 percent of gross domestic product. 
That is where we were for the last 60 years, about the average.
    Over that time, we averaged spending about 20 percent of 
GDP. So we had a deficit somewhere around two percent of GDP. 
That is sustainable, more sustainable than the course we are 
on. It is not perfect, but it is better than where we are.
    And if you take the new health care legislation, the new 
law, the tax revenues would actually be higher than 18 percent, 
the post-war average.
    So my point is that we have a spending problem, not a 
taxing problem. If spending is brought back down to historical 
averages, the deficit will be brought back down as well.
    Mr. Moore. Mr. Green?
    Mr. Green. I would submit that we have got short-term and 
long-term issues here. The short-term is everybody wants to get 
the deficit down, but we are also in an economic situation 
where we can't generate the income to tax right at the moment.
    So if we can figure out elements that we can address right 
now makes sense, but we also have to look at the long-term, as 
Mr. Dubay here says, of saying, how do we stimulate the 
spending so that we can legitimately get tax revenue back up to 
where it once was? And then we can deal with the spending 
issues. I think it is a balanced approach. And I think that 
makes a lot of sense in the overall scope of what you are 
asking.
    Mr. Moore. Thank you, sir.
    Mr. Collins?
    Mr. Collins. I agree and would like to see just the ability 
to operate day to day and not have the restrictions and 
regulations that we see increasing at what appears to be more 
regularity so that we can continue to create jobs, that we can 
continue to--we are fortunate.
    And, again, our size is representative of average 
membership, where we create jobs that are across anywhere from 
office staff to field technicians, mechanics, superintendents. 
We have a wide range of employment and feel like when left 
alone and left to be creative and left to do what we do, we 
have the ability to generate more revenues and more income for 
those employees.
    Mr. Moore. Thank you.
    Mr. Joyce?
    Mr. Joyce. I would just say currently be gentle with the 
tax increases to get our velocity back. If I had my druthers, I 
would just look at our total budget, and I would roll it back a 
couple of percent every year for the next few years.
    I would focus across the board, everybody, just like we 
have done in business in America. Every household in this 
country has rolled their budget back.
    And I would said, military, you are going to get across the 
board. Gentle on taxes. Let's see what traction we get. And 
then there are a lot of things that are off the grid that 
aren't taxed. And the tax has gotten to the point where things 
are outside of the system. We need to get those back in the 
system and then move forward.
    And I think we can get the two across relatively quickly, 
but it has got to be a team effort.
    Mr. Moore. Thank you. Thank you, Madam Chair.
    Chairwoman Velazquez. Time has expired.
    Mr. Thompson?
    Mr. Thompson. Thank you, Madam Chair, Ranking Member, for 
this important hearing. And thanks to all of the witnesses 
today for your expertise and representing all of those small 
businesses that you do.
    I certainly agree that the mounting debt is a problem. It 
provides us a really rocky terrain to do business in. And I 
appreciate what the debt has been accumulated over the years.
    I certainly want to note, though, that President Obama's 
doubling down on the debt in the past 16 months has really 
taken us to the edge of a cliff. We need to reverse direction. 
And I think that we are all in agreement with that.
    Mr. Dubay, I wanted to ask you. Last Wednesday this 
Committee did a hearing on trade and small business. I happen 
to believe that for our small businesses, where we can, that is 
an important market to reach out to the rest of the world.
    I want to get your opinion on--we have, I believe it is, 
the second highest corporate tax rate in the world. And many of 
our small businesses incur that burden. Your opinion on, is 
that a disadvantage and how to our small businesses to compete?
    Mr. Dubay. The corporate income tax rate is a huge 
disadvantage for American businesses. Right now our rate is the 
second highest in the developed world. We trail only slightly 
Japan.
    When you take the top federal rate at 35 percent and add on 
state corporate tax rates, it gets pretty close to 40 percent. 
That is, like I said, higher than almost every other developed 
country. It is one of the major factors driving businesses 
overseas, driving them to open up new operations overseas, send 
jobs overseas.
    The average in the Organization for Economic Cooperation 
and Development, the 30 largest economically developed 
countries, is about 25 percent. So we are ten percentage points 
over that rate.
    Over the last 10 to 15 years, most countries have been 
cutting their rates. I think every country except us cut their 
rate over that period. So by standing still, we have fallen 
behind.
    It is absolutely imperative that action be taken soon. 
Otherwise we are going to keep seeing jobs go overseas.
    Mr. Thompson. Okay. Thank you.
    Mr. Green, in your testimony, you said that billings at 
your company are down due, in part, to tight credit, the 
result, you say, of conflicting bank policies and additional 
requirements. Now, you believe the financial regulatory reform 
legislation being considered by the Senate will add or reduce 
the tight credit?
    Mr. Green. I am hopeful that it will increase the credit 
available. I think what we are seeing is there are enough mixed 
signals in the credit markets that there is inconsistent policy 
that we are seeing right now that says, what is your loan-to-
value ratio? What is the consistent loan-to-value ratio? What 
are the incentives? What are the capital requirements on a 
project that is being considered? And then what are the pro 
forma requirements for that in order for the financing to be 
considered a solid financing package for our client?
    So hopefully we will see that, but we need to get that 
under control and get a consistent level of rules and 
regulations in right now.
    I think we spoke a little bit to the fear factor. There is 
a significant uncertainty on Main Street about what is being 
asked of and required of folks that are thinking about really 
good projects right now.
    Mr. Thompson. I see that in my discussion with job 
creators. And you represent the job creators. They are sitting 
on the sidelines. They are normally small men and women who 
take a percentage of their profits, reinvest it in their 
company, hire more people. And they are afraid. They are 
sitting on the sidelines.
    Mr. Collins, you mentioned in your testimony about the 
effect of tight credit. Do you believe that credit markets are 
easing for small companies? What are you seeing out there?
    Mr. Collins. I don't believe so, no. You know, we rely on 
not only what we see but some pretty substantial indicators as 
well that either confirm or deny what we are seeing in-house. 
And one of those is activity of general contractors, the other 
being the activity in the surety market. Those are really 
strong indicators of what is going on around us.
    I can say with certainty from either conversations that we 
have had with both or with just real examples of what we have 
experienced that there is no movement and no encouraging 
outlook there. If anything, it is the opposite. It is that the 
commercial element of what we do has really yet to potentially 
fully bottom. And when it does, the idea that there is going to 
be a rebound of any sort is not there.
    If it hasn't bottomed, once it does, it is going to bounce 
there. And the surety underwriting market is shrinking today.
    Mr. Thompson. Yes. Thank you, Madam Chairwoman.
    Chairwoman Velazquez. Time has expired.
    Chairwoman Velazquez. Ms. Dahlkemper?
    Ms. Dahlkemper. Thank you, Madam Chair.
    I want to say as a business owner, bonus depreciation has 
been something we have used successfully in keeping our fleet 
modern and buying equipment to make us more efficient and look 
forward to seeing that type of legislation move forward.
    I wanted to ask all of you just real quickly because we 
have votes and I only have five minutes here, but do you feel 
the IRS adequately is providing the business community with the 
information that you need so that you know what tax incentives 
are out there for you? And just very quickly, if you can let me 
know how you find out what is out there for your industry? And 
if you could just give me a short answer, Mr. Koenig?
    Mr. Koenig. Congresswoman Dahlkemper, we try to keep on top 
of things within the restaurant industry and feed information 
out to our members constantly through a combination of working 
with the IRS on new forms, on new laws, working with our state 
partners. We think that they do a pretty good job of keeping us 
informed.
    However, I find them I think probably overburdened in the 
years to come with a lot of the new responsibilities that the 
health care law has placed on the IRS. So I think it will be 
interesting to see how their level of service to the small 
business community is impacted by that.
    Ms. Dahlkemper. Mr. Joyce?
    Mr. Joyce. Typically we get our information from our CPAs 
as we go through the review. We really count on them to back 
into what is appropriate for us and what is not appropriate to 
us. So we feel like it is the IRS's job to--
    Ms. Dahlkemper. So your CPAs are doing that?
    Mr. Joyce. Yes, they are doing that.
    Ms. Dahlkemper. Thank you.
    Mr. Collins?
    Mr. Collins. The same.
    Ms. Dahlkemper. Okay. Mr. Green?
    Mr. Graves. We have CPAs, but we also have clients that are 
trying to work through some of the energy credits and some of 
the sustainability issues. And some of that gets a little 
convoluted and tough to understand. Whether it is a credit, 
whether it is an additional line item on the taxes, those could 
be a little more clear to us.
    But we are with these guys. The CPAs provide a lot of 
information. Every now and then, they get confused. I am not 
sure tax regulations are that simple.
    Ms. Dahlkemper. No, they aren't. That is why I was 
wondering how each industry--Mr. Dubay, I have a separate 
question for you. You had mentioned that in your testimony, you 
had said that the death tax, the estate tax, you said it raises 
little revenue I think were the exact words you said. And it is 
estimated that for 2009, there will be 14,900 estate tax 
returns filed; of those, 5,500, actually very few, across the 
country who will owe that estate tax. But it is going to total 
$13.8 billion.
    Do you think $13.8 billion is just a little bit of revenue?
    Mr. Dubay. Well, compared to the total federal tax 
revenues, yes. I mean, the federal government collects about $3 
trillion a year.
    Ms. Dahlkemper. Okay. But if we don't have the $13.8 
billion, what are we going to do about making up that amount of 
money?
    Mr. Dubay. Well, there are actually studies that show that 
if you repealed the death tax, you would get increase in 
economic activity so much that it would make up for all of the 
revenue on the income side.
    Ms. Dahlkemper. I don't think I totally agree with you on 
that. Last year we tried to pass a permanent fix because, as 
some of the business owners mentioned here, part of the issue 
with business--and I say this as somebody who has a business 
back home--it is the uncertainty.
    So this year the estate tax has gone back down to zero. And 
next year it is going to go to a million. Last year it was 3.5 
and 7. And so we tried to fix that in December. We passed a 
bill through the House to permanently fix the 3.5 and 7, which 
it seemed most people in my district were very comfortable 
with. And it would give some certainty to business owners and 
farmers and people who may have enough in their state to cause 
that to be an issue for them.
    So I guess I am just questioning that we have got 5,500 
people who may owe this in 2009, bringing in $13.8 billion 
raised. Of course, this year in 2010, it is expected that 
70,000 people will be affected because, again, the uncertainty 
with allowing that fix that we had tried to get through the 
entire Congress didn't pass. I guess I just want your opinion 
on that.
    Mr. Dubay. Right. I agree that stability matters. All 
businesses crave it. But it doesn't matter how many estates are 
being impacted by the death tax. What matters is the economic 
impact that is created by that tax.
    What we have seen is that it is a huge economic impact. 
Businesses, especially small family-owned businesses, get hit 
particularly hard. They can't afford the expensive preparation 
that bigger, larger estates can afford.
    So when the death tax hits, they are often stuck with large 
bills. And they have to liquidate part of their firms or the 
whole thing. That means they cost people their jobs. That means 
the business cannot expand.
    Chairwoman Velazquez. Time has expired.
    Ms. Clarke?
    Ms. Clarke. Thank you, Madam Chair.
    It is a very interesting debate because we are trying to 
find the balance. And I don't know how you necessarily strike a 
balance. But that is why we are trying to get informed by you.
    Clearly we don't want to inhibit innovation. We don't want 
to inhibit business growth and expansion. But, like all other 
entities in the United States of America and individuals, there 
is an expectation that there is going to be revenue generated.
    So my question to you is, giving through to where we are 
right now in the development of our economy and given the fact 
that there are a number of tax incentives made available to 
small business, where do we draw the line? Where do you feel 
that there is an obligation for you to pay revenues, to pay 
taxes?
    Mr. Dubay, your answer at one point was that, well, you 
don't feel that it is appropriate to pay taxes, there is never 
really a good time. You know, if you were negotiating, what 
would you say is appropriate?
    Mr. Dubay. What I said is it is never a good time to raise 
taxes, not to pay taxes. We should all pay taxes. We all have 
an obligation to pay them.
    But from an economic standpoint, there is never a good time 
because all tax increases, all taxes have economic drag. So 
raising them during a recession seems unwise to me. Even though 
we are not in a recession anymore, we are trying to recover. 
But as recovery is trying to take off and still going slowly, 
it seems unwise to raise them now.
    I mean, at the very least, I would suggest extending the 
2001-2003 tax cuts for at least the next couple of years.
    Ms. Clarke. So you feel that extending the tax cuts would 
give you sort of the ground you need to sort of lift the 
companies? Is that your contention?
    Mr. Dubay. I will leave that to the other gentlemen, who 
can speak more personally to that.
    Ms. Clarke. Okay.
    Mr. Dubay. But I would say so, yes.
    Ms. Clarke. Would anyone else care to? Please?
    Mr. Joyce. It would be a big help to not have--you know, in 
a lot of the businesses, when you get into rates, you know, 
most of us are in the 40 to 50 percent when you look at the fed 
and state and add it together if it's an S.
    And I think that when you start going past that, you grind 
up so much disposable capital it becomes very difficult to do 
things, create jobs, take risks because you are always trying 
to leave a cushion. And if the taxes take the cushion, you get 
into the fear slot. So anything that can be done to moderate 
and flatten them?
    And I would just like to say one thing on the death tax. 
Having gone through a very difficult transfer between the death 
of my mother and the father to the business to me and buying my 
sisters out,--and they did an incredibly good job of planning--
it was so difficult you cannot imagine the pain it puts on a 
family.
    And if we could come up with some 20-30 percent number and 
call it a transfer tax and just let us transfer at any time you 
want and not make it happen at death. Causing everything to go 
down in the nine-month death period is so difficult.
    I have got your attention. If there is anything that could 
ever be done, it would be wonderful because it is so difficult, 
having done it.
    But back to the tax part, my late father said, ``And it is 
our duty to pay tax. And I want to pay tax.''
    Ms. Clarke. Yes.
    Mr. Joyce. I would like to just keep it in a gentle ramp 
and have everyone doing it and have everyone playing, rather 
than it be punitive in one direction or another.
    Ms. Clarke. Thank you very much, Madam Chair.
    Chairwoman Velazquez. Mr. Joyce, what would you think is--
what will stimulate the economy? If we cut taxes to 95 percent 
of American families or just 1 percent of American families, we 
need to increase consumer spending. What will generate the type 
of activity in terms of consumers: the 1 percent cut to the 
wealthy families or the 95 percent to all American families?
    Mr. Joyce. I think a combined approach would do it, some 
incentives for the families where it is that piece. And if we 
could take the 1 or 2 percent that are paying 50-ish percent--
and I am not asking for tax decreases.
    I would also say I think we are very close to a breaking 
point for medium to large or small--you have got little teeny 
smalls, and then you have got this medium group of smalls, 
which I kind of fall in. We are real close to a breaking point.
    And I think if we could just be given a cushion and no more 
increases, let it all settle out, we will drive it and give the 
95 percent incentives.
    Chairwoman Velazquez. That balance was what we tried to do 
in the stimulus package, where so many tax cuts and credits 
were provided to small businesses because you are the ones 
creating the jobs that we need in order to get this economy 
growing again.
    Mr. Joyce. Thank you. And it is working.
    Chairwoman Velazquez. I ask unanimous consent that members 
will have five days to submit a statement and supporting 
materials for the record. Without objection, so ordered.
    This hearing is now adjourned. Thank you.
    [Whereupon, at 2:09 p.m., the foregoing matter was 
concluded.]

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