[Senate Hearing 111-1171]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 111-1171

 
                        ASSESSING THE REGULATORY
        AND ADMINISTRATIVE BURDENS ON AMERICA'S SMALL BUSINESSES

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

                                HEARING

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 18, 2010

                               __________

    Printed for the Committee on Small Business and Entrepreneurship


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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                     ONE HUNDRED ELEVENTH CONGRESS

                              ----------                              
                   MARY L. LANDRIEU, Louisiana, Chair
                OLYMPIA J. SNOWE, Maine, Ranking Member
JOHN F. KERRY, Massachusetts         CHRISTOPHER S. BOND, Missouri
CARL LEVIN, Michigan                 DAVID VITTER, Louisiana
TOM HARKIN, Iowa                     JOHN THUNE, South Dakota
JOSEPH I. LIEBERMAN, Connecticut     MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington           JOHNNY ISAKSON, Georgia
EVAN BAYH, Indiana                   ROGER F. WICKER, Mississippi
MARK L. PRYOR, Arkansas              JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland
JEANNE SHAHEEN, New Hampshire
KAY R. HAGAN, North Carolina
  Donald R. Cravins, Jr., Democratic Staff Director and Chief Counsel
              Wallace K. Hsueh, Republican Staff Director


                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana.     1
Snowe, Hon. Olympia J., a U.S. Senator from Maine................     3
Hagan, Hon. Kay R., a U.S. Senator from North Carolina...........     7
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire..........     7
Pryor, Hon. Mark L., a U.S. Senator from Arkansas................     8

                               Witnesses
                                Panel 1

Sargeant, Hon. Winslow, Chief Counsel for Advocacy, U.S. Small 
  Business Administration........................................     8
White, James R., Director, Tax Issues, U.S. Government 
  Accountability Office..........................................    18

                                Panel 2

Harris, Roger, President and COO, Padgett Business Services/
  SmallBizPros, Inc..............................................    54
Nannis, Lawrence S., CPA, Chair, National Small Business 
  Association....................................................    63
Langer, Andrew, President, The Institute for Liberty.............    76
Gattuso, James, Senior Research Fellow, Regulatory Policy, The 
  Heritage Foundation............................................    97

          Alphabetical Listing and Appendix Material Submitted

Gattuso, James
    Testimony....................................................    97
    Prepared statement...........................................    99
Hagan, Hon. Kay R.
    Opening statement............................................     7
Harris, Roger
    Testimony....................................................    54
    Prepared statement...........................................    57
Landrieu, Hon. Mary L.
    Opening statement............................................     1
Langer, Andrew
    Testimony....................................................    76
    Prepared statement...........................................    79
Nannis, Lawrence S.
    Testimony....................................................    63
    Prepared statement...........................................    66
Pryor, Hon. Mark L.
    Opening statement............................................     8
Sargeant, Hon. Winslow
    Testimony....................................................     8
    Prepared statement...........................................    10
Shaheen, Hon. Jeanne
    Opening statement............................................     7
Snowe, Hon. Olympia
    Opening statement............................................     3
White, James R.
    Testimony....................................................    18
    Prepared statement...........................................    20


ASSESSING THE REGULATORY AND ADMINISTRATIVE BURDENS ON AMERICA'S SMALL 
                               BUSINESSES

                              ----------                              


                      THURSDAY, NOVEMBER 18, 2010

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m., in 
Room 428A, Russell Senate Office Building, Hon. Mary L. 
Landrieu, Chairman of the Committee, presiding.
    Present: Senators Landrieu, Pryor, Shaheen, Hagan, Snowe, 
and Risch.
    Staff Present: David Gillers, Chris Lucas, and Matt Walker.

 OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chair Landrieu. Good morning, everyone, and welcome to our 
hearing on Regulatory and Administrative Burdens on America's 
Small Business. The Small Business Meeting will come to order.
    To begin, let me say that I want to be very clear that the 
intention of holding this hearing is not to attack the 
Americans With Disabilities Act and I want to thank you all for 
being here. I want to apologize that it was singled out among 
all the Acts of the Federal Government, it was not brought to 
my attention until a few minutes go, but I appreciate you all 
being here.
    This hearing is about general rules and regulations of 
which yours may be one of hundreds that can, you know, 
unnecessarily, sometimes, affect the operations of very small 
businesses in our country. So, that is what our committee is 
examining today, and I want to thank you all for being here.
    I also want to say that this hearing is about identifying 
the obstacles that small businesses face in complying with 
federal rules in their day-to-day operations and working to 
find meaningful alternatives or ways that agency rules can 
achieve their intended purposes, many of which are for the 
public good, and all of which have the intention of being for 
the public good, while mitigating the economic harm to small 
business.
    Nearly two months ago, Congress passed the Small Business 
Jobs Act of 2010. This committee led that effort, and it 
provides much needed relief to small businesses through the SBA 
lending programs, provides immediate tax cuts, up to $12 
billion for small business in America, and establishes 
strategic partnerships with community banks, a first of its 
kind innovative approach to provide greater access to capital 
for small firms everywhere, and we understand that it is 
working as those rules are being put into place as we speak.
    With that being said, our nation's smallest entrepreneurs 
are still facing significant obstacles when they try to grow 
their business. Our job here is not done, it is only beginning, 
and I am committed, and the members, at least on the Democratic 
side and I hope the Republican side as well, to reducing 
unnecessary administrative and regulatory burdens that small 
businesses face every day in their fight to get our economy 
back on track. That is why this past Monday I cosponsored the 
Bipartisan Small Business Paperwork Relief Act, which Finance 
Committee Chairman Max Baucus is leading, a bill that repeals 
the expanded Form 1099 requirement put into effect by the 
healthcare reform legislation signed into law last year.
    For months I have heard from small businesses all over the 
country that the expanded Form 1099 reporting requirements just 
did not make sense and would unreasonably burden small 
business. We have responded, we are going to try to repeal that 
piece of the healthcare law which will not affect healthcare 
policy at all, which is important, it will just affect the way 
the money is raised to pay for that policy, and that was the 
wrong thing to do, as I have said, and I am glad we will have a 
chance to change it.
    As it is now according to the testimony we will hear today, 
the cost of tax compliance for small business is over 300 
percent greater per employee than the cost to large companies. 
Just yesterday in this room we had a roundtable with banks from 
around the country. We had a banker, Steve David sitting in 
that third chair, from New Roads, a small town in Louisiana, 
only $150 million bank. He said that his FDIC insurance had 
gone up over 300 percent just in the last couple of years. I am 
going to submit the actual dollar amount for the record, but it 
is just unconscionable that fees and administrative burdens for 
small businesses have gone up so substantially, not just in the 
last several years, but it has been a trend now over a decade 
or more.
    There was a report released just last week, the Crain 
Report, I am going to get a copy of it in a minute, I hope that 
Mr. Sargeant, Dr. Sargeant, you will be speaking on that this 
morning and also Mr. White, that goes into greater detail about 
the administrative burdens on small business and we are looking 
forward to hearing some of that testimony today.
    Today's hearing is the next step in a process that will 
serve to build a solid record of current regulatory obstacles 
small businesses face. This way we can tailor smart solutions 
that will maximize the public benefit, while streamlining 
unnecessary requirements on our nation's small businesses. We 
know these regulatory hurtles translate into real cost for 
them. Without question, federal, administrative, and regulatory 
burden on businesses large and small continue to grow every 
year.
    According to a recent report, which is the one that I have 
called your attention to, regulations in the United States have 
increased more than--to $1.75 trillion. If you broke that down 
by cost per U.S. household, each family would be responsible 
for more than $15,000 of the annual cost. However, the 
distribution of these regulatory costs is uneven and will 
disproportionately affect small business. Advocacy, which is 
the office before us today, estimates that the average per 
business was approximately $8,000 per employee in 2008.
    Think about that, people stand up and cheer around here if 
we can find $1,000 tax cut per employee. I mean, would not that 
be extraordinary to provide a $1,000 tax cut per employee? But 
on the same time, our combination of rules and regulations is 
basically attaching to each employee an $8,000 burden. If we 
could life $500 of that or $600 of that or $1,000 of that, it 
would be cause for real celebration in this nation.
    The regulatory cost, as I said, per employee for small 
business was $10,585 compared to $7,454 for medium-sized firms, 
and $7,755 for large firms. There is a chart that breaks that 
down and I think it is important to understand the burden that 
is falling disproportionately on small business, and the 
opportunity to continue, I think, to meet the goals of all of 
our agencies, whether it is Health or Labor or OSHA or other 
agencies without being disproportionately heavy to the smallest 
and sometimes newest businesses, that if we give them a chance 
to get started, would be more than happy and more than able to 
comply with the rules and regulations that we are requiring of 
them.
    When Federal Government regulations do not account for the 
unique challenges that small business owners, and I should say 
entrepreneurial start-up companies, are facing, I think we all 
suffer. Small businesses employ approximately 50 percent of the 
U.S. workforce, but the start-up businesses, the new 
businesses, are what is going to account for the jobs created 
to end this recession.
    So, we want to make their load as light as possible, not 
heavy, light, so that they can be nimble and agile and be 
created and grow, and that is to our benefit.
    Today we will hear from our Chief Regulatory Relief 
Officer. That is what this office is. It is referred to today 
as the Office of Advocacy. The name does not exactly imply what 
it is. Your job, as you know Dr. Sargeant, is to advocate for 
regulatory relief to small businesses, it was why this office 
was created some years ago, its primary mission for existing, 
and we are looking forward to some of your either suggestions 
or observations today.
    And Mr. White, we are happy that you are here from the 
Government Accounting Administrative Office that is done 
reports, the GAO, on this subject, any number of reports. We 
are looking forward to some of your observations today.
    Before we get to our panel I would like to turn it over to 
my Ranking Member for her opening statements and thank her for 
joining me today----
    Senator Snowe. Thank you, Chair Landrieu.
    Chair Landrieu [continuing]. For this very important 
hearing and recognize that Senator Kay Hagan is with us as 
well.

OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, A U.S. SENATOR FROM 
                             MAINE

    Senator Snowe. Thank you, Chair Landrieu. And you are 
absolutely right, it is a critical issue and I want to commend 
you for holding this hearing because without a doubt, 
undeniably, the regulatory burden is disproportionate on small 
businesses throughout this country and it is inhibiting job 
creation potential and undermining their ability to compete.
    I welcome our witnesses here today, most especially Dr. 
Sargeant, for joining us in his first appearance before this 
committee since becoming Chief Counsel for the Small Business 
Administration's Office of Advocacy, and Mr. White, thank you 
as well from GAO for providing such invaluable data as we make 
decisions in some of these critical issues and what we need to 
do in the future.
    I do not know how to say it any clearer: excessive 
regulations are suffocating the entrepreneurial spirit of 
America's almost 30 million small businesses. The Heritage 
Foundation, I know, will be citing chapter and verse the number 
of regulations that will be promulgated, the 43 new major 
regulations that will be implemented in Fiscal Year 2010, 
imposing $26.5 billion in new regulatory compliance costs, and 
that is in addition, as Chair Landrieu indicated, to the $1.75 
trillion in annual regulatory compliance costs that the Office 
of Advocacy recently reported.
    This is a regulatory rampage stampeding over small 
businesses. So, Dr. Sargeant, as the Chief Counsel for 
Advocacy, you are the singular person within the entire Federal 
Government whose primary statutory mission is to ensure that 
small business economic impact is considered during the federal 
rulemaking process. As you well know, I and some of my 
colleagues here, had concerns about your nomination and 
subsequent recess appointment largely due to the fact that you 
failed to identify reducing the small business regulatory 
burden and administering the Regulatory Flexibility Act as the 
central mission of your office.
    I sincerely hope that you will prove us wrong, Dr. 
Sargeant, because we expect you, as a chief counsel, not just 
to be a regulatory watchdog, but to be a bulldog for small 
business, driving small business regulatory reform issues 
within the highest levels and standing up against other 
agencies during the rulemaking process. You must act 
independently from the Administration and the SBA and match, 
and even exceed, the $11 billion in annual regulatory 
compliance savings the Office of Advocacy achieved under the 
last chief counsel. This is not a suggestion, it is a 
fundamental obligation.
    In my leadership capacity on this committee I have long 
been concerned about the mounting regulatory burden that the 
Federal Government is imposing on American business. 
Regrettably, small firms with fewer than 20 employees, and the 
Chair has already mentioned this, has born the disproportionate 
burden of complying with federal regulations with the annual 
regulatory costs exceeding $10,585 per employee for those firms 
with less than 20 employees. Those daunting figures are from 
2008, as a matter of fact, so imagine where we stand today. 
Consider that according to the U.S. Chamber of Commerce, health 
reform alone mandates 41 separate rulemakings, at least 100 
additional regulatory guidance documents and 129 reports.
    So, we should waste no time in cutting the regulatory red 
tape that is strangulating America's small businesses, they are 
hidden taxes, another layer of uncertainty to bottom line 
operating costs and is stifling job creation, hampering 
innovation, and postponing investment in the economy.
    In my numerous, recent street tours and meetings in Maine, 
aside from taxes, small businesses complained the most about 
onerous regulations emanating from every agency, every sphere 
of Washington, D.C. So, Dr. Sargeant, it is absolutely critical 
that you take immediate action to appoint your ten regional 
advocates who will be your eyes and ears on the street as to 
what issues are most pressing to small firms, and I would like 
to discuss that with you further in the question and answer 
period as to why that has not happened.
    It is absolutely critical to help you in performing the 
mission of your office. That is why earlier this year I joined 
my good friend and colleague on this committee, Senator Pryor, 
to introduce the Job Impact Analysis Act, and am pleased that 
several of those provisions were included in the recent jobs 
bill. It is absolutely vital that we take this step forward. I 
hope that you take full advantage of the additional influence 
this provision provides by setting a record for comments filed 
by the Chief Counsel for Advocacy.
    There is much more that Congress can and must do. I will 
continue to advocate for an aggressive regulatory reform agenda 
that requires the Federal Government to fully consider small 
business economic impact during the rulemaking process. For 
instance, it is about time that we in Congress receive job 
impact statements from the nonpartisan CBO that estimates 
potential job creation and job loss from regulatory 
requirements and major legislation.
    It is long overdue that we require the Federal Government 
to finally consider the indirect economic costs in addition to 
direct economic costs of Federal rules and regulations. And 
agencies must periodically review their existing regulations 
for small business impact so that agencies unnecessary and 
duplicative regulations can be stricken, and there has to be 
more than a few of those in the more than 163,000 pages of the 
Federal Code.
    Finally, I added a requirement to the Wall Street Reform 
Bill that before the new Consumer Financial Protection Bureau 
can even publish a rule, it must convene a small business panel 
to scrutinize it. Dr. Sargeant, I appreciate that your office 
will be holding a stakeholders' panel this afternoon on the 
small business review panels. I expect Advocacy to play a 
driving role in establishing them within this bureau.
    Those panels have worked exceptionally well at EPA and OSHA 
since 1996, so why not apply this requirement to every federal 
agency so small businesses are considered first, not as an 
afterthought, and it is a very critical point because I know 
that in my battle to get this done within the Financial 
Regulatory Reform Bill, there was one issue, everybody was 
saying, ``well, you know, let the rules, take effect, and then 
if they are a problem we will fix it later.'' Well, no, no, no. 
Not in this economy. Not now. Not for small businesses.
    We need to have small business effects fully examined 
before rules are ever promulgated, so that is why we have 
panels at OSHA, EPA, and now at the Consumer Financial 
Protection Bureau. Frankly, we should have panels at every 
agency.
    The same is true on the 1099 issue, I know we will have 
further discussions, so I will not get into details in my 
opening statement, but I do believe you need to be front and 
center on this issue. I must have heard it 1,000 times on my 
street tours, small businesses are extremely concerned about 
the implications and the effects of the 1099 requirement and on 
their ability to comply with it.
    It is going to be extremely onerous, without question, in 
addition to everything else that is coming their way from every 
other agency. So, I would hope that you would be front and 
center of that and I think frankly, more than just having 
confidential or private conversations with the IRS and 
Treasury, I think you should submit public comments on this 
very question to the Department, because it is vital. It is 
that crucial to the well being of small businesses throughout 
this country.
    Finally, I am deeply troubled by OSHA's several recent 
actions that could undermine the collaborative approach to 
enforcement that has worked so well since the Clinton 
Administration. OSHA recently boosted penalties and reduced the 
penalty mitigation structure for small firms with fewer than 25 
workers without first convening a small business review panel 
to consider the economic impact, and that is why earlier this 
week I joined Senator Enzi, the Ranking Member of the HELP 
Committee, in sending an oversight letter to the Labor 
Secretary probing OSHA's action and commitment to a 
collaborative approach that has always been the case. It 
concerns me that OSHA is undermining the cooperative 
relationship by taking these steps that are going to be 
additionally onerous to small business, not only increasing 
their penalties, but reducing the mitigation of penalties that 
have been in current law.
    So, with that, Madam Chair, I will submit the rest of my 
statement but there is a lot to discuss, obviously, with 
respect to these issues. Thank you.
    Chair Landrieu. Thank you. I really appreciate the 
leadership over many years of the ranking member. I would point 
out, and I am sure she is aware, that the regulatory burden of 
the United States could not possibly be the fault of Dr. 
Sargeant who just took office three months ago. Having said 
that, the rampage started prior to this Administration coming 
in, might have picked up a little bit of speed, but it started 
a long time ago and so I think in fairness to the witness who 
has just been in his job about three months.
    Senator Hagan.
    Senator Snowe. Can I just make a point?
    Chair Landrieu. Go ahead.
    Senator Snowe. Madam Chair, I was not suggesting that it 
was his fault. We have passed legislation that includes all 
that rulemaking. That is the point. Hopefully Dr. Sargeant will 
be an advocate to address many of these issues as they come 
along, because so many rules are coming down as a result of 
legislative enactment that will really pose a significant 
burden.
    Chair Landrieu. Thank you.
    Senator Snowe. So, that is why he is going to have an 
enormous responsibility to address all those issues as they 
come to the forefront, because of the magnitude and dimension 
and breadth of all these regulations.
    Chair Landrieu. Thank you, Senator Hagan.

  OPENING STATEMENT OF HON. KAY R. HAGAN, A U.S. SENATOR FROM 
                         NORTH CAROLINA

    Senator Hagan. I just wanted to say thank you, Chairman 
Landrieu, for calling this hearing and to members of both of 
the panels joining us to discuss the regulatory burdens on 
small business. We have got to do something about this. I know 
I am not alone when I say that jobs are my number one priority 
and the key to a true economic recovery is enabling our 
nation's small businesses to expand and create jobs.
    In North Carolina, too many small businesses are still 
struggling to make payroll, families are struggling to put food 
on the table and pay bills, and also, like Senator Snowe, 
having spent the past year and a half talking to small 
businesses and owners in every corner of the state, I have seen 
first hand the power of their determination and innovation, and 
what is clear to me is that North Carolina's small business 
owners want a fair shot to compete and to get back to work, and 
to help them do so, we have got to work to create a better 
environment for businesses to grow these jobs, and that is why 
it was so important that we pass the Small Business Jobs Act in 
September, which included critical provisions to get capital 
flowing to small businesses and to support the SBA's ability to 
support the small businesses and the lending nationwide.
    Finally, it is why I think today's hearing is so important. 
As the witnesses have highlighted, small businesses often face 
a disproportionate regulatory burden and the 1099 regulatory 
requirement that I know we will be discussing today, is a 
perfect example of an unintentional consequence of legislation 
that truly presents significant challenges for small business, 
and I am committed to working with my colleagues to protect 
small business owners from this burden before it goes into 
effect in 2012, and at this point, every job is critical and it 
is essential that we ensure that our small businesses do not 
have to decide between hiring a new employee and complying with 
local, state, and federal regulations that present an undue 
burden.
    So, Madam Chairman, thank you for holding this hearing and 
I look forward to the witnesses testimony.
    Chair Landrieu. Thank you.
    Senator Shaheen.

 OPENING STATEMENT OF HON. JEANNE SHAHEEN, A U.S. SENATOR FROM 
                         NEW HAMPSHIRE

    Senator Shaheen. I just want to thank you and the ranking 
member for holding the hearing this morning, and I look forward 
to hearing from our panelists.
    Chair Landrieu. Senator Pryor.

 OPENING STATEMENT OF HON. MARK L. PRYOR, A U.S. SENATOR FROM 
                            ARKANSAS

    Senator Pryor. Thank you, Madam Chairman. Thank you for 
having this hearing and ranking member, Snowe, thank you for 
your leadership on small business issues as well.
    We all know that small business is the driving force in our 
economy so this important hearing, I am glad we are having it, 
and look forward to hearing from the witnesses. Thank you.
    Chair Landrieu. Thank you. Dr. Sargeant, why do not you 
begin and let me just give you a very brief introduction. I 
know you are well known to this committee but to those that are 
observing. Dr. Sargeant, this past August, was appointed Chief 
Counsel of the Office of Advocacy by President Obama. He comes 
from an entrepreneurial background himself, previously working 
as program manager in electronics for the National Science 
Foundation's Small Business Innovative Research Program, and 
has been a cofounder of a semiconductor circuit design company.
    I want to thank you for asking me to speak at the 30th 
Annual Regulatory Flexibility Conference that was here last 
September. I enjoyed meeting many of the members that were in 
attendance and as a result of that will be having a lunch with 
the former advocates and yourself later today to talk with 
them, both those that have served in Republican and Democratic 
administrations to get some good ideas from them.
    Next, I want to welcome Mr. James White from the U.S. 
Government Accountability Office. Mr. White is the Director of 
Tax Issues with the GAO and has held that position since 1998. 
Previously he was an associate professor at Hamilton College 
where he taught public finance. We welcome you, Jim, this 
morning.
    Let us start with Dr. Sargeant.

 STATEMENT OF HON. WINSLOW SARGEANT, Ph.D., CHIEF COUNSEL FOR 
          ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION

    Mr. Sargeant. Chair Landrieu, Ranking Member Snowe, members 
of the committee, good morning and thank you for the 
opportunity to appear before you today. I am Winslow Sargeant, 
Chief Counsel for Advocacy at the U.S. Small Business 
Administration.
    In the interest of time I will summarize my prepared 
testimony and ask that my full statement be included in the 
record.
    The Office of Advocacy is an independent office within SBA. 
The views and my testimony do not necessarily reflect the views 
of the Administration or the SBA, this statement was not 
cleared by the Office of Management and Budget.
    As Chief Counsel for Advocacy, it is my top priority to 
ensure that small businesses are not unfairly burdened by 
regulations. My office does this in large part through 
monitoring federal agencies' compliance with the Regulatory 
Flexibility Act, that is why I am honored to be here today.
    I have been on the job for almost three months and Advocacy 
has been very busy during that time. Advocacy held a symposium 
celebrating the 30th anniversary of the passage of the RFA. I 
would like to personally thank Chair Landrieu for her 
participation. Advocacy also hosted a symposium on job creation 
by high impact firms. We have held nine small business 
roundtables on issues including the environment, 
transportation, labor, safety, and health, and tax. One of 
those roundtables covered the expanded Form 1099 reporting 
requirement.
    During my short time at Advocacy, I have signed 13 public 
regulatory comment letters including ones in environmental, 
education, and medical privacy and Medicare rules. At the 
recent RFA symposium, we released a new study authored by Dr. 
Mark Crain on the cost of federal regulatory burden on small 
businesses. Dr. Crain found that the total regulatory burden on 
small firms is larger than ever. As indicated on this chart, 
the smallest business, those with fewer than 20 employees, pay 
$10,585 per employee, on average, to comply with federal 
regulations. The federal regulatory burden is 36 percent 
greater on these small firms than on their large counterpart 
creating a staggering competitive disadvantage.
    Compliance with IRS tax regulations is one area where small 
business is at a severe cost disadvantage to large firms. The 
Crain study also found that the cost to small businesses of tax 
compliance is over 300 percent greater per employee than the 
cost to large companies. In September, Advocacy held a 
roundtable on the IRS Form 1099 expanded reporting requirement 
where we heard directly from over 30 small business owners and 
representatives. Participants spoke to the significant 
paperwork burden of the requirement as well as the internal 
data controls that would need to be implemented. The small 
business owners and representatives called for a legislative 
fix.
    Advocacy commends Senator Baucus, Senator Landrieu, and 
Senator Shaheen, on the introduction of the Small Business 
Paperwork Relief Act that would repeal the expanded Form 1099 
reporting requirement.
    As Chief Counsel for Advocacy, I fully support the repeal 
of this reporting requirement.
    Small businesses are also greatly concerned about the 
impact of regulations in the environmental area. Advocacy is 
currently working closely on EPA's Small Business Advocacy 
Review panels, on wood heaters, stone mortar discharge, and 
emissions from small electric utilities. An additional area I 
am focused on is the newly created Consumer Financial 
Protection Bureau, CFPB. We are working to help the bureau 
build compliance with the RFA, and especially the SBREFA panel 
process.
    I met earlier this week with the leadership of the CFPB to 
discuss implementation of the SBREFA panel process into their 
rulemaking plans. This afternoon, Advocacy will host a 
roundtable that will bring together small businesses from the 
banking and finance sector to discuss the SBREFA process at 
this new agency.
    I commend this committee on your commitment to my office 
and reducing the regulatory burden on small businesses. 
Addressing these concerns will help foster an atmosphere of 
certainty and fairness for small business, allowing America's 
greatest engine of economic growth and job creation to drive 
our economy forward.
    I look forward to continue to closely with you. I would be 
happy to answer any questions you might have.
    [The prepared statement of Mr. Sargeant follows:]

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    Chair Landrieu. Thank you so much.
    Mr. White.

    STATEMENT OF JAMES R. WHITE, DIRECTOR, TAX ISSUES, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. White. Madam Chair and members of the committee, I am 
pleased to be here to discuss the burden on small businesses of 
filing third party information returns with IRS about certain 
payments they make. The payments are labeled miscellaneous 
income and reported on Form 1099 MISC. You can see the form on 
page four of my statement.
    As the form shows, there are many categories of 
miscellaneous income, most relevant for today is non-employee 
compensation in box seven where businesses must currently 
report payments over $600 for services provided by contractors 
who are not incorporated. The Patient Protection and Affordable 
Care Act expands this reporting to include both payments to 
corporations and payments for goods. IRS uses third party 
reporting of payments to verify that the payment recipients 
include them on their tax returns.
    I want to make three points. First, third party information 
is a powerful tool for ensuring taxpayers pay the tax they owe. 
Second, reporting such information imposes a cost on the third 
parties. Third, options are available to Congress and IRS that 
could mitigate those costs.
    Regarding the benefits, third party information reporting 
increases voluntary tax compliance because taxpayers know that 
IRS knows their income. The process is shown on page six of my 
statement where a kite shop hires a contractor for $600. Both 
are small businesses. The kite shop files a 1099 MISC reporting 
the payment to IRS and the contractor gets a copy. IRS then 
matches the 1099 with the contractor's tax return to make sure 
the payments are included in income.
    The chart on page seven shows that where there is 
information reporting and/or withholding, taxpayers' compliance 
rates are high. For example, for wages and salaries, taxpayers 
misreported about one percent of their income. By contrast, 
sole proprietors, whose income is often not subject to 
information reporting, misreported 54 percent of their income. 
Information reporting has other benefits. It reduces the cost 
and intrusiveness of IRS's compliance efforts because computer-
matching substitutes for audits of taxpayers. It may also 
reduce small businesses costs of preparing their returns 
because they get summaries of payments received.
    My second point is that third parties incur costs to file 
information returns. It is difficult to estimate how large 
these costs are because businesses do not track them 
separately. In nine case studies we conducted in 2007, filers 
of information returns told us the costs were relatively low, 
but not zero, for example, one organization with a few thousand 
employees said filing a couple hundred information forms was a 
minimal additional cost. A small business told us that spending 
three to five hours per year preparing information returns 
manually. Two venders charge between 80 cents and $10 per form 
depending on the number of forms. We did not study the costs on 
third parties of expanding reporting to include payments for 
goods.
    My third point is that businesses trying to file 1099 MISC 
forms face impediments. For example, some businesses are not 
aware that they have a filing requirement. Better IRS guidance 
is one obvious solution, but it ignores the fact that many 
small businesses pay tax preparers or accountants to do their 
taxes and never look at IRS guidance. More effective, perhaps, 
would be requiring preparers to ask whether 1099s have been 
filed, or waiving penalties for late submission by first-time 
filers. Another impediment is that some businesses are confused 
about the 1099 requirements. Options here include standardizing 
the dollar threshold for reporting or increasing the dollar 
threshold to limit the number of small businesses having to 
report.
    Another impediment is determining whether the payee is 
incorporated. We were told that some businesses routinely file 
1099 MISCs for all their contractors rather than going to the 
effort of determining who is incorporated. We have suggested 
that reporting be extended to incorporated payees, but not 
payments for goods.
    IRS has already taken one step to reduce the costs of 
reporting by exempting payments paid by credit card. Other 
options include grandfathering existing business relationships, 
and exempting certain types of payments or businesses.
    Finally, the 1099 MISC filing process is not convenient. 
Payers must get tax I.D. numbers from payees, paper submissions 
must be on specially printed forms, and IRS does not have an 
online portal for electronic filing. Solutions include guidance 
to new companies about providing tax I.D. numbers on invoices, 
allowing submission of downloaded forms, and building an online 
portal.
    In summary, our tax system shifts some of the costs of tax 
administration to third parties in order to increase 
compliance, however, those costs could be reduced and still 
maintain the compliance benefits. This concludes my statement, 
I would be happy to answer questions.
    [The prepared statement of Mr. White follows:]

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    Chair Landrieu. Thank you. Mr. White, let me start with you 
on this 1099 because this is an issue that has really gotten 
everybody's attention, and I want to start with, the 
legislative history, I understand, of this provision--and I 
appreciate your testimony about the need for tax compliance. It 
is important when taxes are levied, for people to pay them, and 
it is important for the government to design systems to make 
sure that people are paying their rightful share of taxes.
    The question is, where that burden of compliance should 
fall, and my understanding of this particular provision, and I 
want you to comment, is it was established--the threshold--in 
1954. The history of the information reporting requirement, 
Congress intended the threshold amount for triggering 
informational reporting to correspond to the personal 
independent exemption level in the Internal Revenue Code.
    In 1954, that exemption was $600. Today your threshold 
stays at $600, but the dependent exemption has risen to $3,650. 
So, my question is, not the intent, but how did it stay so low 
for so long, and why wasn't it raised? Why didn't someone 
suggest that it be raised to a more reasonable threshold?
    Mr. White. There is no automatic adjustment for inflation, 
which is part of the problem, and that would be in our table 
where we suggest some mitigations. That is one of the options.
    Chair Landrieu. But in all the reports ever requested by 
any member of Congress on this subject or related, do you know 
if the IRS ever suggested this would be something that might 
make sense? And Dr. Sargeant, I know you have only been on the 
job three months, but in any of the reports that you have had a 
chance to review yet in your office, was there ever a report 
submitted that it might just be a good idea to raise the 
threshold on 1099s commensurate with inflation?
    Mr. White. We suggested it in the 2009 report. I am not 
aware of what IRS has done on this question.
    Chair Landrieu. Okay.
    Mr. Sargeant. With regard to the reports that I have read, 
I have not seen any mention with regard to the need to raise--
--
    Chair Landrieu. Okay, well, I would like to go ask both of 
you to go back and just review any of the reports that your 
individual agencies submitted, to let this committee know if 
this was ever flagged or brought to anyone's attention, because 
if not, what it tells me is there is a systematic malfunction 
somewhere in this government where there is really no entity 
kind of looking out for how to just sort of automatically 
adjust these requirements, and if it is going to take an Act of 
Congress to adjust every single one of them, we are going to be 
spending an awful lot of time and creating an awful lot of 
havoc when something could be done quite more efficiently in an 
administrative way.
    Now, we are going to repeal 1099, but the time and effort 
it takes to do this could have been avoided in some way had 
there been some sort of system of just, you know, regular 
review. And I think, Dr. Sargeant, it leads me to the--
hopefully the purpose of your office is exactly this, to be 
exploring and evaluating new proposed regulations and how they 
might effect small business, reviewing long time regulations.
    In fact, I think in the law, you know, and I am on a little 
bit of a learning curve here, but I think that in the law there 
is something like every ten years the Office of Advocacy 
conducts a detailed examination of the cost of federal 
regulation. There is a time frame, if the staff could--there is 
a specific time frame for reviewing. I think if a law is ten 
years old--are you following what I am saying?
    Mr. Sargeant. Yes.
    Chair Landrieu. Is not that part of your portfolio of 
responsibilities?
    Mr. Sargeant. Senator, under the RFA Section 610 calls for 
a periodic review of rules, but that is done by the Agency, and 
so we will continue to work with the Agency to review those 
rules----
    Chair Landrieu. But what role do you have as that Agency 
reviews its ten-year-old rules and regulations? Do they call 
you in or your office in to do that review with them? Do they 
do a first draft and submit it to you for review?
    Explain a little bit about how that works.
    Mr. Sargeant. What has happened in the past is that small 
businesses would reach out to us to make their comments known 
about various rules that are on the books, and so we would 
reach out to these agencies to review these rules, and by law, 
under 610, they have to review these rules every ten years. 
Rules that are on the books more than ten years, they have to 
be reviewed to see whether these rules are necessary. So, we 
continue to reach out to these agencies to make sure that they 
are doing this review.
    Chair Landrieu. Okay. Let me ask you this. Your office has 
been involved, as you said, on behalf of several small 
businesses. I understand that your office can do your most 
effective work when you are able to coordinate with agencies 
early in their rulemaking process. I really need you to try to 
give me one or two specific examples, since you have been in 
your office, about how that process has worked and with what 
specific agencies, let us say in just the last couple of 
months, that they have called you in early on when they are 
thinking about rules, whether it is Fisheries, or OSHA, or any 
other agency out there.
    Mr. Sargeant. Well, Senator, we have held nine roundtables 
since I have been in office, and what we do is that we work 
with small businesses and we also----
    Chair Landrieu. But nine roundtables where? In the country?
    Mr. Sargeant. Roundtables in D.C. itself.
    Chair Landrieu. In D.C. with small businesses?
    Mr. Sargeant. With small businesses, but also with 
representatives from the various agencies. We held a roundtable 
with Labor because there was a concern with what we call the H-
2B rule. This would have a significant impact on small 
businesses, and so what we did is that we brought together 
those that would be impacted by this rule, but also we made 
sure that Labor, those who were writing the rules, were in this 
room and we assured Labor that this would not--that we would 
make sure that it will be a good dialogue in terms of small 
businesses would be able to voice their concern and those who 
are writing the rules would be able to respond as to why they 
think these rules are necessary.
    So, that is one example that we played very early on.
    Chair Landrieu. So, you are using a roundtable model 
specifically called on a specific regulation. You bring the 
department that is either writing or renewing the regulation 
with small business. Those are public meetings. You have had 
nine of them in Washington.
    Mr. Sargeant. Yes.
    Chair Landrieu. You can submit a list to us of what they 
were and what topics and your recommendations from each----
    Mr. Sargeant. Yes.
    Chair Landrieu. I am assuming?
    Mr. Sargeant. Yes, yes. Yes, Senator.
    Chair Landrieu. Okay. Mr. White, my last question I will 
turn it over to Ranking Member Snowe, do you have any other 
suggestions in terms of the latest one or two reports that GAO 
has issued about specific action this committee could take to 
either increase our investment in this area or give more 
support to this office or a process that could be put into 
place that would help us to identify more quickly rules and 
regulations that are having, you know, a detrimental effect on 
small business and making the appropriate or necessary changes?
    Mr. White. I think with respect to taxes, which is what I 
know about, one thing to watch is the new credit card reporting 
requirements that have been put in place, and IRS has already 
said, the Commissioner has already stated, that IRS will 
rescind the 1099 reporting requirements for businesses that 
make their payments by credit cards because those payments are 
going to be recorded in the future to IRS.
    IRS is in the process of implementing that process, and so 
this may be a mechanism to reduce the burden of 1099 reporting 
if this credit card reporting turns out to be an effective 
substitute for that, so I would watch the effectiveness of that 
and what the impact is, specifically, on 1099 filing of that 
program.
    IRS also, in recent years, has undertaken a lot of 
additional research on the causes of noncompliance by 
businesses, particularly small businesses, and as the results 
of that research come forward, I think there will be more 
information about the burden on small businesses of complying 
with certain requirements. We had recommended that IRS, as part 
of that research process, focus specifically on the 1099 issue 
and they had agreed to do so.
    Chair Landrieu. Thank you.
    Senator Snowe.
    Senator Snowe. The more we discuss these issues, it 
underscores that we ought not pass regulations without knowing 
the effects before their implementation or enactment. The 
bottom line is, today, small businesses disproportionately bear 
the weight of what is happening. Dr. Sargeant, I recommend that 
you take Main Street tours before the reality becomes pretty 
clear and stark about what is happening. The cause and effect 
of actions here affecting Main Street is pretty evident. We 
have to reorganize this whole regulatory process, and in the 
meantime aggressive advocacy is necessary on your part, and 
rigorous examination of all of these potential regulations 
coming down.
    Wall Street reform resulted in 553 new regulations. In 2010 
the Administration promulgated 43 major new regulations from 
various agencies. There were 41 separate rulemakings in the 
healthcare reform in addition to another 100 additional 
regulatory guidance requirements within the healthcare reform 
law that was enacted this year.
    So, all of this is going to require a major burden in your 
office, and that is why I would like to know exactly what plan 
you have developed to respond to all of these rules that will 
be coming to the forefront that are going to have enormous 
implications on small businesses across this country?
    Mr. Sargeant. Senator, with regard to the CFPB, and thank 
you, Senator, for being--for your commitment to the office. We 
now have oversight with regard to CFPB via the SBREFA Panel 
process. We have met with the staff at CFPB. They have also 
come over to the Office of Advocacy, and so it pays to work 
very early on. You know, what is good about this new agency is 
that it is a new agency and so it does not have some of the 
histories of not in compliance, so we are working with them and 
we have training in terms of, you know, this is the RFA.
    We have done about 40 panels with EPA and another 12 with 
OSHA, so we have a lot of examples of running the SBREFA 
Panels, and so there is a roadmap, there is a flow chart that 
we can share with CFPB to make sure that they are in 
compliance, kind of the best practices, and so we have 
encouraged them to work with us very early on to avoid some of 
the holes, some of the pitfalls, that could result in not being 
in compliance because the SBREFA process really works, and it 
results in better rules because it brings small business in 
very early and so we know that small businesses have--they 
agree that SBREFA works, so does the Agency, so that is why it 
is very important for us to work with CFPB to make sure they 
buy in.
    Senator Snowe. Well, in that instance, because of the 
requirements in the law--now, is the panel going to be up and 
running and that process underway before the bureau is 
established? The point is, we do not want to have the bureau 
established and they go running forward with all these 
regulations and eventually we get around to setting up the 
Small Business Review Panel.
    How is that going to work?
    Mr. Sargeant. Well, under 609(a), there is a process and a 
timeframe that has been laid out in terms of what you need to 
do, what type of notification that must be given for the SBREFA 
Panel process. Now, I have met with the staff at CFPB and they 
are not--they do not have enough staff yet. They are very early 
on but we continue to work with them to make sure that they do 
not get ahead of themselves in writing rules.
    Senator Snowe. Are you taking steps overall to triage all 
these new regulations that are going to be coming to the 
forefront among the various newly enacted legislation and all 
the other regulations? Do you have a plan to implement all that 
and to respond to that because there is a breadth of 
regulations?
    Mr. Sargeant. Well, Senator, I am pleased to have a staff 
of very talented lawyers who work with the various agencies to 
make sure that they are ahead of the process and they have very 
good contacts with these agencies to make sure that any rules 
that are in process that we can make sure that they follow the 
RFA process.
    Senator Snowe. Exactly why is it that you felt it was 
necessary to deal more confidentially with the Treasury 
Department, on the implementation of the 1099 requirement? I 
mean, they call for a public formal response. Why is it that 
your office did not do that on this critical issue?
    Mr. Sargeant. Senator, before I joined the Office of 
Advocacy, the Office was, very early on, involved with the 1099 
back in June, and so they were contacted by small businesses, 
because this 1099 provision is burdensome. As someone who comes 
from small business and who has to respond to the paperwork, 
you know, anyone who came from small business would have never 
advocated side to provision, but once I got into the office, 
what we did is that we held roundtables with both small 
businesses and also the trade associations as well, and what 
came out of this meeting is that this was a reporting 
requirement. This was not a fix; this was a, how to report 
1099s, just like James said, with regard to credit cards. 
Credit cards would be exempt.
    What we found is, you know, many small businesses do not 
use credit cards, they use cash, and credit cards have fees, 
and so once again, that was not good for small businesses, but 
what came out of the panel is that they said, you know, this 
still does not solve the problem of the 1099 reporting 
requirement. What you need is a legislative fix, and so 
immediately after the panel I contacted the IRS chief counsel 
to have a meeting to share with him the concerns that small 
businesses have. With regard to the interagency confidential 
process, that was instituted by Executive Order 13272 by our 
previous president, and that has worked well in terms of making 
sure that rules would not even--rules would not come to the 
fore, that they will be less burdensome.
    So, it is a process that has been used, and my predecessor, 
Tom Sullivan, also used it very well, as well, and so I thought 
that it was worthwhile to use it.
    Senator Snowe. I have other questions, Mr. White, but I 
will wait during my second round. Thank you.
    Chair Landrieu. Okay.
    Senator Shaheen.
    Senator Shaheen. Thank you, Madam Chair. Mr. White, you 
provided us with a very, I think, good list of ways to address 
the 1099 reporting requirements. Now, I certainly agree with 
the Chair and Ranking Member that we are going to repeal that 
requirement through legislation, but it is an interesting list, 
I think, with respect to other reporting requirements that 
exist for small businesses.
    So, how many of these things can be done with that 
legislative action and how many are being contemplated by your 
office as you think about other reporting requirements for 
small business?
    Mr. White. Most of them could be implemented by IRS, some 
of them might require legislative action, and most of them also 
have pros and cons, so what we have done with IRS is, in some 
cases, make recommendations that IRS gather more information, 
for example, so that there is better data about exactly what 
those pros and cons are. Part of the problem with the new 
requirement for information reporting on goods is there is no 
information out there about the number of firms that would have 
to do such reporting, how many reports each firm would have to 
file or what the cost of filing those kinds of reports would 
be. That is the sort of information you would like.
    Some of the options are thinking creatively about the 
problem and ways to address it at lower cost. For example, many 
small businesses either are unaware that they have got a 1099 
filing requirement, the current--under current law, the current 
requirement.
    Senator Shaheen. Okay, but I do not want to talk about 1099 
because I think that is going away. So, talk to me about other 
regulations that small businesses have that--and you said you 
have made recommendations to the IRS relative to many of these 
items. Do you know what the status of their review of your 
recommendations are and what the status is? And whether they 
are moving forward on this?
    Mr. White. They have been very responsive in our moving 
forward with some of our key recommendations, so there are 
current--there are information reporting requirements under 
current law that would stay in place and as I said a minute 
ago, we recommended that IRS, as part of their ongoing research 
efforts, make that a special focus.
    In the past, information reporting was not a focus of IRS 
research. We asked them to include them in their research plans 
going forward. It is a very systematic, sophisticated research 
effort that they have got underway and they have incorporated 
information reporting into that.
    Senator Shaheen. Do you think that this committee could get 
the list of recommendations that you have made to the IRS and 
perhaps we could get a report on where they are in looking at 
those?
    Mr. White. Yes. Absolutely.
    Senator Shaheen. Thank you.
    Dr. Sargeant, one of the things that you and Mr. White 
actually both have alluded to is the importance of leveraging 
our existing support structure for small businesses to help 
them learn about what their regulations are and appropriate 
compliance. Can you talk a little more about what you are doing 
in that respect, about how you envision using part of the SBA 
apparatus, for example, like the Small Business Development 
Centers, to help do that? Or is that part of what you are 
thinking?
    Mr. Sargeant. Senator Shaheen, the small businesses need to 
know how to comply with regulation, but they also need to have 
a mechanism to have their voice heard, and so that is what the 
Office of Advocacy does.
    With regard to the SBDCs, they are SBA, and although we are 
independent from SBA, we sometimes work with SBDCs to make sure 
that there is a forum or there is an avenue for those 
businesses to seek training and to know more about some of the 
programs that are available for small business.
    With regard to outreach, outreach is very important and 
that is why we are very aggressive in making sure that we bring 
on the ten regional advocates. You know, it has been almost two 
years not having regional advocates and they are our eyes and 
ears on the ground, and that is the direct contact where small 
businesses in each region because we recognize this is not a 
one size fits all. What goes on in Iowa may be different than 
what goes on in D.C., and so it is very important to have 
someone on the ground, a contact, so that a business who may 
have some concerns or they may--they are not sure what is 
coming out of D.C., that they would be able to contact that 
person so that their voice is heard.
    My focus is to make sure that the voice of small business 
is heard at all levels of government.
    Senator Shaheen. And can I just ask one final question, 
Madam Chair?
    Chair Landrieu. Go ahead.
    Senator Shaheen. When you said you have ten regional 
advocates, can you tell me where the Regional Advocate for the 
northeast is located?
    Mr. Sargeant. The Regional Advocate for the northeast? Oh, 
the Regional Advocate of the northeast is located in Boston and 
we are in the process right now of bringing them on. We have 
identified a few, but once we have identified the advocate, 
there is the process that you have to go through to get them 
in, in government, the background checks, but we hope to have 
all ten by the first of the year.
    Senator Shaheen. So, we do not actually have somebody hired 
for the position right now to serve the state of New Hampshire?
    Mr. Sargeant. Well, we have the person and they are going 
through the process right now. They have been identified, it is 
just dotting the i's and crossing the t's in terms of becoming 
a federal employee.
    Senator Shaheen. And that person--those folks do not need 
approval by Congress, Senate approval, do they?
    Mr. Sargeant. Those folks do not need Senate approval, but 
they still need to go through the government process.
    Senator Shaheen. Thank goodness. Thank you.
    Chair Landrieu. Dr. Sargeant, let me clarify something and 
then I will recognize Senator Snowe for one more question and 
then I would like to move to the second panel. I appreciate 
Senator Risch being with us.
    Let me ask you this. How long have those regional offices 
been vacant? I am aware that they are vacant now, I just 
assumed that was a recent occurrence, but you said they have 
been vacant for a while?
    Mr. Sargeant. They have been vacant almost--I would say 
almost going on two years.
    Chair Landrieu. Two, okay.
    Mr. Sargeant. It has been a while.
    Chair Landrieu. So, they were all full in the last 
administration?
    Mr. Sargeant. Yes.
    Chair Landrieu. And then with the change, they just--those 
positions just have not been filled because your position was 
not filled until three months ago, right?
    Mr. Sargeant. That is correct. Yes.
    Chair Landrieu. And you are still on only a recess 
appointment because of some opposition. Is that correct?
    Mr. Sargeant. That is correct.
    Chair Landrieu. Okay, so it is very important, I believe, 
and I am going to ask my colleagues to carefully think through 
the importance of establishing this director permanently, 
getting this office staffed up. It is crucial, as our office, 
to mitigate against unnecessary and burdensome rules. If we do 
not give them the tools they need and the employees they need, 
we cannot then expect them to do the kind of work we are 
requiring them to do.
    So, I am asking my colleagues that are here and not here, 
to consider the importance of this, and I most certainly will 
commit to you to work closely with your office over the next 
several weeks to identify, you know, really good, aggressive 
people.
    On that goal, let me just say this. In addition, Senator 
Snowe, I think we have to think about if this office is 
actually strong enough, even when fully staffed, this is the 
organizational staff I just received. There are ten attorneys 
in the country--slots for ten attorneys and nine advocates. It 
has 19 people on one side, and the entire federal bureaucracy 
on the other. So, I think we have to be reasonable in what we 
expect this office to be able to do in this circumstance.
    Now, I am happy to say I have just introduced a bill or 
will be introducing a bill today looking for cosponsors that 
strengthen this office. If there was ever an office that needed 
to be strengthened, I would think that this would be one, so 
that they can do the things we are asking them to do, which is 
to minimize unnecessary burdens on small business so that they 
can work. And I will look forward to working with you on that.
    But Senator Snowe, let me get to you. But on the record I 
want to say one thing. David, a banker from Louisiana in my 
opening statement, I wanted to put this in the record, 
testified yesterday on our roundtable about additional 
regulations. His small bank, $150 million bank, New Roads, 
Louisiana, a tiny little, beautiful little town in Louisiana, 
$17,000 in 2008, $137,000 in 2009, and $220,000 in 2010. That 
is just FDIC insurance increases.
    Senator Snowe.
    Senator Snowe. Thank you. Your singular mission, Dr. 
Sargeant, is on the whole rulemaking process, and making sure 
that these regulations are not burdensome to small businesses 
and getting ahead of the train, and that is absolutely, 
indisputably critical. I hope that is all you are focusing on 
because it is undeniable what is happening across the country 
in this sphere alone. Many have labeled it as a de facto tax, 
it certainly is, and so if you need any other resources, step 
forward.
    It is too bad about the Regional Advocates, I know in the 
northeast we have an outstanding individual, and that those 
individuals did not carry over until their replacements came to 
the forefront. I believe that would have been a better way to 
have done it, but that was not in your sphere of decision-
making because I think otherwise it should have carried some 
continuity in this critical area at this perilous economic time 
for small businesses and the economy as a whole.
    Mr. White, on the issue of 1099, you mentioned 
specifically, I wanted to ask you--there has never been a cost 
benefit analysis done on 1099s as it would apply to goods, is 
that correct?
    Mr. White. Not that I am aware of. I have never seen one. 
As I said, there is not even an estimate in the number of firms 
that would have to file.
    Senator Snowe. So, the other dimension to all of this is 
the impact that this is going to have because we have no way of 
knowing the degree to which it is going to affect small 
businesses in complying with this regulation.
    The National Small Business Network estimates that 1099 
mandates would cost businesses and the IRS at least 100 times 
more to administer than the average $1.7 billion it will yield 
annually. So, obviously, it is important that we have the 
ability to look at this very carefully. Hopefully it does get 
repealed soon, and unfortunately it did not happen earlier, but 
I hope it does happen now in this Lame Duck because I think it 
is going to represent serious consequences. It is one more 
aspect to why businesses are not going to invest in the future 
when they start adding and calculating the costs of doing 
business. And without such an analysis, there is no way to know 
exactly how much this will cost small businesses.
    I have no doubt it is going to be an inordinate burden on 
them. Thank you.
    Chair Landrieu. Thank you, Senator. I would like to move to 
our next panel, if we could. I appreciate the cooperation of 
the members. And thank you all very much.
    To save time, as they are coming forward, let me introduce 
Mr. Roger Harris, president and chief operating officer of 
Padgett Business Services. He brings over 30 years of 
experience in accounting and financial experience in the 
service and retail industries. He is a resident of Athens, 
Georgia. And we welcome him today.
    Larry Nannis is a CPA.
    [Bangs gavel.]
    Chair Landrieu. Thank you for your cooperation. Mr. Nannis 
is a CPA, has over 40 years of serving small businesses and is 
currently chair of the National Small Business Association. We 
welcome Mr. Nannis with us today.
    Next, Mr. Andrew Langer, president of the Institute for 
Liberty. He came from the Institute from the National 
Federation of Independent Business. We thank you for being 
here, Andrew.
    Finally James Gattuso is a senior research fellow at the 
Heritage Foundation specializing in regulatory and 
telecommunications issues. I would like to start with Mr. 
Harris, if we could, and as you all know, we have asked you to 
limit your opening remarks to five minutes. We have reviewed 
your testimony, we have highlighted it, we appreciate it. If 
you want to summarize it, that would be terrific.
    Mr. Harris.

   STATEMENT OF ROGER HARRIS, PRESIDENT AND C.O.O., PADGETT 
              BUSINESS SERVICES/SMALLBIZPROS, INC.

    Mr. Harris. Thank you, Senator Landrieu, Ranking Member 
Snowe. It is a pleasure to have the opportunity to be back 
before the committee again.
    Chair Landrieu. Just speak a little bit into your mic; you 
have to kind of lean forward.
    Mr. Harris. My name is Roger Harris, president of Padgett 
Business Services. We have been providing accounting and tax 
services to small business owners for over 40 years, and just 
to give you an idea of who are client is, it would be 
represented by the chart on the left, the less than 20 
employees, so the burdens that our clients are seeing in 
regulation and compliance is very heavy.
    I think what someone once described a small business owner 
as, is someone who has the opportunity to do the one thing they 
love and the 99 things they hate. And record keeping and 
compliance would probably top the list of the 99 things that 
they hate, and every minute or every dollar we take from them 
from doing the one thing that they love and make them spend it 
on one of those things that they hate, it makes them less 
productive and have less of an opportunity to help us when we 
need them the most at this time to get out of the economic 
difficulties that we are in.
    There has been a lot of discussion about 1099s and I want 
to first of all commend the Chairman for being a sponsor of the 
repeal which I think is ultimately what we need in this 
process, but I think even if we get repealed, we can still 
learn from what we are going through. I think what we see is 
that we have made some assumptions and we heard today that 
third party reporting does, in fact, help compliance.
    That does not necessarily mean that all third party 
reporting is good, and when we jump to conclusions that we can 
have a system that is currently in place, which deals with the 
non-corporate taxpayer and a level at $600, and just advance it 
into the corporate world and leave the amount the same, we end 
up with a cost benefit analysis. I am not sure if anyone has 
done one, but I am not sure it is necessary. I think we all 
recognize that the amount of burden that we would place on our 
small business owners and the amount of benefit to the system 
would not be very great.
    And I think that we have to make sure that any time we are 
going to assess burden on a small business owner that we look 
back and understand the real cost in what that is, and 
sometimes, I think, we do not take enough time to examine what 
we are doing, we just do it, and let them absorb it. And they 
will absorb it. They will complain about it, I can tell you, I 
have never heard complaints like I have heard this year about 
1099s, and on behalf of our offices and our clients, thank you 
for issuing the repeal.
    But we need to not make this kind of mistake again. We need 
to make sure that as we go forward, we look for ways to 
minimize the burden on the small business owner if we expect 
them to help us through this recovery. And I think if we just 
looked at the pure numbers of small business owners that are 
out there, and if we could somehow just empower them to add one 
person to their payroll, the impact that we would have in this 
country would be tremendous. And we can do that if we are smart 
in how we regulate and how we ask them to comply.
    I will make two other quick comments and then I will 
reserve the time for the others and look forward to your 
questions.
    The most recent study that I have seen from the IRS said 
over 85 percent of all small business owners need the services 
of a tax preparer. For me, that is good. For the country, that 
is not. We have to address the overall compliance burden and 
where more and more people feel like they are qualified to take 
care of their own obligations.
    Secondly, one of the biggest and this chart is a great 
example of that, one of the most onerous parts of any small 
business is the cost of dealing with employees and while we 
have--at Padgett we are fortunate to have 300 offices in the 
United States, we have 100 in Canada.
    So we are able to compare and I can tell you, the system 
here is vastly more complicated than the system our Canadian 
offices have to follow through. We have thousands of taxing 
jurisdictions, they have a handful. They have predominantly 
annual filings, we have more filings than we can keep up with.
    Just last week, because we are in all 50 states and we 
provide the regulatory software for our offices, we got 17 
changes in one day from 17 different states, and so I think one 
of the ways that we have to address, is we have to look at 
burden in its total and each of us can justify the rule that we 
want to pass or the obligation that we are passing, but we must 
recognize that this is also taking place at a state level, at a 
local level, at an industry level, and all other places, and 
until we address burden in total, I am afraid that we are going 
to continue to raise that cost of the most precious asset we 
want our business owners to have, which is a new employee.
    Again, thank you for the opportunity to be here today, it 
is a pleasure, and I look forward to your questions.
    [The prepared statement of Mr. Harris follows:]

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    Chair Landrieu. Mr. Harris, let me thank you, and I want to 
assure you that I, as the Chair of this committee, will be 
calling on you regularly with the expertise that you and your 
firm have, because I think it is particularly important to have 
that breadth that broad view, not just a specific view, as we 
really try to make an impact here.
    This is not a fly by night effort on this committee's part. 
We are going to be at it for as long as I am the Chair and the 
Raking Member has been a real leader in this effort as well, so 
as long as the two of us stay in the leadership of this 
committee, I can promise you this is just the beginning of our 
efforts to really get a handle on this and make some 
significant changes, and we hope that you will be available to 
us as we move forward.
    Mr. Harris. Thank you. I would welcome that.
    Chair Landrieu. Thank you.
    Mr. Nannis.

  STATEMENT OF LAWRENCE S. NANNIS CPA, CHAIR, NATIONAL SMALL 
                      BUSINESS ASSOCIATION

    Mr. Nannis. Chairwoman Landrieu, Ranking Member Snowe, and 
members of the committee, I want to thank you for the 
opportunity to testify on ways to reduce the regulatory and 
administrative burdens placed on America's small business.
    My name is Larry Nannis. I am a certified public accountant 
and partner in the firm of Levine, Katz, Nannis and Solomon 
located in Needham, Massachusetts. We provide financial 
management and tax advise to entrepreneurial firms.
    I am also serving as the chairman of the board of the 
National Small Business Association.
    Small business owners face an overwhelming regulatory 
burden in complying with Internal Revenue Service regulations. 
The burden is not only a heavy one, but is disproportionate as 
well, and as you heard from Dr. Sargeant, the cost of tax 
compliance for small firms is 67 percent higher than for their 
larger counterparts. For firms with fewer than 20 employees, 
the per employee cost of complying with the tax code is $1,304.
    Before I go on, though, I would like to thank Chairwoman 
Landrieu and Senator Shaheen for your courageous moves 
yesterday in cosponsoring the legislation that would repeal the 
expanded Form 1099 reporting requirements. Less there are some 
who believe that this is not the correct response, permit me to 
briefly explain why this repeal is so necessary. Section 906 of 
the Patient Protection and Affordable Care Act would mean that 
every small business owner, including me, will face an 
increased paperwork and administrative burden for each 
additional 1099 form prepared.
    In fact, LKNS, if the law had applied in 2010, we would 
have increased our 1099 production from two to 79, and in 
reviewing the records of a lot of my clients, the minimum 
impact on the number of forms that would have had to have been 
created was threefold.
    Additionally, many small businesses, in an attempt to 
reduce data collection and paperwork burdens, will simply 
reduce venders and refuse to entertain new business dealings. 
This will have a disproportional impact on small businesses and 
entrepreneurs attempting to get a foot in the door.
    Although this could simplify the accounting burden, it 
would have a devastating competitive impact on small, local, 
independent businesses who now sell the same services or 
products to other businesses. NSBA has been adamant that the 
only solution to this huge problem posed by the new 1099 
reporting provision is full repeal, and Chairwoman Landrieu and 
Senator Shaheen, it appears as if you agree.
    Unfortunately, perplexing paperwork and an oppressive 
federal regulatory regime continue to overburden innumerable 
small business owners across the country. SBA research 
demonstrates, as the chart shows, that in total companies with 
fewer than 20 employees pay more than $10,585 per employee to 
comply with federal regulations. For large firms it is 36 
percent less.
    Despite the efforts of SBA's Office of Advocacy, which 
reports that its intervention results in foregone first year 
regulatory cost savings of $7 billion in Fiscal Year 2009, the 
federal regulatory and paperwork burden continues to balloon 
and is now at approximately $1.75 trillion.
    In the written testimony that you have received, we have 
outlined many ways that the administrative burden on small 
business should be reduced and I urge you to consider them. In 
the interest of time I would like to highlight two of them, one 
of them brought up by Ranking Member Snowe earlier.
    Federal agencies should be required to perform and submit 
cost benefit analysis on proposed regulations and paperwork. 
This is a routine business practice that federal agencies would 
be well served to emulate.
    In the tax area, NSBA believes efforts to reduce the 
regulatory and administrative burdens on small businesses must 
focus on overall simplification, eliminating inequities within 
the Tax Code, and enhancing taxpayer education and outreach. 
Congress should stop trying to impose more burdens on taxpayers 
and replace the current Tax Code altogether with something that 
makes more economic sense, such as the Fair Tax. A long time 
proponent of the Fair Tax, NSBA believes that now, more than 
ever, a sensible, fair method of collecting taxes is needed 
contrary to the present system. Perplexed, bothered, and 
bewildered American taxpayers spend $265 billion in recent 
years just trying to comply with tax laws and regulations.
    Now, those willfully disregarding their tax liabilities 
should be held accountable, but with the complexity facing many 
taxpayers, NSBA believes a key priority should be the 
development and implementation of initiatives to improve IRS 
guidance. NSBA concludes that the committee should work with 
the IRS to conduct more research to better identify 
noncompliant taxpayers, enhance taxpayer services to inform 
taxpayers of correct tax obligation, and adjust its enforcement 
tools to target those who intentionally evade paying taxes. 
Adding new burdens and requirements on small businesses already 
struggling to do the right thing is simply the wrong answer.
    It is my hope that Congress and the Administration can work 
together toward the straightforward repeal of the 1099 
provision. Now is the time for Congress to support proposals 
that are fair and reasonable and that do not hinder the 
survival, growth, and innovation of our nation's entrepreneur.
    I would like to thank Chairwoman Landrieu for holding this 
hearing, bringing this proposal to the forefront, and for the 
opportunity to testify. Thank you.
    [The prepared statement of Mr. Nannis follows:]

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    Chair Landrieu. Thank you, Mr. Nannis. Let me just clarify 
for the record, you said the figure was $250 billion annually 
for compliance?
    Mr. Nannis. Correct.
    Chair Landrieu. Could you restate that? Is it $258?
    Mr. Nannis. $265 billion.
    Chair Landrieu. $265 billion annually.
    Mr. Nannis. In recent years, just to try to comply with the 
tax laws and regulations.
    Chair Landrieu. And that would be tax laws, federal, state, 
and local, you think?
    Mr. Nannis. Correct.
    Chair Landrieu. Okay, federal state and local.
    Mr. Nannis. Correct.
    Chair Landrieu. So, it would be all.
    Mr. Langer.

   STATEMENT OF ANDREW LANGER, PRESIDENT, THE INSTITUTE FOR 
                            LIBERTY

    Mr. Langer. Thank you. And thank you for having me here, 
Madam Chairwoman and Ranking Member Snowe, especially, thank 
you as well for inviting me.
    My name is Andrew Langer. I am the president of the 
Institute for Liberty. We are a 501(c)(4) advocacy organization 
based here in Washington, D.C. and we focus on the impacts of 
the federal regulatory state on small business. I have been 
working on these issues for almost my entire career in D.C., 
first working with an environmental attorney on the impact of 
environmental regulations on jobs, and then working for the 
National Federation of Independent Business, as you said.
    This is a serious problem, and I always get buoyed when I 
come before a body such as this and hear advocates like you 
really understand, fully understand, what we are facing here. 
One of the issues that I have found in the last two years, as 
our economy has slipped into the doldrums, is that folks simply 
do not understand the role that regulations have played in 
where we are today. A couple of weeks ago I debated a 
gentleman, a pundit from CNN, who completely dismissed the idea 
that the $1.75 trillion regulatory state has any impact 
whatsoever on our ability to create jobs. But as you so 
adequately said earlier, the fact that, you know, if we offer 
some meager tax credit to a small business, it gets dwarfed by 
the $11,000, $10,600 cost that is out there.
    For a business with ten employees, it is $106,000 every 
year that goes out the door.
    And we talk about money, and that is important. I also talk 
about time, as was referenced earlier on. We have to be 
focusing on the issue of time management and the impact that 
agencies put on the mandates that agencies put on individuals 
in how they deal with things frequently. We can talk about 
$1.75 trillion or the $10,600 number, but we also need to be 
thinking about the fact that every seven and a half hours that 
an agency puts on a small business owner's time is a full day's 
worth. And with any, you know, in any business, it is between 
200 and 250 days per year that they can get out of their 
employees. Every day that is lost is a half percent of that 
employee's productive time.
    So, when we are talking about tax burdens and we are 
talking about three to five hours, that is a half a day of 
somebody's time that they are not spending being productive in 
their business. And so, it is one of the things that we have 
recommended at the Institute for Liberty, and I have 
recommended while I was at NFIB, that we need to get the 
agencies to start discussing burden, not just in terms of 
monetary value, but in terms of time as well. And I will talk 
about that more in a moment.
    This issue of cutting regulatory costs, as I said, cannot 
be ignored. If we cut regulations--regulatory costs by 30 
percent, we can save the economy roughly $600 billion, which is 
the rough equivalent of the first stimulus package that was 
passed by Congress and signed by the President. Without 
spending a dime of federal taxpayer money, we inject the 
economy with an influx of capital, of time and of energy.
    That translates into jobs. You save a business $30,000. If 
they are spending $106,000, $30,000 that they save is the 
equivalent of hiring one person with benefits, and when you do 
the math, saving $600 billion for small businesses means that 
we could virtually wipe out the unemployment rate in America 
today. We have to take the steps to do that.
    One of the things that was discussed in the first panel is 
this issue of regulatory budgeting, the role that Congress must 
play in dealing with these issues. I think that is absolutely 
essential that Congress steps forward and begins to do some 
sort of an assessment of the impact of the new mandates that 
they are putting out there, because it does start the way--and 
you were very right in your introductory remarks, Senator, when 
you said that this started, did not start with this 
Administration, it was accelerated, it has been accelerated by 
a tremendous amount in the last 18 months, but it did start 35 
years ago.
    We can actually start directly the evisceration of 
America's manufacturing sector with the rise of the three great 
regulatory regimes in the early part of the 1970s. This is 
going to take a long time to undo, but we have to start today. 
The fact is, that over the last decade, regulatory costs grew 
by about 10 percent every five years or so. That cost 
skyrocketed in the last five years to, went up 37 percent from 
$7700 per employee per year to $10,600.
    One of the things we have to get a handle on, and I will 
say this in sort of my conclusory remarks, is that we have to 
get a handle on the indirect impact that regulations have. S. 
3024 was a great step in the right direction and to build on 
that we have to get at this issue of indirect economic costs.
    Senator, in your home state of Louisiana, one of the things 
that would have been very, very helpful, I think, over the last 
year, would be how the--the impact of the off-shore drilling 
moratorium did not just impact the oil industry, but impacted 
the small businesses in your state, and frankly, small 
businesses all around the country, because the fact is that one 
of the things that drove this economy under was not just the 
burst of the housing bubble, but it was the run up in energy 
prices two years ago that small businesses could not face.
    The fact is----
    Chair Landrieu. You have got to wrap up.
    Mr. Langer. I am. I am wrapping up right now.
    Chair Landrieu. Good.
    Mr. Langer. I just want to say, the bottom line is that 
offices like the Office of Advocacy have to be protected by 
this body, they do essential work. I think unfortunately that 
there are folks in the Administration who simply do not place 
an emphasis on the regulatory burden. That needs to stop.
    [The prepared statement of Mr. Langer follows:]

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    Chair Landrieu. Thank you, Mr. Langer. I appreciate it. 
Very articulate.
    Jim.

STATEMENT OF JAMES GATTUSO, SENIOR RESEARCH FELLOW, REGULATORY 
                POLICY, THE HERITAGE FOUNDATION

    Mr. Gattuso. Thank you. Madam Chairman, members of the 
committee, thank you for the opportunity to testify today on 
this important topic.
    Every year Americans are reminded of the costs of federal 
taxation when they file their income tax returns to the IRS.
    Chair Landrieu. Try to speak into your mic a little bit 
more.
    Mr. Gattuso. I am sorry.
    Chair Landrieu. It is okay.
    Mr. Gattuso. They see a clear and specific bottom line 
telling them how much they paid into Washington. Not so with 
the cost of regulation. These costs are hidden, embedded in the 
prices of products and services, in reduced innovation, and 
lost jobs. And by any reckoning, these costs are substantial. 
As you have heard according to the report released by the Small 
Business Administration, these costs have been estimated at 
$1.75 trillion annually and the regulatory burden falls 
disproportionately upon small businesses.
    I did not want to be the only witness today not to say that 
because I think we have heard that number many times today. But 
as important, these costs are increasing. According to a recent 
report we completed at the Heritage Foundation, in Fiscal 2010 
alone, some 43 major new rules increasing regulatory burdens 
were issued by federal agencies. The total costs for these 
rules, based on estimates by the regulators themselves, topped 
$26.5 billion. That is the highest cost for new regulations 
since at least 1981 which is as far back as records go. It was 
a record breaking year.
    Now, it should be noted that the actual costs of these 
regulations was almost certainly much higher than the reported 
$26.5 billion. At the first matter, the cost of non-
economically significant rules, those rules deemed lightly not 
to have an annual impact of $100 billion--$100 million or more, 
is not calculated at all by agencies. Moreover, regulatory 
agencies did not quantify costs for 12 of the economically 
significant rules adopted in FY2010. So, $26.5 billion is a 
record, but I think the number is, in truth, much higher than 
that.
    Looking ahead, many more rules are in the pipeline. This 
year's record for regulatory increases may not stand for long. 
We will have a flood of rulemakings coming in the financial 
regulations sector--in the financial sector, from the financial 
regulation bill that was passed this year, of rulemakings from 
the healthcare reform bill that was passed this year, and for 
many other agencies, some that we have not heard about in a 
while, but the Consumer Product Safety Commission is still 
issuing major rules based upon the reform legislation passed in 
its are, two or three, I believe three years ago.
    And then there are agencies moving forward without specific 
Congressional authorization, the Federal Communications 
Commission may still be considering rules on the internet, 
which arguably, and I believe, would be without Congressional 
authorization at all. The Environmental Protection Agency is 
also moving ahead without specific Congressional authorization 
on greenhouse gas regulation. We may see record-breaking years 
next year and into the future.
    Now, there are steps that Congress can take to increase the 
scrutiny of new and existing rules to ensure that each is 
necessary and that costs are minimized. Among these, requiring 
a cost analysis of all legislation imposing new regulatory 
burdens. Currently, although all proposed legislation must be 
scored by the Congressional Budget Office to determine likely 
fiscal costs, there is no similar requirement that regulatory 
costs be reported. Members should not be asked to vote on 
proposals without the best possible estimate of their likely 
costs. All bills proposing new or expanded regulations should 
undergo a regulatory impact analysis analyzing and quantifying, 
where possible, the likely costs and benefits.
    This regulatory scoring would ideally be performed by a new 
Congressional regulation office similar to the Congressional 
Budget Office. Such a step could be taken by Congress on its 
own initiative and without Presidential approval.
    Secondly, establish a sunset date for new federal 
regulations. Once adopted, rules tend to be left in place even 
if they have outlived their usefulness. Currently under Section 
610 of the Regulatory Flexibility Act, rules that have a 
substantial effect on a significant number of small entities 
must be reviewed by the agency every ten years. In practice, 
however, such review, if it occurs at all, is usually performed 
in a cursory manner. To ensure that substantive review occurs, 
regulations should automatically expire, if not explicitly 
reaffirmed by regulators.
    Lastly, consider requiring Congressional approval of major 
regulations that place new burdens in the private sector. Under 
the 1996 Congressional Review Act, Congress has the ability to 
veto new regulations coming from agencies under an expedited 
process.
    To-date, however, that authority has only been used 
successfully once. To improve Congress's ability to oversee 
rulemaking and to increase accountability in Congress for rules 
that are adopted, the presumption of the Congressional Review 
Act should be reversed and rules should not take effect until 
approval is granted by Congress. Such a system should be 
seriously considered.
    However, in doing so, Congress should be careful to avoid 
two dangers. I will finish up quickly.
    First, the process should apply only to the imposition of 
new burdens on consumers in the economy. It should not be 
required in order to lift such burdens. And secondly, it should 
be clear that Congressional approval, under the process, is 
conditional upon a prior grant of regulatory authority to the 
agency by Congress and that the Congressional review process 
does not, itself, constitute a grant of authority.
    That concludes my remarks and I would be happy to take any 
questions.
    [The prepared statement of Mr. Gattuso follows:]

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    Chair Landrieu. Thank you. We do have several. Let me begin 
with asking all the panel, starting with you, Mr. Harris. You 
know, when I consider the testimony that I am hearing, I almost 
do not know where to start. I mean, it is quite overwhelming, 
honestly, and while both Senator Snowe and I and others of the 
committee have introduced, and actually passed, you know, 
legislation recently to begin addressing this, it just seems 
that it is just a huge endeavor.
    One simple approach that comes to me, and I want to ask all 
of your views on it, and do not hold back, if you do not think 
this has any, has limited merit, what would you all think of a 
blanket exemption of all rules and regulations for businesses 
at least below 10 employees or 25 employees to start, and then 
work our way up from there? Is there any, can you think off the 
top of your head, which you have to right now, for the benefits 
or disadvantages of such--just a blanket exemption? Mr. Harris.
    Mr. Harris. Well, I think we have certain exemptions in 
place now where we recognize we need to give a start up 
business a chance to get off the ground before we impose the 
heavy rules and regulations.
    Chair Landrieu. Can you give an example of something like 
that?
    Mr. Harris. Well, I think in any legislation, if you look 
at the healthcare bill, the exemption for the credit below--I 
mean, we apply credits and benefits to smaller businesses to 
try to help them get through their start up phase, and 
sometimes I think we ignore opportunities to do that as well, 
so as a general rule, I think that is a terrific idea. I think, 
even in my testimony, I talked about exempting smaller 
businesses from the 1099 rules before repealing them.
    Chair Landrieu. And when you say smaller, what is it that 
comes to your mind? Is it 10, 25, 50? In your experience, you 
know, as we try to say creating, allowing that room for 
entrepreneurship, it would seem to me clear that it would be a 
business of 10 or less, and potentially 25 or less, not that it 
is easy for businesses with 35 employees to comply, I am not 
suggesting that, but just to sort of take a step at a time as 
we approach this regulatory nightmarish situation that we are 
seeing.
    Mr. Langer. The tipping point.
    Chair Landrieu. The tipping point. How do we begin chipping 
away? So, you would think that as some kind of blanket 
exemption might be helpful?
    Mr. Harris. I think personally I would like to see the 
exemption be based on a revenue as opposed to an employee 
count. I hate to see burden increase by hiring one more person, 
so I would start with, I would say, if we are going to create 
an exemption, let us do it on an annual revenue basis. So, I 
think all people would be happy to see their revenues go up in 
accepting additional burden, but I am not sure we should hold 
back employment.
    And again, I cannot speak to the impact it could have on 
compliance, you know, I am not sure of that impact, but from 
the small business standpoint, I think it would be very welcome 
to say, we are going to let you grow to a certain point 
before--and then we will gradually increase your burden, and I 
think that would be welcome and it would encourage some people. 
I just cannot speak to the regulatory compliance side of that.
    Chair Landrieu. Mr. Nannis.
    Mr. Nannis. I think one of the things, and to Mr. Harris' 
point, I think to have a blanket exemption, be it on a revenue 
model or an employment model, I think would go a long way to 
simplifying just a whole lot of issues with regards to small 
business, not the least of which is the definition of what a 
small business is.
    If you look at the size standard regulations, and I know we 
are not talking about that, it varies depending on what 
industry you are in. If you look at the tax regulations, if you 
look at the tax laws, there are certain places where it is 
under 25, there are certain places where it is over a million 
or under a million, that tax laws is impact. I think that to 
come up with a standard, and I agree, I am not sure that the 
employment number would be the right one, but probably a 
revenue number, would go a long way to simplifying a whole lot 
of stuff relative to regulatory and legislative issues as they 
pertain to small business.
    Chair Landrieu. Mr. Langer.
    Mr. Langer. Well, here is what we know. We know that for 
small businesses, you know, the 20 employee number is, in terms 
of regulatory burden, seems to be what changes things. That you 
get above 20 employees, the regulatory costs drop by about a 
third to 50 percent depending on what industry you are in and 
what you are doing. We know that most businesses hire their 
first full time regulatory professional at about 35 employees 
and that generally has to do with employee benefits, HR rules 
that are out there. And again, this changes depending on the 
industry you are in.
    From an environmental health and safety standpoint, which 
is where you are going to run into your biggest push back on a 
blanket employee-size model, you have a number of environmental 
regulations which do not get triggered until you hit above 10 
employees, so you might be able to get covered in terms of that 
if you wanted to do a blanket prohibition.
    You know, it is one of these things where we have to 
recognize that there may have to be a sliding scale given the 
economic state of the nation, that when unemployment rises 
above a certain level and economic growth drops below a certain 
level; we need to relax the rules that impact small businesses. 
Wealthier nations are able to better protect their 
environmental and safety, and as nations grow less wealthy, 
they have to prioritize jobs over the environment. I think we 
have to recognize that is a fundamental economic truth.
    In principle, I think it is a very interesting idea. I 
think the implementation is where the devil's going to be in 
the details.
    Chair Landrieu. Mr. Gatt----
    Mr. Gattuso. Gattuso.
    Chair Landrieu. Gattuso.
    Mr. Gattuso. I do have some concerns about an approach like 
that in three main areas. First, I think it would cause 
distortions. You would be in effect giving an advantage to 
small businesses which are valuable, contribute usually to the 
economy, but should be competing on a level playing field. I 
usually hate to use that term, but a level playing field with 
large businesses. Remember, larger businesses tend to be small 
businesses that were successful. Think of Apple Computer, think 
of Amazon.com, and it is better overall for the consumer if the 
most efficient firm be allowed to produce its good and services 
for the economy. That is also good for small businesses because 
remember, small businesses are also consumers of goods, so I 
think on the whole that would help small business. You do not 
want these distortions.
    Secondly, there is a bad incentive effect. Again, as I 
said, large businesses tend to be small businesses that grew. I 
think you would be creating an incentive to stay small despite 
the success of a company that decreases the incentive to work 
your business to--into new fields. It creates an incentive to 
remain small which really we want these companies to grow, we 
want the successful ones to advance, to hire more people.
    And lastly, I think that there is a probability of huge 
gaming of such a system. I think suddenly we would see numbers 
of small businesses in form would skyrocket. Suddenly you would 
see all sorts of businesses that claim to be small, claim to 
only have so many employees, but in truth are arms of larger 
businesses, so I think even the effect would not be to help 
small business.
    Chair Landrieu. Okay, so the survey is, three of you are 
for it, one of you is against it. I would like all of you to 
think more about it in the next, you know, few weeks, maybe 
submit a little bit more detail about your thoughts on that too 
because I am going to seriously consider something like that to 
this committee.
    Last question, I will turn it over to Senator Snowe, all of 
you, if you had to pick not 1099, because we have already 
skinned that cat, what are your two most aggravating other 
rules and regulations, if you could pick two, I know, out of 
the hundreds that aggravate you, but Mr. Harris, are there two 
that continue to be sort of, two or three, that people just 
clamor, it does not make sense to them, it is not cost-
effective? Could you suggest a couple to us?
    Mr. Harris. Well, and I am not sure if this is one or 100, 
but I think if we looked at today's discussion of 1099 rules 
and tried to take the current set of rules for employee 
reporting, W-2s, withholding, multiple filing; I cannot imagine 
if we were trying to introduce that process today what the 
testimony would be like, if we were going to say, not only are 
you going to have to keep up with how much you pay your 
employee, we are going to make you agents of the state, 
federal, and local governments and withhold that money and you 
are responsible for submitting that money to the government, 
and multiple forms to back up those payments, and if you are 
late or do not make a payment on time, you, the business owner, 
are going to be penalized.
    Given the discussion we had with 1099s, I would love to try 
to see that process being sold. So, I am concerned that we have 
just accepted that because it is the way we have always done 
it, without any examination of everything we are doing as it 
relates to hiring an employee and tracking their wages and 
tracking their payments. Is it just the way that we are doing 
it now, or could it be done better?
    Chair Landrieu. Well, let me ask you this, though, when you 
are a business owner, do not you have to know how much you are 
paying people?
    Mr. Harris. Oh, sure. Sure, you do. That is what I am 
saying.
    Chair Landrieu. You have to track that right.
    Mr. Harris. You have to track it. And I am not saying--but, 
it is a very complicated redundance. We found multiple forms to 
different agencies reporting the same information that again we 
have just let this system kind of grow and let everybody have 
their piece of it. We let the states have their piece of it, 
the federal have their----
    Chair Landrieu. So, if it could be one simplified form 
about employees that just gets circulated among all the various 
agencies, that in itself would be a significant help?
    Mr. Harris. I think that would, I think there are multiple 
forms that you file for the same thing.
    Chair Landrieu. Mr. Nannis, anything come to your mind?
    Mr. Nannis. I think in general, and again, this may be one 
of those that it is one or it is 100, is the whole issue of 
explanation of what it is that you are submitting to the 
government. I know there is a Plain Language Act that was 
recently passed and I believe that it is really important that 
the language of describing how a form gets prepared. I mean, in 
my business I am a tax return preparer, and I have four people 
on my staff alone to help me understand what some of these 
rules are, and I think that in many issues, certainly in the--
within the Internal Revenue Code, there are sentences there 
that are the most amazingly long sentences that take forever to 
just get through. I believe strongly that implementation, 
complete implementation of plain language all the way through 
to the Internal Revenue Code.
    Chair Landrieu. Well, let me ask you since I am going to 
prepare a floor speech on this, if you would send me a few of 
those sentences it might help. I will put them in charts, put 
them up on the Senate floor. We will have a little fun with 
that.
    Go ahead, Mr. Langer.
    Mr. Langer. Yeah, you know, one of the things that I have 
always heard a lot about was when the Department of Commerce 
puts out their economic census forms, which is sort of a 
restatement of, you know, what your business is up to. It goes 
along with the authority that Commerce has to collect the 
census data.
    Most business owners do not understand why they are having 
to fill out this stuff that they have already filled out before 
when they fill out their tax forms, especially now that the 
mandates are increasing. So, that is one that hits a lot of 
different industries. The problem has always been that there is 
not a silver bullet, that it is all the little mandates that 
add up to very, very big things, which is why we have been so 
outspoken about getting the agencies to stat burden, both in 
dollar terms and in time terms, and maybe setting some 
restrictions on the agencies in terms of their ability to add 
further burden without taking burden away elsewhere.
    Chair Landrieu. Thank you.
    Mr. Gattuso.
    Mr. Gattuso. The first one I mentioned is sort of the 
general field of mandates for employee benefits such as in the 
new healthcare bill, but there is plenty of other mandates. I 
think that gets to the heart of the jobs issue, it most 
directly hinders job growth and is--if you had to start in one 
place, I think you would start there.
    As a second one, this might not be the most--certainly not 
mentioned the most often and might not be the largest, but 
maybe the most neglected and that would be the rules being 
applied by the Consumer Product Safety Commission on toys and 
other consumer goods. I think the bill passed three years ago 
on this issue was done under, with good intentions, but I think 
it was so sweeping that it is driving a lot of small businesses 
out of business to providing very little if any safety 
advantage for the public.
    Chair Landrieu. Senator Snowe.
    Senator Snowe. Thank you, Madam Chair. I want to thank you 
all for your outstanding suggestions and input here today. It 
is critical. Unquestionably we are facing what I describe as a 
regulatory stampede. I mean it truly feels that way. On my Main 
Street tours, it is just staggering, the disconnect, between 
the reality of what we do here and what actually occurs on Main 
Street. We have got to turn it around.
    I also got a preview of the resistance. I encountered, for 
example, in establishing a review panel for the Consumer 
Financial Protection Bureau, I could not understand why there 
was such strong resistance to the idea of ascertaining what the 
effects would be of any potential regulations before they were 
promulgated, and I cannot tell you the degree to which that was 
opposed and fought even in the conference committee.
    So, it makes me wonder what the hidden agenda is, let alone 
what is described as a de facto tax, and I could not agree 
more.
    So, the question is, where do we go from here? Senator 
Pryor and I have introduced legislation, one of the provisions 
which was incorporated in the jobs bill that passed, and became 
law recently which is to require the Advocacy Office to respond 
to agencies with respect to rulemaking. But the question is 
whether or not to require every agency, every department to 
have a review panel. It is clear we have it with OSHA and we 
have it at EPA and now it makes me wonder why we never had it 
and applied it to every other agency.
    Would you agree that that is a step forward? And would that 
have an enormous benefit? Secondly, applying it to the indirect 
costs as well as to the direct economic cost, because there are 
a lot of hidden costs in the indirect effects of regulation? 
Mr. Gattuso, what would you say?
    Mr. Gattuso. I think that would be an excellent idea. You 
know, the analysis of cost is, again, as Andrew said, not a 
silver bullet. We will never find out exactly what our 
regulatory cost is. You are not going to get down to the penny, 
but we should know as much as we possibly can, and I hear 
objections to activities like this on the basis of resources 
and time. Regulators say we do not have time to do that, we do 
not have the resources to do that. Well, if you are imposing 
$100 million or $1 billion of cost on the public, you should be 
able to spend the time necessary to find out what effect it 
will have.
    Senator Snowe. Absolutely.
    Mr. Langer.
    Mr. Langer. Well, to gin on to what James said, that is why 
we have also advocated for this issue of comparative risk 
assessment, which I know, sort of, folks' eyes glaze over, but 
it is a way of prioritizing public policy problems to ensure 
that they are actually problems. You know, why would we spend 
all of this enormous time and money dealing with something that 
is not actually posing a risk to the public, not just on health 
and safety, but on other issues as well, financial issues, 
consumer products, which as health and safety issue, but, you 
know, these are areas where we actually have to sit down and 
assess, really, have a look before you leap, as James said, 
really understand what we are doing beforehand so that we are 
not about to cause $100 billion worth of damage to the economy. 
It really is essential, but really the things that you have 
laid out, especially for the future and the deference that 
needs to be accorded to the Office of Advocacy, that can only 
be of enormous benefit to small businesses.
    Senator Snowe. Mr. Nannis.
    Mr. Nannis. Other than to be redundant, I think that in my 
business one of the things that we do as auditors and as CPAs 
is we look at internal control, and one of the biggest issues 
that we have is trying to convince companies that they ought 
not to spend a dollar to save a dime, and I think cost benefit 
analysis, I think your suggestion for looking at the indirect 
cost benefits, these are the types of things that will go a 
long way to ensure that we are not asking small business to do 
something that will just undermine their ability to be able to 
grow. So, the suggestion makes a lot of sense.
    Senator Snowe. Mr. Harris.
    Mr. Harris. I am not sure exactly how to do this, but the 
experience I have got is, I served on the IRS Advisory Council 
for four years and continue to go to some, what they call, 
stakeholder meetings where there is the back and forth of what 
they are talking about and how it would be impacted in the real 
world, as I will call it.
    Sometimes it works better than others, particularly the 
sooner you can be brought into the discussion and have your 
input heard, the better the end product usually becomes, so 
anytime you can generate that back and forth of understanding, 
I think, again, the 1099 issue, if there had been a one day 
give and take between the business community and the people 
writing the legislation, we could have saved a lot of these 
headaches just in the sense, so I would always advocate the 
more you can bring in input from the outside of how is this 
going to be felt before it is felt, would be hugely beneficial.
    Senator Snowe. On a couple of other issues, I will ask 
anybody to respond who cares to, the whole idea that much 
regulating is outside of the review process, for example, in 
OSHA, regional guidance, documents, and there are hundreds of 
similar items in the healthcare reform law. That is why Senator 
Enzi and I sent a letter, because of all these increased 
penalties on small businesses that are going to go from $1,000 
to $3,000. It started in October, and then they reduce the 
penalty mitigation structure, I think one of you made reference 
to that, maybe it is you, Mr. Langer, in your testimony as 
well.
    It was a 60 percent reduced penalty that is going down to 
40 percent, there is another dimension, and they do not have to 
go through a review process. It is outside that purview. So, we 
have got that. Secondly, the stampede that I referred to 
between financial regulatory reform, healthcare, and all the 
other agencies combined, what would you recommend to Dr. 
Sargeant about how he ought to be preparing to be an aggressive 
advocate on behalf of small business and dealing with that 
immediately?
    Mr. Langer. First? You want me to go first?
    Senator Snowe. Anybody who cares to.
    Mr. Langer. Well, I think first of all, just on the issue 
of the Office of Advocacy, somebody mentioned earlier this 
issue as to whether or not advocacy is fully funded and getting 
the resources. I am not entirely certain that they are and I 
really think that Small Business Committee needs to make sure 
that they are getting their due in terms of being able to do 
their jobs and not being undercut by other elements of the 
Administration which I have been hearing very, very serious 
rumors that other agencies, other personnel, are not giving 
them their due and they need to be accorded the deference.
    The fact is that yeah, the issue of regulation by guidance 
is a very serious one, and I fear that the more we try to 
ratchet down on the actual administrative regulatory process 
under the EPA, that they are going to turn around and start 
doing more regulation by guidance. The Wetlands Manuals over at 
the EPA, for instance, which have huge force and affect over 
hundreds of millions of acres across the country, huge impact 
on businesses and individuals. That is not subject to this. And 
as we talk about it with the independent agencies as well, 
those need to come under the rubric. These are all things that 
need to happen.
    I have always been a fan, if we are talking about real, 
sort of concrete solutions, I am a big fan of making every 
bureaucrat who puts out a new regulation to put their name and 
direct dial office phone number on every piece of paper that 
comes out.
    Senator Snowe. Good idea. I like that.
    Mr. Langer. Thank you. Listen, I think if you want to get 
at it, you know, you want to get clean language regulations and 
these folks do not want to get hassled by folks having to pick 
up the phone and call Washington, make somebody put their name 
on the regulation they put out there.
    Senator Risch. Put the President's cell phone number.
    Mr. Langer. I am not advocating for that.
    Mr. Gattuso. If I could add too, I associate myself with 
what Andrew said, the proliferation of guidelines is a problem, 
and if we make the formal review processes for regulations more 
effective, there will be more guidelines. It is like pushing on 
a balloon. Ultimately there is no other solution, there is no 
magic bullet, but I think you have to drive the review process 
and the appreciation for cost, down into the agency level. You 
cannot do it with 19 people, you cannot do it with 100 people, 
you probably cannot do it with 1,000 people on the outside.
    This needs to be internalized in every agency. Every agency 
should have their own Office of Advocacy internally to watch 
out for regulatory excess. Every chairman, every agency 
administrator should have staff close to him, looking out for 
him, looking out for rules that are not justified, not fully 
justified, too expensive. This cannot be completely an outside 
pressure looking in. You need that outside pressure, but it 
needs to be internalized as well.
    Mr. Harris. I would just add one comment to what has 
already been said. I do not think you are going to do it 
holding panels in Washington, D.C. You need to be out having 
panels in the hometowns and talking to the real people that are 
being impacted by it, and most small business owners are busy 
and they do not get a chance to fly to D.C. and attend a panel, 
but they might be able to attend a meeting in their hometown in 
the evening to talk to people if they really believe that those 
people are there to help them. So, I would say, get out of 
Washington and get into the real world.
    Chair Landrieu. Senator Risch.
    Senator Risch. Thank you very much. First of all, I wanted 
to comment on Mr. Nannis' statement about the bravery that the 
good Chairman and Senator Shaheen has shown in introducing the 
bill to repeal the 1099 problem, and, however, if we are going 
to pass out medals, we probably ought to look at the background 
a little bit, and the first thing we ought to look at is how 
this got there in the first place.
    This was buried in a 3,000 page healthcare bill that was 
shoved down the throat of the American people on a straight 
party line vote. Senator Snowe and I and every single one of 
our Republican colleagues on this side of the capital and on 
the other side of the capital, voted no against that bill and 
that was one of the reasons, one of the many, many reasons, 
that the bill was going to strangle small business in America.
    Now, if we are also going to examine what size medal the 
person should get for the bravery, we should look at what 
happened on September 14, 2010. Now, September 14, 2010, the 
United States Senate had on the floor the Small Jobs Creation 
Act. We had an amendment to that bill which specifically 
repealed the mess they made of the 1099 situation in the 
healthcare bill. And guess what happened? It failed. It failed 
on a 46 to 52 vote.
    Again, every single Republican voting to put that amendment 
on this bill, which, by the way, is now law and which would 
have repealed the 1099 problem. Every single Republican voted 
for that amendment and we were joined by some of our colleagues 
on the other side of aisle.
    If the brave people who introduced this bill to repeal this 
had voted with us on September 14, 2010, we would not even be 
here talking about this today.
    In any event, to add insult to injury, that particular 
amendment has been put in the form of a bill, and the 
Republicans yesterday, I am told, tried to hotline that bill. 
Now, that is a procedure where you can push this thing through 
here and get it passed and get it into law, and I am told my 
good friends on the other side of the aisle have objected to 
the use of the hotline.
    So, guess what, the 1099 problem is not going to go away. 
My only point is if we are going to pass out medals, we ought 
to maybe adjust the size of the medals everybody's going to get 
for bravery. We want this done and we are going to continue--we 
are going to continue to push this. We are going to try to hang 
it on every bill that goes through here and sooner or later the 
American people are going to get a hold of their Senators and 
Representatives by the throat and say, look, we do not want 
this.
    And Mr. Harris, with all due respect, you said you wanted 
one day, we spent a year shouting from the top of this building 
that this is what was going to happen if this healthcare bill 
passed. So, it was more than a day, we spent a year at it, but 
we could not get it done.
    But, I want to promise you this and I want to commit to you 
this, we are not done. We are going to continue every day, all 
day, to try to get this 1099 problem resolved because as long 
as I have been in public service, which is almost all my adult 
life, this issue probably rises as high as any other issue I 
have ever seen as far as affecting small business and as far as 
raising the ire of small businessmen, so thank you very much. 
Thank you, Madam Chair.
    Chair Landrieu. Thank you, and I will end the meeting. I 
would like to comment, though, and I am sorry that it has had 
to end on a little bit of an argumentative note here because we 
started out, I think, in a very bipartisan fashion but I do 
want to respond.
    From our perspective, Senator Risch, we did not shove the 
bill down your throat, we gave you a year to come up with a way 
to provide Americans with healthcare that every other country 
in the world, at least developed country, has figured out a way 
to cover their people and we have not, and you all declined, 
and we ended up having to pass a bill with only Democrats, none 
of us passing the bill or voting for it ever said it was 
perfect, and we recognize that there are portions that must be 
adjusted as we move along and we are prepared to do that.
    Secondly, the bill that you all voted for on the floor on 
September 14th had an offset that you knew when you introduced 
it was totally unacceptable to the Democrats and you did it in 
a very partisan, obnoxious way, in my view, and so that is why 
we did not vote for it.
    And I want this public to be very clear about this, there 
were amendments put on the floor, both by Democrats and 
Republicans to repeal 1099, but both leaderships put offsets on 
that that the other side could not vote for. So, that is why 
some of us have been working honestly for the repeal of 1099 to 
find an offset both sides could agree to, and that is what this 
Chairman has led that effort and I will continue to.
    So, I do not want Mr. Nannis to have to debate this with 
Senator Risch. I will be happy to debate it here on the floor, 
but the meeting is adjourned.
    [Whereupon, at 12:01 p.m., the Committee was adjourned.]
  

                                  
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