[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                   BURIED IN PAPERWORK: A 1099 UPDATE

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                            FEBRUARY 9, 2011

                               __________


                                [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-059
Available via the GPO Website: http://www.access.gpo.gov/congress/house



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                      CHUCK FLEISCHMANN, Tennessee
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                       Paul Sass, Staff Director
                     Barry Pineles, General Counsel
                 Michael Day, Minority Staff Directory


                            C O N T E N T S

                              ----------                              
Opening Statements:
    Graves, Hon. Sam.............................................     1
    Velazquez, Hon. Nydia M......................................     2

                               WITNESSES

Lungren, Hon. Daniel E., U.S. House of Representatives (CA-03)...     4
Kivett, Mr. R. Jerol, President, Kivett's, Inc., Clinton, NC. On 
  behalf of the National Federation of Independent Business......    34
Eagleton, Mr. John ``Mark'', Managing Member, Eagleton Ventures, 
  LLC, The Egg & I Restaurant, Golden, CO. On behalf of the 
  National Restaurant Association................................    24
Shipley, Mr. Seth, Owner, Shipley's Fine Jewelry, Hampstead, MD. 
  On behalf of the National Retail Federation....................    19
Kegley, Mr. Mike, President, B.O.L.D. Homes, Inc., Union, KY. On 
  behalf of the National Association of Home Builders............    41

                                APPENDIX

Prepared Statements:
    Lungren, Hon. Daniel E., U.S. House of Representatives (CA-
      03)........................................................     7
    Kivett, Mr. R. Jerol, President, Kivett's, Inc., Clinton, NC. 
      On behalf of the National Federation of Independent 
      Business...................................................    37
    Eagleton, Mr. John ``Mark'', Managing Member, Eagleton 
      Ventures, LLC, The Egg & I Restaurant, Golden, CO. On 
      behalf of the National Restaurant Association..............    26
    Shipley, Mr. Seth, Owner, Shipley's Fine Jewelry, Hampstead, 
      MD. On behalf of the National Retail Federation............    21
    Kegley, Mr. Mike, President, B.O.L.D. Homes, Inc., Union, KY. 
      On behalf of the National Association of Home Builders.....    43
Statements for the Record:
    Altmire, Hon. Jason..........................................    64
    Landry, Hon. Jeff............................................    67
    Tipton, Hon. Scott...........................................    65
    West, Hon. Allen.............................................    66
    Society of American Florists.................................   107
    United States Chamber of Commerce............................    95
    National Association of Chain Drugstores.....................    89
    National Association of the Remodeling Industry..............    78
    National Community of Pharmacists............................    92
    The Computer Technology Industry Association.................    80
    American Association of Orthodontists........................    75
    Associated Builders and Contractors, INC.....................    71
    Owner-Operator Independent Drivers Association...............    73
    Letter to the Committee on Ways and Means....................    68


                   BURIED IN PAPERWORK: A 1099 UPDATE

                              ----------                              


                      WEDNESDAY, FEBRUARY 9, 2011

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360, Rayburn House Office Building, Hon. Sam Graves (Chairman 
of the Committee) presiding.
    Present: Representatives Graves, Bartlett, Chabot, King, 
Coffman, Mulvaney, Tipton, Fleischmann, Herrera Beutler, West, 
Ellmers, Walsh, Landry, Velazquez, Schrader, Critz, Altmire, 
Clarke, Chu, Cicilline, Richmond, Peters, Owens and Keating.
    Chairman Graves. Good afternoon, and we will call this 
hearing to order.
    Again, I want to welcome all of the new Members as well as 
returning Members to the 112th Congress and to the Small 
Business Committee. I look forward to working with everybody. I 
want to give a special thanks to Chairman Lungren and all of 
our small business witnesses that are going to be here today.
    We are depending on small firms to reinvigorate our 
economy, so we must provide an environment in which I think 
that they can flourish and do just that.
    We begin with session's hearings by examining the state of 
the health care reform and the effect on small businesses. 
Today, we focus on the health care law's provision that expands 
the business 1099 reporting requirements. Under the new 
provision, reports will also be required for goods and property 
as well as services. Additionally, reporting on payments to all 
corporations that are not tax-exempt will be required if they 
meet the $600 threshold.
    To reiterate, small business owners could be forced to fill 
out all this paperwork over and over again because of hundreds 
of ordinary business purchases that add up over the course of a 
year; business purchases such as equipment, furniture, office 
supplies, software and fuel.
    Scheduled to take effect in 2012, the expanded 1099 
reporting provision was added to the health care law to help 
close the so-called tax gap by generating revenue to pay for 
the law. However, a report by the IRS Taxpayer Advocate Service 
notes that the new reporting burden, particularly as it falls 
on small businesses, may turn out to be disproportionate as 
compared to any resulting improvement in tax compliance. In 
other words, the reporting requirements may not accomplish its 
intended purpose and could be an administrative nightmare for 
small businesses.
    In addition, the Taxpayer Advocate Service has raised 
questions about the significant administrative challenges that 
the requirement may pose to the IRS. This new 1099 requirement 
will cause an avalanche of additional 1099 forms to be filed 
and affect over 36 million entities.
    At a time when we should be making it easier to create 
jobs, promote growth and invest in our economy, small firms 
don't need yet another costly and burdensome mandate. Although 
attempts were made last session to repeal this provision, those 
efforts were unsuccessful. We must repeal it immediately so 
small businesses do not begin to devote scarce resources to 
compliance.
    I am pleased that over 260 Members from both sides of the 
aisle have cosponsored Chairman Lungren's repeal legislation 
and that President Obama called for repeal in the State of the 
Union address. And last week, the Senate passed an amendment 
doing just that in its repealing of this provision.
    Today we will hear from small business owners who would be 
affected by this new 1099 requirement and from the House author 
of the legislation to repeal it. And so I want to, again, thank 
all of you for being here and providing your testimony.
    I now yield to Ranking Member Velazquez for her opening 
statement.
    Ms. Velazquez. I thank the gentleman for yielding.
    Today's hearing will focus on an issue that could impact 
millions of small businesses across the country. While there is 
often little agreement in Congress on many policies, there is 
bipartisan consensus that the issue of 1099 reporting must be 
fixed.
    As we examine the problems this requirement could pose, it 
is important to understand the concept's history. While some 
might like to believe it was created minutes before it was 
added to the health reform bill, it is a proposal that was 
years in the making.
    Originally proposed by the Bush administration, the 
reporting provision was intended to ensure accurate income 
reporting. The Taxpayer Advocate suggested this type of change 
won't reduce the so-called tax gap and level the playing field 
and ensure all businesses pay their taxes.
    Although there may have been a laudable goal behind the 
1099 requirement, the new law will have severe unintended 
consequences for entrepreneurs with little benefit. Small firms 
already spend 1.8 billion hours on tax compliance, and the new 
1099 rules will add to that burden.
    It also does little to limit tax avoidance, as estimates 
have found it will improve tax compliance by only a half 
percent. Clearly, this minimal improvement is not worth the 
significant economic effects.
    At a time when America needs to promote economic activity, 
the 1099 requirements could hamper transactions between 
businesses. If Congress does not act, businesses will see 
additional paperwork every time they buy equipment, sell goods, 
or make capital investments. Our Tax Code should reward growth, 
not serve as a roadblock to growth. That is why repeal is the 
only solution.
    It is my hope that we can address this problem immediately. 
Many businesses are already spending money on compliance. If 
Congress acts quickly, small firms will see immediate benefits, 
freeing up capital for growth and job creation. As the economy 
continues improving, small businesses need to focus on what 
they do best: developing innovative new services, bringing 
additional products to market, and creating jobs.
    This hearing can also serve as a starting point to examine 
other ways to limit burdensome regulations. Today's discussion 
offers witnesses an opportunity to expose not just the problem 
with 1099s but also highlight other regulatory reforms that may 
help entrepreneurs.
    Throughout the 112th Congress, I will stand committed to 
working in a bipartisan way to remove or revise policies that 
stifle entrepreneurship, innovation and growth. That has been 
the spirit of this committee for the last many years, since 
Chairman Talent was the chairman, and then Steve Chabot was the 
chairman, and then when I came here. We do understand the 
important role that small businesses play. And compared to many 
other committees, we should be proud of the products that we 
reported out of this committee.
    So, hopefully, fixing 1099 will be the first of the many 
issues that the committee can approach with enthusiastic 
support from both sides of the aisle. I would also hope that 
our focus today remains on the regulatory burdens facing small 
firms, and we do not get bogged down repeating political 
debates from last Congresses.
    With that, let me welcome Chairman Lungren to the committee 
as well as the small businesses who have taken time from their 
busy schedules to testify before this committee.
    Welcome.
    Thank you, Mr. Chairman.
    Chairman Graves. At this time, I would ask if there are any 
other opening statements, please submit them for the record. We 
will have a series of votes shortly, and I want to make sure 
that we get through Chairman Lungren's testimony.
    Chairman Graves. It is my pleasure to introduce the first 
witness. He is chairman of the House Administration Committee, 
Congressman Dan Lungren from California. He has been the leader 
in the 1099 repeal. In fact, he introduced his bill in 2010 
shortly after the health care law was passed, and he has 
reintroduced it and now has 260 cosponsors.
    Welcome, Chairman Lungren.

 STATEMENT OF THE HON. DANIEL E. LUNGREN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Lungren. Thank you, Mr. Chairman.
    And thank you, Madam Ranking Member.
    After those opening statements, I just have one thing to 
say: Amen and thank you.
    First of all, let me thank you for the opportunity to 
testify regarding this legislative proposal, which has now been 
given the number H.R. 4. And I wish to acknowledge that the 
Small Business Committee is the appropriate place to begin the 
discussion of the bill.
    If I were to summarize the bill, I would say that we are 
trying to get rid of something that shouldn't have been there 
in the first place. It is a totally ineffective way to solve 
the so-called tax gap problem. And only in Washington, I guess, 
could searchers for a needle in a haystack enlarge the 
haystack. This is exactly what the 1099 requirement does.
    If you check U.S. tax compliance, it is among the highest 
in the world; if not the highest in the world, over 86 percent. 
And this provision would affect businesses most likely who are 
already in compliance. So it is misguided.
    The idea for H.R. 4 had its genesis in the groundswell of 
concern among the small business community over the unintended 
consequences of a 170-word Section 9006 of the bill that 
contained over 240,000 words. Essentially this section would 
require all businesses and nonprofit organizations--oh, and by 
the way, and congressional offices. Every congressional office 
would be required to file 1099s for every vendor that you would 
transact business with over $600 a year. Perhaps that is the 
good part of it. We would have to follow the same law that 
small businesses would.
    This new mandate is set to take effect on January 1 of next 
year. Now, regardless of one's view on the health care bill, 
the new 1099 filing requirement could not be more ill-
conceived. The focus of this committee relates to expanding 
opportunities for small businesses. And, unfortunately, this 
section of the health care bill takes us in precisely the 
opposite direction.
    I know I have heard from many members of this committee 
that they are looking for ways to free small businesses from 
undue burdens. We should look for ways to free up the--as they 
call it--the animal spirits in order to encourage 
entrepreneurship. And rather than imposing these obligations 
for companies, we should seek ways to start--restart the engine 
of job growth.
    The ranking member mentioned that this had its genesis with 
the Bush administration, and that is partially correct. The 
Bush administration Treasury Department talked about requiring 
corporate services--that is corporations providing services--
that in that regard 1099s ought to be filed. They never, as far 
as I am concerned, I don't know where this idea came from, that 
you would have to file 1099s for purchase of goods. That is an 
entirely new concept. And, frankly, I am not sure any hearings 
were ever held on that, any consideration on what that would 
do, and the tremendous range of application that that would 
have.
    Look, we don't have the luxury of thinking that the small 
business community is this constant variable that can easily 
absorb additional requirements, additional burdens. Even in 
normal terms, it is challenging enough for new business 
ventures to succeed.
    In my district, we have an unemployment rate of over 12.5 
percent. Small businesses are having a tough time even hanging 
on. We hear from small businesses talking about the difficulty 
they have getting credit just to keep their businesses going. 
And then, on top of that, to face this kind of regulatory array 
of obligations is entirely unnecessary.
    If we really seek to increase investment, hiring and 
business growth, we need to look for an environment that is 
more friendly to entrepreneurship.
    When I first heard of this, actually it was a briefing that 
Congressman Burgess had to look at the business implications of 
the health care bill after it passed. The NFIB identified this 
as a problem. When my staff brought it to my attention, we 
started to examine it. And one of the things we discovered is 
not only would it be a burden on all businesses, but it would 
be a double-edged sword with respect to small business. Because 
if you want to minimize the number of 1099s you file, are you 
going to go to your local restaurant? Are you going to your 
local hardware store? Are you going to go to your local 
provider when you will have to keep track of every single 
purchase you make so that, if it reaches that $600 threshold in 
a calendar year, you are going to have to file? Or if you want 
to minimize your 1099s, won't you go to the big box store? 
Won't you go to the big chains? In other words, this is a 
tremendous disincentive for the small business entrepreneur in 
all of our districts, and I am not sure anybody really thought 
about that.
    One of the--someone who has been involved in small business 
before told me this, and he said it is obvious that whoever put 
this in the bill never has laid awake on a Thursday night 
trying to figure out how to make payroll for their employees on 
Friday. This is just an additional burden.
    There are those who have said, the Tax Advocate for the 
Internal Revenue Service indicated that there is a questionable 
return on investment here, for the cost of the reporting placed 
on a small business could very well outweigh anything that the 
government gets.
    Here is the last thing I would say is this, look, we talk 
about a tax gap, and that is a nice technical term. What we are 
suggesting is that people are cheaters. Now I think most people 
follow the law. And to suggest that virtually the entire 
business community, especially the small business community, is 
made up of a bunch of cheaters and we should then have a 
reporting requirement that doesn't go to the person who is 
filing the report, the 1099, as to any obligation they have, 
but rather as a report on somebody else with whom they have at 
most an arm's length transaction, that somehow that is to get 
information on that other person, I just think is--I don't want 
to overstate it, but almost un-American. It is almost like we 
are asked to be a nation of snitchers.
    When you look at it that way, you have to say: What is the 
original purpose of 1099? When you file a 1099, it is to, in 
many cases, ensure that you make sure that payroll taxes are 
paid. It is an obligation on your part. Then we extend a little 
bit further because we say, well, this is an easy way of 
getting some reporting that we can check on. Then we finally 
extend it to every purchase of every product possible over a 
12-month period of time. It really boggles the mind to think 
that we think that this could be effective.
    According to the National Taxpayer Advocacy Service 
analysis of 2009 IRS data, about 40 million businesses and 
other entities will be subject to this new requirement, 
including roughly 26 million nonfarm sole proprietorships, 4 
million S corporations, 2 million C corporations, 3 million 
partnerships, 2 million farming businesses, 1 million 
charities, and other tax-exempt organizations, and more than 
100,000 government entities, including each and every one of 
your offices. So I hope you are ready to have an accountant 
take care of this to make sure that you do not violate the law.
    I just would say that we are now up to 270 cosponsors, 
which is kind of nice because when I introduced this a little 
less than a year ago, I had one sponsor, myself. And the 
response has been--it is bipartisan. I believe I have 34 
Members from the minority that have signed onto this now. We 
have from the most conservative Members to my good friend 
Barney Frank have signed on. So if anybody wants to find a 
bipartisan piece of legislation, it is the only thing that I 
could find in the President's State of the Union address that 
he specifically mentioned that ought to be passed. So I hope 
that we can do that, and I hope we can do that with dispatch.
    I thank you for your time and consideration.
    [The statement of Mr. Lungren follows:]

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    Chairman Graves. Thank you, Mr. Chairman.
    I just have one or two questions just out of curiosity. Can 
you tell me what on earth the IRS is going to do with all of 
this paperwork if this were to be implemented?
    Mr. Lungren. Well, if they are going to do anything with 
it, they are going to have to hire more people and they are 
going to have some new software and new hardware to figure out 
what they are going to do with it.
    Chairman Graves. And that is my next question. How many 
would they have to hire?
    Mr. Lungren. Lord only knows. This is actually true. When I 
started to consider this bill last year after the health care 
bill passed, we called the IRS and asked them if they could 
tell us how it would apply and in what fashion. And their 
response to us was, we have to wait for guidance from Secretary 
Sebelius.
    Chairman Graves. That is interesting.
    Mr. Lungren. That is one of the problems you have when you 
mix up some bills.
    Chairman Graves. I will turn to Ranking Member Velazquez 
for questions.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Thank you, Mr. Lungren, for your testimony.
    My question to you is, you have a bill that has bipartisan 
support. You have a precedent that is on record. You have most 
of the members of this committee supporting the repeal of 1099. 
Do you support the recently passed legislation in the Senate, 
which has bipartisan support and was revenue neutral?
    Mr. Lungren. Well, they added some language in that. It was 
an amendment, and it was an amendment to a bill, FAA bill, and 
it involves tax policy. So there is a question of whether or 
not a provision like that can actually initiate in the Senate 
or rather it has to initiate in the House under the section of 
the Constitution that requires us to initiate tax legislation. 
So all I can say is that I am glad for their support. I am 
happy they have taken a position, and my feeling is that if we 
can have a freestanding bill, H.R. 4, passed, I can't see how 
it wouldn't be passed in the Senate.
    Ms. Velazquez. H.R. 4 repeals the 1099 provision, but it 
does not address the issue of the $22 billion in revenue that 
would be lost.
    Mr. Lungren. Correct.
    Ms. Velazquez. What is your position on that?
    Mr. Lungren. Well, my position on that is that this was 
largely an unknown section of the bill. I do not recall us 
debating this on the floor of the House. I don't even know 
whether they debated it on the floor of the Senate. We found 
out after the fact that they scored it for somewhere between 
$19 billion and $22 billion, and to suggest that because we are 
going to repeal a provision that has never gone into effect 
based on a scoring of tax revenue that they say they have never 
received before and that we, therefore, are obligated to 
substitute other taxes, frankly, I think that is a game that 
the American people ought not to play.
    So I do not have a reflected amount of money, a respective 
amount of money for that. This simply gets rid of a provision 
of law that never existed before. It does not deny any taxes 
that had been collected before. And under the Rules of the 
House adopted on the opening session, it is not required 
because it deals with the health care bill.
    Ms. Velazquez. Mr. Lungren, I understand and I hear what 
you are saying. But conceptually, whether or not you agree with 
the process, would you agree that it would be fiscally 
irresponsible for us not to pay for, not to find----
    Mr. Lungren. No, not at all, because if I accept that 
proposition, I have to accept the argument that a provision 
that was not debated in the public, not understood by the 
public, never presented to us in the House, that never existed 
before, gets into law and we realize it is a huge mistake, that 
we are then obligated to introduce legislation that increases 
taxes by a like amount; I frankly just--let me just put it this 
way. I offered that question to my constituents and they 
overwhelmingly said no. Because you made a mistake last year, 
don't then double down on that mistake by saying, well, we are 
going to increase your taxes by a like amount for a program 
that never existed in the first place. So I don't think it is a 
budgetarily or fiscally irresponsible to pass----
    Ms. Velazquez. It is because it is going to expand on the 
deficit. It is going to broaden the deficit.
    Mr. Lungren. Well, see, I understand what you are saying. 
But with all due respect, I will say this, I think that kind of 
an argument is the kind of argument that upsets our 
constituents at home because the collection of these revenues 
never existed before; there is an argument that it is somewhat 
fanciful in terms of the number they came up with; and third, 
you have the IRS tax advocate saying that the imposition of 
this may cause a greater burden dollar-wise on the affected 
small business than it would ever garner for the government.
    Ms. Velazquez. We don't agree, but JCT is a bipartisan 
body.
    Thank you, Mr. Chairman.
    Chairman Graves. Thank you.
    Mr. Chairman, real quick, since when does money that the 
government is not receiving contribute to the deficit?
    Mr. Lungren. It is the language in Washington, D.C., where 
we talk about expenditures. Have you ever heard the word ``tax 
expenditure''? That is used to say that if we grant you a tax 
cut or don't increase your taxes, that amount of money you owe 
us. Philosophically, the only way I can understand that is if 
you absolutely believe that the first dollar that someone earns 
is the Federal Government's first and you only get to keep it 
at their acquiescence.
    Chairman Graves. We are going to have to move fast because 
we do have votes any time now. So I will call on Mr. Tipton of 
Colorado. We will try to get through them. If we don't, then we 
will then break for votes.
    Mr. Tipton. Thank you, Mr. Chairman.
    And thank you, Chairman Lungren, for being here at well.
    I am a little curious, you may have covered this, but what 
is the cost, you listed off the millions of businesses that 
would have to comply with this if it stands as is, what would 
be the cost to those businesses?
    Mr. Lungren. I haven't seen an actual number. I am sure 
maybe some of the other witnesses might be able to tell you 
that. I just will say this, that the tax advocate said that the 
cost may in fact not be worth it in terms of that money that 
goes to the government. And I would agree with the tax advocate 
on that one.
    Mr. Tipton. But would it be a reasonable extension--I am a 
small business owner as well; you know, you scrap for every 
penny you have--that this, actually, if it stood, it would 
actually be more of a job inhibitor at a time when we are 
trying to create jobs?
    Mr. Lungren. Well, you are going to take money to do this 
that you would use to hire somebody to do productive activity, 
I would think. And you have got to make sure that you are not 
wrong because you are subject to filing penalties if you don't 
file it correctly.
    Mr. Tipton. Thank you.
    Mr. Chairman, I yield the balance of my time.
    Chairman Graves. Mr. Critz of Pennsylvania.
    Mr. Critz. Thank you, Mr. Chairman, Chairman Graves and 
Chairman Lungren, for appearing here.
    I just have one quick question, something I learned during 
this debate. And by the way, I am one of those 34 cosponsors of 
the bill.
    Mr. Lungren. Thank you very much. Talk to some of your 
colleagues, please.
    Mr. Critz. Well, one of the things that I just learned that 
I did not know was that $600 threshold was actually set in 
1954. And the last time I checked, $600 in 2011 does not buy 
the same amount as it did in 1954. And as we debate this 
reporting, shouldn't we also look at this reporting threshold 
as a possible way to also reduce small business reporting?
    I mean, we all love accountants--who doesn't--and we would 
love to give them more work like this provision does, but I 
would be curious to have your feedback on that threshold limit.
    Mr. Lungren. You are right. We do love our accountants. I 
am not sure I would allow my daughter to date one, but I think 
you are absolutely correct. We ought to do that. I thank the 
gentleman for bringing that to our attention.
    Mr. Critz. Thank you, and I yield back.
    Chairman Graves. Mr. Fleischmann from Tennessee.
    Mr. Fleischmann. Thank you, Mr. Chairman.
    Chairman Lungren, thank you. I am also a cosponsor of this 
bill, and proud to do so.
    I just returned from my district last week. I met with 
business people, small business people, chambers of commerce, 
and good hardworking people. Their question to me is basically 
with over 200 cosponsors of this bill, with the President's 
support of this bill, you have indicated that the Senate has a 
bill, perhaps, with some language in there that we can't 
necessarily live with but could possibly correct; what is the 
prospect of passage of this bill and how swiftly can we get 
some relief for the small business people in this country?
    Mr. Lungren. All I can say is I have 270 cosponsors, and I 
introduced it with H.R. 4 with more than a majority in the 
House. I don't know when that has ever been done. The Speaker 
gave us H.R. 4. And as you know, the Speaker has the first 10 
numbers that he designates for important legislation. The 
President gave us a shout out in his State of the Union 
address. The Senate has passed language that is exactly the 
same but with some additional language. If I were a betting 
man, I would say the chances are pretty good and we ought to do 
it fairly quickly.
    Mr. Fleischmann. Thank you.
    Mr. Chairman, I yield back.
    Chairman Graves. Mr. Keating of Massachusetts.
    Mr. Keating. Thank you, Mr. Chairman.
    I just had an interesting metaphor from the northeast that 
I think we could all take home with us in terms of the need to 
pass this quickly. It is more of a statement than a question.
    I heard from people in Cape Cod, and I, too, am a cosponsor 
of the bill, but I heard from people from Cape Cod who just 
impressed upon me how many businesses this really--the scope of 
the businesses that this--you know, people from bed and 
breakfasts to U-Hauls to people in the tourism industry. But 
the one that, the letter I got that would be interesting to 
share was from a woman who told me that every time it snows, 
and we have had our share of snowfall in the northeast, every 
time it snows, remember that she has to fill out a new form 
because she is in the tree repair business, and every time 
there is a snowstorm, the trees need repairing. And every time 
it snows, remember when I am down here, she will be filling out 
another form. So given the climate this year, I hope the 
climate for change is as great. I think you will see great 
bipartisan support for your bill.
    Thank you.
    I yield my time.
    Chairman Graves. Mr. Landry of Louisiana.
    Mr. Landry. Thank you, Mr. Chairman.
    That is what happens when you are a freshman, you see; I 
don't where the buttons are--or the bathrooms, I guess.
    I certainly support this. As a former small business owner, 
I know exactly the kind of onerous burden this would place on 
small businesses and the impact it would have.
    I guess my question is the IRS National Taxpayer Advocate 
report said there was concern that the new 1099 reporting, 
especially for small businesses, may be disproportionate 
compared with any of the other improvements in the tax 
compliance; do you agree with that?
    Mr. Lungren. Oh, yes. They went on to say the requirement 
would require widespread administrative burden disproportionate 
to the value of the information to the IRS. They said that 
precisely because this extends itself to all goods purchases. 
It also went on to say the IRS will receive millions of such 
reports on paper, requiring it, meaning the IRS, to devote 
significant resources to entering the data into its systems 
manually, increasing the risk of transcription errors and 
rendering the data less reliable.
    Mr. Landry. Thank you. I certainly appreciate your answer.
    I yield back the balance of my time.
    Chairman Graves. Mr. Owens of New York.
    Mr. Owens. I just want to state that I am a cosponsor. I 
also was a sponsor of a piece of legislation last year to 
accomplish this goal. And I certainly support what you are 
doing. I think we do have some dispute as to whether or not 
there is a necessary pay-for here. But I think we are moving in 
the right direction, and I hope that this gets acted on 
promptly and we reach a bipartisan compromise on the pay-for 
issue. Thanks very much.
    Chairman Graves. Mrs. Ellmers of North Carolina.
    Mrs. Ellmers. Thank you.
    I would just like to say as a small business owner, a nurse 
for 20 years, I understand how cumbersome this is and how 
difficult it will be for our businesses to adhere to this. My 
question and the question that I have received from my 
constituents has been one thing. Now I know this is IRS 
legislation and language that has existed for quite awhile, but 
whose brilliant idea was it to put this in the health care bill 
in order to help pay for it?
    Mr. Lungren. My understanding is that it came in on the 
Senate side, although I have not found a rush to claim 
fathership or mothership of this particular section.
    Mrs. Ellmers. That is my understanding, no one seems to be 
coming to the forefront. Thank you.
    Chairman Graves. Chairman Lungren, I want to thank you for 
coming in. We have a vote going on right now. We will adjourn 
for approximately 20 or 25 minutes or so. We only have two 
votes, so it won't be too bad. So we will stand in recess until 
that time.
    [Recess.]
    Chairman Graves. The hearing will come back to order.
    We have the second panel up, and you have 5 minutes. If you 
go for a little bit, I am not going to break your arm or 
anything, but please try to keep it to 5 minutes.

  STATEMENTS OF SETH SHIPLEY, OWNER, SHIPLEY'S FINE JEWELRY, 
  HAMPSTEAD, MD, ON BEHALF OF THE NATIONAL RETAIL FEDERATION; 
  JOHN ``MARK'' EAGLETON, MANAGING MEMBER, EAGLETON VENTURES, 
   LLC, THE EGG & I RESTAURANT, GOLDEN, CO, ON BEHALF OF THE 
 NATIONAL RESTAURANT ASSOCIATION; R. JEROL KIVETT, PRESIDENT, 
    KIVETT'S, INC., CLINTON, NC, ON BEHALF OF THE NATIONAL 
FEDERATION OF INDEPENDENT BUSINESS; AND MIKE KEGLEY, PRESIDENT, 
  B.O.L.D. HOMES, INC., UNION, KY, ON BEHALF OF THE NATIONAL 
                 ASSOCIATION OF HOME BUILDERS.

    Chairman Graves. And I will recognize Mr. Bartlett to 
introduce our first witness.
    Mr. Bartlett. Thank you very much. I am very pleased this 
is the second panel. I thought I was going to miss the 
opportunity to introduce the witness from my district. I was 
off the Hill giving a talk, but I got back just in time.
    Of all of the counties I represent, I think probably in 
many respects the prettiest county is Carroll County. Everybody 
there takes an enormous amount of pride in their county. I have 
never seen such manicured farm fields as you see in Carroll 
County. And if you were to pick a town in Carroll County that 
kind of typifies Carroll County, I think it would be Hampstead.
    My district is a small business district. It is made up of 
small businesses. I was in a former life a small business 
person, and so I am very pleased to have been able to be on 
this committee for 16 years now. I am happy to introduce one of 
my constituents, a small business person who is struggling to 
stay in business in spite of stifling regulation and over-
taxation.
    Congratulations, sir, for being a survivor, and welcome to 
the committee.
    Chairman Graves. You are recognized for 5 minutes.

                   STATEMENT OF SETH SHIPLEY

    Mr. Shipley. Mr. Chairman, Ranking Member Velazquez, and 
honorable members of the committee, I thank you for the 
opportunity to address your committee this afternoon about a 
pending threat to small businesses that I can best describe as 
formidable, frustrating and frightening.
    My name is Seth Shipley, owner of Shipley's Diamonds and 
Fine Jewelry in Hampstead, Maryland. I appear before you on 
behalf of both the National Retail Federation and the Maryland 
Retailers Association.
    From a small business perspective, the health care reform 
law enacted last year is at best a mixed bag and looks to me 
like it will hurt far more than it will help. Retailers 
recognize that repeal of the entire health care reform law is 
difficult given the current makeup of the Senate as well as 
President Obama's veto power. Therefore, we also support 
specific changes to The Patient Protection and Affordable Care 
Act, such as the repeal of the expanded Form 1099 reporting 
requirements.
    Section 9006 of the PPACA will impact small business owners 
like me in ways we are sure of and in other ways we only 
imagine. There will be nothing positive or economically 
stimulating about it; really quite the opposite.
    Requiring reporting for all noncredit card transactions 
over $600 in a year will create a blizzard of reports that 
needlessly bog down commerce while also swamping the IRS. This 
provision has no relevance to our health care system and should 
promptly be repealed.
    I strongly support H.R. 4, the Small Business Paperwork 
Mandate Elimination Act of 2011, introduced by Congressman 
Lungren. The National Retail Federation also strongly supports 
this bill. This necessary change to the PPACA rightly enjoys 
broad bipartisan support and received an overwhelming Senate 
vote of 81-17 February 2, 2011, on a dispositive procedural 
motion. We look forward to its prompt approval in the House as 
well.
    My small store in rural Carroll County, Maryland, serves 
about 6,000 customers a year. According to the government Web 
site, it only takes 18 minutes for me to fill out a 1099 form. 
Even so, that means many, many more hours of work that will 
have to be devoted to filling out these forms. I conduct 
transactions with over 200 jewelry suppliers each year and will 
invest more than $600 with each of them. That means additional 
hours of work to fill out those forms.
    What I find extremely frustrating, however, is that there 
is nothing in the 18-minute government estimate that considers 
the time I will need to invest tracking each of my transactions 
throughout the year. In addition to all of the 1099 forms, I am 
told by my accountant that each 1099 form should have a 
completed W-9 form. This is a request for taxpayer 
identification and certification.
    Ultimately, the bookkeeping requirements mandated by this 
new law will require hours and hours of additional work. My 
conservative estimate is that I will have to expend more than 
$35,000 each year to comply with this new law. That is a 
significant blow to my net business income. At the moment, I do 
not know how I will be able to financially comply with this 
mandate.
    I began my business in 1991 in my parents' basement. I have 
struggled and sacrificed to make my business what it is today. 
I have received no government loans or subsidies. I believe I 
have made a positive contribution to the economy in my town, my 
State, and ultimately my Nation. I have worked hard and been 
blessed with a small part of the American dream. If this law 
takes effect next year, I believe that dream will vanish for me 
and tens of thousands of small business owners across our great 
Nation.
    I urge your immediate action to repeal this onerous 
legislation. I appreciate the chance to appear before you today 
on behalf of The National Retail Federation and the Maryland 
Retailers Association. Retailers look forward to working with 
you to repeal this burdensome reporting mandate and to help 
promote the enactment of a more positive health care reform. 
Thank you.
    [The statement of Mr. Shipley follows:]

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    Chairman Graves. Thank you, Mr. Shipley.
    I now yield to Mr. Coffman to introduce his constituent 
witness.
    Mr. Coffman. Thank you, Mr. Chairman.
    It is a pleasure to welcome a fellow Coloradoan and 
constituent, Mark Eagleton, to the committee.
    Mr. Eagleton is a managing member of the Egg & I Restaurant 
in Arvada, Colorado. In addition, he serves on the State Board 
of the Colorado Restaurant Association. Outside of his 
business, Mr. Eagleton serves as a volunteer Jefferson County 
reserve deputy sheriff. He and his wife, Sandy, have been 
foster parents to a total of 38 children.
    Welcome to the committee, Mr. Eagleton. I look forward to 
hearing your testimony.

              STATEMENT OF JOHN ``MARK'' EAGLETON

    Mr. Eagleton. Chairman Graves, ranking member Velazquez, 
Colorado Congressman Scott Tipton, and my Colorado 
Representative, Mike Coffman, and members of the House Small 
Business Committee. Thank you for the opportunity to testify 
before you today on behalf of the National Restaurant 
Association and the Colorado Restaurant Association on the 
impact of the expanded 1099 reporting requirements on small 
business.
    My name is Dr. John ``Mark'' Eagleton. I am a franchisee 
and owner of the Egg & I' Restaurant in Arvada, 
Colorado. I began in the restaurant industry when I was 14 
years old working as a busboy at the International House of 
Pancakes' to help pay my high school tuition. After 
that, I was with Arby's' restaurants for 21 years, 
eventually serving as the general manager and COO of Colorado's 
largest Arby's' franchisee, The Bailey Company, 
LLLP.
    When I left there 6 years ago, my wife, Sandy, and I 
decided to take a chance. We leveraged everything we had to 
open our own restaurant. I cashed out my 401(k). I emptied my 
savings accounts. I sold my investments. I took out a second 
mortgage on my home. I just did everything I could to find 
every dime I could find. I even had my best friend chip in a 
small loan, and we opened our restaurant. And with the help of 
the Small Business Administration, I obtained a 7(a) loan and 
began business in April of 2004. I cannot emphasize enough that 
we invested every dime we had in our business, and I am proud 
of what we built.
    We are a 133-seat restaurant open for breakfast and lunch 
from 6 a.m. to 2 p.m. every day. I have 26 employees, including 
my wife, two sons, and my adopted daughter. I love what I do, 
but every day I fight to succeed. I, and my team of 22, know 
that if the restaurant succeeds, we all succeed. And if the 
restaurant fails, my family and I face financial ruin and 22 
families lose their source of income and their livelihoods. Any 
variable can tip the balance from being a going concern to just 
another failed business. The added 1099 reporting requirements 
may sound simple to comply with, but mandating that I track all 
vendors from whom I purchase at least $600 in products and 
services each year and issue 1099s will be significant in both 
time and money.
    I work with 200 to 300 vendors a year. Generally, I pay in 
cash or check. For instance, every single day I go across the 
street to the grocery store and buy a fresh head of lettuce to 
put in my salad mix because if I buy it in bulk, it goes old 
before I can use it all. That lettuce costs $1.79. And if I do 
that 363 days a year, for every day I am open, that exceeds the 
$600 total. So, I now have to issue a 1099 for buying a head of 
lettuce every day. That is just ludicrous.
    The expanded 1099 requirement will force me to monitor all 
purchases like this one. In addition, I will need to buy new 
software, track down each vendor's tax ID number, their 
address, key in that information, compile the data into 1099s, 
print and mail forms to the vendors and to the IRS. And still 
the process is unclear to me because I worry about the 
accuracy. What if my books don't agree with a vendor's records? 
How will we reconcile disagreements? Will I face fines if there 
is some sort of confusion?
    So, to me, next comes a choice: I can either do the work 
myself or pay someone else to do it. I don't have the money to 
pay someone else to do it, so that means it falls on my 
shoulders. The past few years have been extremely challenging. 
For 2 years in a row, I have seen sales decline. The choice I 
make is, can I raise prices to cover the costs of doing all 
this? I don't think I can because I compete in a marketplace 
where my customers can easily go to my competitor.
    I am also concerned about my guests. Almost every week a 
business networking group spends $80 for a meal at my 
restaurant. Once a month, a department from a local business 
comes in for a business lunch and spends $60 while they discuss 
workplace issues. They often pay in cash or by check. Will they 
continue to patronize my restaurant if they need to worry about 
1099 requirements.
    In addition to the 1099 provision, I urge Congress to 
address the fundamental changes within the entire health care 
law. My written testimony details the deep and growing concerns 
of my industry. Please consider who is affected if a restaurant 
like mine shuts its doors. One server who has been with me 
since I opened, Danielle, put herself through nursing school 
with our company's help. One of my cooks, Jeff, has a wife and 
two kids, and she is a schoolteacher.
    I employ college students who work with me on the weekends. 
Their age group faces the highest unemployment rate in decades. 
I worry what they will do if increased government regulations 
tip the scales and force me to close.
    I hope this committee will convey our concerns and Congress 
will repeal the 1099 provision as soon as possible. The 
National Restaurant Association and the Colorado Restaurant 
Association look forward to working with you to revise health 
care laws generally.
    Thank you again. I would be happy to take your questions at 
the appropriate time.
    [The statement of Mr. Eagleton follows:]

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    Chairman Graves. Thank you, Mr. Eagleton.
    I will next recognize representative Mrs. Ellmers to 
introduce her constituent witness.
    Mrs. Ellmers. Thank you, Mr. Chairman.
    It is my distinct pleasure to introduce to you my friend 
Mr. R. Jerol Kivett. He is president of Kivett's, Inc., located 
in the district that I represent in Clinton, North Carolina.
    The Kivetts started their family business years ago in 
1958. Along with his father, they pooled their money together 
to start their business and continue it on. The Kivetts are the 
largest family-owned-and-operated pew manufacturer and 
refinisher in the United States for churches across the United 
States. Mr. Kivett has been at the helm since 1972. He is 
testifying today on behalf of The National Federation of 
Independent Businesses founded in 1943. The NFIB is the leading 
small business association representing small and independent 
businesses.
    Welcome, Mr. Kivett. We are anxiously awaiting your 
testimony for 5 minutes. Thank you.

                  STATEMENT OF R. JEROL KIVETT

    Mr. Kivett. Thank you, congresswoman.
    Good afternoon, Chairman Graves, Ranking Member Velazquez, 
and members of the committee. My name is Jerol Kivett, and I am 
the owner of Kivett's, Inc. I am pleased to be here as a small 
business owner and a member of the National Federation of 
Independent Businesses, the Nation's leading small business 
advocacy organization, to discuss the negative impact expanding 
the 1099 reporting provision will have on my business and small 
businesses in again.
    I would also like to thank Congresswoman Ellmers for 
working with me to participate in this important hearing.
    Kivett's, Inc., is located in Clinton, North Carolina, and 
is the largest family-owned-and-operated church furniture 
manufacturer and pew refinisher in the United States. In 
addition, our company manufactures and refurbishes other church 
furniture and fixtures, such as steeples and stained-glass 
windows. We also build and refurbish furniture for courtrooms. 
Kivett's provides a full range of services. We build new 
furniture, refurbish existing furniture, and provide both 
delivery and installation.
    Our business was started by my father in 1958, and I took 
over in the early 1970s. At that time, we had fewer than 10 
employees. But with hard work, we grew the business, and at our 
peak, we employed around 160 workers. When business was at its 
best, we were completing about one church per day. For the last 
few years, business has been down by 50 percent. The church 
furniture industry is small and competitive. With the 
recession, many of our customers saw donations drop, meaning 
they had less to spend on renovations and expansions. As a 
result, our current work force has dropped to about 55 
employees.
    In the face of the economic challenges facing small 
businesses like ours, we are confronting daunting new policy 
challenges as well. Working through a recession is tough, but 
adding to the burden with confusing new laws and regulations 
makes the recovery twice as hard. The uncertainty being created 
by Washington is stifling a small business recovery.
    The new health care law and uncertainty it is creating for 
small business owners makes it harder for us to determine what 
our cost will be. The expanded 1099 reporting requirement 
included in the health care law is a good example of the kind 
of misguided policy that works against the interest of small 
businesses.
    Filing our annual tax return is never a task we look 
forward to, but making filing more burdensome only drains 
resources from small businesses like ours. In fact, in a recent 
NFIB Small Business Problems and Priorities Survey, tax 
complexity was ranked as the fifth biggest problem for small 
business owners.
    Small business owners spend on average $74 per hour for 
paperwork associated with tax compliance, the highest paperwork 
compliance imposed on small businesses by the Federal 
Government. The expanded 1099 reporting requirement in the 
health care law adds to this already heavy burden and increases 
our operating costs. Previously, businesses were required to 
file a form 1099 for services received from an unincorporated 
business of over $600. The health care law expands the 
requirement in two ways: First, businesses must file for 
services received of over $600 from both incorporated and 
unincorporated businesses; and second, for property or material 
purchased in excess of $600.
    Over the last 3 years, we filed approximately 25 form 1099s 
annually. And at our business peak, we filed 50 per year. With 
the new health care law, we will average about 300 filings 
based on today's business activity. If we reach our peak again, 
we will file about 600 forms annually. I will have to dedicate 
additional time and money to ensure that I comply with this new 
requirement. This diverts resources away from the core 
functions of my business.
    The burden can't simply be measured in the number of forms 
but also in the information that we will have to track to 
complete the forms. We will have to follow the amounts of our 
purchases from each vendor to determine when or if we meet the 
$600 filing threshold. In addition, we will have to request the 
taxpayer identification numbers of our vendors, as well as 
correct addresses to send the final forms.
    The expanded reporting requirement also applies to my 
customers, meaning that we will receive requests for 
information and more 1099s for the work and property we supply. 
Our customers, mostly churches, compose a unique problem for 
us: Churches are not sophisticated taxpayers. This places the 
burden upon my company to ensure that their forms are completed 
properly. This means more resources being dedicated to filling 
out forms and less dedicated to serving our clients and growing 
our business.
    This new reporting burden falls especially hard on small 
businesses. Unlike large firms, most of the small businesses 
lack an in-house accounting department to handle tax filings. 
For the smallest businesses, increased paperwork is often 
handled by the owner.
    The new 1099 requirement would also place small businesses 
at a competitive disadvantage. Some businesses may look to move 
to larger vendors to consolidate their purchases and reduce the 
number of forms they file, or they can handle the reporting 
burden for them, meaning fewer customers and opportunities for 
small businesses.
    The expanded 1099 reporting requirement places an 
unnecessary and onerous burden on small business owners. It is 
time for Congress to repeal the provision before it goes into 
effect next year.
    Thank you for the opportunity to appear before the 
committee. I look forward to any questions at the proper time.
    [The statement of Mr. Kivett follows:]

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    Chairman Graves. Thank you, Mr. Kivett.
    At this time, I recognize Ranking Member Velazquez for her 
witness.
    Ms. Velazquez. Thank you, Mr. Chairman.
    It is my privilege to introduce Mr. Mike Kegley. He is the 
president of the B.O.L.D. Homes located in Union, Kentucky. 
B.O.L.D. provides residential construction, commercial 
construction, remodeling, land development and real estate 
services. Mr. Kegley is testifying on behalf of the National 
Association of Home Builders. The association was founded in 
1942 and has more than 160,000 members. Welcome.

                    STATEMENT OF MIKE KEGLEY

    Mr. Kegley. Thank you, Chairman Graves, Ranking Member 
Velazquez, on behalf of the 160,000 members of the National 
Association of Home Builders, I thank you for the opportunity 
to testify today before the House Small Business Committee.
    My name is Mike Kegley, and I am a builder in Union, 
Kentucky, and the 2011 president of the Home Builders 
Association of Kentucky.
    In 1986, my two brothers-in-law, my wife Janet and I 
started our home building business in northern Kentucky; 6 
years ago, our son joined the family business.
    Few industries have struggled more during this recession 
than the home building industry, and it has been no different 
for us. Our production has dropped from 16 homes built with 17 
employees in 2007 to 6 homes last year built with 7 employees. 
We started performing remodeling work to make ends meet, and my 
wife had to leave the company and return to her field of speech 
therapy.
    In this economic environment, any additional administrative 
costs imposed upon me will greatly affect the future of my 
company and the jobs of my employees.
    Mr. Kegley. So I am pleased the committee is focusing today 
on the impact of the new 1099 information reporting 
requirements on small businesses.
    The new requirement will substantially increase the 
reporting requirements on small homebuilders. In January, the 
NEHB conducted a survey of builders to determine how many 
additional form 1099s would be issued under the new law. The 
medium result was 40 additional 1099s, but 38 percent of the 
responders indicated they would issue 50 or more additional 
1099s, and 17 percent would issue 100 or more additional forms.
    For my company, if the new law had been in effect, I would 
have issued approximately 144 additional 1099s in 2008, 122 
additional forms in 2009, and 173 additional 1099s last year. A 
major reason for the increase in 1099s is not just the removal 
of the corporate exemption but imposing reporting requirements 
on a host of new transactions, such as goods, utility payments, 
and freight.
    In the homebuilding industry, our employees can be spread 
across multiple building sites. For example, the simple task of 
tracking fuel purchases from multiple gas stations in possibly 
multiple States is daunting. It is not just as simple as 
collecting receipts; we would need to determine the taxpayer 
identification numbers for each gas station as they are likely 
owned by different franchise owners.
    We further estimated that it would cost my company an 
additional $6,400 in administrative costs for the first year 
the new law takes effect to obtain and catalog the additional 
W-9 forms. Succeeding years would run about $1,900 annually to 
keep up with the new W-9s and make sure they are correct.
    In addition, we estimate the added cost of creating the 
additional 1099s had the law been in effect would have been 
nearly $2,200 in 2008, over $1,800 in 2009, and $2,600 last 
year. These numbers do not include the software upgrades I 
would have to purchase.
    I have also checked with three different accounting 
services in Kentucky. Their average cost for preparing a form 
1099 was $50 for the first form and $25 for each additional 
form, with some volume discounts for over 100. Of course, even 
that does not include the cost of obtaining and updating the W-
9 forms or other administrative costs.
    To conclude, I am convinced that the additional compliance 
outweighs any of the estimated tax revenue. I also believe that 
these reporting requirements will make small businesses less 
competitive relative to larger corporate businesses.
    There is a solution, and I urge Congress to move swiftly to 
repeal these new information reporting requirements. Thank you 
for allowing me to testify, and I look forward to your 
questions.
    [The statement of Mr. Kegley follows:]

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    Chairman Graves. Thank you, Mr. Kegley.
    Mr. Kivett, you have pointed out how many 1099s you are 
going to have to fill out with this, but I would be curious as 
to what the rest of you think it is going to do in terms of how 
many of these you are going to have to fill out. Obviously we 
have a variety of businesses here. We have a service business. 
We have a retail store, which has inventory, and I am assuming 
everything you buy is going to be over $600 easily, but I would 
be very curious where you think this is going. How many are you 
going to have to file? And how much time is this going to take 
specifically?
    I will start with you, Mr. Kegley.
    Mr. Kegley. Altogether, we are probably averaging about 30 
1099s now. And over the last 4 years would have been an average 
of 150 additional ones for a total of 180 to 200 total forms. 
That breaks down to about 41 in general overhead expenses, and 
then approximately about 64 different ones for each and every 
home that we might build.
    Chairman Graves. Mr. Shipley.
    Mr. Shipley. We have estimated approximately 200, based on 
how many vendors we currently use; let alone we also buy scrap 
gold. Anybody that we buy scrap gold from, it creates a 
personal issue for them; they have to give us their Social 
Security number, and we run the risk of losing that business.
    Chairman Graves. Mr. Eagleton.
    Mr. Eagleton. My best estimate is between 60 and 100. Not 
knowing how many businesses buy meals from me regularly and how 
many of my customers is kind of an unknown, but for vendors 
that I buy from for goods and services that I don't pay by 
check, 61 is my best estimate.
    Chairman Graves. And we heard from you, Mr. Kivett.
    Now just a real quick yes or no question: Does it aggravate 
you to know that you may have to do this requirement knowing 
full well that the IRS may not know what they are going to do 
with this information in the end?
    Mr. Eagleton. Absolutely.
    Mr. Shipley. Without a doubt.
    Chairman Graves. Ranking Member Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Kegley, as you noted in your testimony, new reporting 
rules apply for landlords that are in effect now. Do you think 
that it is likely that many property owners will end up exposed 
to potential penalties because they are unaware of the new 
rules?
    Mr. Kegley. Yes. You are talking about the Small Business 
Jobs Act of 2010 exempted what we call independent landlords, 
and that would be people like yourself or me that are just 
renting one or two homes. And that requirement starts this year 
and was only published about 3 months before the end of last 
year. We feel like there has been very little advertising about 
this requirement, that most landowners are not even aware of 
it. There is a very high fine for not reporting properly as 
well.
    Ms. Velazquez. Can you tell me if the Treasury Department 
has given any guidance?
    Mr. Kegley. Not that I am aware of, no.
    Ms. Velazquez. Mr. Shipley, the IRS has attempted to reduce 
the paperwork burden on small businesses by exempting credit 
card payments from 1099 reporting. Unfortunately, many small 
firms do not accept credit card or debit card payments. Is 
there a potential small firms may be put at a competitive 
disadvantage because of the exemption for credit card payments?
    Mr. Shipley. I am sorry, could you repeat the question?
    Ms. Velazquez. The IRS has attempted to reduce paper by 
exempting credit card payments, but there are some small 
businesses who do not accept credit cards. My question is, will 
those small businesses who do not accept credit card or debit 
card payments be put at a disadvantage?
    Mr. Shipley. I think so without a doubt.
    I also think a lot of the small businesses that don't 
accept credit cards right now are on the fringe of going out of 
business because of that.
    Ms. Velazquez. And I would like for each one of the members 
of the panel to answer this question: After health care reform, 
the IRS mailed small businesses more than 4 million postcards 
to inform them of the small business health tax credit. So I 
would like to ask you, do you feel the IRS is adequately 
working with the business community to answer entrepreneurs' 
questions on the new 1099 rules?
    Mr. Kegley.
    Mr. Kegley. I think they are not doing so. And really the 
issuance of a postcard, frankly, I don't really even see all 
the mail and don't recall ever getting that.
    Ms. Velazquez. But they did it for small businesses to 
inform them that as a result of the health care reform bill, 
there were tax credits. So, on the 1099, have you seen anything 
coming out of the IRS?
    Mr. Kegley. Not at all. And if it wasn't for my involvement 
in the National Association of Home Builders, I wouldn't be 
aware of it.
    Mr. Shipley. Not at all.
    Mr. Eagleton. I haven't seen anything.
    Mr. Kivett. Not at all for me.
    Ms. Velazquez. Okay. And of course, it is your position 
that they should do more or better in terms of educating the 
small business sector as to the new rules regarding 1099.
    Thank you, Mr. Chairman.
    Chairman Graves. Mr. King of Iowa.
    Mr. King. Thank you, Mr. Chairman.
    I want to thank the witnesses for your testimony and for 
making the trip here today to help illuminate this subject 
matter.
    I spent my life in the construction business--we are now in 
the 35th or 36th year. And it started out with a little, one-
man operation. My biggest fear was government regulators. And 
of those regulators, my biggest fear was the IRS. And now a 
generation and a half, almost two generations have gone by 
since then, and I would start with Mr. Kivett and say, is there 
any agency that you have more trepidation about than the IRS?
    Mr. Kivett. If there is one, I am not aware of it.
    Mr. King. If we can go on down the line.
    Mr. Eagleton.
    Mr. Eagleton. Well, certainly in our industry, we worry 
about Homeland Security, and we also worry about the Department 
of Labor, but the IRS is number one.
    Mr. King. Thank you.
    Mr. Shipley.
    Mr. Shipley. Without a doubt, the same.
    Mr. King. And Mr. Kegley.
    Mr. Kegley. The IRS and the Environmental Protection 
Agency.
    Mr. King. Ah. I am glad you got that plug in there. I have 
certainly lived through these things myself.
    I am one who has also made a point, and I just make a point 
of reservation here for the panel and the witnesses and people 
in the room that we have a larger elephant in the room here--I 
actually don't think he falls under the species of elephant--
and that is the ObamaCare legislation that is the father of 
this 1099 rule that is before us here today.
    It has been real clear where I stand, and I think two-
thirds of the American people seek to abolish and repeal 
ObamaCare in all of its aspects. And I have taken the position 
that we need to go after the whole thing, and that if we take 
small parts of it out, that it diminishes some of our 
resistance.
    I would just ask, as I go down the line again, starting 
with Mr. Kivett--not that we disagree here because I am going 
to support this legislation, but have you concerned yourself 
with the idea that if we pull out the most egregious aspects of 
ObamaCare, we may be stuck with the broader components of it?
    Mr. Kivett. That is a concern. And of course, I think the 
health care law is the biggest burden on small business today. 
It is the biggest burden I have seen in the 30-some years that 
I have run my business has come across. I am not sure how we 
are going to handle this. Small business will survive, but we 
are not going to be able to create jobs that are required for 
the 65 percent that we are supposed to generate. I don't see 
how we can with this burden on our shoulders.
    Mr. King. And Mr. Eagleton.
    Mr. Eagleton. Thank you.
    I really worry about the health care legislation and its 
impact on my business.
    Last year, I did about $940,000 in sales as a restaurant. 
My net income after debt service was minus $500. So any 
government mandate on my business will force me to close, and 
22 employees and my family and I will be ruined.
    The health care legislation that is mandated, currently I 
employ or have insurance on four employees. That cost has gone 
up from $11,000 in 2004 to over $30,000 in 2011. I don't know, 
if I have to pay for health insurance for my employees, how I 
am going to survive. I will shut my doors. I don't know how I 
am going to make it through this.
    Mr. King. And Mr. Eagleton, as I hear this, I think you 
said $944,000 in gross receipts, $500 in net.
    Mr. Eagleton. Negative $500.
    Mr. King. Negative $500. Sorry, I missed that. I have lived 
a little of that myself.
    There seems to be an attitude on the part of the 
administration that even small business is making large 
margins. And I think they don't understand how much of this 
is--it is a life that we live because we want to have the 
freedom to be able to raise our families and do those things 
that you get from being self-employed. I would just offer that 
same question to Mr. Shipley and see if he cares to respond.
    Mr. Shipley. I agree 100 percent with how you stand on 
this. It is very difficult. It is something that if, as you all 
know, being self-employed, there are nights when you lie awake 
and you wonder, what is going to happen tomorrow. Am I going to 
be here not only for my salary, but for the people I employ? 
How am I going to pay them? How am I going to keep this going?
    I heard a story, I don't know if this is the best analogy, 
somebody said if you lifted a stone out in the desert and there 
was a rattlesnake under it with a bunch of baby rattlesnakes, 
would you just take care of the big rattlesnake or would you 
take care of them all? So, as a small business owner and the 
people I represent, we would agree, the whole thing is scary 
for us as a small business owner.
    Mr. King. Thank you, Mr. Shipley.
    I am watching my clock tick down. I will turn to a little 
bit different question to Mr. Kegley. And that is that as I 
listen to the testimony of the witnesses here and their 
responses, the IRS and the regulations and the burden of these 
1099--squeal forms we always called them and I think we still 
do--what does it do--you are in business. What does it do to 
the people who are thinking about starting a business when they 
are staring in the eye the 1099 squeal forms and the weight of 
the IRS and the other regulations--the EPA that you brought up, 
Mr. Kegley--what would be the response to whether we will have 
more or less entrepreneurs in America?
    Mr. Kegley. I think there will be less because any time 
government puts up these artificial barriers for new 
businesses, then it is that much more difficult to start a new 
business, and there will be less and less of that.
    Mr. King. Thank you. Thank you, Mr. Chairman.
    I yield back my negative balance of time.
    Chairman Graves. Thank you.
    Mr. Cicilline. Cicilline, that is Italian?
    Mr. Cicilline. Yes, it is.
    Thank you, Chairman Graves. I want to thank you and our 
ranking member for convening this hearing.
    I just want to follow up on that question that was just 
asked to Mr. Kegley. We are all working hard to build this kind 
of new innovation economy of entrepreneurship. The President 
just launched a new initiative, ``Innovation America,'' really 
focused on that. And I take it everyone would agree with Mr. 
Kegley that this kind of requirement is likely to inhibit 
innovation and entrepreneurship by creating this kind of a 
burden early on in the startup of a business. Is that a fair 
statement?
    Mr. Kegley. Yes.
    Mr. Shipley. Yes.
    Mr. Eagleton. Absolutely. I met last week with a 
prospective franchisee for The Egg and I, and they were just 
trying to pick my brain and see what it is like to be in 
business. I told them that I don't know that I would start my 
business again with the imposing health care burden that is 
forthcoming.
    Mr. Cicilline. I am actually talking about the 1099 
question.
    Mr. Eagleton. Okay, excuse me.
    Mr. Cicilline. But is it the same as the 1099, that that is 
an additional burden?
    Mr. Eagleton. Absolutely.
    Mr. Cicilline. And I come from a State that has been very 
hard hit by this recession, Rhode Island, we have the fifth 
highest unemployment rate in the country. I just was home this 
past week and convened a group of Business Leaders on Jobs and 
the Economy, an advisory group, and this is one of the issues 
they raised, the 1099. I was proud to tell them I am a 
cosponsor of the legislation to repeal this provision. I think 
it is very important to small businesses, which are the 
backbone of our economy in Rhode Island and I think in this 
country.
    But I do think we owe it to you as business leaders and to 
the American people to be honest about this. The reality is 
this was a provision which was projected to produce in the last 
budget year $22 billion in revenue. My guess is that by 
stripping away this, it will allow small businesses to grow and 
we will make that up tenfold; I mean, that is the hope. But we 
need to be honest about it. We cannot engage in this sort of 
mental gymnastics to say there is no cost to the repeal.
    So I think we should do it. I am a cosponsor of it. But I 
think we need to be honest with the American people because 
there is a projection when you build a budget of certain 
expenses and certain revenues. And the projection by the 
independent Joint Tax Committee is that it would generate 
between $19 billion and $22 billion in revenue. That is the 
reality. And so stripping it away, which is the right thing to 
do, we need to acknowledge that that is a responsibility we 
have in balancing all of the equities within a budget and 
making tough decisions.
    But this notion that we can repeal it and magically that 
$22 billion is erased from the budget, but we don't have to do 
anything about it is mental gymnastics, and I think we owe it 
to the American people and we ought to honor your work as great 
business leaders and entrepreneurs to be honest about that. I 
am prepared to say it is worth spending that money--we have got 
to figure out how to do it--but I am not going to just 
magically say it evaporates. And I think that is what we heard 
earlier in the hearing today. I think it does a disservice to 
the American people.
    And I thank you for your really powerful testimony about 
the kind of burden this imposes. I couldn't agree with you 
more. I heard it firsthand from Rhode Island businesses. I 
think it is a bad provision. I think it will inhibit small 
business growth and job growth. And I think at least my sole 
function of coming to Congress is to get people back to work, 
to get my State back on the right track and get this country on 
the right track.
    But I think one of the reasons that I came to Congress and 
saw--confronted some of these great financial challenges that 
we face is because we haven't been honest about some of the 
budget implications of what we are doing. I think we have to be 
honest in this context to say that is the loss of revenue that 
will happen and acknowledge it and be able to deal with it like 
adults. So I hope we can do that on both sides of the aisle.
    I thank you and yield back the balance of my time.
    Chairman Graves. Thank you very much.
    We will go to Mrs. Ellmers.
    Mrs. Ellmers. Thank you, Mr. Chairman.
    I have a question for all of our panel, and again thank all 
of you for coming and participating today. I know it is not 
easy to talk about what is happening in our small businesses 
today because it is not very positive.
    As a small business owner and with the issues that we face 
in the economy, my question to you is, with the bleak forecast 
that you have had to weather now and into the future, what 
effect has that had--I have two questions for you. One, how 
have you survived this? Have you had to dip into your own 
personal savings, retirement, things like that, to keep your 
doors open and to keep the bills paid?
    And also, Ms. Velazquez, Chairwoman Velazquez, had 
mentioned receiving a postcard in the mail with the health care 
issue, pointing out the advantages to small businesses. Did you 
get that postcard? And do you see and can you take advantage of 
that? Because it is my understanding that very few small 
businesses can actually take advantage of any of those 
provisions that have been put in place. And thank you.
    Mr. Kegley. Probably one of the toughest dinners I have 
ever had at home was about 3 years ago when I had to tell my 
wife, who started the company with me, that we didn't have a 
place for her in the family business anymore and she had to go 
find a job somewhere else.
    As far as the health insurance credit, of our seven current 
employees, five have left the coverage that our company was 
able to offer to go with a spouse, which was considerably less 
expensive. So with the two of us that are left, the credit 
would not be of any benefit at all.
    Mrs. Ellmers. Thank you.
    Mr. Shipley. The credit wouldn't benefit us as well. To 
make ends meet, to answer that question, my wife started back 
to work again at a local college, and we had to refinance our 
building and some things like that to keep our payroll paid and 
taxes.
    Mrs. Ellmers. Thank you.
    Mr. Eagleton. I am not sure how well I am surviving this. I 
have had 2 years of sales declines, and we have simply not be 
been able to take a lot of money out of the business to live 
on. So it has been very tough on us. Even the 1099 reporting 
could force us to close.
    I don't recall getting the postcard in the mail, so if I 
did receive it, I didn't recognize it for what it was and paid 
no attention to it.
    Mrs. Ellmers. Thank you.
    Mr. Kivett. Well, my company has been in business for 53 
years and you kind of plan ahead, hoping that you don't run 
into these rainy days, but we do. We went through one in 1974. 
We went through one in the early 1980s, in 1986, and then 
things went well for a while. And then, of course, we have been 
in a long decline. And we have been chipping away at money that 
we had set aside and hoped to keep and use for expansion, 
equipment, and we have used that money.
    Then we got down to a point that I cut my salary in half. 
That was 3 years ago, and I don't see a chance for me putting 
my salary back up. I am hoping to just meet payroll. It is very 
difficult, and I have been in business for 53 years.
    So this is the worst time I have ever seen. And it seems 
like everything is stacked up against small business. But we 
will survive. But what is going to happen, we are not going to 
be able to generate the jobs that you want us to generate 
because we are going to have to shrink down. We will survive, 
but we are not going to generate jobs for you. And no, the 
incentives are not going to help; they have no bearing at all 
in my business.
    Mrs. Ellmers. Thank you all for your honest and compelling 
testimony.
    Chairman Graves. Ms. Chu from California.
    Ms. Chu. Yes, I would like to follow up on the issue that 
Ranking Member Velazquez raised about the credit cards.
    One of the difficulties for implementing these 1099 rules 
is the fact that the IRS is exempting credit card reporting, 
but sometimes businesses pay vendors using credit cards and a 
check or cash, so if you have this combination, there is a 
potential for confusion.
    So I would like to ask you, Mr. Shipley, and any of the 
others, are there times when you make purchases or sales that 
involve a combination of credit cards and other payment 
methods? And what kind of challenges would this reporting 
requirement pose for you?
    Mr. Shipley. In the past, I had done more with credit card 
payments. I have actually gotten away from that because of the 
stress of worrying about then how to pay the credit card off. I 
found that was more of a struggle, so I just got to the point 
where I would only pay with checks.
    Ms. Chu. I would like to have any of the others respond to 
this.
    Mr. Kegley. We have suppliers that we both pay with check 
and credit card. A lot of times might be when we first move 
into a new neighborhood to build a home, we might pay with a 
credit card on the first few purchases, but then once this 
person becomes a trusted supplier, we would go ahead and set up 
an account and pay by check.
    Ms. Chu. And would this pose some challenges for you, 
having this exemption for one aspect of the payment versus the 
other?
    Mr. Kegley. I am thinking it might. I don't know how to 
keep it straight at this point. When we print off a job cost, I 
wouldn't know how I would know which ones were paid by credit 
card and which ones were paid with a check. It would take some 
sort of entry that we are not doing at this current time.
    Mr. Eagleton. Currently, about 90 percent of my 
transactions when I buy a good or a service is by check. 
Probably 1 percent is credit card, and the rest is cash. We 
keep track of all the purchases in our bookkeeping system, but 
sorting that and categorizing that would just take a lot of 
additional time and a lot of additional effort.
    Mr. Kivett. We use very little credit cards in my industry. 
There are no churches that use credit cards, so it would have 
no effect on me.
    Ms. Chu. Well, there is another aspect of this 
recordkeeping that could be problematic, and that is that the 
1099 rules are in compliance with the calendar year system, but 
we know that some small firms do not use a calendar year 
bookkeeping method. And they will have to reconcile their 
accounting system to these new rules. How will this affect you 
in terms of your business?
    Mr. Kegley, let's start with you.
    Mr. Kegley. We operate all of our small companies on a 
calendar basis, so it really wouldn't be an issue with us.
    Mr. Shipley. As well, we do a calendar basis.
    Mr. Eagleton. Of The Egg and I franchisees, I am the only 
franchisee that is on a calendar. The rest use a 4-4-5 method 
because we try and compare similar days and similar weeks to a 
prior year to predict business trends. It will create quite a 
bit of work for them to convert that back to a calendar 
accounting system if they have to.
    Mr. Kivett. And we would have no effect. We use a calendar 
year.
    Ms. Chu. Okay. Thank you.
    And I yield back.
    Chairman Graves. Mr. Coffman of Colorado.
    Mr. Coffman. Thank you, Mr. Chairman.
    Thank you all so much for coming today. I spent 17 years as 
a small business owner, a majority shareholder in a property 
management firm, and I remember what the stresses were like and 
what the hours were like and what the challenges were like. I 
think I learned how to make payroll and run an organization 
efficiently enough to make a profit and balance a budget. That 
is something that Congress could learn.
    But I would like all of you to talk about, outside of the 
1099 issue, because I think we have had a lot of great 
testimony on that and there is no question that that is 
incredibly egregious, but I think from having been in Congress 
now going on my third year, as a former small business owner, 
let me tell you, I don't see a lot of, shall I say, knowledge 
about small business, having come out of the Congress certainly 
in the last 2 years. I wonder if you could talk about just at 
any level of the government, what have been your challenges 
outside the 1099 in terms of whether it is State, local or the 
Federal Government? What do you need relief from in order to 
produce jobs?
    Why don't we start with you, Mr. Kivett, and we will work 
our way over.
    Mr. Kivett. Well, of course, the first thing is health 
care, which we talked about. I am talking the entire bill; that 
is the biggest burden on us.
    The other thing is energy. Our energy costs are just 
skyrocketing, and it affects all of us. It affects all my 
suppliers. Anything that is coming in, of course, it is not 
just gasoline. For example, the theory of cap-and-trade scares 
us to death. We are already hit hard with energy costs. But the 
fuel/gas issue, energy issue would be a concern for us.
    Mr. Coffman. Mr. Eagleton.
    Mr. Eagleton. I would say a couple. One is we need access 
to capital to grow, and right now lenders still aren't lending. 
That would be number one.
    Number two would be, we are just seeing huge increases in 
all of our costs of doing business, from oil and gas to 
commodity prices to feed prices to raw material goods prices. 
And we can't pass these along. And any regulation that makes 
that more complex and makes that more expensive hurts us. So 
those would be my comments.
    Mr. Coffman. Mr. Shipley.
    Mr. Shipley. As Mr. Kivett said, health insurance is 
obviously a big issue. I feel overwhelmingly taxed all the 
time, from a small business owner. I feel like every time I 
turn around, I am getting hit with a new tax or a new fee. I 
was at a tri-State board meeting last night for local jewelers 
in our area, and they want to raise the fee on our license for 
precious metals from $75 to $300. It is these things that all 
the time we get hit with that add up, and that is the tough 
part as a small business owner.
    Mr. Coffman. Mr. Kegley.
    Mr. Kegley. One of the biggest problems our members are 
having across the country is finding the credit they need to 
not only keep their businesses running, but to expand those as 
well. The banks are really valuing our assets at just a few 
cents on the dollar, and therefore, collateral that was 
adequate 3 or 4 years ago is not adequate for the loans we have 
now.
    And beyond that is the regulatory burden that we see in 
construction now from the EPA and OSHA. And all of us builders 
are outdoorsmen. We are all environmentalists, and we most all 
want to protect the environment, but the regulations that we 
are seeing are just about running a lot of people out of 
business and making it much more difficult to continue our 
business.
    Mr. Coffman. Could you all answer one quick question really 
quick because I am running out of time, and that is simply 
whether or not you plan on adding employees in 2011, starting 
with you, Mr. Kivett?
    Mr. Kivett. I am adding no employees. I will cut 
employees--I have to.
    Mr. Coffman. Mr. Eagleton.
    Mr. Eagleton. I have a building of 5,000 square feet, and 
3,800 square feet of it is my restaurant. I have 1,200 feet 
next door that I am paying for to be empty. I would love to 
start another small business in that space that I already pay 
rent on. If I could find the capital to operate another 
business and hire more employees, I would do it tomorrow.
    Mr. Coffman. Mr. Shipley.
    Mr. Shipley. No, sir.
    Mr. Kegley. We sent layoff notices to three more employees 
on Monday.
    Mr. Coffman. Well, I want to thank you all so much for 
coming. I know how tough it is being out there, and the fact 
that you have all taken time to come here and testify, not only 
on behalf of your businesses but on behalf of small businesses 
across America. I really want to thank you.
    I yield back my time, Mr. Chairman.
    Chairman Graves. Ms. Clarke of New York.
    Ms. Clarke. Thank you very much, Mr. Chairman.
    And thank you, Ranking Member Velazquez.
    I am a supporter of making it easier for small businesses 
to compete and grow as we continue to turn around the economy. 
The central Brooklyn district that I represent is filled with 
commercial corridors of locally owned mom-and-pop small 
businesses that are a huge part of each neighborhood's unique 
character. I can appreciate that the President in his State of 
the Union speech addressed the issue. And while I differ on 
certain particulars, I do support the policies that keep our 
small businesses competitive.
    So my question to each of you gentlemen is, acknowledging 
that expanded reporting adversely affects small businesses, 
what suggestions would you make with regards to the intent of 
the expanded reporting, which is to enhance the ability to 
monitor large transactions, without the undue burden that comes 
with the implementation of this policy? Is there an alternative 
that you could think of that would meet the same ends but not 
through the same means, or have you given it any consideration 
at all?
    Mr. Kegley. The only consideration that we have thought 
about is if you raise the threshold beyond the $600. When it 
was first enacted in 1954, that was a lot of money, but our 
economists figure that if you allow for inflation, that would 
be closer to $5,000 today.
    Ms. Clarke. Anyone else given any thought to it? Not 
really? You just think dispensing with it is just ultimately 
the best thing to do?
    Mr. Eagleton. Correct.
    Mr. Kivett. Exactly.
    Ms. Clarke. And you haven't thought about what we would do 
around the transaction issue.
    Ms. Eagleton. My only comment would be is, we log every 
transaction now in our bookkeeping systems. We report all 
income and expenses already. I don't know why it is up to us as 
small businessmen to track that for the government so they can 
tax it or make sure they have gotten their tax on it. I don't 
think that is our responsibility.
    Ms. Clarke. Okay. What about people who don't pay their 
taxes?
    Ms. Eagleton. Should that be a small business person?
    Ms. Clarke. I am just asking.
    Ms. Eagleton. I don't know that it should be.
    Mr. Kivett. I agree. I don't think it is our 
responsibility. We do our part. And of course 86 or 87 percent 
compliance is pretty good. It is the highest in the world.
    Ms. Clarke. I agree. Thank you very much, gentlemen.
    I yield back the balance of my time.
    Chairman Graves. Ms. West.
    Ms. West. Thank you, Mr. Chairman, and also Ranking Member 
Velazquez.
    I guess one of the key things, we probably have already 
discussed it, but for myself, coming out of south Florida in 
Congressional District 22 where unemployment in Broward County 
is close to 11 percent unemployment; Palm Beach County is very 
close to 12 percent. So we are looking at our small businesses, 
our economic engine there. What would you say are the top two 
things that we could alleviate off of your backs that will help 
you to expand and to grow your business and get back to hiring 
Americans.
    Subject to your questions, I will yield back to the 
chairman.
    Mr. Kivett. My opinion of course is the health care law; 
that is the number one thing, and of course, any other 
regulations that are put on us with the EPA, as Mr. Kegley 
mentioned. The EPA is on us. OSHA, the same thing. Not that we 
don't need regulations, but adding more and more every year is 
just hard to understand and comprehend why it is necessary. 
That is my answer.
    Ms. Eagleton. My answer would be, one is access to capital 
to expand and grow and provide jobs. Two would be to reduce 
taxes so that I have more money to hire more people and build 
my business.
    Ms. Shipley. As I mentioned earlier, if there was a way we 
could reduce taxes, that would help us as a small business 
owner.
    Mr. Kegley. I agree with everyone else, with the added 
comment that if government would just get out of the way, I 
think we would take care of the problem.
    Ms. West. But I guess, just codify getting out of the way, 
because that could go from one extreme to the other. What 
specifics?
    Mr. Kegley. I think primarily some of the restrictions that 
have been put on the banking, as far as limiting the loans that 
they are able to make to our businesses; the regulations, by 
the EPA in particular in our industry as well. Some of the 
mandates about construction techniques and products that are 
used, and just the lack of--government seems to have the 
opinion that people can't make up their own mind and can't do 
what they think is best for themselves. They are wanting to do 
too much thinking for those folks, and people should be able to 
act upon their own.
    Ms. West. Thank you very much, gentlemen.
    Mr. Chairman.
    Chairman Graves. Ms. Mulvaney.
    Ms. Mulvaney. Thank you, Mr. Chairman.
    And very briefly, I apologize for having to come and go. So 
many of us have other meetings at the same time, so I 
appreciate your patience.
    I also appreciate your perspective. I am a restaurant 
owner, have been a homebuilder. I have never built any church 
pews, but my next door neighbor makes pipe organs, if you can 
believe that. And as for jewelry, that is another story 
entirely.
    A quick question for Mr. Kegley, because one of the things 
we are seeing obviously in our market, we are a northern South 
Carolina suburb of the Charlotte market, and we have a 
tremendous inventory of housing on the ground, built housing, 
empty. Traditionally what we would see in this marketplace in a 
similar type of downturn would be that these would be snapped 
up oftentimes by individual investors. There was a great 
article in the Wall Street Journal I think about how this is 
starting to happen in the Miami market--we are not starting to 
see it yet--where individual investors are starting to snap up 
properties, undervalued properties, for the purpose of putting 
it back into the marketplace as rental property. Tell me a 
little bit about how you think this bill--excuse me, this 
provision, if we don't repeal it, would impact our ability to 
get people, essentially small business people, entrepreneurs 
back into that rental property market.
    Mr. Kegley. I think there are two ways. Number one, as they 
rehab those rental properties, they are going to have to meet 
that 1099 reporting requirement. So you are talking about a lot 
of times a small father-and-son type operation that maybe 
doesn't have a full-time bookkeeper, so they are going to have 
to keep better track and report these items. That is going to 
mean hiring some additional help. It is going to be 
nonproductive for their business just to keep up with the 
reporting requirements.
    Then with the landlord provisions, they are also going to 
have to continue those reporting requirements as long as they 
own that property for any additional repairs or upkeep they 
have to do. So I think it is going to discourage a little bit 
of that.
    Ms. Mulvaney. And especially at that very small level, at 
that micro level. If you have one house or two houses, there is 
only one place you can go to to make up that shortfall, which 
is raising your rents, which sort of defeats the whole purpose 
of trying to get the thing back into the marketplace as well.
    I agree with you. I am glad to see that we are getting rid 
of this bill. I am especially glad, by the way, that the 
President said he supported getting rid of it this year. I 
remember that he said specifically last year that he would 
oppose repealing this, and I am glad that he has seen the 
light.
    So thank you, gentlemen, for coming out today.
    Chairman Graves. I yield to the Ranking Member. Do you have 
any comments?
    Ms. Velazquez. No. I just want to take this opportunity to 
thank all of you. Especially on this committee, we work in a 
bipartisan way. When we talk about small businesses, there is 
no Republican or Democratic approach to it. And I am happy to 
see that there is bipartisan support to repeal 1099.
    In the last Congress, in the 111th Congress, Chairman 
Lungren introduced a--he filed a discharge petition that if he 
gets 218 signatures, Members to sign into that discharge 
petition, that will allow for the bill to come to the floor. 
And so given the fact that the leadership, the President, all 
of us are supporting repeal of 1099, and given the fact that 
you are making statements to the fact that this will stifle job 
creation in America, I don't see any reason as to why we cannot 
bring this bill to the floor, either this week or next week. 
And if we don't, then we should file a discharge petition. He 
has 269 cosponsors, and I would be one of the first to sign 
onto that discharge petition.
    Thank you, Mr. Chairman.
    Chairman Graves. Thank you, Ms. Velazquez.
    And I apologize that my mike is not working, but I do want 
to thank all of the witnesses for coming today. There is 
bipartisan support to eliminate this 1099 provision.
    There is a little bit of controversy over cost, which is 
frustrating to me in that this has been estimated to generate 
somewhere between $17 billion and $22 billion worth of revenue, 
but the fact that this revenue is not being received as of yet 
because this hasn't been implemented, the notion that that 
would be a cost to government is very frustrating to me, 
because I don't understand when something that the government 
is not receiving becomes a cost, which kind of brings us to the 
real issue. And that is that the deficits, whether it is a 
Republican majority or a Democrat majority, are a result of 
spending; not as a result of revenue. It is not a revenue 
problem; it is a spending problem.
    With that, I am going to compile all of the information we 
got today, and I will be sending a letter to the Chairman of 
the Ways and Means Committee summarizing everything that took 
place in the hearing.
    With that, I would ask unanimous consent that Members have 
5 legislative days to submit statements and supporting material 
for the record.
    [Supporting material for the Record follows:]

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