[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


   IS THE TAX CUTS AND JOBS ACT A HELP OR HINDERANCE TO MAIN STREET?

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION
                               __________

                              HEARING HELD
                             JULY 24, 2019
                               __________

                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 116-038
             Available via the GPO Website: www.govinfo.gov
             
             
             
                              ___________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
37-102                     WASHINGTON : 2020                
             
             
             
             
             
             
                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                         ABBY FINKENAUER, Iowa
                          JARED GOLDEN, Maine
                          ANDY KIM, New Jersey
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                          JUDY CHU, California
                           MARC VEASEY, Texas
                       DWIGHT EVANS, Pennsylvania
                        BRAD SCHNEIDER, Illinois
                      ADRIANO ESPAILLAT, New York
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                         ANGIE CRAIG, Minnesota
                   STEVE CHABOT, Ohio, Ranking Member
   AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                        TRENT KELLY, Mississippi
                          TROY BALDERSON, Ohio
                          KEVIN HERN, Oklahoma
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        TIM BURCHETT, Tennessee
                          ROSS SPANO, Florida
                        JOHN JOYCE, Pennsylvania

                Adam Minehardt, Majority Staff Director
     Melissa Jung, Majority Deputy Staff Director and Chief Counsel
                   Kevin Fitzpatrick, Staff Director
                         


                         
                         
                         
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Nydia Velazquez.............................................     1
Hon. Steve Chabot................................................     2

                               WITNESSES

Ms. Jane Gravelle, Senior Specialist in Economic Policy, 
  Congressional Research Service, Washington, DC.................     5
Mr. Grafton H. Willey, IV, CPA and Small Business Owner, Sole-
  Proprietor, Portsmouth, RI, testifying on behalf of the NSBA-
  National Small Business Association and the RI Society of CPA's     6
Mr. Muneer Baig, Founder & CEO, SYSUSA, Inc., Manassas, VA, 
  testifying on behalf of Small Business Majority................     8
Mr. Justin Conger, President, Conger Construction Group, Lebanon, 
  OH.............................................................    10

                                APPENDIX

Prepared Statements:
    Ms. Jane Gravelle, Senior Specialist in Economic Policy, 
      Congressional Research Service, Washington, DC.............    35
    Mr. Grafton H. Willey, IV, CPA and Small Business Owner, 
      Sole-Proprietor, Portsmouth, RI, testifying on behalf of 
      the NSBA-National Small Business Association and the RI 
      Society of CPA's...........................................    46
    Mr. Muneer Baig, Founder & CEO, SYSUSA, Inc., Manassas, VA, 
      testifying on behalf of Small Business Majority............    68
    Mr. Justin Conger, President, Conger Construction Group, 
      Lebanon, OH................................................    72
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Statement of Hon. Troy Balderson.............................    78
    Chamber of Commerce of the United States of America..........    82
    Heritage Action for America..................................    85
    NFIB.........................................................    87
    SBCA - Small Business Council of America.....................    93
    Letter from Anne Zimmerman...................................    98
    Packet of letters from Conger/Minority Staff.................   103
    Letter from PATG.............................................   124
    Other letter packet..........................................   152

 
   IS THE TAX CUTS AND JOBS ACT A HELP OR HINDERANCE TO MAIN STREET?

                              ----------                              


                        WEDNESDAY, JULY 24, 2019

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The committee met, pursuant to call, at 11:32 a.m., in Room 
2360, Rayburn House Office Building. Hon. Nydia Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Finkenauer, Golden, 
Kim, Davids, Chu, Evans, Schneider, Delgado, Houlahan, Craig, 
Chabot, Balderson, Hern, Hagedorn, Stauber, Spano, and Joyce.
    Chairwoman VELAZQUEZ. Good morning. The committee will come 
to order.
    I thank everyone for joining us this morning, and I want to 
especially than the witnesses for being here today.
    America's small businesses are a catalyst for creating 
employment opportunities and driving growth in the U.S. 
economy. The estimated $30 million small firms in the U.S. 
represent 99 percent of all employers and support nearly 56 
million jobs.
    One way for Congress to support small businesses is through 
well-conceived and targeted tax policies that help small 
businesses to grow and expand. Over the years on this 
committee, we have heard that small firms need a simple tax 
code, one that levels the playing field and tax policies that 
create certainty for small companies across the country.
    It has now been a full year since full implementation of 
the tax law, and by any objective measure the Tax Cuts and Jobs 
Act shortchanged small firms.
    Take, for example, the signature piece of the Trump-led tax 
law, a permanent reduction of the corporate tax rate from 35 
percent to 21 percent, a simple, easy to understand, permanent 
benefit for corporate America. This tax cut for Wall Street 
will not only balloon our deficit; it puts big business over 
small. This is because 95 percent of the over 33 million small 
businesses in the United States are not organized as 
corporations and will not see any benefit from a lower 
corporate tax rate. Unlike the permanent reduction in the 
corporate tax rate, provisions meant to benefit small firms, 
like increased Section 179 expensing allowance are set to 
expire.
    Small business owners deserve the same certainty that the 
tax law currently provides large corporations, and this is 
another example of a missed opportunity to meet their needs.
    We will also hear today about Section 199A which was 
intended to level the playing field by creating a new deduction 
for small business income. Unfortunately, we have heard that 
this provision is incredibly complex and penalizes small 
business owners simply for operating in a particular industry. 
We have also heard horror stories from CPAs and small firms 
attempting to utilize this provision with little or no guidance 
from the IRS, leaving some small firms wondering if their next 
phone call is not from a customer but rather one from the IRS 
audit division.
    For the small firms that have used it, many have spent 
countless hours and money on tax professionals only to find out 
that the costs and time wasted outweigh any benefit. This is 
not the simple, straightforward tax reform small businesses 
deserve or demanded, and it is certainly not the simple tax cut 
that corporate America received.
    What we are seeing nearly a year after the tax law was 
passed is that Main Street sees little to celebrate. That is 
why it is not surprisingly that nearly 50 percent of small 
firms said that the new tax laws have no impact on the growth 
or profitability of their business. And when small businesses 
are short changed, so too is the rest of our economy.
    The Republican-led tax bill promised to pay for itself, 
lead to increased economic growth, and create higher wages for 
American workers. In fact, the exact opposite has happened. 
Deficits are rising, growth is slowing, and there is no 
indication of any wage increases for middle-income workers. And 
we also know that the President's words rang hollow when he 
said the rich will not be gaining at all in this plan. A 
doubling of the estate tax exemption, corporate stock buybacks 
of nearly $1 trillion in 2018 alone, and the top 1 percent 
receiving an average tax cut of over $60,000 demonstrates the 
wealthiest among us did gain while small businesses and working 
families were an afterthought.
    At a time when small entities are reeling from trade 
tensions with some of our largest trading partners, real tax 
reform will put Main Street ahead of Wall Street.
    The fact is real bipartisan tax reform that helps small 
businesses, American families, and is fiscally responsible 
could have been achieved. Unfortunately, the tax law was pushed 
through rapidly, aimed at achieving a political goal, a goal 
that is not good for small businesses, not good for working 
families, and not good for the economy.
    It is my hope that this hearing will shed light on the many 
issues small businesses are facing and Congress can work 
together just like this committee does day in and day out to 
find more responsible tax solutions that truly help small firms 
and strengthens our economy for the long term.
    With that I want to again thank each of the witnesses for 
joining us, and I look forward to your testimony.
    Now, I will yield to the Ranking Member, Mr. Chabot, for 
his opening statement.
    Mr. CHABOT. I thank the gentlelady for yielding.
    We oftentimes in this Committee say how bipartisan we 
operate. And just last week we passed five bills that were 
bipartisan. It had to do with small business veterans and 
having opportunities to create jobs and do well in this 
country.
    This is one of those times when we do not necessarily agree 
but we will do so respectfully, and we can disagree without 
being disagreeable, even though she was just wrong on 
everything she said.
    No, I am joking. Just kidding. Not kidding. No, really.
    But we really do care about each other in this Committee, 
but this is one where we just philosophically have some 
differences.
    Almost exactly a year ago, this Committee held a hearing on 
the impact of tax reform on small businesses across our nation. 
As I mentioned in that hearing, the economic and philosophical 
debate on tax benefits will surely continue as it is here today 
in this Committee. However, the success of the Tax Cuts and 
Jobs Act will be measured on its direct impact on the ground in 
people's lives, both individuals and small businesses. Simply 
put, are small businesses better off now compared to where they 
were before tax reform was implemented?
    Today, the national unemployment rate stands at about 3.7 
percent. This hovers around historic record lows. Consumer 
spending is up, and retail sales have also increased. Pro-
growth policies are moving this economy in the right direction.
    At the small business level, surveys across the country 
show the same thing. Small business owners remain very 
optimistic about this economy. According to the latest U.S. 
Chamber of Commerce and MetLife Small Business Index from the 
second quarter of 2019, almost 60 percent of small businesses 
say the economy is in good health or better. In the same 
survey, nearly 70 percent of all small business manufacturers 
had a positive outlook for the economy. Seventy percent in an 
industry that has been hit for quite some time. The NFIB 
Monthly Survey also remains near record levels.
    When small business owners are asked specifically about the 
tax reform, we are seeing basically the same results. Within 
NFIB's 2019 report on taxes, nearly 75 percent, or three out of 
every four businesses reported that tax reform would have 
either a positive or very positive effect on their business.
    Beyond statistics and survey data, it is not hard to see 
the impact in our communities. Trucks carrying goods and 
products are bustling up and down our roads, and stores are 
keeping their lights on late at night and they are hiring 
people.
    However, it is best said from small business owners 
themselves. I have a whole series of letters from small 
business folks in my district that all say essentially the same 
thing; that tax reform allowed them to invest and expand their 
businesses. Just to name a few of these, E-BEAM Services, Inc.; 
Harrison's Pro Tree Service; Minuteman Press of Lebanon; Jim 
Osborne Trucking; Honor Construction and Remodeling; Total 
Quality Manufacturing; and on and on.
    We can debate economics all day long, but when small 
business owners are using the Tax Cuts and Jobs Act to reinvest 
in their companies, their employees, and their communities, the 
intended effect of that legislation is being realized all 
across America, and certainly in my district. It is clear, 
small business owners are able to hire more workers, give 
bonuses, and reinvest in equipment because of the Tax Cuts and 
Jobs Act. As a result, the small business economy is healthier 
now as compared to a few years ago.
    I think we look forward to hearing from our witnesses 
today. We want to thank them for their participation, and I 
would just note as in all hearings, the majority gets to pick 
75 percent of the witnesses, three out of four, so my guess is 
three out of four are maybe going to have a different view than 
me here, but we will disagree without being disagreeable as 
well.
    So thank you all for being here and I yield back.
    Chairwoman VELAZQUEZ. Thank you, Mr. Chabot. And the 
gentleman yields back.
    And if committee members have an opening statement 
prepared, we will ask that they be submitted for the record.
    I would like to take a minute to explain the timing rules. 
Each witness gets 5 minutes to testify and the members get 5 
minutes for questioning. There is a lighting system to assist 
you. The green light will be on when you begin, the yellow 
light comes on when you have 1 minute remaining, and the red 
light comes on when you are out of time, and we ask that you 
stay within the timeframe to the best of your ability.
    I would now like to introduce our first witness, Ms. Jane 
Gravelle. Ms. Gravelle is a Senior Specialist in Economic 
Policy at the nonpartisan, independent, Congressional Research 
Service. Ms. Gravelle has written extensively on economic tax, 
among other issues.
    Our second witness is Mr. Grafton Willey, IV, a CPA and 
small business owner. Mr. Willey has more than 30 years of 
experience as a tax accountant and consultant to privately-held 
business owners. He has twice been selected as the Rhode Island 
Small Business Accounting Advocate of the Year and once as the 
New England Small Business Accounting Advocate of the Year by 
the National Small Business Association. He is testifying today 
on behalf of NSBA and the Rhode Island Society of CPAs.
    Our third witness is Muneer Baig, founder and CEO of 
SYSUSA, Inc., in Manassas, Virginia. He has over 2 decades of 
experience in IT operations, government risk management, and 
compliance. Prior to SYSUSA, Mr. Baig worked at Microsoft where 
he was responsible for the development and execution of an 
enterprise-wide information security risk assessment program. 
He is testifying today on behalf of the Small Business 
Majority, a national small business advocacy organization 
founded and run by small business owners.
    And now I would like to yield to our Ranking Member to 
introduce our final witness.
    Mr. CHABOT. Thank you, Madam Chair.
    Our witness here, the final witness today will be Justin 
Conger. Mr. Conger is president of Conger Construction Group in 
beautiful Lebanon, Ohio, which happens to be located within my 
congressional district. It is a really beautiful, beautiful 
town. Conger Construction Group has been a trusted leader in 
southwestern Ohio since it was founded in 1992 by Justin's 
father, Larry. Justin Conger took over the role of President of 
the company in 2016, and really has not looked back. Beyond his 
role with the construction firm, Mr. Conger serves on the 
Workforce Investment Board of Butler, Clermont, and Warren 
County. Additionally, he is a board member of the Warren County 
Chamber Alliance. For those of you that do not know Warren 
County, it is northeast of downtown Cincinnati. It is an area 
that is really thriving. It is the third fastest growing county 
out of 88 counties in Ohio. Mr. Conger, we really appreciate 
you being here today and taking time away from your business. 
And I yield back.
    Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
    And now Ms. Gravelle, you are recognized for 5 minutes.

   STATEMETS OF JANE GRAVELLE, SENIOR SPECIALIST IN ECONOMIC 
 POLICY, CONGRESSIONAL RESEARCH SERVICE; GRAFTON H WILLEY, IV, 
  CPA AND SMALL BUSINESS OWNER, SOLE-PROPRIETOR; MUNEER BAIG, 
 FOUNDER & CEO, SYSUSA, INC.; JUSTIN CONGER, PRESIDENT, CONGER 
                       CONSTRUCTION GROUP

                   STATEMENT OF JANE GRAVELLE

    Ms. GRAVELLE. Thank you for the invitation to discuss the 
issue of the effect on the December 2017 tax revision, 
popularly known as the Tax Cuts and Jobs Act on small business.
    This revision was estimated to reduce taxes by almost $1.5 
trillion over 10 years. For fiscal year 2018, the Act was 
estimated to reduce individual taxes by $65 billion and 
corporate taxes by $94 billion, in the case of corporations 
primarily by reducing the rate from 35 percent to 21 percent. 
Individual rates were also reduced but by less, and $28 billion 
of the individual cut was due to a pass-through deduction that 
allowed owners of pass-through businesses, such as partnerships 
and proprietorships taxed under the individual income tax, a 20 
percent deduction for certain business income. These individual 
provisions are scheduled to expire after 2025, but not the 
corporate rate cut.
    The tax cut can affect small businesses through two 
different mechanisms: by an increase in overall economic growth 
through demand for their products and through a decrease in tax 
burdens on investing and operating their businesses.
    Most analysts prior to the tax cut projected a relatively 
small effect on the growth rate in 2018 with the CBO projection 
of 0.3 percent near the middle of the forecast. Actual growth 
appeared to be relatively consistent with these effects, 
growing at slightly below the CBO forecast.
    Business investment growth was strong in 2018, but the 
extent to which that growth is due to the tax cut is unclear. 
Investment response takes time to plan and is volatile. Also, 
the components of investment that had the largest incentives 
did not grow at the highest rates. So the pattern of growth is 
inconsistent with supply side incentives.
    In the intermediate and longer run, forecasters project a 
wider range of outcomes, although most with a modest growth 
rate averaging around 4/10th of a percent. I want you to note 
that this is a change in the level of projected output and not 
a change in the growth rate. If occurring over 10 years, it 
implies an annual increased growth rate of 4/100th of 1 
percent.
    In the longer run, the effects will largely arise from 
investment incentives, but these incentives will likely be 
increasingly offset by crowding out as increases in the debt 
cause resources to be drawn away from private investment.
    There is at least a possibility that small business will 
benefit less from any economic effects particularly in the 
first few years. As considering investment goods, small 
business plays a larger role in construction and corporations, 
a larger role in manufacturing. Focusing on the demand for 
construction, the overall demand for business structures may be 
offset by decreased demand for owner-occupied housing due to 
the reduction in itemizers. These incentives will expire after 
2025 if not extended but so will the incentives for small 
business who are the major investors in business structures and 
rental housing.
    Turning to the direct effects of the tax cuts, small 
business benefits not only from the pass-through deduction but 
from the individual tax cuts. An estimate suggests they are of 
similar importance. With tax rates leading to a 3.8 percentage 
rate deduction and the pass-through, a 3 percentage point 
deduction. This is less than half the rate of the corporate 
rate cut.
    The effect of the pass-through deduction is reduced because 
it is phased out at high income through earnings of ineligible 
service firms and for other firms if they do not provide enough 
wages or own enough assets. Estimates indicate that the cost 
would increase by 66 percent if the phase out were not imposed 
and the service business restriction was responsible for about 
60 percent of that cost saving.
    The study also found that three types of business 
operations were responsible for only half of the reduction from 
the phase out: professional services, health, and finance and 
insurance. The pass-through deduction has added complexity, 
considerable complexity to tax compliance and administration, 
including equity choice, and has contributed, along with some 
rate reductions to complications in tax planning. For example, 
choosing to be an independent contractor would be an example.
    For a variety of reasons, the business rate reductions may 
not be very effective in providing investment incentives 
because they interact with expensing provisions in a way that 
causes a disincentive for certain investments because they are 
phased out, creating disincentives in the phase out range and 
because they are temporary. Arguments may be made that these 
tax cuts are important in providing cash flow, although much of 
a tax cut is likely a windfall that does not affect investment.
    There are alternative ways to address investment by small 
business, including increasing access to credit and tying tax 
deductions directly to investment. Thank you.
    Chairwoman VELAZQUEZ. Thank you. Mr. Willey.

               STATEMENT OF GRAFTON H. WILLEY, IV

    Mr. WILLEY. Good morning, Chairwoman Velazquez and Ranking 
Member Chabot and members of the House Committee. In addition 
to being a CPA, I am also a small business owner. I have an 
interest in an Italian restaurant and some businesses in the 
cranberry industry. And so I am here representing myself as a 
tax practitioner, myself as a small business owner, and the 
NSBA and the Rhode Island Society of CPAs.
    In responding to questions about taxation, there is always 
one stand answer which is ``it depends.'' That is applicable to 
the Tax Cut and Jobs Act. There are some good things in this 
bill, there are some bad things in this legislation. I view it 
as a work in progress. In fact, according to the NSBA Economic 
Survey, 29 percent of small business owners said that filing 
taxes in 2018 was more difficult when compared with 2017. And I 
can tell you the tax practitioners can say the same thing.
    In my estimation, the primary need in tax reform was to 
address the competiveness that the U.S. was experiencing in the 
international taxation for C corporations with the highest tax 
rate in the world or close to it at 35 percent, although some 
of that was reduced with special deductions. We were getting 
killed when it came to competing with countries like Ireland at 
12.5 percent and much of Europe in the mid-20s. Global 
financing will find a way to minimize international tax burdens 
and the movement of capital is very fluid. I believe most in 
Congress understood that when they were addressing tax reform. 
Bringing the corporate rate down to 21 percent has kept us 
competitive and there will be less incentive to move from place 
to place.
    The National Small Business Association established its 
basic principles of tax reform a few years ago. I was a 
contributor to that thing. And we have put that in our package. 
I will not go over those.
    The Tax Cut and Jobs Act only partially measures up to 
these principles. We have concerns that more should be done to 
ensure simplification, fairness and long-term sustainability. 
And according to the report, when asked how to fix the Tax Cuts 
and Jobs Act, parity, simplification, and permanency were the 
top priorities.
    After much discussion and analysis, the NSBA did support 
passage of the Tax Cut and Jobs Act. However, we recognize that 
it is not perfect. It may be a good start at tax reform, but 
more hard work needs to be done in the areas of simplification, 
parity, and taxation between large corporations and small 
businesses, doing away with sunsets, making tax reform 
permanent, and addressing the deficit. The NSBA has done a Tax 
Reform Report Card, again, which is in your package.
    While it covers a lot of different areas of taxation, I 
will focus on how it has impacted small businesses.
    Tax simplification. If simplification was a goal of this 
tax reform, it is a dismal failure from a small business 
perspective. Individuals may see what seems to be a simpler 
preparation but it is not that simple. You may have simplified 
this Tax Code beyond all comprehension.
    Tax permanency or rate reductions. That has been an 
important aspect of this. Unfortunately, noncorporate and 
individual taxpayers are not made permanent. When I first heard 
about this I said, well, it may not be a problem. No Congress 
in the future would allow those to expire. I have changed my 
opinion there. I now foresee the real possibility and 
probability that Congress, not agreeing on an extension in 
2025, would result in a substantial tax increase without a 
vote. They will be finger pointing both ways and the taxpayers 
are going to get slammed.
    The one issue I would like to comment on is the SALT issue. 
There is a real concern on my part on SALT. I am not as 
concerned about the individual real estate and income taxes. I 
am very concerned about the business taxes. With a C 
corporation, you get to deduct the SALT taxes on pass-throughs. 
It falls through to the individuals and we cannot deduct those. 
In Rhode Island where I am from, I have passed legislation to 
fix that. Congress should pass it and make that a Federal 
issue, not a state issue.
    Chairwoman VELAZQUEZ. Thank you, Mr. Willey.
    Mr. Baig, you are recognized for 5 minutes.

                    STATEMENT OF MUNEER BAIG

    Mr. BAIG. Chairwoman Velazquez, Ranking Member Chabot, and 
fellow members of the Committee. Good morning.
    I would like to start by thanking you for inviting me to 
speak with you today about the impact of the 2017 Tax Cuts and 
Jobs Act on my and other small businesses.
    I am the founder and CEO of SYSUSA, a HUBZone, women-owned, 
and minority-owned company based here right in Northern 
Virginia, Manassas, Virginia. SYSUSA specializes in 
cybersecurity, governance, risk management, compliance, IT 
modernization, and strategic consulting.
    In addition to owning my own small business, I am also an 
advocate for the small business community. I am one of the 
58,000 entrepreneurs in Small Business Majority's Network. I am 
also an active member of the Prince William Chamber of 
Commerce. As a result of my involvement, I am aware of the 
daily struggles many other small business community members 
experience and I can speak to more than just about my own 
challenges. I can say with confidence that small businesses 
need more than just short-term benefits that are provided in 
the legislation. We need a long-term, sustainable strategy for 
growth.
    The Tax Cuts and Jobs Act is providing a very small 
percentage of small businesses with short-term relief, not 
enough to deliver upon the promises made to the American 
public.
    Although it was billed by President Donald Trump as an 
historic business tax cut that will really, really do good for 
business owners and enable small firms to hire more employees, 
unfortunately, it has failed to deliver upon its promise.
    The first problem with the Tax Cuts and Jobs Act is 
complexity of the code, which requires extensive consultation 
with my accountants, and in some cases they, themselves, are 
trying to struggle with it.
    The second problem is that it did nothing to address the 
pre-existing burdens in the Tax Code. Simplification was one of 
the promises made not delivered upon.
    The third problem is that most small businesses did not 
save money it promised them to save. The Tax Cuts and Jobs Act 
is not designed to help very small businesses like mine. 
Whether a deduction is available for manufacturing businesses, 
I am in the service industry and do not have much to deduct.
    While my experience with the Tax Cuts and Jobs Act is 
negative, it would be inaccurate to say that the new tax law 
has not helped any small business. I have spoken to many small 
businesses, including a distillery in my area that has 
benefitted from the reduction of the Federal Excise Tax. 
However, they may be heading towards crisis even though they 
waved money.
    Unlike many of the large corporations that used their 
savings from the Tax Cuts and Jobs Act to buy back shares and 
increase the value of their business, most small businesses 
reinvested in growing their business. This by no means is a bad 
thing. The problem, however, is the temporary nature of some of 
the new deductions set to expire in the next year or so. 
Businesses that are investing their savings now may not have 
the extra cash in 2 to 3 years to continue investing and the 
projects might not get completed. This can result in a total 
loss of their investment.
    In order to make the Tax Code work for Main Street small 
businesses, I have the following recommendations:
    Replace the Tax Cuts and Jobs Act's pass-through component 
with a provision allowing small businesses to deduct their 
first $25,000 in business income.
    Raise revenue by closing inefficient corporate loopholes, 
including international tax policies, carried interest, 
accelerated depreciation.
    Introduce and enact the Protecting Taxpayers Act.
    Create small business opportunities through tax credits and 
incentives.
    Make the New Markets Tax Credit permanent.
    Pass healthcare tax equity for the self-employed so that 
freelancers can deduct their healthcare expenses from their 
FICA tax obligations.
    Create tax incentives for workforce development.
    As a small business, if I hire people, I have to pay for 
their training and sometimes they have to go for a weeklong 
training as well, so I am basically heading into a double-edge 
sword. I have to give them a week off and then pay for the 
training as well. Having some incentives there that can offset 
one or the other will be greatly appreciated.
    In conclusion, I am concerned about the long-term impact of 
the tax cut. It increases the deficit by $1.9 trillion in order 
to dramatically lower the rates for large corporations and the 
very wealthy while offering very little benefit to Main Street 
small business owners. In addition, the cuts for pass-through 
entities are structured in a way that gives the majority of 
benefits to the largest 2.6 percent of pass-through business 
entities.
    If policymakers are serious about wanting to level the 
playing field for small businesses and drive our economy from 
the bottom up, they need to implement policies that will help 
all entrepreneurs, rather than giving the tax breaks to those 
who need it least.
    Thank you again for the opportunity to share my story. I 
look forward to your questions.
    Chairwoman VELAZQUEZ. Thank you, Mr. Baig.
    Mr. Conger, you are recognized now for 5 minutes.

                   STATEMENT OF JUSTIN CONGER

    Mr. CONGER. Thank you, Chairwoman Velazquez, Ranking Member 
Chabot, and the members of the Committee. I am honored to have 
the opportunity to testify before the Committee today on how 
the Tax Cuts and Jobs Acts helps small businesses.
    As Representative Chabot said, my name is Justin Conger. I 
am a second generation owner and president of Conger 
Construction Group, a commercial construction company located 
in Lebanon, Ohio. On behalf of Conger Construction Group, our 
employees, our clients, the 4,700 small businesses in Warren 
County, and 109,815 employees I represent as a member of the 
Warren County Chamber Alliance, thank you for the opportunity 
to submit this statement for the record before the Committee on 
Small Business' hearing.
    Not only am I a second generation business owner and 
entrepreneur, I am the current Board Chair of the Workforce 
Investment Board of Butler, Clermont, and Warren Counties as we 
are the Area 12 utilization of WIOA Federal funding. I am also 
the Board Chair of The Associated Builders and Contractors 
(ABC) of Ohio, and a member of the JobsOhio Regional RDI 
Cincinnati Board. I present this to you to understand my 
participation in these organizations is not about personal 
recognition; it is to put into context and to attest to my 
qualifications to present this testimony. I bring a unique 
perspective on the positive impact local, state, and Federal 
tax policy has on small businesses.
    The portion of the Tax Cuts and Jobs ACT that impacts 
Conger Construction most deeply is the provision that lowered 
the Federal corporate tax rate to 21 percent. You see, I am a 
small business owner and I am not on Wall Street, and we were 
founded as a C corporation. So the 21 percent tax change has 
dramatic impact on our business and how we function day in and 
day out. Under the Tax Cuts and Jobs Act, the much-needed 
savings provides more capital to reinvest in our business and 
in our employees.
    From 2016 until 2018, I am proud to say our business has 
grown 110 percent. This growth would not be possible without 
the Tax Cuts and Jobs Act of 2017. See, our commercial 
construction company is located in southwest Ohio, and 100 
percent of our revenue is generated from projects within a 100-
mile radius of our office. In the southwest Ohio 16 county MSA, 
there are currently over $2.5 billion in active construction 
projects. This uptick in commercial activity has increased 
dramatically in the past 18 to 20 months.
    The economic expansion provides opportunities for Conger 
Construction Group and hundreds of our subcontractors, 
suppliers, vendors, and their employees. We only self-perform 
10 to 15 percent of the work. We sub out 85 to 90 percent of 
our work to subcontractors. These subcontractors and their 
employees are feeling the benefits of a robust economy. In some 
ways, commercial construction has a waterfall effect. Conger 
Construction is experiencing large economic growth and 
prosperity, and so are thousands of other frontline workers 
employed by our partners and subcontractors. Continued economic 
expansion is providing increases in wages never before seen in 
my 18 years in this business. All of which is great for the 
American economy.
    Conger Construction Group is a prime example of one of the 
many businesses across the country growing and expanding by 
utilizing the benefits of the Tax Cuts and Jobs Act and 
reinvesting in our business. As I mentioned previously, we have 
grown 110 percent. As a business owner, entrepreneur, and 
community leader, I am proud of this growth over the past 3 
years. I am even more proud we have grown our culture and 
employee base. Since 2016, we have increased our employee 
headcount from 28 full-time equivalents to 48 full-time 
equivalents and counting. We have increased our wages by over 
$1.5 million, and in 2017 and 2018, we paid out over $381,000 
to those 30 employees that were nonowners in business.
    As a business owner, I believe I have a responsibility not 
only to support my family but to support the families of our 
workers. With record low unemployment, finding talented workers 
to fill open jobs is harder than ever. From my experience on 
the Workforce Investment Board, there is a workforce shortage 
of epic proportion. If businesses want to continue to grow, 
they must take care of their employees, both personally and 
financially. Growing wages is a major part of that.
    As I said, the 21 percent tax cut for a C corporation like 
ourselves, we are continuing to reinvest in our business, not 
only growing our employees and doubling, but we are reinvesting 
in our business currently as we are undergoing an expansion and 
renovation of a project.
    Another aspect that has a tremendous impact on our business 
is the ability to accelerate depreciation on our investments of 
equipment. Not only office equipment, but large heavy equipment 
machinery we need to utilize day in and day out to complete our 
projects.
    Thank you. I appreciate the time and opportunity.
    Chairwoman VELAZQUEZ. Thank you, Mr. Conger. And thank you 
all for what you have shared with us.
    I will begin by recognizing myself for 5 minutes.
    Ms. Gravelle, we were told that passing this tax bill will 
benefit the economy overall. In the interest of time, can you 
answer this question with a yes or no answer?
    Will the tax cuts create enough economic growth to pay for 
themselves?
    Ms. GRAVELLE. No.
    Chairwoman VELAZQUEZ. Have provisions like the pass-through 
deduction simplified the tax code for small firms?
    Ms. GRAVELLE. No.
    Chairwoman VELAZQUEZ. Is it not true, corporations used 
their tax savings to purchase nearly $1 trillion in stock 
buybacks in 2018 alone?
    Ms. GRAVELLE. Apparently.
    Chairwoman VELAZQUEZ. Is this an accurate quote from your 
report? And I quote, ``While evidence does not indicate 
significant repurchases of shares, either from tax cuts or 
repatriated revenues, relatively little was directed to paying 
work bonuses.''
    Ms. GRAVELLE. Yes.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. Willey, we have heard that Section 199 is incredibly 
complex. Can you briefly walk us through the steps a small firm 
must go through before even determining if and how much they 
qualify for?
    Mr. WILLEY. It is a very complex calculation. You have to 
determine whether you are qualified as a small business. There 
are some firms that are not qualified, primarily the service 
businesses. There is an income threshold that you have to--if 
you are below that you can deduct it even as a service business 
but it gets phased out relatively quickly. And there are 
limitations of W-2 wages which make it complex. So it is an 
extremely complex calculation, and sometimes you do not get the 
full benefit you think you would be getting.
    Chairwoman VELAZQUEZ. So it seems to me that Section 199A 
is picking winners and lowers between small businesses that can 
utilize the deduction assuming you can navigate that web of 
complexity.
    Mr. WILLEY. It is picking some winners and losers. And I do 
not have a big problem with excluding the public service or the 
professional services business. I mean, if I operate as a C 
corporation, I take most of my income out as a salary and I pay 
at 35 percent compared to somebody who would be able to take 
the 21 percent deduction using the same money as a pass-
through, I do not have as much a problem there but it is 
complex. They did pick some winners in there, primarily the 
architects. I am not sure why but I am sure there was some 
political pressure along the way. So it did pick some winners 
and losers. But there are----
    Chairwoman VELAZQUEZ. Thank you.
    Mr. WILLEY.--some abuses.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. Baig, you just discussed how creating and decreasing 
complexity are two goals for small firms when it comes to tax 
policy. The corporate tax cut was made permanent while the 
individual and Section 199A deduction for small firms expires 
in 2025. How does this lack of permanency impact your business 
planning?
    Mr. BAIG. First of all, you know, being a small business 
who is in the service industry, so the tax cut does not really 
help me much. You know, it is not designed for service industry 
people as Mr. Willey was referring to. It helps more on the--it 
has winners and losers, and I am one of the losers of the tax 
cut. It actually places a burden on me by kind of having to go 
through the navigation of it. And then the 21 percent tax cut 
or the income that I can get the pass-through, it is set to 
expire. So if I am benefitting from it today, and most of my 
benefits, any penny we make extra, we try to see if we can 
bring another person onboard that can help us basically grow 
the business. And it does not happen overnight. It takes a few 
years to develop that process. And if I do not have this in the 
next 3 years, the potential of the loss can be significant 
because anything that I will invest in somebody for the next 3 
years will be lost all of a sudden.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. Willey, a postcard filing form was touted as the game 
changer of tax reform. Are any of your clients filing their 
taxes on a postcard?
    Mr. WILLEY. No.
    Chairwoman VELAZQUEZ. Mr. Baig, how much more time do you 
spend speaking and working with your accountant to ensure 
compliance?
    Mr. BAIG. This year it took a few more extra days out of me 
during the tax season where it used to take me an hour or hour 
and a half to get things done.
    Chairwoman VELAZQUEZ. Thank you.
    My time has expired and I now recognize the Ranking Member.
    Mr. CHABOT. Thank you, Madam Chair.
    Mr. Conger, let me begin with you if I can. I think you 
mentioned that the most important part of the Tax Cuts and Jobs 
Act that affected you was reducing the rate from 35 down to 21 
percent. And if you look at some of the debates that have been 
televised recently at the presidential level, to listen to some 
of the folks talking about the tax cuts bill, you would think 
that what you did and people like you that own small businesses 
across the country and large ones, we would think that they 
just bought another yacht with that money or they found some 
more ingenious way to exploit their employees or perhaps harm 
the environment or some other nefarious use of that money. What 
did you and your company do with the additional money that you 
were able to keep rather than send it up here to Washington?
    Mr. CONGER. That is correct. One of the three or four major 
things that we have done with the extra money and the tax 
savings we have is reinvest it in our business. As a small 
business owner an entrepreneur, you have to constantly be 
competing against other businesses and most of that competition 
comes through the form of employment and employees. One of my 
mentors told me years ago hire smart people and get out of 
their way. And so we have been able to increase our employee 
count, our head count. As I mentioned, we have doubled our 
employment in the last 2-1/2 years, adding over $1.5 million in 
jobs in that payroll. And again, we are a small business. There 
are only 48 employees. Those are real numbers and big numbers 
to an economy like Warren County, Ohio, and Lebanon, Ohio. We 
have also increased payout of bonuses. So again, instead of, 
when you have a workforce shortage, you have to take care of 
your employees. We are providing better healthcare benefits. We 
are providing more PTO. We are providing larger bonuses based 
on their performance year in and year out. Those things are 
helping us to continue to attract new employees, to attract 
smart people to come to work for us that will then enable us to 
grow. And so it is a major part of we are trying to, you know, 
we have a fiduciary responsibility and an ethical 
responsibility to our employees to provide the best 
opportunities for them to grow. You know, they are middle class 
workers. Our least paid employee is a laborer who makes $18.50 
an hour. He is an unskilled worker that we are trying to put 
through training and we continue to use training to raise our 
employees up. But we are paying good wages, better than good 
wages to unskilled workers and we are still trying to 
continually invest in them and grow them.
    One of the other things we have done is we are expanding 
our office. Due to the increase of employees and head counts, 
we need more space. And so we are using that money to expand 
our offices, provide a better work environment that is more 
collaborative, that helps us execute our mission and deliver a 
good service to our clients.
    Mr. CHABOT. So is it accurate to say that you are able to 
pay your employees more, so they receive more income from their 
job, and on the individual tax cuts, because about 85 percent 
of the people across the country got their taxes reduced. In 
our area, for the average family of four it was about $2,400. 
So they are getting an additional, say, hike in their pay or 
more money going in to their retirement through the company, et 
cetera, plus their individual taxes for the most part have been 
reduced as well, so they get two bangs for the buck so to 
speak. Would that be accurate?
    Mr. CONGER. That is accurate.
    Mr. CHABOT. Okay. Thank you.
    Mr. Willey, let me turn to you at this point. I definitely 
agree with some of your sentiment that you mentioned. I would 
very much like to have seen the tax bill simplified more. And 
with folks on the individual level, there were a lot of people 
that did get it simplified to the extent that many more no 
longer had to itemize. They were able to take the standard 
deduction. That increase was pretty much dramatic. And when 
they talk about the postcard, and this is kind of an example of 
the postcard that we were talking about there, that was never 
intended to be for a small business and the complexity of a 
business to be able to file it on this. We were basically 
talking about individuals; is that correct?
    Mr. WILLEY. Yes, that is correct.
    Mr. CHABOT. Okay. And I also agree with your point about 
the permanency. And I also share your concern about making 
these permanent. I would have liked to have seen both at the 
business end and the individual end having it a permanent tax 
relief. And the Bush tax cuts, back at that time we had a 
similar situation where they essentially ended after 10 years, 
and the argument was made, well, Congress will renew those tax 
cuts, and we did. So the tax cuts ultimately remained 
permanent. And I would just encourage my colleagues on both 
sides of the aisle, when that day comes and we ought to make 
those permanent, and I am committed to doing that for 
individuals as well as businesses. But I think both of those 
points that you raised are very good ones. So thank you.
    My time is expired. I yield back.
    Chairwoman VELAZQUEZ. The gentleman's time has expired.
    And now we recognize the gentleman from Maine, Mr. Golden, 
Chairman of the Subcommittee on Contracting and Infrastructure.
    Mr. GOLDEN. Thank you, Madam Chair.
    I wanted to pick up with you, Mr. Willey. I have spent 4 
years prior to this on the Maine State Legislature and I, 
coming from a working, middle-class kind of state have always I 
think put a bigger focus on middle class tax cuts and how tax 
policies impact them.
    You mentioned something I think about having to make some 
changes in Rhode Island relative to state and local taxes, the 
SALT changes in this tax law, and also talked a little bit 
about some of the difficulties with figuring out how S-
corporations operate with the pass-throughs. I just wanted to 
ask you if you had any specifics you wanted to share with us 
quickly about what kind of fixes, I mean, what did Rhode Island 
do that you would like to see at the Federal level?
    Mr. WILLEY. In my package, I gave you a copy of the bill 
that I drafted for that.
    Mr. GOLDEN. Perfect.
    Mr. WILLEY. But basically, a C corporation can deduct state 
income taxes at the entity level.
    Mr. GOLDEN. Correct.
    Mr. WILLEY. The tax law says that if the tax is paid at the 
entity level, it is an allowable deduction. What in Rhode 
Island we did was we said, okay, let the state assess at the 
entity level and pass through a tax credit for the individuals. 
I feel comfortable that is going to be an allowed deduction for 
Federal tax purposes.
    Mr. GOLDEN. I was going to ask if you are running into any 
troubles with implementation.
    Mr. WILLEY. Well, Connecticut has passed a similar law 
ahead of us. They are effective for 2018. Ours is effective for 
2019. The IRS has attacked the restricting of real estate taxes 
as a charitable deduction and I tend to agree with that. That 
is kind of a sham. I think this makes sense and it is fair and 
it gives some parity. They have not attacked that yet. They 
know it is out there but we are going to see if Connecticut 
gets attacked before ours are implemented. Again, I think this 
should be fixed at the Federal level, not necessarily the state 
level.
    Mr. GOLDEN. Yep. Thank you.
    I think, you know, it sounds like, we all know that we have 
kind of, you know, regional economies as well, and I am glad to 
hear that the construction economy is booming in your area. I 
think sadly that is not the case everywhere you go in the 
country, and I think in Maine, obviously, we would like to see 
it doing far better than it is. So some of the benefits of this 
may not have made it all the way up.
    I am hearing from some workers in the trades, people, we 
have got general contractors, of course. We have got, you know, 
people, carpenters and others who are complaining to me that 
they are having a hard time figuring out, I think, how to get 
the most out of this tax law, concerns about their inability to 
write off certain deductions that were really critical to them 
as small business owners and their fear that they are having a 
hard time figuring this out.
    Do any of you want to field this question in regards to 
whether or not you think it is just the complexity of the law 
or is it some kind of change that is making it so that workers 
or small business owners in the trades are not going to be able 
to write off some of their businesses expenses that they used 
to?
    Mr. WILLEY. I will take a stab at that. I think there are 
some limitations in primarily the entertainment area that is 
affecting them, and small businesses use entertainment more 
than big businesses. I think the complexity is going to require 
more small businesses to use professional people. That is good 
for me but not necessarily good for the client.
    Mr. GOLDEN. Yeah. That is helpful. Thank you.
    Something I was interested in in this, Ms. Gravelle of, you 
know, when you have got a lot of very small businesses, family-
owned ones, sometimes you have some years where you suffer some 
losses, do you think it is impacting a lot of small businesses 
negatively that they can no longer carry back net operating 
losses?
    Ms. GRAVELLE. Well, I do not know. I have not been able to 
find any data on this because it is so soon but I would 
certainly think, and in general, for all business, that the 
carryback of net operating losses generally is viewed as a good 
policy. It tends to even out the taxes over time. So it is 
really better to have carrybacks that can retain their full 
value. And it is helpful for businesses to go through ups and 
downs.
    Mr. GOLDEN. Thank you.
    I am pretty close to being out of time so I am just going 
to go ahead and wrap it up right there.
    Thank you very much, Madam Chair.
    Chairwoman VELAZQUEZ. The gentleman yields back. Thank you.
    The gentleman from Minnesota, Mr. Hagedorn, is recognized 
for 5 minutes.
    Mr. HAGEDORN. Thank you, Madam Chair.
    I appreciate this hearing. Actually, I think this is a 
great hearing to talk about some of the progress that is being 
made in the country, how strong the economy is, and how strong 
many of our small businesses are across the country.
    First of all, I would ask unanimous consent or whatever to 
add to the record four articles that I have here talking about 
some of the things that have happened in the state of Minnesota 
with 3M, Hormel, and others, larger companies, but how the tax 
cuts have been helpful to some of our employees.
    Chairwoman VELAZQUEZ. Without objection.
    Mr. HAGEDORN. Thank you, Madam Chair. And my statement.
    And just last week we had a small business owner from 
Mankato. Jeff Royce was here. He was talking a little bit about 
the Minimum Wage Bill that we had before the Congress and he 
said, you know, ironic, because of what has been going on with 
the growth in the economy and the demand for the windows that 
they produce, they are fine windows that they produce right 
there in southern Minnesota and go all across the country, 
sometimes across the world. He said, you know, all their 
contractors and then they are paying more than $15 an hour, 
such demand. And I hear this everywhere. First of all, I have 
never met a small business owner in southern Minnesota, and we 
meet scores and scores of them all the time and not one of them 
has been demanding that we repeal these tax cuts. I have not 
heard anybody say that. They might want them tweaked, fixed. No 
doubt about it there are some things about it that we can 
improve. I have not heard anybody say let's repeal them and 
help our small business. That is just something as an aside.
    But whether it is Lindsay Windows in Mankato, or Alumacraft 
in St. Peter where they make fine boats, and we go to 
Construction 99 North in Rochester, Wieser Construction, La 
Crescent, all these places, it is the same thing. Since the 
election in 2016, a little bit of a different thought about 
what is going on in the economy, and after these tax cuts 
people feel like things are booming. And the proof is, kind of 
to me, in the pudding. Their biggest complaint is they cannot 
find workers to help them expand more and do even more 
business. And the reason the economy is not even stronger is 
simply because of that. The demand is out there. They cannot 
fill it. And so what they are looking for from government, I 
think good government policies in all these areas, like 
regulations, health care. Obviously, energy. They want 
vocational training. And when it comes to the tax cuts, I 
agree. We can do better. We should do more for individuals. We 
should have individual tax reform. Make it simpler, fairer, 
flatter, where people can save, invest, hold, spend their own 
money the way they see fit, not the way the Federal Government, 
the bureaucrats, the politicians, and others tell them to. So 
going forward, I would work in bipartisan fashion to make those 
things happen.
    But the need for skilled workers is important. I guess I 
would just open it up to any on the panel. Other than, I mean, 
first of all, does anyone here really want the tax cuts 
repealed? Is there anyone here that would say we should repeal 
them for small business? Okay. But am I wrong? I mean, is the 
demand out there that you could probably fill even more 
projects if you had 20-25 more workers?
    I will ask you, Mr. Conger.
    Mr. CONGER. Most definitely. We experience that day in and 
day out. We are continuing to hire and invest a lot of time and 
resources and do hiring, not only skilled workers, unskilled 
workers, and management staff as we continue to keep up with 
the demand of the construction marketplace. And as a commercial 
construction company, we are not employed and there is not jobs 
if there are not businesses out there expanding. If there are 
not manufactures growing, if there are not healthcare 
industries growing. So the growth of the economy and the growth 
in the various industries we serve is a direct impact to our 
business. And then again, the waterfall effect down to our 
subcontractors, suppliers, and frontline workers. So the 
economy is very well in a multitude of market sectors in 
southwest Ohio. And we see that day in and day out.
    Mr. HAGEDORN. And a lot of that has to do with the 
confidence that people have, either in their own livelihoods, 
the money that they make. They can go out and make purchases. 
Like I said, Alumacraft, where they make fine bills, you know, 
people, that is an investment they want to make. It is 
something aside, not something they need to get through life 
every day but, you know, want to go out and enjoy our beautiful 
lakes in Minnesota. Many of them in Congressman Stauber's 
District and ours. I think it just shows that the economy is 
strong. People are excited about the way things are going. I 
think we want to keep moving it in the right direction. And I, 
again, pledge my bipartisan support to do whatever we can to 
improve this act and to do what we can for our businesses to 
make sure that they can grow and thrive into the future.
    Thanks very much. I yield back.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And now we recognize the gentlelady from California, 
Chairman of the Subcommittee on Investigations, Oversight, and 
Regulation, Ms. Chu.
    Ms. CHU. Mr. Baig, as a member of the Ways and Means 
Committee where the Tax Cuts and Jobs Act was being considered, 
I raised concerns early on about the pass-through provisions in 
the Republican bill creating more unnecessary complexity for 
small businesses and allowing millionaires who can afford 
armies of accounts and lawyers to game the system. In fact, 
when we were considering the law, tax attorneys publicly stated 
that they were thrilled about the changes, one attorney at the 
time even told a news outlet, this is an entirely new concept, 
and from a tax lawyer's perspective, it is like a new paint 
box. We have a new tool to play with.
    Well, we know that many small businesses do not have the 
ability to afford high-powered tax layers to play with the new 
tools that the Republican tax law provided.
    So Mr. Baig, your small business was forced to spend more 
on accounting services due to the complexities of the law. 
Major corporations can devote resources to identifying tax 
loopholes. Do small businesses have the same resources, and are 
you an isolated case or have you heard from other small 
businesses that were forced to spend more on tax advice?
    Mr. BAIG. I am not actually just talking about myself but 
all the small businesses that I have talked to in my community 
and across. Everybody is feeling that pain. I have, from my 
perspective, I used to have, at the end of the year I send my 
accountant a report and that was the end of it and they will 
process it. Now I have an internal operations person who is 
actually managing this on a day-to-day basis. And not only 
that, I still need to do that accountant stuff on a monthly 
basis to make sure that I am complying. Because as a CEO, I do 
not want to see the auditor knocking at my door. That is the 
last thing a small business wants to see is something take more 
out of you because as a small business owner, we wear too many 
hats. And adding one more hat can sometimes be the end of your 
small business. So basically, you are already stretched to a 
level beyond, you know, you are to the breaking point. And 
adding more burden to the small business, you know, you look at 
small businesses. A majority of the small businesses are pass-
throughs. They are not C corporations. So if you are looking at 
the majority of them, they are not benefitting from it. And the 
risk of the expiring provision in the tax cut is significant 
because as of now we are talking, yeah, there is a tax break, 
we are getting some money out of. Okay, let me take that money 
and invest it somewhere else. But at the same time, not if the 
project that we are trying to invest, if it does not mature in 
the next 2 to 3 years, all this 3 years of saving that I save 
for my tax cut that I invested in with additional revenue into 
that particular opportunity is all gone.
    This is the risk that we are facing right now. There is a 
complexity to understanding and uncertainty what is going to 
happen down the road. And we know it very well. Businesses with 
uncertainty do not do very well. The risk is significantly 
higher. If we have some sort of a certainty, permanency of 
these tax cuts that are in there, that will help a lot of small 
businesses to plan and also then we know what to play for from 
the accounting perspective as well. Right now I do not know 
what I need to plan for next year, whether the provisions are 
going to expire, what I need to plan for the year after.
    Ms. CHU. Thank you. Thank you, Mr. Baig.
    Ms. Gravelle, as the bill was going through, I believe that 
the needs of women small business owners were not considered at 
all. We know that the vast majority of women-owned businesses, 
in fact, 88 percent of them, have revenues of $100,000 or less. 
However, more than 90 percent of the benefits of this tax bill, 
particularly the pass-through deduction that was intended to 
help small businesses, actually goes to those businesses with 
revenues of more than $100,000.
    Ms. Gravelle, in your research, did you find that most of 
the benefits of the pass-through deduction go to businesses 
making more than, in fact, far more than $100,000 in revenues? 
And why is this the case?
    Ms. GRAVELLE. Well, most small business owners do fall into 
the higher income brackets. So they tended to get larger tax 
cuts. Despite the phase out of the pass-through, they tended to 
get the larger concentrations. Studies by the Joint Tax 
Committee, studies by the Treasury Department have shown both 
the pass-through and the rate reductions were very highly 
concentrated at high income levels. The people that got the 
least from the tax cut were the lower 20 percent, lower 40 
percent, lower half of the income distribution and that is 
certainly true of the pass-through deduction. It is true of the 
rate cuts, and it is true of the entire tax since most 
corporate rate cuts eventually benefit high income people.
    Ms. CHU. And so for these women-owned businesses that have 
$100,000 or less in revenue?
    Ms. GRAVELLE. They probably got very little. I do not know 
individually, but they probably got very little, if anything.
    Ms. CHU. Okay. Thank you.
    Chairwoman VELAZQUEZ. The gentlelady yields back?
    Ms. CHU. I yield back. Yeah.
    Chairwoman VELAZQUEZ. We recognize the gentleman from 
Minnesota, Ranking Member of the Subcommittee on Contracting 
and Infrastructure, Mr. Stauber.
    Mr. STAUBER. Thank you, Madam Chair. And I appreciate you 
holding this hearing with the Ranking Member, and to the 
witnesses, thanks for your testimony.
    I just want to talk about some success stories in 
Minnesota's 8th Congressional District, which is a blue-collar 
district in Northeast Minnesota.
    There is a brewery in Two Harbors which shared with me that 
they were able to save thousands of dollars because the Federal 
tax on a barrel of beer was cut in half, close to $60,000.
    And a knife sharpening company in Ely, Minnesota, told me 
they were able to invest in new sharpening equipment thanks in 
part to the Tax Cut and Jobs Act which doubled section 179 that 
allows businesses to expense equipment.
    A manufacturing facility in International Falls, Minnesota, 
GreenTech Manufacturing, a leading outdoor furnace 
manufacturer, has added seven new positions at their small 
business thanks to the savings from the Tax Cuts and Jobs Act.
    There was a witness that I brought here to this Committee 
earlier this year. He owns a rental company in Duluth, 
Minnesota, and he is also a constituent who testified in front 
of this Committee just a few months ago. He told the Committee 
that he saved $7,200 last year with a 20 percent pass-through 
deduction.
    These are small businesses in our district that benefitted 
from the Tax Cuts and Jobs Act. I think everybody understands 
that it was an important piece of legislation that helped many. 
Are there things that we now know can we do better at? Of 
course we can, and I look forward on this Committee to work 
towards that solution that continues to move our small 
businesses forward.
    Mr. Conger, I do have some questions. Would you support 
making the individual rates permanent?
    Mr. CONGER. Yes.
    Mr. STAUBER. And do you think the economy is heading in the 
right direction?
    Mr. CONGER. Most definitely.
    Mr. STAUBER. Mr. Willey, would you support making the 
individual tax provisions permanent?
    Mr. WILLEY. Yes.
    Mr. STAUBER. I would just like to ask any of the witnesses, 
Mr. Conger, with you first, are there any improvements that 
Congress can make to build on the Tax Cuts and Jobs Act?
    Mr. CONGER. Not knowing the Tax Cuts and Jobs Act inside 
and out, one of the provisions that we had utilized, we do both 
public and private construction, is there is a 179D tax credit 
deduction program for construction companies that create or 
work on construction projects that are publicly funded that 
make energy efficiency upgrades. That is my understanding, that 
179D deduction is till kind of in limbo but there are some good 
savings of construction companies, suppliers, vendors that work 
in that realm that are making energy efficiency upgrades to tax 
our utilities less. There is a good savings there.
    Mr. STAUBER. Okay. For my remaining minute and a half and 
the three other witnesses, Mr. Braig, quickly, what is 
something that you would like to see added to the Tax Cut and 
Jobs Act that can even make it better?
    Mr. BAIG. I think just like the manufacturing sector and 
other sectors you mentioned, they are getting tax cuts and 
hopefully they will be permanent and they can continue. 
Something for the professional industry because our expenses 
are laptops and phones. So if there is something for the 
professional industry.
    Mr. STAUBER. Mr. Willey?
    Mr. WILLEY. I have a bunch of things. One is making the tax 
cuts permanent. The other is looking at the 199A deduction. The 
20 percent deduction really is not parity with the C 
corporations. It should be closer to 27-28 percent. The 
research and development credit, one of the things that bothers 
me there is we are playing around with that every year and 
there seems to be no consideration that research takes time and 
planning. And you do not know whether it is going to be 
effective the way it was a year from now. This one is still in 
flux. So keep that consistent.
    Mr. STAUBER. Thank you.
    Ms. Gravelle, you have got 20 seconds.
    Ms. GRAVELLE. Well, I do not know that I can recommend 
anything but there are a lot of options you could consider. But 
I think one thing we should be looking forward to is this 
proposal to amortize R&D down the road. I think that is 
something that somebody needs to think about.
    Mr. STAUBER. Great. Thank you very much.
    I want to thank each and every one of the witnesses for 
your testimony today, and we appreciate your time.
    Madam Chair, I yield back.
    Chairwoman VELAZQUEZ. The gentleman yields back. And we 
recognize the gentleman from Pennsylvania, Mr. Evans, Vice 
Chair of the committee for 5 minutes.
    Mr. EVANS. Thank you, Madam Chair.
    I want to thank you and your leadership as Chairperson of 
this Committee because I think it has been really fantastic at 
this time.
    I, like a couple of other members on your Committee, are 
members of the Ways and Means Committee. And I believe that the 
reason some of these complication issues have come up is 
because any time you do a tax package as was done in 51 days 
and no hearings, I mean, clearly mistakes are going to be made. 
So we need to state that. Fifty-one days, no hearings. And I 
have only been here for 2 years and 5 months, and I am happy to 
be on this Committee because it works together with the Ways 
and Means.
    So I want to start with Ms. Gravelle. How does the absence 
of clear guidance make the tax compliance difficult for small 
firms?
    Ms. GRAVELLE. Well, I think we have seen it with the pass-
through deduction. They finally got the regulations out but you 
had to deal with your taxes before those. For example, a simple 
issue like combining businesses under one ownership. That was 
an issue up in the air. When you became a service corporation, 
if your skill or reputation was supposed to determine that. So 
I think putting something into effect very quickly and then a 
lag in regulations and still uncertainties in the regulations I 
think is problematic when you do something quickly.
    We also have a lot of technical corrections that need to be 
considered like accidentally causing improvements to be 
amortized over 39 years instead of expensed and things like 
that.
    Mr. EVANS. So in other words, 51 days, no hearings, you are 
going to make mistakes like that?
    Ms. GRAVELLE. I do not think it is just hearings. I think 
letting the professionals out in the community read what you 
are planning to, and hearing from them is a very important part 
of the process. But you know.
    Mr. EVANS. But that does not happen if you do not go 
through a deliberate process.
    Ms. GRAVELLE. No, you do not have time.
    Mr. EVANS. Right.
    Ms. GRAVELLE. A few things they caught but you do not have 
time for a lot of this.
    Mr. EVANS. Mr. Willey, will you please share the survey 
results you find more compelling that the Committee should take 
under consideration? There is a survey, my understanding. In 
your statement you referred to statement in which only one in 
three small business owners say the Tax Cuts and Jobs Act 
brought a direct benefit for their business. Most small 
businesses owners are still unsure.
    Mr. WILLEY. Yeah. The NSBA did do a survey on that. And I 
listed that in my written testimony. I think one of the 
complexions is that I am not sure they really know what the 
results of the tax cut are, so I think they are making some gut 
decisions. I think at the time the survey was given, I am not 
sure they got the results from their accountants yet. But there 
are concerns they are not getting the benefit that they thought 
they were going to get.
    Mr. EVANS. Real quickly, well, can you walk the Committee 
through the difficulty you faced when filing taxes after the 
passage of your bill? And the follow up would be, how would you 
simplify administration and compliance to help your business?
    Mr. WILLEY. It was a bill that was put together very 
quickly. Getting the regulations under control was a problem. I 
would tell you that in some cases, especially in the 
international area, we got regulations and procedures April 
13th from the IRS. And sometimes we have already paid the tax 
on that. So there was a lot of confusion on what actually was 
happening. There was confusion on the pass-through and the 
199A. It was a difficult year to pull this all together because 
it was a substantial change.
    Mr. EVANS. Okay. Real quick. I want to go to Mr. Braig is 
your name?
    Mr. BAIG. Braig.
    Mr. EVANS. Braig. Sorry about that.
    What actions could this Committee take to level the playing 
field for taxpayers who own small businesses?
    Mr. BAIG. I think looking at the small business, and I will 
not go into the SBA stuff. Looking at the small business NAICS 
codes I think is also something we need to take a look at as 
what qualifies really a small business? In every small 
business, as per SBA, makes $50,000 a year. And if you look at 
the U.S. Census information from the Small Business Annual 
Survey of Entrepreneurs of 2014 and every small business earns 
less than $400,000 annually.
    So this is what the small business is, really. They are not 
multimillion dollar businesses. And a lot of that goes back 
into the wage and stuff like that. Having pass-through ability, 
that is great. But when you start hiring people and paying 
employees you get penalized. So how do you make some of these 
incentives permanent? When you are hiring people, you are 
paying people, you can give incentives for those as well rather 
than just pass-through to your personal tax cuts.
    Mr. EVANS. I yield back the balance of my time and I thank 
you, Madam Chair.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And now we recognize the gentleman from Florida, Mr. Spano, 
for 5 minutes.
    Mr. SPANO. Thank you so much, Madam Chair. And thank you, 
witnesses, for being here and offering your testimony.
    I am a new member of Congress. I was not here when the Tax 
Cuts and Jobs Act was passed, but I do have a unique 
perspective on the topic. I have been a small business owner 
for about a decade and a half. The impacts that I have observed 
in my own small business and for other small businesses in the 
community that I represent, I have been a board member on the 
Chambers there. I am involved in two or three chambers over the 
course of the last couple of decades. And I have personally 
seen the benefit to our community. It has been instrumental in 
the economic success of our community. You know, Main Street of 
our town is just booming and whatever you want to attribute it 
to, I think at least in part the Tax Cuts and Jobs Act have had 
a positive impact. Our economy is thriving.
    And so while I was sitting here waiting, I have my 
accountant that has done our personal taxes for about a decade. 
And I said, hey, just give me kind of your anecdotal 
impression. You know, is your assessment, is your understanding 
of what is happening consistent with what I am feeling? And his 
response to me was, all capital letters with four exclamation 
points, BENEFIT!!!! I asked him, does the Tax Cuts and Jobs Act 
benefit or has it been bad for small business? BENEFIT!!!! Four 
exclamation points.
    Two senior helper franchises saved $3,200 and $4,400 in 
taxes. One local restaurant saved $2,800 in taxes on just the 
20 percent pass-through deduction only. It does not even 
include savings from tax ratings going down. So his impression 
was the same as mine. The small business that I had was I owned 
my own law practice. We did a lot of estate work over the last 
several years. So one of the major benefits that I see in the 
tax bill is an increase in the estate tax exemption.
    And Mr. Willey, you said, and I quote, ``The estate tax 
often is very much a small business issue. We applaud the 
increase in the estate tax exemption but we are concerned that 
the provision expires in 2025.''
    My experience is that many small business owners, one of 
the issues that their families have when they pass away is they 
do not have the liquid assets to keep the business running 
because of the estate tax responsibility. And so, in my person 
opinion, and I would like to hear yours as well, the increase 
in that estate tax exclusion, will it allow small businesses 
and their families if they want to generationally continue 
practice in this area or work in this area of their business, 
will this increase in estate tax exclusion help them do that?
    Mr. WILLEY. I view the estate tax as a small business issue 
really. I have less concern about people who clip coupons but 
the small business, if they get subject to an estate tax it 
takes money out of their cash flow, their ability to reinvest. 
It is a small business issue, and I think the increase will 
help most small businesses avoid it.
    Mr. SPANO. Yeah. So in my experience, especially with 
family farms, right, the family farm situation, the major asset 
of your business is your land. And if you have got to sell your 
land that you are farming on to pay an estate tax, you are on 
longer in business. So this is a very important issue to me.
    One of the things I think we have broad consensus on here 
today that we have kind of all agreed on it seems to me, tax 
cuts should be made permanent, and it needs to be simpler. 
Let's get it done. Let's make it happen. There is no reason why 
we cannot see those two things happen. I think we are all in 
agreement that those two things should happen and that they 
would benefit small businesses.
    With that, I yield back. Thank you.
    Chairwoman VELAZQUEZ. The gentleman yields back. And now we 
recognize the gentlelady from Ohio, the Chairwoman of the 
Subcommittee on Rural Development, Agriculture, Trade, and 
Entrepreneurship, Ms. Finkenauer.
    Ms. FINKENAUER. Thank you, Madam Chair. And thank you so 
much for our witnesses here today and taking the time out of 
your schedules to be here. It means a lot.
    You know, when I came to Congress, I knew that the new tax 
law did not deliver the way that it should have for hardworking 
Iowans. But honestly, I did not realize the amount of 
unintended consequences it created until I started hearing from 
people in industries that have suffered and have actually taken 
the time to come here and talk about some of those issues. An 
error in the tax bill that makes it harder for Iowa's local 
restaurants and Main Street stores to invest in renovations and 
improvements to their storefronts just to name one of them, the 
tax bill no longer allowed our workers to deduct the cost of 
basic things associated with their jobs, like uniforms or 
travel. And then some small businesses, specifically pass-
through entities, may qualify for a new 20 percent deduction, 
but I have learned that the rules are so complicated for some 
that businesses are not able to take advantage of it. On top of 
that, this deduction expires in 2025, giving business owners 
absolutely no certainty.
    Iowa's rural electrical cooperatives are among those hurt 
by the unintended consequences and have come to visit. They 
stay tax exempt but they have to maintain an 85/15 revenue 
split, meaning 85 percent of their revenue has to come from 
customers. The new tax law has made that hard though by 
counting Federal grants and awards, even Federal aid from FEMA 
after a disaster as noncustomer income and then throwing off 
that revenue split.
    I am cosponsor of several bills to fix these types of 
errors, but issues like these are exactly why we need a 
bipartisan approach when it comes to tax reform. This bill was 
put together essentially behind closed doors, and quite 
frankly, it shows.
    Mr. Braig, what kind of impact do errors like this have on 
small businesses? In considering changes to tax law, what 
should Congress do differently in the future to make sure that 
both parties and stakeholders are heard?
    Mr. BAIG. I think we need to get the small businesses a 
little bit more involved in this because making the decisions 
based on a limited understanding of things sometimes and a 
quick decision process, it hurts the small businesses. The 
example I would use, if somebody who is living at the 
penthouse, he sees sunlight all the time. But somebody who is 
in the lobby does not see the sun. So the person in the 
penthouse would make the policies to limit the sun, while the 
person in the lobby does not see any at all. So they are 
contradicting each other. So if we can have some kind of 
involvement on the small business side where small businesses 
can be participating in the whole process, rather than making 
it in 51 days, if it takes 5 months, that is perfectly fine but 
with a better solution.
    Ms. FINKENAUER. Thank you.
    You know, I often tell my constituents that a day in my 
life in Congress actually looks quite a bit different than what 
you see on TV at night. And on this Committee, I mean, we 
probably work across the aisle to improve the lives of 
entrepreneurs and workers across the country. You know, just 
last week, the Small Business Committee passed five bills that 
helped veteran entrepreneurs start and grow their small 
businesses. These bills are an example of exactly what we 
should be doing here in Washington and how we should be 
legislating. And I cannot say that about the Tax Cuts and Jobs 
Act. The law was not negotiated in a bipartisan manner. It was 
put together far too quickly. It disproportionately benefits 
those in the top 1 percent and it will add, again, trillions to 
our national debt here.
    Ms. Gravelle, can you explain to us what the average tax 
cut would look like for the middle 20 percent of Americans 
versus the top 1 percent income group by the year 2025?
    Ms. GRAVELLE. Well, I am not sure I have those numbers 
right in front of me but it is a very, you know, a very small 
fraction of the taxes. For most people who were not itemizing, 
they actually gained very little because even though there is a 
bigger standard deduction, it was offset by the loss of the 
personal exemption. So all of that pretty much washes out. So 
you are talking about a very small tax cut for those people.
    Ms. FINKENAUER. Well, thank you.
    And thank you guys again for being here and having this 
discussion. You know, we need to make sure that we are putting 
dollars into the pockets of hardworking Iowans and folks across 
the country, but these types of things should be done with, 
again, our middle class in mind, and what we have seen here, I 
was disappointed with the last few years and hope that we can 
have better discussions moving forward. And again, thank you so 
much for your time and your expertise being here.
    And with that, I yield back, Madam Chair.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    And now we recognize the gentleman from Pennsylvania, Dr. 
Joyce, Ranking Member of the Subcommittee on Rural Development, 
Agriculture, Entrepreneurship, and Trade.
    Mr. JOYCE. Thank you, Madam Chair.
    Before I ask my questions, I would like to highlight what 
the impact of the Tax Cuts and Jobs Act had on my district in 
Pennsylvania. At the beginning of the year, we polled 4,500 of 
my constituents, and 85 percent of them reported that they 
support making the tax cuts permanent, exactly what you 
testified to us today. This statistic is particularly impactful 
when you understand that 99.6 percent of businesses in 
Pennsylvania are small businesses.
    While some of my constituents do work for larger 
corporations, the vast majority of them are self-employed or 
employed by small businesses. One constituent who has 
benefitted from the tax cuts is Guy Berkebile, who is the owner 
of Guy Chemical Company in Somerset, Pennsylvania, in my 
district. Guy Chemical is an S corporation, which primarily 
manufactures adhesives. These products are made here in the 
United States but shipped all over the world and shipped into 
my district as well.
    Before the Tax Cuts and Jobs Act, nearly 50 percent of Mr. 
Berkebile's profits were lost to the government in the form of 
taxes. Since the tax cuts, Guy Chemical has invested in new 
equipment, built a new lab that is five times larger than the 
previous one, purchased new mixing equipment, and new 
production equipment. Additionally, they added 29 new jobs, 
increased salaries, and gave bigger bonuses, all of which Mr. 
Berkebile points to as the result of these tax cuts.
    With that said, the bill was not perfect. I wholeheartedly 
agree that the tax cuts for small businesses and individuals 
need to be made permanent. Additionally, Congress has intended 
to provide retailers with the ability to fully and immediately 
expense interior remodels to their buildings. But an 
inadvertent drafting error termed ``the retail glitch'' has 
resulted in grocers and restaurant operators, amongst other 
small business owners, having to expense improvements over 39 
years instead of the 15-year depreciation period they qualified 
before the implementation of the tax cuts.
    Despite the issues that I have highlighted to you, it is 
overwhelming apparent based on conversations with my 
constituents, that the reinvestments that I have seen in my own 
community, these tax cuts were overall great for small 
business. There is a bipartisan consensus, which you have heard 
today, that many of the issues mentioned need to be addressed 
and legislation has to be introduced to do so.
    My colleague, Mr. Brady, has introduced H.R. 22 to make the 
2017 tax cuts permanent for middle class and small business 
owners like yourselves. Mr. Jason Smith has introduced the Main 
Street Tax Certainty Act to make the tax deduction for 
qualified business income permanent. Mr. Panetta has introduced 
H.R. 1869, the Restoring Investment and Improvement Acts to fix 
the retail glitch that I just talked about. Yet, we are almost 
7 months into this Congress and the majority has not allowed 
the House to consider any of these legislative fixes. I urge my 
colleagues across the aisle to work with us to fix these issues 
as soon as possible.
    Now I would like to ask a few questions.
    Mr. Conger, would making the 2017 tax cuts permanent for 
the middle class and small businesses positively affect your 
business?
    Mr. CONGER. Yes.
    Mr. JOYCE. Would it allow for you to make plans to expand 
your business well past 2025?
    Mr. CONGER. Most definitely. It would help us to plan out 
and further grow well into the future.
    Mr. JOYCE. Conversely, repealing the tax cuts, how would 
that affect your business?
    Mr. CONGER. It would have a negative impact of epic 
proportion, I believe, because it would affect so many other 
small businesses that would then stop to invest in their 
businesses, grow their facilities, buy additional equipment, 
and then in turn, need additional space, which is what the 
construction services provide.
    Mr. JOYCE. In your expert testimony, which was brilliantly 
given to us today, you outlined the importance of growth and 
development in your own company by these tax cuts. Will these 
tax cuts, if made permanent, allow that to continue for you?
    Mr. CONGER. Yes. I look forward to doing that. As you grow 
a business, as an entrepreneur, you are always planning and 
looking for and trying to look through a crystal ball out into 
the future, and through strategic planning, if we have 
certainty around the tax codes, we can better plan and better 
look forward into the future and make good business decisions.
    Mr. JOYCE. Thank all of you for your testimony today and I 
thank you, Madam Chair.
    Chairwoman VELAZQUEZ. The gentleman yields back. And now we 
recognize the gentleman from Oklahoma, Mr. Hern, Ranking Member 
of the Subcommittee on Economic Growth, Tax, and Capital Access 
for 5 minutes.
    Mr. HERN. Thank you, Madam Chairwoman.
    This is a topic I wish we had about 3 hours to talk on. I 
could take all 3 hours.
    I have been a small businessman for over 34 years across 
multiple sectors: banking, technology companies, real estate 
development, McDonald's restaurants. I also spent 5-1/2 years 
on McDonald's tax policy team where we had AICPA folks on 
there. First, under Senator Levin and then Kemp and then 
Brady--or Ryan, then Brady. So I have seen all this. And so the 
talk of bipartisanship, it has never been there. In fact, I 
want to ask a question in a minute. But as we get to talking 
about what is happening in our districts, it did make a 
difference. We heard about all the one-time benefits of giving 
bonuses, so people were able to do that. They attributed that 
directly to the Tax Code. And to say that it did not attribute 
to the Tax Code would be to call those individual CEOs liars. 
And we are not going to do that. They know what they could 
afford and what they could not.
    It does have a different impact. Mr. Willey, you know, you 
are a witness for the democrats. I am going to ask you a 
question in just a second, but I really appreciate your 
testimony because you have covered the entire gamut of why we 
needed it for C corporations and why we also need to make it 
more simple and permanent for small businesses. I think you 
captured it very accurately.
    Madam Chairwoman, I have information from NFIB I would love 
the support, ask unanimous consent to put into the record. They 
represent over 300,000 small businesses in America. I think 
they do a great job of referencing and showing the mood of the 
small businesses in America. And I would love to put this into 
the record.
    Chairwoman VELAZQUEZ. Without objection, so ordered.
    Mr. HERN. Thank you.
    I would like to ask each one of you, and just a simple yes, 
because I have got like a ton of questions for you, has there 
ever been a simple Tax Code, Ms. Gravelle?
    Ms. GRAVELLE. Not in my recollection.
    Mr. HERN. Okay. Mr. Willey?
    Mr. WILLEY. I have not seen one, but every time they say it 
my business goes up.
    Mr. HERN. Mr. Baig?
    Mr. BAIG. Yet to see one.
    Mr. HERN. Okay. Mr. Conger?
    Mr. CONGER. No.
    Mr. HERN. So, we are all arguing about whether this code is 
simple or not, but there has never been one. So we have nothing 
to reference for, it is just it is different from the last one. 
The last time we had a comprehensive tax reform was in 1986. We 
have had all kinds of iterations of messing with it along the 
way. But, you know, one thing that we could ask ourselves, you 
know, regulation, we just had a field hearing in Tulsa this 
past week, or Monday, on regulation. Regulation is a longer 
word for tax. And you as small business people know this. You 
see what those imposed on you.
    So the one thing we do have that we know, we know facts. 
And small business people, business people in general, love 
facts. We have the lowest unemployment in many, many months. We 
have the highest employment possibly ever in the history of our 
company. We have growing wage rates. And so those are, you 
know, we can say those are happening by happenstance but there 
is something that is attributing those. So people are going to 
work. We have 7.6 million jobs unfilled and 6 million people 
looking for jobs. We need to do a lot of work in training these 
folks to get into those jobs.
    Mr. Willey, I will come back to you. You were not 
originally on my question list but I want to ask you this. 
Recognizing that we had to do something on a global scale 
because we were one of the highest industrialized Nations from 
a tax rate standpoint, and you alluded to the fact that we went 
from one of the highest to now one of the lowest, and we have 
fundamentally changed how some of the Northern European 
countries are doing business with their Tax Codes, and we have 
changed the flow of foreign direct investments coming into this 
country where they were leaving or not coming here before. Is 
that correct?
    Mr. WILLEY. Yes. I would say though we were in the middle 
now. We are not the lowest but we are in the middle, in the 
20s.
    Mr. HERN. You are right, because what happened after we 
changed ours, some of the Northern European countries actually 
went and lowered theirs even lower so that they were not not 
the lowest anymore. So we fundamentally affected the world. So 
that is how you can see as a response what happened when we 
changed our Tax Code.
    I will be the first to tell you that I agree that this code 
should be simpler. It is not simple. When you take away the 
personal side and also change the pass-through side it gets 
very convoluted. In fact, I am on the record saying when I was 
asked early on how did this affect you, I said I will tell you 
when my taxes are due how it affected me. Because it is 
different. I would say as my friend from Florida said is that 
we do need to make it more simple.
    I also sit on Budget. And we talk about this a lot. To make 
it permanent, that last 4 years will cost the Federal 
Government revenues $957 billion. I will let you all figure out 
whether we can replace $957 billion in 2025 or not, but it will 
be a monumental lift. You are exactly right in your 
determination.
    I think each one of you would agree that the permanency of 
this is important for certainty, because while the C 
corporations, the large multinationals, were able to have 
certainty, as you as small business men and women and the 
people you represent want permanency. It will be a huge lift.
    I want to tell each of you, I appreciate that this panel is 
always so great because we remove the count of the Ds and Rs 
from the conversation when the witnesses come and it is great 
to hear the facts being given out by you all today. And so 
thank you so much for traveling in and testifying to us.
    Thank you, Madam Chairwoman.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And we will go to a second round. I have a question. If you 
want to ask any other questions.
    Mr. Golden, you are recognized for 5 minutes.
    Mr. GOLDEN. Thank you, Madam Chair.
    And I just want to quickly thank you for holding this 
hearing. I think it is important oversight work. I think the 
good news for all of you sitting out there is we have not heard 
a whole lot of people talking about repealing these outright, 
but I do think that we have to go in there with a scalpel and 
try and fix any unintended consequences. That is our job.
    Congress has done that already in a bipartisan fashion. 
There was an effort put forward by Congresswoman Elaine Luria 
and the For Country Caucus where it was unintended but it 
happened where the survivors of service members killed in the 
line of duty suddenly had their widows' benefits taxed. And we 
have gone back and we fixed that. That is good, hard work, and 
it was the right thing to do.
    Talking again a little bit about some of the tradespeople 
in Maine where maybe our construction economy is not booming so 
much. You can drive 6 hours in my district alone to cover it 
from north to south and there are several hours more of it 
south of us. So you can imagine losing your ability as a worker 
to deduct transportation, meals, because you are having to 
drive as far away as a place like Massachusetts to work. That 
is a pretty big loss. You can see how your tax cut can suddenly 
evaporate all of a sudden when you lose some of those other 
deductions like SALT as well.
    I think these are things that we should have conversations 
about fixing. And when we do it, I think we are going to have 
to figure out how to pay for it. And one of the biggest I think 
problems we have all heard today is that while there may not be 
a mass effort to repeal the tax cut outright, it was self-
sunsetting in that these personal exemptions or personal tax 
cuts and other things are going away in 2025. There has got to 
be some discussion about how to pay for that.
    But I did just have a couple of quick questions for Ms. 
Gravelle. And you may not have it in front of you so if you 
could just maybe follow up if you do not know off the top of 
your head.
    On the estate tax piece, I am curious moving from $11 
million to $22 million jointly in terms of that exemption. How 
many family-owned estates or small businesses, family-owned 
small businesses, like let's say a farm are we talking about 
here? Do you have those numbers either as direct numbers?
    Ms. GRAVELLE. I used to do estimates of how many farms paid 
the estate tax under the old rules, and depending on which 
state, sometimes I came up with a half a farmer. It was a very 
small number. Only about 1/10th of 1 percent of decedents pay 
the estate tax, and only about 2/10th of 1 percent before. So 
nobody pays this tax to speak of.
    Chairwoman VELAZQUEZ. Would the gentleman yield?
    Mr. GOLDEN. Yes.
    Chairwoman VELAZQUEZ. So just 6,460 of the nation's 2.7 
estates owed any taxes in 2017. And just 20 of those taxable 
estates, less than 1 percent, were small businesses.
    Ms. GRAVELLE. That is right. I have a paper on this so I 
have looked at this a lot. But there is just very little. This 
is something people talk about more than actually happens. It 
very rarely happens. Of course, there are a lot of ways that 
you can delay the taxes and that you have ways to try to deal 
with any liquidity, but it really happens because the taxes are 
really due.
    Mr. GOLDEN. I also want to ask, there was a lot of 
conversation about closing the carried interest loophole. Did 
that get closed in full?
    Ms. GRAVELLE. No. No. There is conversation about it but it 
never seems to happen. And that is one option that could be 
considered because it is very high-income people who are 
essentially, most people believe are really earning wages.
    Mr. GOLDEN. Thank you very much.
    Madam Chair, I want to thank you again, and I do think we 
have got some good opportunities as a Committee to work 
together in a bipartisan way to fix some things. And at the end 
of the day, I think the conversation is, how do we make sure 
that we do this in a way that is to the great benefit of small 
businesses and working people first of all? So thank you very 
much.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Mr. Evans, you are recognized for 5 minutes.
    Mr. EVANS. Thank you, Madam Chair.
    Madam Chair, I am sorry that my colleague who quoted that 
it would cost $900 billion has left because budgets are about 
choices. And obviously, there was a choice made. And I do not 
get upset with it. It would not have been the choice that I 
would make but a choice was made. My Republican colleagues made 
corporate tax cuts their choice and passed the cost on to small 
businesses because the small business tax cuts will expire. So 
we need to set the record straight about what is happening 
here. And we need to be very clear so people will know what is 
happening here. So when we talk about that $900 billion, which 
ultimately, the debate about how it is going to be permanent is 
because a decision was made. Now, I would not have agreed with 
that decision, but that decision was made.
    So Ms. Gravelle, I am coming to you. How does the temporary 
nature of these tax provisions that disadvantaged small 
businesses have the impact when a decision was made to make the 
corporate tax cut permanent and make the tax cuts to benefit 
small businesses expire? That is a choice. So can you speak to 
how does the temporary nature of these tax provisions put a 
disadvantage to small business owners?
    Ms. GRAVELLE. Well, there was a $1.5 trillion constraint in 
the budget agreement. So by allocating a great deal to a 
permanent corporate tax rate, it used up too much revenue to be 
able to make these tax cuts permanent. Everything is about 
tradeoffs. And I think one of the things that has been kind of 
missed here is this debt issue is a serious issue. I mean, it 
is going to crowd out capital. It is going to reduce the funds 
available for private borrowing, and there is a great deal of 
concern about already with interest $2 trillion. And then are 
you going to add another trillion? So it is about what your 
choices are.
    Chairwoman VELAZQUEZ. Will the gentleman yield?
    Mr. EVANS. Yes, I will yield.
    Chairwoman VELAZQUEZ. On that point, Ms. Gravelle, so is it 
fair to say that one of the reasons we find ourselves closer to 
reaching the debt ceiling is because of lower corporate tax 
revenues as a result of the tax law?
    Ms. GRAVELLE. Yes. The revenues were well more than I think 
about two-thirds or perhaps more of this total $1.5 trillion. 
It was a big piece. And a lot of that revenue went to 
companies, not like Mr. Conger's company. We could have done 
something with his company with graduated rates or whatever. It 
went to Apple and Facebook and these large multinational 
corporations who then spent a lot of that money apparently in 
share buybacks. They did not apparently make investments.
    Mr. EVANS. Which in return in a state like the state I am 
from, Pennsylvania, which we have that 99 percent of 
businesses, small businesses, 99 percent are the backbone, the 
fifth largest state in the Nation, as a result of a decision 
that was made. And it was a primarily person-made decision. We 
are now sitting in a situation that our small businesses are in 
jeopardy in terms of their own situations of expanding on their 
businesses and hiring people. Would you speak to that?
    Ms. GRAVELLE. Well, I think if you give people a tax cut 
and then you say it expires, but you, in the meantime, carry on 
with a large--it is harder to see what is not obvious to us. So 
we see what we do on our tax return. What we do not see is what 
happens down the road when you have crowding out of investment 
that pushes up interest rates. So in that sense, the small 
businesses were the losers because they only got a temporary 
tax cut. But they are going to have to bear the burden of the 
borrowing cost of this additional debt, the corporations I 
think----
    Mr. EVANS. And that is why I thank the Chairperson of this 
Committee, to me very appropriate having this discussion is 
very helpful to the public because those very small businesses 
that I was talking about, and she has been to my district which 
has 26 percent poverty and those businesses, you know, cannot 
have access to capital when you talk about crowding out.
    So I want to thank the Chairwoman for really, this has been 
a really insightful discussion in the challenges that we have 
for the future.
    I yield back the balance of my time.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    And now we recognize the gentleman from Ohio, Mr. 
Balderson, for 5 minutes.
    Mr. BALDERSON. Thank you, Madam Chair. Thank you all for 
being here today. I have been in a couple other Committees at 
the same time today.
    This Committee plays a critical role in the success of our 
Nation's small businesses as well as our Nation's economy. 
According to the Small Business Administration's 2018 Economic 
Profile Report, 99.9 percent of businesses in the United States 
are considered to be small businesses. From my home state of 
Ohio, there are nearly 950,000 small businesses employing more 
than 2 million people. Last year, Ohio's small businesses 
purchased $10 billion in revenue, which funneled straight into 
our economy. Needless to say, small businesses are vital to our 
country's prosperity.
    Since joining Congress, I have made it a point to engage 
with and support the small business community in Central Ohio. 
I have organized a Small Business Advisory Committee for the 
12th District so I may better serve these hardworking pillars 
of our community.
    In my conversations with my constituents and small business 
owners in Ohio, however, I have heard seamlessly endless 
stories about the benefits of a single piece of legislation, 
The Tax Cuts and Jobs Act. Just this past week I had the 
pleasure of meeting with a group of small business owners from 
across Ohio, including several from my district in Central 
Ohio. The individuals in this group work in an array of 
industries from auto parts dealers to manufacturers. And in 
this meeting, each and every one of these small business owners 
reiterated how beneficial the Tax Cuts and Jobs Act has been to 
their small businesses and its employees.
    One example that I would like to highlight is a constituent 
of mine and a member of my Small Business Advisory Committee, 
Kelly. She is a vice president of GKM Auto Parts in my hometown 
of Zanesville, Ohio. In 2016, Kelly had to pull the plug on 
providing healthcare benefits other employees because the 
Affordable Care Act was not indeed affordable for many small 
businesses. In her words, the ACA drove our premiums through 
the roof, making it impossible for her to offer employees a 
decent health plan.
    In anticipation of the Tax Cuts and Jobs Act passing 
Congress and being signed into law by President Trump in 2017, 
Kelly and her business opted to once again offer medical 
insurance to her employees with a 60/40 split in premiums. For 
her, this was solely possible due to the financial savings the 
Tax Cuts and Jobs Act produced for her business. In addition to 
health benefits, GKM Auto Parts was able to give raises to 
staff who had not seen a salary increase in 3 years. Kelly was 
adamant in telling me that absolutely none of the tax benefits 
her small business received as a result of the Tax Cuts and 
Jobs Act went into her pocket as the owner. Instead, this money 
was given directly to her employees through pay bumps and 
health benefits.
    I have also spoken with small business owners about how the 
Tax Cuts and Jobs Act has resulted in their ability to expand 
staff. This job creation profoundly affects not only the small 
business itself, but to the community as a whole. In my home in 
Muskingum County, the unemployment rate has been cut in half 
since the enactment of Tax Cuts and Jobs Act now sitting at 3.7 
percent.
    Finally, and perhaps hitting closest to home, the family of 
a member of my own staff has been positively impacted by the 
passage of Tax Cuts and Jobs Act. Her parents' business, 
Mansfield Distribution Company, has bene able to increase the 
pay for their employees by $30 per week. Now, that might not 
seem like a lot to some folks, but when you multiply that 
amount by 52 weeks, that is an increase of $1,500 each year. 
These employees have used this money to make home improvements, 
buy new cars, and support other local businesses.
    As a member of this Committee, I will continue to work in 
support of small businesses of Ohio and around the company. We 
still have much work to do, but I am committed to serving my 
constituents in the Ohio 12th District who either operate or 
are employed by small businesses.
    My question is for Mr. Conger. In your opening remarks, you 
discuss how your family's small business has seen a growth of 
110 percent due to the Tax Cuts and Jobs Act. This is a 
phenomenal example of this legislation's success, and I thank 
you for sharing your story with this Committee. I believe you 
are uniquely positioned to speak about the impacts the Tax Cuts 
and Jobs Act has had on Main Street as you are the current 
Chairman of the Board for the Associated Builders and 
Contractors (ABC) of Ohio, the Chairman of the Board for the 
Workforce Investment Board of Butler, Clermont, and Warren 
Counties, and a board member of the JobsOhio Regional Economic 
Development Initiative of Cincinnati, not to mention you are 
also president of your family's small business, Conger 
Construction Group.
    In your testimony, you discuss how your business, along 
with others in Ohio, have been able to reinvest in your small 
business and the community-at-large thanks to the increased 
revenue you have experienced through the Tax Cuts and Jobs Act. 
Would you please elaborate more about how your business growth 
and expansion has benefitted the town of Lebanon, Ohio and 
Warren County as a whole?
    Chairwoman VELAZQUEZ. Time has expired. I will give you 10 
to 15 seconds.
    Mr. CONGER. Thank you, Chairwoman.
    The tax cut has greatly impacted the City of Lebanon in 
Warren County, Ohio. We see a multitude of businesses, 
manufacturers in Ohio being a day's drive from 60 percent of 
the population in America. So the manufacturing that is going 
on in Ohio and the growth of jobs and economic boom to 
businesses growing and expanding not only affecting my business 
but a multitude of others in and around Southwest Ohio.
    Thank you, Chairwoman.
    Chairwoman VELAZQUEZ. The gentleman's time has expired.
    Let me take this opportunity to thank all the witnesses for 
taking time to be here and for the insightful discussion we had 
today.
    We all agree that small businesses should come first when 
it comes to tax policies and as I said at the onset, it has 
become increasingly clear that the lion's share of benefits 
from the Republican tax bill will flaw disproportionately to 
the largest corporations and the very wealthy. What was touted 
as a clearer, more simplified tax system has simply left too 
many small businesses behind. Simply put, small businesses and 
working families were not a priority when this bill passed. We 
need to do better for Main Street.
    With that I will ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    And if there is no further business to come before the 
Committee, we are adjourned. Thank you very much.
    [Whereupon, at 1:22 p.m., the committee was adjourned.]
    [Mr. Justin Conger did not submit his Responses to 
Questions in a timely manner.]
                            
                            
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