[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
AMERICAN INGENUITY: PROMOTING INNOVATION
THROUGH THE TAX CODE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX,
AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JUNE 6, 2023
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-016
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
52-422 WASHINGTON : 2023
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HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MORGAN MCGARVEY, Kentucky
MARIE GLUESENKAMP PEREZ, Washington
HILLARY SCHOLTEN, Michigan
SHRI THANEDAR, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Dan Meuser.................................................. 1
Hon. Greg Landsman............................................... 3
WITNESSES
Ms. Julie Masser Ballay, Vice President and Chief Financial
Officer, Sterman Masser Inc., Sacramento, PA................... 8
Mr. Bill Wydra, President, Ashland Technologies Inc., Hegins, PA. 10
Mr. Michael Kaercher, Director of the Climate Tax Project, The
Tax Law Center at NYU Law, New York, NY........................ 12
APPENDIX
Prepared Statements:
Ms. Julie Masser Ballay, Vice President and Chief Financial
Officer, Sterman Masser Inc., Sacramento, PA............... 25
Mr. Bill Wydra, President, Ashland Technologies Inc., Hegins,
PA......................................................... 27
Mr. Michael Kaercher, Director of the Climate Tax Project,
The Tax Law Center at NYU Law, New York, NY................ 28
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Biotechnology Innovation Organization........................ 38
Competitive Carriers Association (CCA)....................... 45
Engine Letter................................................ 47
Nationals Association of Manufacturers....................... 51
SBE Council - Small Business & Entrepreneurship Council...... 56
AMERICAN INGENUITY: PROMOTING INNOVATION THROUGH THE TAX CODE
----------
TUESDAY, JUNE 6, 2023
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax, and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building, Hon. Daniel Meuser
[chairman of the Subcommittee] presiding.
Present: Representatives Meuser, Van Duyne, Williams, and
Landsman.
Also Present: Representative Estes.
Chairman MEUSER. Good morning, everyone.
I now call the Committee on Small Business to order.
Without objection, the Chair is authorized to declare a
recess--let me put my mike on; that might help--of the
Committee at any time.
Before we get going, I am going to ask you to stand and say
the Pledge of Allegiance, please.
ALL. I pledge allegiance to the Flag of the United States
of America, and to the Republic for which it stands, one
nation, under God, indivisible, with liberty and justice for
all.
Chairman MEUSER. Thank you.
Before we begin, I would like to ask unanimous consent to
waive Mr. Estes from Kansas, from the Ways and Means Committee,
here to our Committee for the purpose of giving an opening
statement.
Without objection, so ordered.
The Subcommittee is here today to hear testimony on the
impact of changes to research and development expensing and
bonus depreciation and the effects they have on small business.
I will now recognize myself for my opening statement.
Again, welcome.
This Subcommittee hearing will be highlighting the
importance of having a Tax Code that promotes innovation for
small businesses. Tax Codes are very important for revenue
growth and to make our American businesses more competitive.
That is the whole idea. We need to have the most competitive
small businesses--or, an environment for small businesses in
the world. That, I believe, is government's role, to create
that environment for you all to do your thing, as opposed to us
meddling any further.
First, though, I do want to thank our witnesses for joining
us today. Your time here is greatly appreciated by all of us on
the Subcommittee. And I am very happy, as I just informed the
Ranking Member, that we have business leaders from
Pennsylvania's Ninth District who made the trip down. So thank
you very much.
Innovation requires risk and, with it, investment in
research and development. As our witnesses will discuss,
research and development for small businesses is often more
difficult due to the issues with capital access and smaller
workforce that requires a longer time horizon to realize any
potential possible return on investment. In many circumstances,
these risks make small-business owners gamble their entire
company on propositions that may never pay off.
We need to incentivize this innovation. The American Tax
Code has provided incentives for businesses to invest into
research and development. For small businesses that don't have
endless cash flow and reserves, consistent R&D tax incentives
are often their only option--``consistent and understood''
should be added. These include two different provisions, R&D
expensing and bonus depreciation, which allow a small business
to make significant investments they otherwise wouldn't be able
to make.
In 2017, the Tax Cuts and Jobs Act took the successful
bonus depreciation credit to the next level, allowing 100-
percent bonus depreciation for qualifying purchases. This law,
which was a resounding success on main street, changed
deductions, depreciation, expensing, tax credits, and other
items that truly significantly benefited small businesses.
Unfortunately, the immediate expensing of R&D expired in
2022, and now small businesses are required to amortize their
R&D costs over 5 years rather than deducting them immediately.
For example, take a small business with $1 million in revenue--
and this is interesting--$500,000 in R&D costs, and $500,000 in
deductible expenses. Under the 2021 tax law, it would have had
zero profit and its owners would owe no income taxes. But here
now in 2022, it could deduct only $50,000 in research costs and
its owners would now pay on $450,000 in income. Significant
difference.
Analysis by the Tax Foundation, an independent tax policy
research organization, found that restoring immediate expensing
of R&D will benefit both businesses and workers by increasing
economic output and wages and creating an estimated 20,000
jobs.
It would also help build on the broad success of the Tax
Cuts and Jobs Act. By cutting tax across the board, we saw the
federal government take in record rates of revenue. This is a
fact, and the numbers prove it. Thanks to lower rates, overall
corporate tax revenue surged by 43 percent last year and
federal revenue jumped 48 percent relative to before the law
was enacted.
Additionally, bonus depreciation is set to decrease 20
percent annually through 2027. Unless Congress acts soon,
private-sector innovation, especially within the small-business
economy, will be hamstrung and unable to invest in R&D.
Although the sunsetting of these provisions has been known
for several years and even though there is broad, bipartisan
support for reinstating the expensing option for R&D
expenditures, Congress, as a whole, continues to hold
negotiations hostage by insisting unrelated measures be
included in any legislative remedy.
I am glad to have Congressman Ron Estes, a distinguished
Member of the Ways and Means Committee, joining us today to
discuss his efforts to ensure we continue to incentivize small-
business investment in R&D. Congressman Estes's bill, the
American Innovation and R&D Competitiveness Act, would
permanently restore full and immediate R&D expensing for small
businesses. I am a proud cosponsor of this legislation, which
has immense bipartisan support, with 93 cosponsors equally
split among Republicans and Democrats.
Small businesses are able to fill gaps in innovation that
larger corporations may miss and are built around fresh
perspectives and new approaches to everyday challenges, as we
were just discussing.
Over 99 percent of business in America are small
businesses, accounting for 44 percent of all domestic activity
and two-thirds of jobs in the country. And 70 percent of those
employed in the Ninth District are employed by a small
business.
These roadblocks against America's small business also
jeopardize our standing on the world stage as the premier
innovator for tax year 2022. The Organization for Economic
Cooperation and Development ranked the U.S. 30th out of 36
based on the strength of our nation's R&D tax incentives--and
far behind China. For decades, this country has out-innovated
the world at every turn, and without a strong innovative base,
we will risk falling further behind dangerous adversaries on
the world stage.
Before immediate R&D tax expensing was repealed, China's
R&D tax incentive was already 2.7 times more generous than the
U.S. That was before we allowed the R&D tax credit to sunset.
So, while I have every confidence in the ingenuity of our
innovators in America, we cannot continue to force our small-
business innovators to compete on a world stage with one hand
tied behind their back.
In closing, I ask unanimous consent to insert the following
letters from the National Association of Manufacturers and the
Small Business and Entrepreneurship Council for the record.
Without objection, so ordered.
Once again, thank you all very much.
And I will now yield to our distinguished Ranking Member
from Ohio, Mr. Landsman.
Mr. LANDSMAN. Thank you, Mr. Chairman, for holding this
important hearing.
I agree, American innovation is absolutely key to our
country's success as a global economic powerhouse. Our standing
in the world is built on our collective investments in new
ideas, cutting-edge technology, and competition between talent
and among our country's best and brightest.
Our entrepreneurs play a crucial role in the innovation
ecosystem by attracting investment and bringing ideas from
university labs to market, advancing our quality of life and
growing our productive capacity.
However, as we have heard, these innovative ideas, turning
them into reality, these businesses need a supportive and
nurturing Tax Code, among other things. For nearly 7 years,
section 174 of the Internal Revenue Code has allowed companies
to write off all of their R&D costs immediately. So that is
what we are talking about, the ability to write off all of your
R&D costs immediately.
Unfortunately, the 2017 tax law upended this long history.
As a result, starting this year, businesses will be forced to
claim only 20 percent of their R&D tax benefit every year for 5
years, instead of all at once in 1 year. In effect, this will
negatively impact small businesses, particularly many early-
stage startups.
Right now, our Tax Code is sending mixed signals to our
country's innovators. On one hand, we invested over $300
billion for advancing clean energy in the Inflation Reduction
Act, but, on the other hand, we are stifling this development
by weakening this tax credit. And to continue this country's
robust economic recovery, my hope is that this hearing will
give us the opportunity to bring these tax credits back online.
And I agree with the Chair that there is bipartisan
support. But getting it done is another issue, requiring real
leadership. And I am glad that Congressman Estes is here and
leading on this. We have to be able to get it to the floor, and
that does mean saying, ``Hey, it is not going to have
everything that everybody wants in it, but this particular fix
needs to get done sooner rather than later.''
I hear this a lot when I am back in the district and
talking with small businesses. We have had roundtables. We will
pop in to a small business, tour. It is a top-three issue for
them.
So, with that, I would like to thank all the witnesses for
joining us. I look forward to their testimony.
And I yield back.
Chairman MEUSER. Thank you, Ranking Member Landsman.
I now recognize the Chair of the full Committee, Mr. Roger
Williams from Texas, for his opening statement.
Mr. WILLIAMS. Well, good morning.
I want to thank the witnesses for being here. Thank you
very much.
And I want to thank my friend and colleague, Congressman
Dan Meuser, for holding today's Small Business Subcommittee on
Economic Growth, Tax, and Capital Access hearing.
You know, our nation's small businesses continue to face
persistently high inflation, interest rates that are being
raised at the fastest pace since the 1980s--and I remember
that--a labor shortage that has windows plastered with ``Help
wanted'' signs across the country, and an increasingly
uncertain credit environment. With these economic headwinds, it
is vital that our Tax Code work for our nation's job creators,
not against them.
And as a current small-business owner for over 52 years--I
am a car dealer, I am a car dealer in Texas--I know firsthand
how a burdensome federal Tax Code can make a small business
less likely to invest in their own operations.
Now, the full and immediate expensing provision of the Tax
Cuts and Jobs Act is the perfect example. Businesses were more
willing--I can tell you firsthand--more willing to make these
long-term investments knowing that they could write off the
full value in the first year. We need to build on successful
tax policies like this one that will help our small businesses
invest in their futures.
And Main Street America is not Republican; it is not
Democrat. It is Main Street America. And here on the Committee
on Small Business, we strive to create an environment where
small businesses can thrive, can grow. And that includes
commonsense initiatives that encourage entrepreneurial risk-
taking, because risk and reward is what built our country.
Now, with that, I am looking forward to today's discussion.
And, Mr. Chairman, I ask for unanimous consent to insert
the following letters for the record: letters from the
Competitive Carriers Association; Engine, signed by 66 startups
and innovators; and the Biotechnology Innovation Organization.
So thank you, Mr. Chairman, and I yield my time back.
Chairman MEUSER. Without objection, so ordered.
Chairman Williams yields back his time, and we thank you
very much, Chairman Williams.
I now recognize Mr. Estes, the sponsor of H.R. 2673, the
American Innovation and R&D Competitiveness Act of 2023, for
his opening statement.
Mr. ESTES. Well, thank you, Chairman Meuser and Ranking
Member Landsman and Chairman Williams and all of the Members of
the Small Business Committee, for allowing me to testify today
on this critical, bipartisan bill that impacts all of our
districts, the American Innovation and R&D Competitiveness Act.
On tax day this year, I reintroduced this commonsense bill
with my colleague John Larson, along with Representatives
LaHood, DelBene, Arrington, Panetta, and 56 additional original
cosponsors. The bill will continue to gain support--or, has
continued to gain support and has nearly 100 cosponsors today,
evenly split between Republican and Democrat.
The bill is straightforward. It corrects a tax issue
businesses face when conducting research and development. The
American Innovation and R&D Competitiveness Act allows for
immediate expensing of eligible R&D expenses, bringing us back
to where we were just a few years ago and securing American
dominance in research and development.
Full expensing for R&D was allowed through the end of 2021.
However, since the beginning of 2022, businesses have been
required to spread out, or amortize, the R&D expenses over 5
years for domestic R&D and over 15 years for foreign R&D.
Rather than extend the immediate expensing for only a few
years, this is a permanent solution in this bill that provides
clarity and stability for innovators, businesses, and workers.
And the legislation will certainly help small businesses here
in the United States and encourage economic development.
In fact, the Association of Equipment Manufacturers said
the bill offers a much-needed boost for the equipment
manufacturing industry at a time when America faces adverse
inflation and strained supply chains.
AEM isn't the only organization praising the bill. The
National Taxpayers Union featured this legislation on their
``No-Brainer'' list in 2020. The list is a collection of 10
bills that NTU deems as no-brainer bills that have bipartisan
support and should easily pass in Congress. However, they only
recognize bills once, but they did include this legislation as
an honorable mention in the following year and sent letters of
support to Members of the House Ways and Means Committee in
this Congress.
The Aerospace Industries Association, Semiconductor
Industry Association, Plastics Industry Association,
Information Technology Industry Council, and National
Association of Manufacturers have written op-eds and issued
statements of support. They all know: Where R&D occurs, jobs
and economic opportunities also follow.
And this isn't just about major corporations. R&D supports
businesses of all sizes. According to the R&D Coalition, about
15 percent of private U.S. R&D investments are made by small
businesses with fewer than 500 employees. And, to some degree,
that has a major--a more outline of impact than it does for
larger businesses.
Right now, the United States is lagging behind in R&D, a
trend that has been happening for a while. According to the R&D
Coalition, the United States' share of global R&D investment in
2019 was 30 percent, down from 40 percent in 1999.
Unlike the United States, China's global share of R&D
investment has gone up. It was 24 percent in 2019, a big jump
from just 5 percent in the year 2000. That means China's R&D
investment has increased by 400 percent in just two decades.
And here is how they changed the direction of their R&D
presence. China has implemented a deduction of up to 200
percent of the eligible R&D investments. That is the equivalent
of 10 times the amount the current U.S. Tax Code allows.
Without an incentive for homegrown R&D, the United States
also loses out on creating new jobs. The R&D Coalition says,
for every $1 billion in U.S. R&D spending, 17,000 jobs, earning
$1.4 billion, are supported in the United States.
They also note that, unless the R&D amortization policy is
reversed, the United States stands to lose 410,000 jobs, $57.5
billion in labor income, and $71 billion in R&D spending over
the next 10 years.
The American Innovation and R&D Competitiveness Act is the
right solution to help small businesses in our districts, from
Kansas to Texas, to New York, to Pennsylvania and everywhere
else that could benefit from jobs, opportunities, and economic
growth.
As a former Member of this Committee, I know you all have a
vested interest in supporting the small businesses that are
economic engines for our country, and I hope you will consider
joining me as cosponsors.
Today's research-and-development dollars creates tomorrow's
jobs. And we need to keep R&D dollars inside our country, where
they can help strengthen American businesses and workers.
I want to thank my friend from Connecticut, Congressman
Larson. We have worked over multiple Congresses to make this
legislation a reality. And now that American companies have had
a year without immediate expensing, I am cautiously optimistic
that this is the year that that commonsense bill will become
law.
Thank you again for allowing me to testify today, and I
yield back.
Chairman MEUSER. Mr. Estes, we thank you for participating
in this hearing with us and for this important bill.
We will now proceed with witness introductions.
So it is my pleasure to introduce first our first witness,
Ms. Julie Masser Ballay.
Ms. Masser Ballay is the chief financial officer and vice
president of Sterman Masser, Incorporated, located in
Sacramento, Pennsylvania--the original Sacramento--which is
right in the heart of my district, in Schuylkill County.
After working for Weyerhaeuser as a structural frame
engineer for 6 years, Ms. Masser Ballay rejoined her family
business in her current position in 2009, where she oversees
finances, technologies, and engineering for the business.
Today, Sterman Masser employs approximately 300 people in a
variety of positions and distributes over 250 million pounds of
potatoes each year.
In addition to working for her family business, she gives
her time to a number of industry groups, including the Food and
Vegetable Industry Advisory Committee for the USDA, and serves
her community on the board of the Hegins-Hubley Authority and
in many other capacities that I am familiar with.
Ms. Masser Ballay is a graduate of the great Penn State
University, where she received her Bachelor of Science and
Master of Science in Agriculture and Biological Engineering, as
well as a Master of Business Administration.
Ms. Masser Ballay, thank you very much for being here, and
we look forward to our conversation and your testimony.
Our next witness today is Mr. Bill Wydra. Mr. Wydra is the
founder and president of Ashland Technologies, Incorporated,
located in beautiful Hegins, Pennsylvania, also in Schuylkill
County.
Founded in 1996 by Mr. Wydra, Ashland Technologies has over
25 years of experience servicing many industries and has
expanded to become a one-stop shop for various manufacturing
needs, including everything from roller-coasters--which I have
seen, not ridden on, but seen--to vending machines.
In 2009, Ashland Technologies was ranked as the fastest-
growing manufacturer in Pennsylvania and was 55th in the
country--a truly impressive feat for which we definitely
applaud Mr. Wydra.
With 4 plants and over 30 employees in total, Mr. Wydra
uses his expertise in marketing to find new customers and
optimize their manufacturing process to best fit the needs of
their customers.
Mr. Wydra is a graduate of George Mason University with a
bachelor's degree in marketing, economics, and finance.
Last year, Mr. Wydra joined myself and Vice Chairman
Luetkemeyer for a small-business roundtable here in Washington,
which we appreciated. And we want to thank him again for coming
here then and today to testify on what is a very important
topic.
I now recognize the Ranking Member, Mr. Landsman, to
introduce the minority witness for today's hearing.
Mr. LANDSMAN. Thank you, Mr. Chair.
Michael Kaercher is a senior attorney advisor and director
of the Climate Tax Project at the Tax Law Center at NYU Law. He
has over a decade of experience on a broad range of complex
federal tax issues. He is currently focusing on the Tax Law
Center's work on the implementation of the climate tax
provisions of the Inflation Reduction Act and contributes to
the Center's work across a range of other issue areas.
Prior to joining the Tax Law Center, Mr. Kaercher spent
several years on detail to the House Ways and Means majority
tax staff. While there, he designed and advanced tax policy in
various ways, including green-energy tax policy, excise taxes,
and COVID relief.
For 7 years, Mr. Kaercher served at the Office of Associate
Chief Counsel (International) at the Internal Revenue Service,
where he advised them on interpretation, administration, and
enforcement of various international tax agreements.
Mr. Kaercher holds a J.D. from Harvard Law School and a
B.A. from Colgate University and is admitted to practice law in
Washington, D.C., and Maryland.
Welcome.
Chairman MEUSER. I thank the Ranking Member.
And, again, I appreciate all of you being here today.
Before recognizing the witnesses, I would like to remind
you all that your oral testimony is restricted to 5 minutes in
length. If you do see the red light turn on in front of you, it
means your 5 minutes have concluded, and you should wrap up
your testimony.
I now recognize Ms. Julie Masser Ballay for her 5-minute
opening remarks.
STATEMENTS OF JULIE MASSER BALLAY, VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, STERMAN MASSER INC.; BILL WYDRA, PRESIDENT,
ASHLAND TECHNOLOGIES; AND MICHAEL KAERCHER, DIRECTOR OF THE
CLIMATE TAX PROJECT, THE TAX LAW CENTER AT NYU LAW, ON BEHALF
OF THE TAX LAW CENTER AT NYU LAW
STATEMENT OF JULIE MASSER BALLAY
Ms. MASSER BALLAY. Thank you, Chairman Meuser. And good
morning. Thank you, Chairman Williams, Representative Estes,
and distinguished Members of the Small Business Committee. I
appreciate the opportunity to give testimony today.
As Chairman Meuser stated, my name is Julie Masser Ballay,
and I am CFO and vice president of Sterman Masser, Inc., here
on behalf of our companies, Sterman Masser, Inc., Masser
Logistic Services, Keystone Potato Products, and Lykens Valley
Grain, with headquarters located in Sacramento, Pennsylvania.
For more than 50 years, Sterman Masser, Inc., has been a
potato grower, packer, and shipper of potatoes. We are a family
business, started by my grandfather, Sterman, in 1970, and now
owned by my parents, Keith and Helen Masser; my brother, David
Masser; and me. Dave and I are eighth-generation farmers, and
we have high hopes that one or more of our children will become
the ninth generation.
We currently are farming approximately 1,000 acres of
potatoes, along with 2,300 acres of corn, 1,500 acres of
soybeans, 850 acres of wheat, with the remaining acreage
dedicated to a variety of cover and rotation crops, totaling
over 6,000 acres in production.
As the Congressman stated, we are distributing retail
packed potatoes, mainly, throughout the Eastern Seaboard and
have farming, packing, distribution operations supported by our
team, with an updated number of almost 400 employees at this
point.
The year 2020 marked our 50th year in business as well as
the start of the pandemic. Our business is focused on feeding
people, and that did not stop during the pandemic. Our doors
stayed open, and our workforce showed up. On behalf of the
Masser family, I would like to give our heartfelt thanks to our
employees that helped keep food on the table of families in
America.
But like any other company, we had to adjust our way of
doing business in recent years. One of those adjustments was
increasing the automation in our packing operation to
transition difficult-to-fill, labor-intensive positions into
machine-operator positions by mechanizing our bag-filling and
palletizing functions within our packing shed. These steps in
automation improved employee safety by reducing the risk of
sprains and strains, while also improving production
efficiency.
We started the process of automation prior to 2020, and
with the assistance of bonus depreciation and the positive
impact that had on our company's cash flow, we were able to
continue installing this machinery throughout the pandemic.
This example demonstrates what I believe to be an important
impact of bonus depreciation for a company like ours, which is
the ability to reinvest in our family business with improved
cash flow. Reinvesting helps us increase the speed of our
innovation and help make necessary investments that allow us to
stay up to date with technology and keep pace in the
marketplace.
By taking advantage of bonus depreciation, we have been
able to redirect cash back into our business so that we can
improve employees' work environment, increase our efficiency,
and continue to remain competitive in the marketplace,
particularly as we combat tighter margins through this
inflationary period.
As a family business, the concern always exists that we
will not be able to keep pace with larger companies or with
rising costs while still addressing the needs of our employees.
With a tight labor market in our region, we are always
looking for ways to improve the work environment for our
employees, improving safety and efficiency. Innovation allows
us to be in a position to compete for employees and create
higher-paying positions.
Additionally, with interest rates on the rise, smaller
businesses are able to benefit by utilizing cash instead of
locking in loans with high rates. Although our business is
fortunate to have a very good banking relationship, small
companies, in general, do not have the ability to negotiate
with banks as well as large corporations.
This is where the SBA is able to step in to offer
assistance with small-business loans. But the ability to
utilize cash to reinvest in your own business is another useful
tool that a business owner can have in their tool belt.
Small and family-owned businesses are the backbone of the
American economy. In order to remain competitive, particularly
in the agricultural sector, we need to be able to keep up with
the speed of innovation of larger corporations. Taking
advantage of bonus depreciation and using that to reinvest into
our business assists us in accomplishing this so that we can
continue to provide a good work environment for our employees
and put food on the tables of families in America.
Thank you again for the opportunity to take part in today's
discussion. I appreciate the interest from the Subcommittee.
Chairman MEUSER. Thank you. Thank you very much, Ms. Julie
Masser Ballay, for your opening remarks.
We now recognize Mr. Bill Wydra for your 5-minute opening
remarks.
STATEMENT OF BILL WYDRA
Mr. WYDRA. Good morning.
And thank each and every one of you for further advancing
my belief in the American way. The fact that we are all sitting
here having this particular subject discussed is very important
to us. And, again, it just reinforces that for me, that you
care.
You know, a lot of times when you are on the front line,
you think you are fighting the battle all by yourself, but
meetings like this and the fact you have taken the time to
organize this and want to hear from us--and genuinely want to
hear from us--that goes a long way in helping us want to grow
this company and grow this country even further.
So thank you, each and every one of you.
I had a lifelong, you know, entrepreneurial spirit,
starting my first bicycle repair business at the age of 5 and
growing that into a wide variety of things, which you have
heard a little bit about. We design and build roller-coasters
and manufacture those in both Florida and Pennsylvania. We have
amusement attraction development, including virtual reality. We
have unique food concepts, such as Honolulu Hotdog. We even
have developed ice cream vending machines, as Congressman
Meuser has mentioned.
At the backbone of all this is an enterprise which is one
of the mid-Atlantic region's most complete contract metals
manufacturing companies. We do CNC machining, welding,
fabricating, powdercoating, assembly, testing, engineering--all
under one roof. Very, very innovative for a small manufacturing
company. Very, very innovative in our industry.
There are very, very few out there that can do all of those
things under one roof. That comes with a lot of trial, it comes
with a lot of tribulation, it comes with a lot of failures. So
these programs that you have in place allow us to do that and
create that competitive advantage for ourselves.
These companies have won many innovation awards. We have
won five Brass Ring Awards for new product development in the
amusement industry. As a new company, that almost never
happens. To get five has been unprecedented. So it is this
culture of innovation that has really driven that for us.
We have been awarded the Manufacturing Innovation Award by
the Manufacturing Resource Center. We have been in the Top Ten
Machine Shops; earned 5 straight years on the Inc. 500 List of
private companies, as you have heard.
At the core of this, it really boils down to the talented
teams. You know, me sitting here, I am only representing them,
okay? This is all about the people that we employ, and it is
all about giving them that inspiration for developing something
new.
We were talking about it before. You know, somebody that
works all day just pressing a button, not even sure what they
are developing, they don't have inspiration, they don't have
excitement, they are not interested in their work. But you give
them the opportunity to innovate and create something new and
go home and tell their kids what they have been working on,
that makes a difference in our households. And that is very,
very important.
You know, we truly believe that, you know, our success is
going to be determined by as much as we endeavor to anticipate
the future needs of our customers and proactively deliver
unique solutions to their emerging challenges. And that can
only be gained through research and development.
You know, there is an incredible rush that comes with this.
You know, creating something new and seeing it come to life,
like being able to design a roller-coaster on a piece of paper,
sometimes on napkins, and then be able to go ride that with
your 8-year-old daughter and say, ``We did this''? Wow. I mean,
it brings a tear to my eye right now just thinking about that.
That is what we are talking about here today. We are not
talking about laws; we are not talking about this. We are
talking being able to inspire people, inspire growth, inspire
our country to move forward.
And I only pray that, you know, really, I can transfer that
spirit to my kids. You know, I have four kids, and, you know,
they are cluttered with so many things now, you know, with all
the internet. And everyone knows those complaints. We are not
here to talk about that today. But being able to get them in
programs--you know, I was talking earlier, I had a little disk
that I brought in case I needed to transfer my testimony to
something. The only other thing on that disk was, my 13-year-
old daughter, at the time, she created her own business card
for a collapsible pencil that she wanted to make a bracelet out
of. Like, that is the type of thing that we need to be
inspiring in our kids. And that is truly where we are with this
program.
So, you know, everyone has already talked about, you know,
what this is going to do to cash flow, and I will tell you
right now: It will kill it. You know, if you don't figure out a
way to get this advanced and we get rid of this amortization
program, it will kill innovation. Because not only are we
dealing with all the problems you have already talked about, we
have, you know, the fact that we might do away with bonus
depreciation. It will put the most significant cash-flow crunch
on our businesses.
So, not only does innovation go away, employee development
programs go away, training goes away, you know. And training
can really inspire people as well. You know, once you give them
the confidence that they know the language, they know what they
are doing, they know what they want to talk about, the ideas
that start flowing from them are just unbelievable.
So the timing is bad right now. We have all already talked
about that.
So, with my 15 seconds, I just want to close with this. I
would like to quote Walt Disney. You know, when you are in the
amusement industry, you have to do that. ``It is kind of fun to
do the impossible.'' And that is what we are talking about here
today.
So continue with this path. Thank you, Congressman Estes,
for pushing this. And that will maintain the spirit of
innovation.
Chairman MEUSER. Well, thank you, Mr. Wydra. That was
excellent.
Now we recognize Mr. Michael Kaercher for your 5-minute
opening remarks.
STATEMENT OF MICHAEL KAERCHER
Mr. KAERCHER. Chairman Meuser, Chairman Williams, Mr.
Estes, and distinguished Members of this Committee, thank you
for the opportunity to testify today.
Tax policy can support investment in innovative activities
through targeted tax credits, deductions, and other tax breaks.
It can lift up children, who are the future innovators,
entrepreneurs, and workers needed for a dynamic economy. And it
can raise revenue to fund investments outside the tax system,
including federal research grants for small-business
innovation.
The 117th Congress enacted tax benefits intended to spur
innovation and created new tools to give small and startup
businesses access to those tax benefits. The bipartisan CHIPS
and Science Act, the Bipartisan Infrastructure Law, and the
Inflation Reduction Act created major new tax credits for
investment in domestic manufacturing and equipment and for
innovation across the energy sector.
For example, one of the IRA's tax credits for advanced
manufacturing invests $10 billion in projects with high
potential for innovation and commercialization. And starting in
2025, the law transitions to a tech-neutral regime intended to
spur innovations in producing zero-emissions electricity and
fuels.
Most tax benefits, including credits and deductions, can
reduce income tax owed by a small business, but many small
businesses, and especially startup small businesses, have
limited or no tax liability. Both the CHIPS Act and the IRA
create new ways of giving smaller and startup businesses better
access to tax breaks for investment in innovation, such as the
ability to transfer certain tax credits or to receive others
paid out as refunds.
The 117th Congress also temporarily expanded the Child Tax
Credit, which is an investment in the future innovators,
entrepreneurs, and workers needed for a dynamic and innovative
economy. Research shows that such credits make children
likelier to grow up healthier and do better in school, which,
in turn, delivers long-run benefits for workplaces,
communities, and the economy.
Researchers find that America is losing out on having more
innovators who are women, people of color, or from low-income
families because children with equal talent and potential are
growing up in households that are too poor or not connected
enough to become innovators and entrepreneurs. Tax policy that
reduces child poverty and increases opportunity, like a fully
refundable Child Tax Credit, can help unlock that potential.
The tax system also supports innovation in small business
by raising revenues to fund investments outside of the tax
system, including federal R&D grants for small business
innovation. So it is unfortunate that the deal to avert U.S.
default cuts parts of the budget that funds these programs.
That same deal also cut IRS funding. This will hurt honest
small businesses. The IRS won't be able to do as much to
transform service for small businesses who want clear and
timely help understanding and meeting their tax obligations.
More unscrupulous businesses will continue to have unfair
competitive advantage by avoiding or evading the taxes they
owe.
To close, let me note that the TCJA prioritized large,
corporate, permanent rate cuts over investing in future workers
and innovation. It paid for corporate tax rates in part by
requiring deductions for certain research expenses to be taken
over time rather than deducted immediately.
But some lawmakers are proposing reversing nearly all
scheduled revenue-raising provisions of the 2017 law. That
would lead to a combination of tax subsidies that aren't well-
targeted to small businesses or innovation.
Under that proposal, certain businesses would be able to
claim deductions for investments but also would be able to
fully deduct the cost of that interest. That set of tax
subsidies would be especially valuable for the leveraged buyout
industry as well as for large, multinational corporations that
avoid taxes by making large interest payments to their foreign
affiliates.
Going forward, small-business innovation will be best
served by tax policy that does four things:
First, the tax system can use well-targeted tools to
efficiently reach small and innovative businesses and give them
the level of service they deserve from the IRS.
Second, the tax system can invest in future workers and
innovators through measures like an expanded fully refundable
CTC.
Third, the tax system can eliminate unfair competitive
advantages that large tax evaders and avoiders currently enjoy
over honest small businesses.
And, fourth, the tax system can raise revenue to fund
public R&D and private innovation.
Thank you for inviting me to testify today, and I would be
glad to take any questions.
Chairman MEUSER. The gentleman yields back. We appreciate
your testimony very much.
We will now move to the Member questions under the 5-minute
rule. And I am going to recognize myself for 5 minutes.
So, Mr. Wydra, I am going to start with you.
So this Committee is, of course, Economic Growth, Taxes,
and Access to Capital. We are about oversight of the SBA, but
we are the advocates for small business in Congress. So, as you
stated, this is a very important issue for us and one that we
need to overcome, as far as the R&D tax credit issue and bonus
depreciation.
I was in small business, into a large business, for almost
25 years. I have spent a lot of time visiting small businesses.
And it is really not a pretty picture, for the most part--and I
visited both of your companies--between inflation; workforce
unavailability, which means longer hours for you and others;
supply-chain issues; wages, which is normally a good thing but,
you know, not when they go up incredibly rapidly and you lose
people faster; and such. Dealing with, now, tax increases is--
the threat thereof, as well, that we see--is very difficult.
And many are selling more but making less and, of course, as
stated, working more hours.
So the questions are: With the type of R&D reduction, bonus
depreciation reduction, the threat that we hear of the 20-
percent small-business income deduction, what is that doing to
your business, Mr. Wydra? Is it affecting your expansion? Is it
affecting your hiring? Is it affecting your CapEx? Is it
mitigating your willingness to take a risk on some new
innovations? Tell us about that.
Mr. WYDRA. Yeah. All of the above.
You know, I think it changes your mental state, you know, I
think is the first thing that it changes. You know, you have
got one thing; maybe you could deal with that. You have got
another thing; well, okay, now we come up with a solution for
that. All of these things are compounding at the exact same
time. This is just an awful time to consider, you know, going
forward with the implementation of amortizing those expenses
over 5 years.
It is that little bit of extra cash flow that is going into
employee development programs. It is helping them gain the
confidence that they need to be innovators, you know? And I
think that is one of the first things that begins to go away,
because is it necessary? No. We could still push a button
today. You know, we are moving into some automation; we could
still do those kinds of things today. So what we are doing by
not doing this, we are robbing from the future.
So, yeah, we can get through today. You know, companies are
going into survival mode. They are failing to do the right
things----
Chairman MEUSER. Yeah.
Mr. WYDRA.--because they are looking at this being
implemented. And that is why people are starting to think
differently and act differently.
Chairman MEUSER. Okay.
Interest rates and access to capital. You mentioned cash
flow.
Mr. WYDRA. Oh, it is awful.
Chairman MEUSER. That is one of the most important parts of
any business, particularly small business.
Mr. WYDRA. Yep.
Chairman MEUSER. So how is your banking?
Mr. WYDRA. And it is really rough. It is really rough in
manufacturing. So, you know, we have a double whammy here. You
know, number one, if this comes back, we are going to be
shorter on cash than we would have been otherwise. And if the
bonus depreciation goes away, we can no longer now, you know,
really expand that additional capital into investing.
You know, so with interest rates where they are right now,
it is very difficult, you know, to look at doing that type of
expansion even if you can get it. We have a very good banking
relationship with Mid Penn, you know, the local regional bank,
very good relationship. But the problem is, you know, do we
want to? You know, it is very expensive.
So now we are looking at more innovative ways to utilize
some of the equipment that we already have. But, now, if that
goes away, well, now, you know, we can no longer even afford to
do that.
So I think it is the compounding of those two issues that
really, really, really makes it difficult, and the timing----
Chairman MEUSER. Thanks.
Ms. Masser Ballay, you have a farm, a family business in
between a large and small. You mentioned about speed of
innovation, the importance there.
Can you expand upon what Mr. Wydra is saying and how some
of these new factors, particularly taxes, R&D, and bonus
depreciation, would negatively affect you?
Ms. MASSER BALLAY. Sure.
And I think, from our perspective, since we are really
using the research and development of other companies to
implement automation, it creates even a greater lag time,
right? So, you know, they are not able to have the speed of
innovation because they are being impacted, you know, with
this. So then, for us, in terms of the lead time for equipment
that we are purchasing and installing, then that would extend
it for us as well.
You know, it is about having that access to capital. With
the interest rates going up, to Mr. Wydra's point, you know,
yes, we have a good banking relationship, but do we want to put
in place these high-interest loans right now? Having access to
that capital and being able to work that with your cash flow is
a better option in these types of inflationary times.
So it really is about speed, and, from our perspective,
with the workforce challenges that we can face, we are
competing outside of our industry where we are at in central
Pennsylvania. We are nestled right in between the 81/78
corridor. There are a lot of warehouses, with a variety of
different industries going in there. And we are all competing
for the same people. So our wage rates are keeping up with
these other industries, as opposed to keeping up with
agricultural industries.
So, with that, you know, with trying to make a better work
environment for our employees----
Chairman MEUSER. Thank you.
Ms. MASSER BALLAY.--to keep them satisfied--yeah.
Chairman MEUSER. Thank you. Yeah, we need to give
advantages to American food, American roller-coasters, and not
give the advantage to China.
So thank you. I am over time. My apologies to the
Committee. I now yield to the Ranking Member for his 5 minutes
of questions.
Mr. LANDSMAN. Thank you.
I guess this is first to you, Mr. Kaercher, but, you know,
happy for others to weigh in.
I really liked the way in which the bill to deal with the
R&D question is a no-brainer. And I suspect there are a few
other no-brainers as it relates to the Tax Code and supporting
small businesses.
And so I am wondering if you have strong feelings about
what other sort of changes Congress should pursue to help small
business, particularly now, as it relates to, you know, the big
barriers for small business.
I mean, one is obviously the cost of capital. That is one
of the things that we take on in this Subcommittee, and
interest rates in particular. Workforce-related issues. I am
curious, what are a few other, you know, no-brainers that you
would want us to lift up?
Mr. KAERCHER. Thank you for the question.
So I think that you should--I would think about this in
terms of tradeoffs, right? What kind of activity are you trying
to support? And what are sort of the problems that you are
trying to solve? And how much does it cost? Right?
If you want to sort of make sure that small businesses are
getting full access to innovation subsidies and credits and
that sort of thing, that leads you down one sort of path.
If you want to sort of provide a more level playing field
for small businesses, where you think that that is not
currently in effect, that is a different kind of path.
And if you want to work on workforce development, that is a
totally separate sort of direction.
So it really depends on what you want to prioritize and
then, ultimately, how to pay for it. So I think those are the
ways that I would think about how to think about that problem.
Mr. LANDSMAN. Thank you.
And I would love to hear--but if you had to pick one, if
you had to go down one path, what path do you go down and what
change do we make?
Mr. KAERCHER. Yeah, I think one really historic change is
the adoption of the global tax deal. That is a provision that
would ensure that large multinationals pay sort of a set rate
of tax, at least 15 percent.
And for the small-business community, of course, this helps
level the playing field, because they don't have the ability to
sort of shift profits overseas to low-tax jurisdictions.
Mr. LANDSMAN. Yeah.
Mr. KAERCHER. And so that is a disadvantage that they have
in the current system.
Mr. LANDSMAN. Thank you.
Mr. WYDRA. So I was just going to say, you know, obviously,
I don't know all of the Tax Code, but, you know, these two
things, to me, make sense as the tip of the spear.
You know, you innovate, you grow, you develop a new
product, and you hire people. Then you need to train those
people. So, you know, it creates the catalyst for growth faster
than anything else. So, if we can support innovation, however
that is, then that is the thing that we should be working on.
Secondarily is the buildings and the expansion that goes
with that. So that is cost of capital; it is the bonus
depreciation. Those two things literally are the leading
mechanisms for growth. I cannot think of another thing that
would be in advance of that or, you know, furthering our cause
as a country better than those two.
Ms. MASSER BALLAY. And just to add to that, I think that
goes to the speed. When you have those two things in place and
you are able to now take advantage of that increase of cash
flow, you can now implement the speed and continue to grow much
faster--much faster and really keep up with competitors. A lot
of this is all about competition and making sure that everybody
can keep pace.
Mr. LANDSMAN. Thank you.
Last question: My understanding was that, in talking to
small businesses back home, one of the biggest issues--the R&D
piece comes up a lot, but the other big issue, outside of just,
you know, workforce-related issues, is the issue of interest
payments.
I mean, the interest rates--and it has been mentioned
here--have really crushed a lot of small businesses in terms of
their ability to access affordable capital and then be able to
pay all their bills every month.
So I am curious, Mr. Kaercher, do you see this as a big
issue? If so, is there a Tax Code solution here?
You know, my understanding was, for years, you know, small
businesses could write that off, their interest payments. That
is no longer the case.
Is this a big issue? If so, is it, you know, up to Congress
to solve?
Mr. KAERCHER. This is another question of tradeoffs, right?
In the 2017 bill, one of the tradeoffs was reducing the
corporate rate, paid for in part by limiting the ability to
deduct these interest payments. That is something that
policymakers can certainly consider unwinding.
But it sort of leads to some of the same tradeoffs as we
have talked about before: Is this the most important way to
spend the money? The most productive way to spend the money?
And how do you pay for it?
Chairman MEUSER. Thank you.
The gentleman's time has expired.
We now will recognize Ms. Van Duyne from Texas for 5
minutes.
Ms. VAN DUYNE. Excellent. Thank you very much, Mr.
Chairman.
In 2017, the previous administration, as you know, as we
have been discussing, enacted the Tax Cuts and Jobs Act. And
this comprehensive tax reform not only stimulated economic
growth but also generated record revenues, while significantly
reducing taxes for individuals and for businesses across the
board.
Under TCJA, tax revenues outpaced CBO projections and
reached record highs. In the first 2 years after TCJA, GDP
growth was a full percentage point higher than CBO's pre-TCJA
forecast. And prior to TCJA, the growth rate of business R&D
investment had averaged only 4.5 percent over 5 years. However,
with TCJA in effect, companies were provided with enhanced
incentives to invest in R&D, leading to increased innovation
and technological advancement. And this led to an increase,
now, instead of just being 4.5 percent, to 18 percent.
However, as we know, these are being expired. Companies are
now required to deduct R&D costs over a period of 5 years. So,
as a result, the reduced deductions have led to increased
taxable income and a higher tax bill for companies. To manage
their cash flow, larger companies have resorted to borrowing
more, while smaller companies have experienced a slowdown in
their growth due to the impact of these changes.
Which is why I am very proud to be able to join my
colleague, Mr. Estes, in introducing legislation to extend
these provisions. We have been going across the country in some
of our Ways and Means field hearings, and what we have heard
from literally every area of the country in every industry is:
This R&D tax credit will be very disruptive and will harm, hurt
their ideas of innovation.
So I am going to ask Mr. Wydra: Before TCJA, the U.S. was
uncompetitive globally when it came to corporate and small-
business taxes. Now, with the current R&D tax provisions being
expired, where does that put us on the world stage?
Mr. WYDRA. You know, two steps forward, nine steps back,
you know, is exactly what is happening here.
You know, you are inspiring this growth, you know--you are
making decisions in policy here that guides our decisions, you
know, and it is a great responsibility that you have to guide
that.
And I think you have said, ``Green-light innovation. Let's
be innovators. Let's do this.'' And now we are saying, ``Well,
now let's put the brakes on it.''
And, again, I think everyone is kind of surprised that that
was in there--you know, like, even us. It is like, oh, wow, we
didn't think about that, or we didn't think that this was going
to come to a point that we would have to start amortizing that
and really calculate that into our plans.
But, you know, without a nice runway--to say, ``Okay, here
is a nice, well-lit runway, a clear path; there is no
disruption to this; go,'' you can unleash one of the greatest
periods of innovation in the world just with this decision.
And, again, I think that is why I am here. That is why we
are trying to take the time out.
And it is all about--you know, really, again, it is all
about--for me, it is all about our employees. It is all about
our teams. It is all about giving them the spirit of innovation
and just letting them loose.
And if you can do that with all the small businesses and
even the large businesses, you are going to have unprecedented
growth on your hands.
Ms. VAN DUYNE. Thank you, Mr. Wydra.
Ms. Ballay, what do you think, on global competitiveness,
that getting rid of these tax incentives, the TCJA and our
Innovation in America, will do to us long-term in being able to
compete globally?
Ms. MASSER BALLAY. Yes, I think it slows down how quickly
we can implement, you know, business strategies, whereas in
other jurisdictions they are not being hampered quite as much.
And that, you know, slowing down really impacts our ability
to plan. You know, I think Mr. Wydra touched on it, you know,
which is that we want to be able to plan out our expansions.
You know, we are looking at, you know, 1, 2, 3, 4, 5 years out.
We really want to plan out those expansions. And if it is
uncertain what our access to capital is going to be, what our
access to the cash flow is, what our tax liabilities are going
to be, our ability to plan out is hampered. And so then that
slows down our ability to compete on the local scale, on the
regional scale, and also then on the global scale.
Ms. VAN DUYNE. All right.
Do you have any thoughts on our global competitiveness and
what this does to us around the world from an R&D tax credit
perspective?
Mr. KAERCHER. Thank you for the question.
I think the, sort of, evidence on the impact of expensing,
from the research, is somewhat mixed for a couple of reasons.
Large companies, multinationals, often focus more on book
profits than tax, and so the level of incentive effect there is
a little bit unclear.
For small businesses, it does seem to have a larger effect,
and that is very important. But many small and startup
businesses, as I mentioned in the testimony, don't have the tax
liability to actually access expensing. So that is just sort of
a tradeoff in the policy.
Ms. VAN DUYNE. No, and I understand--oh, oops, I am
actually out of time. So thank you very much.
I yield back.
Chairman MEUSER. The gentlelady's time has expired and
yields back.
I now recognize Mr. Williams of Texas for 5 minutes.
Mr. WILLIAMS. Thank you, Chairman.
In full disclosure, I love profits. I like to make money--
and pay taxes, if I make money. But let me just say this:
``Profit'' is not a dirty word. It is a dirty word to the
government, okay? They don't understand small business.
You touched on competition. Competition drives everything.
Competition tells you if you are doing a good job. Competition
tells you if you are doing a bad job. If your prices are
competitive, it tells you. Okay? We need to create more
competition.
The greatest asset we have is small business in this
country. And one way we can fix a lot of this is make these tax
cuts permanent, just make them permanent, so we know the rules,
right?
And, you know, this conversation about interest expensing--
interest is an expense. Interest is not cash. There is no way
you should be paying tax on an expense. That will run you right
out of business. And we fight for that every single day, and I
was responsible for getting interest deductibility in 2016.
Because it is an expense. The government talks about it like it
is income. So we have to fix that.
And I could talk forever on this, but the thing we say to
the government is, if we have to worry about taxes and we have
to worry about this and can't be aggressive, you end up saving
money to pay your taxes, which means you cut back on employees,
you cut back on advertising, you cut back everything to pay a
business that is broke money.
And what they don't understand is that we need to make
these tax cuts permanent so we can spend for growth. Because
what the government doesn't understand--if we make money, they
think we save money. We don't save money; we spend money. We
grow, we hire people, we create more jobs, create all kinds of
things.
So that is kind of where we need to be, and that is kind of
where we are, a lot of us.
So let me get into my question here. I think there is one
thing that we all agree on, that when a small business is able
to keep more of their hard-earned dollars, it makes it easier
for them to weather tough economic times but also grow. Okay?
We also can grow when we have cash.
And we have seen interest rates rising. I have been in
business since 1971. I paid 20-percent interest. I know what
that is like. And we have seen these interest rates rising on
these huge principal balances. And the inflation, we haven't
mentioned that--inflation and supply chain.
So it makes it harder for all of us, as small-business
people, to maintain our margins and stay profitable. Margins. A
sale is one thing; a margin is something else, you see?
So, now, more than ever, we need a Tax Code that is working
toward growing the economy and making it easier to operate
rather than harder.
And, frankly, personally, I don't care what they do in
Europe. We need to be driving the economy. They need to be
following us, we not follow them.
So, when the Tax Cuts and Jobs Act was passed, I thought
one of the most important provisions was bonus depreciation. It
allowed us to buy. It allowed us--also, Tier 1 and Tier 2
suppliers were affected, right? Because we bought. And this
allowed businesses to invest in hard assets, which made our
operations more efficient. And it allowed employees to work
with better equipment. That is important to stay ahead of the
competition, making jobs easier and more efficient, and it
allowed customers to be serviced by the most up-to-date
technology.
And I also am a calf-cow operator, Angus cattle, in Texas.
And so you have touched on this, but I want you to say it
again, Ms. Masser Ballay. You know better than anyone that
farming has turned into a high-tech endeavor. And can you share
with us again how the bonus depreciation affected family farms
like yours and Tier 1 and Tier 2 suppliers that benefited from
what you purchased?
Ms. MASSER BALLAY. Absolutely.
You know, I had brought up our palletization and bag-
filling, but we have invested in higher-tech harvesters, you
know, for our potato operation. We have invested in combines,
new planters. You know, we have really done a very--you know,
updating a lot of our equipment in the last few years.
Mr. WILLIAMS. And this is money that went to Main Street
America too, because you bought it from them, right?
Ms. MASSER BALLAY. Absolutely. Absolutely. You know, we
always look to U.S. suppliers, you know, to go there first to
try and implement in our facilities and in our fields.
And, yeah, so we did quite a bit of investment, and it is
all about, you know, creating an environment for our employees
so they enjoy working for us and, you know, so that they have a
good work-life balance and so that they are able to work safer,
more comfortably.
Mr. WILLIAMS. Well, if you didn't have that, you would have
paid that money to the government.
Ms. MASSER BALLAY. Correct, yes.
Mr. WILLIAMS. And so the government would have created a
job with your money, but with your money you create net worth.
And that is the difference.
Ms. MASSER BALLAY. Yeah.
Mr. WILLIAMS. So I will have some more questions, but I
yield my time back, Mr. Chairman. Thank you.
Chairman MEUSER. The Chairman of the full Committee yields
back, is very much appreciated.
We are coming to a conclusion, but we do have the bounds to
have a second round. I am going to take that privilege myself.
I am not sure if any of my colleagues will be able to
participate. So I yield myself an additional 5 minutes.
Now, I think the participation here was not as robust as
normal because we have a bipartisan understanding that this is
that important and we will, in fact, work towards enhancing and
augmenting the R&D tax credit. And I do hope that also means--
and I may turn to my Ranking Member here, colleague--the bonus
depreciation as well.
I think your testimony, all of you, was very compelling--
succinct, but compelling--all very consistent: the need for
predictability, the need for a lower-cost environment in order
for you to thrive, the need to have less burdens on your
overhead, and less regulations--that is another story, of
course--so as you can innovate.
And, as you put it, it is the point of the spear, Mr.
Wydra, as you put it. That creates new products innovations,
new customers, which requires new advanced increases in your
workforce, which leads to growth, which leads to profitability,
as the Chairman mentioned, but profitability leads to higher
levels of tax revenue, as we all know. So it all works together
when it works together.
But an overly burdensome set of regulations, usually
imposed by the federal and state government, can very much
diminish all that. And that is not what has made America great,
and we have to recognize it. Because we are not alone in this
world, and there are countries that are looking out for their
interests and making themselves as competitive as possible.
As I said earlier, the role of government is to do all
possible to create a competitive work environment. It is not to
create jobs. Your role is the job creator, not government.
So I just want to ask this one question. Sometimes, you
know, the word ``profits,'' again--and Chairman Williams
brought up--seems to be not such a favorable word. But what do
you do with your profits? I would like to ask that.
Julie Masser Ballay, I would like to ask you first.
Ms. MASSER BALLAY. So, with us being a family company, we
keep it in the business. It goes right back to the business.
Within our industry, it is very competitive. The grocery
store--you know, we work a lot with grocery stores and produce
distribution. That is an ever-growing industry, so you have to
keep up with that pace of growth.
So we are always keeping that profit in the business and
reinvesting. Again, part of that is trying to keep our
workforce, you know, safe and content. And so we are always
putting that money right back in.
Chairman MEUSER. Making yourselves built to last, making
yourselves stronger.
Mr. Wydra, same question.
Mr. WYDRA. Yeah, same answer. Yeah, I mean, it goes into
people development, it goes into equipment, it goes into
expansion, it goes into, you know, automation--you know, all
the things that you need to do.
You know, we were talking about earlier about, you know,
the bonus depreciation and, you know, how it helps you buy
equipment, helps us buy equipment. For every bit of equipment
you buy, you need to hire people to be able to run that, you
know? And it just creates an engine of momentum forward. And
that is where it goes.
Chairman MEUSER. That is great. Well, we want to give you
more predictability, because that roller-coaster business can
be up and down, huh?
Mr. WYDRA. You were waiting all day for that one, huh?
Chairman MEUSER. With that, I will yield back.
I will ask the Ranking Member, do you have any final
comments?
Mr. LANDSMAN. Yes. Thank you.
Just to say, thank you all for being here and weighing in,
your expertise.
You know, as I think the Chair is alluding to, there is a
reason why this is a shorter hearing--in part, because I think,
you know, the consensus is there, in terms of resolving this,
fixing what is a no-brainer. And, you know, what this helped
reinforce for me is, one, how important it is, but also, two,
that we have to help them get it over the finish line and get
it done.
So I appreciate you all and your work here today. Thank
you.
And I yield back.
Chairman MEUSER. The gentleman yields. Appreciate that.
Mr. WYDRA. What is it that will help you get over that
finish line?
Mr. LANDSMAN. It sounds like--thank you.
Mr. Chair, is that okay?
Chairman MEUSER. The gentleman is recognized.
Mr. LANDSMAN. Yeah, thanks.
It is good question. As a freshman, you know, I say this
with some appreciation, or a lot of appreciation, for the fact
that, you know, this is very complicated place. My hope is that
it is a matter of leadership on Ways and Means and, you know,
those of us who aren't on Ways and Means pushing, advocating,
you know, making sure that it gets marked up, gets to the
floor, talking to leadership, which I know the Chairman and I
will both do.
So it is really just getting it moving. I think, you know,
the hope is, coming out of the last week's vote, that that was
sort of a deck-clearing vote, in the sense that, you know,
hopefully that will allow us to get a bunch of other things
done. And this is one of them.
Mr. WYDRA. Thank you.
Chairman MEUSER. All right. The gentleman yields back.
The Chairman of the full Small Business Committee, Mr.
Williams, is now recognized for 5 minutes.
Mr. WILLIAMS. Yeah, I want to bring up something that is
not so bipartisan, okay?
And so let me give you a scenario. In 1989, both--I am the
only child--both of my parents passed away. My father--they
left me with a lot of assets. He left me with no cash.
And 3 days after we buried my father, I had the IRS sitting
at my desk, wanting their money. And back in 1989, I think it
was 60 percent with a threshold of $600,000. They wanted their
money.
I didn't have the money. I was employing 300 people in a
profitable business. I didn't know what to do. I came this
close to taking bankruptcy. But, fortunately, I had two older
gentlemen that were able to talk to the IRS and we worked a
deal out. And 20 years later, I paid them off.
Now, this is money that could have gone to my church, this
is money that could have gone back into my business, this is
money that could have done a lot of things, okay? But it went
to the government. And we are still operating at a deficit. I
didn't pay the deficit off with the money I gave them, okay?
So the biggest problem we have--we talk about that around
here--is the inheritance tax. In my opinion, the inheritance
tax needs to be zero. It is double taxation. And if you knew
that, you would be able to manage your business even more
differently and more aggressively, knowing that, in a family
business, you wouldn't have to pay all the money to the
government.
So I know you are probably not prepared for this question,
both of you, but talk a little bit about the death tax and how
you operate and how you think about it. And it is a form of
double taxation, as I said. And does that make it harder for
you to run your business, or does it take you another direction
sometimes, because you are worried about it?
Ms. MASSER BALLAY. If I can speak to that first.
Our family, in, you know, concern for that, took steps a
number of years ago to prepare for that, before the changes
that had been done with the postponing of that were in place.
And so we had taken steps so that that was off the table. But
those weren't--you know, those weren't inexpensive, by any
means.
Mr. WILLIAMS. But you buy an insurance policy.
Ms. MASSER BALLAY. Well, right. Exactly.
Mr. WILLIAMS. And you pay money for that.
Ms. MASSER BALLAY. Yes, yes, exactly, exactly. So we were
fortunately in the position where we were able to do that.
What I would say is, especially for the small family
farmer, you know, the smaller operations, they may not have the
means for that. They may not have the ability to do that. That
is always--you know, I sit on, you know, our local farm bureau.
That is always a concern that comes up, is estate planning.
That is something that is always addressed at a lot of
different meetings, because that is a huge concern for family
farms.
You know, it is the exact same position you were in, which
is land-rich, cash-poor. And, you know, a lot of people's only
option is to liquidate and lose their family farm.
Mr. WILLIAMS. Well, we raised the threshold to $11 million
in 2016. Now we have people who want to bring it down to $5
million and this and that.
Do you want to answer that?
Mr. WYDRA. Yeah.
I mean, I think it is the--the biggest risk that I see with
this is the collapsing of a company, you know? So, if somebody
doesn't take the steps to plan correctly for this and they are
forced into a situation similar to what you explained, that is
an immediate elimination of a company at fire-sale prices.
So, again, I have been here today to advocate for our
employees and our families of our employees. And that becomes a
devastating decision for them. So, you know, if that remains
the way that it is, I could see a lot of small businesses
struggling to make the tax bill, which is going to result in a
lot of closures.
And, you know, if you look at our population, it is moving
to a point that a lot of that could potentially happen at a
very common time. And I think that we need to be prepared for
that as a country.
Mr. WILLIAMS. Yeah. When you have 87,000 IRS agents running
around out there----
Mr. WYDRA. Yeah.
Mr. WILLIAMS.--something bad is going to happen.
Mr. WYDRA. Yeah.
Mr. WILLIAMS. Anyway, I thank you for being here. Thank you
for being entrepreneurs and risk-takers. You are what America
is about.
And, with that, Mr. Chairman, I yield my time back.
Chairman MEUSER. The Chairman yields back.
We now would like once again just to thank our witnesses
for being here, making the trip, for all of your testimony.
I am going to close this hearing.
Without objection, Members have 5 legislative days to
submit additional materials and written questions for the
witnesses to the Chair, which will be forwarded to the
witnesses.
I ask the witnesses to please respond promptly.
If there is no further business, without objection, the
Subcommittee is adjourned.
[Whereupon, at 11:12 a.m., the Subcommittee was adjourned.]
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