[Congressional Record Volume 143, Number 92 (Thursday, June 26, 1997)]
[Extensions of Remarks]
[Pages E1332-E1334]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


 SMALL BUSINESS OWNERS TESTIFY ON PRO-SMALL BUSINESS PROVISIONS OF THE 
                          TAXPAYER RELIEF ACT

                                 ______
                                 

                          HON. JOHN A. BOEHNER

                                of ohio

                    in the house of representatives

                        Thursday, June 26, 1997

  Mr. BOEHNER. Mr. Speaker, the House Republican conference organized a 
public forum to hear from small business owners on the importance of 
passing the Taxpayer Relief Act. The forum focused on three of the pro-
small business provisions in the Taxpayer Relief Act--the home office 
deduction, capital gains rate reductions, and relief from death taxes.
  The compelling testimony from these small business owners from across 
America are included to demonstrate to my colleagues the debate on the 
taxpayer Relief Act is not about class warfare, rather it is about 
helping all Americans and small businesses prosper and succeed to 
achieve their dreams.

                             Susan Thomas.

       My name is Susan Thomas, President of Best of Service and 
     Sales International, Inc.--a home-based business in 
     Annandale, Virginia. I am pleased to appear today on behalf 
     of the National Association for the Self-Employed (NASE), the 
     national association representing more than 325,000 small 
     business persons and self-employed individuals. The NASE 
     would like to thank the House Republican Conference for 
     organizing this hearing to highlight some very important 
     issues for millions of small business people--particularly 
     the home office deduction. We would like to commend Rep. Jim 
     Talent for sponsoring H.R. 1145--The Home-Based Business 
     Fairness Act, those representatives who joined as co-
     sponsors, Rep. Mike Pappas for introducing his home office 
     deduction bill, and the members of the Ways & Means Committee 
     who included the home office deduction in their recent tax 
     bill.
       My company--Best of Service and Sales International, Inc.--
     employs 3 individuals to market computer equipment, 
     peripherals, software, and computer supplies to the federal 
     government. In addition, I have started a new venture called 
     Best Travel Services which markets vacations, and educational 
     and group study tours.
       I initially started a home-based business several years ago 
     because I was frustrated with working for the large company/
     corporate culture. I originally setup my business in my home 
     upon leaving Wang Corporation because I had very little 
     working capital at the time. Ironically, it was my intention 
     when I started my business to ultimately move the business 
     out of my home and into commercial office space at a later 
     date. Today, I would not trade my home-based business for any 
     commercial office location anywhere. I love my home office 
     because of the conveniences it affords me. Unfortunately, for 
     businesses like mine, the home office deduction has been 
     under attack.
       While I operate a home-based business, I don't take the 
     home office tax deduction on my tax return. Why? Not because 
     the IRS requires businesses that take the deduction to see 
     their clients in their home office or that they should 
     generate their revenue there. I actually meet these unfair 
     and discriminatory tests--tests that no other businesses are 
     required to fulfill. No, the reason I don't take the 
     deduction is the warning that I and millions of others like 
     me got from our accountants. Taking the deduction, my 
     accountant told me, is like waving a red flag at the IRS. . . 
     . a flag saying, ``AUDIT ME!''
       This is ridiculous. Congress passes a law to help home-
     based businesses. The IRS then tries to impose the narrowest 
     interpretation as possible on the law. They lost two court 
     cases, but took the case all the way to the Supreme Court in 
     the Soliman case. After finally convincing the Supreme Court 
     to narrow the deduction, the IRS then audits those who still 
     qualify for it so aggressively that millions of people 
     legitimately entitled to the deduction are afraid to take it.
       Look at the numbers. IRS statistics of income show that 1.5 
     million people claimed the home office deduction in 1994. Yet 
     the number of full-time home-based businesses is

[[Page E1333]]

     variously estimated at between 7 and 14 million. why don't 80 
     to 90% of home-based businesses take the deduction. Don't 
     they qualify? I believe a great many of them are just like 
     me. They do qualify, but are forced to choose between the 
     time and stress of an audit or the modest tax savings of the 
     deduction. I choose to forego the deduction.
       The current home office deduction limitations are unfair 
     and unwise for other reasons too. All over the country, 
     larger businesses are laying off employees. If we want to 
     help these people get on their feet, we should make it a 
     little easier for them to start a business. The same goes for 
     people who are forced off the welfare rolls under the 1996 
     welfare reform law. They should be given the opportunity to 
     start up businesses, as self-employed people, with a minimum 
     of up-front costs. Not to mention the need and desire of 
     individuals to be closer to their families in today's day and 
     age. Home-based businesses are an obvious way to help 
     facilitate all of this.
       Give us the certainty of an expanded, modernized home 
     office deduction and we will use it. Don't allow the IRS to 
     administratively defeat Congress' original purpose with the 
     deduction. Improve the fairness and clarity of the home 
     office deduction. Not only will more home-based businesses 
     have a better chance to succeed, but more potential home-
     based businesses will decide to try. And that's better for 
     America.
       I would like to thank the House Republican Conference for 
     the opportunity to appear today, and I would also urge the 
     House Conferees to ensure the inclusion of the pro-business, 
     pro-family home office deduction in the budget. Thank you 
     very much.


     
                                  ____
                                            Giovanni Coratola,

                                     Franconia, VA, June 25, 1997.
       Good morning Mr. Chairman. My name is Giovanni Coratola and 
     I own Port of Italy in Franconia, VA. Thank you for giving me 
     this opportunity to testify today.
       My restaurant does not belong to the people in this room. 
     My restaurant does not belong to the federal government. My 
     restaurant belongs to my family and in a sense it belongs to 
     my extended family of employees that have dedicated their 
     lives to making it work. The ownership of my restaurant comes 
     at a high price. I routinely work seven day weeks with 12 to 
     14 hour weeks not uncommon. I have taken less time off in the 
     25 years I have been in business than the average worker 
     takes off in one year. The majority of the profits that have 
     been generated from my restaurant have been returned to the 
     business or spent on keeping abreast with changing public 
     demands. Ownership of my restaurant is the result of a high 
     personal commitment from myself, my wife, my family and my 
     employees. Yet upon death, it would be taxed to the point of 
     being taken from those it was meant to be given.
       My restaurant does not belong to the people in this room. 
     When I was asked to come here today I inquired what the main 
     objective was to providing relief from this onerous tax. I 
     was told it was being attacked as given tax cuts to the rich. 
     Well, there are two things wrong with this (1) I am not, 
     within any stretch of the imagination, wealthy (2) How can 
     you feel that letting my family keep what we have spent our 
     lives working for is giving us anything that we do not 
     already own and deserve. In all fairness to me and other 
     restaurateurs that have spent their lives building something 
     of value for their families and employees it is time the 
     federal government wean itself from taking in death, what it 
     could not justify in taking while I was alive.
       On behalf of myself, my family, and my restaurant family of 
     employees I thank you for allowing me to address you here 
     today. And I suggest that if the federal government wants the 
     right to take the restaurant when I die, I encourage it to 
     take these keys and help me operate it while I'm alive.


     
                                  ____
                                                    Jim Elmer.

       Good morning. My name is Jim Elmer, and I am the owner of 
     Jim J. Elmer Construction Co. in Spokane, Washington. I am 
     pleased to have the opportunity to speak with you today in 
     support of the Tax Relief Act of 1997, in particular the 
     proposed capital gains tax reduction.
       Our firm constructs buildings for private owners. Most of 
     our work is negotiated. We currently have two (2) projects 
     which have been on hold for the past several years pending a 
     reduction in the capital gains taxes. The projects do not 
     make economic sense for the owners to sell other assets in 
     order to finance their new projects and pay 28% capital gains 
     taxes, with the modest reductions which you proposed, the 
     projects become economically viable for our owners.
       The release of these new dollars into our economy will 
     allow us to hire more people in the community and purchase 
     additional building materials for the projects, helping our 
     area's economy to grow.
       An addition to the increased economic activity, the capital 
     gains reduction will also benefit our employers directly. 
     Besides providing more employment our employees will be able 
     to help pay for their children's college education, or 
     purchase a new home without being penalized severely by the 
     capital gains taxes.
       The capital gains reduction will be a great stimulus to 
     increase economic activity in our area and for our company 
     directly. We support the Ways and Means Bill, and would 
     strongly support further reductions in the future.
       Thank you for allowing me to speak. If you should have any 
     questions, I will be happy to answer them. Thank you.


     
                                  ____
                                               Mr. Bobby Todd,

                                    Washington, DC, June 25, 1997.
       Mr. Chairman, members of the House Republican Conference, 
     thank you for taking the time this morning and listening to 
     America's small business owners. I am Bobby Todd and I own 
     and operate a small print shop, Eagle Printing, here in 
     Washington, DC. I am also a member of National Small Business 
     United, the nation's oldest small business advocacy 
     organization.
       I am pleased to be here at such a historic moment for our 
     country. Today, the House of Representatives will vote and 
     pass a budget plan that will balance our nation's budget and 
     make the federal government do something that I have had to 
     do my whole professional and personal life: live within our 
     means. And tomorrow we will see our first tax cut for the 
     middle-class working men and women of our country since the 
     Reagan Administration--and it is long overdue.
       It is often said that small business is the engine that 
     drives the American economy and I couldn't agree more. As a 
     middle-class small business owner I want to tell you how 
     welcomed the Tax Payers' Relief Act of 1997 is to me and my 
     family.
       At the heart of the tax package for small business owners 
     are the provisions that target small business' bottom line 
     and allow us to compete in this ``global economy'': 
     independent contractor status, extension of EFTPS, the all-
     important home office deduction and long-overdue death tax 
     relief. Without these and other reforms included in this tax 
     package, my business is at a competitive disadvantage to 
     larger companies, as are hundreds of thousands of other small 
     businesses.
       Including the home office deduction is an important piece 
     of this tax bill. By redefining what a home office is, it 
     will allow small entrepreneurs to work at home, stay close to 
     their families and help raise their children. Let me point 
     out to you that under the current law, I could use a room in 
     my neighbor's house to conduct my business and deduct it, but 
     if I did the same exact work in a room in my house I could 
     not. That just doesn't make any sense and is absolutely 
     counterproductive to the small business movement.
       As the American economy continues its shift towards smaller 
     and sometimes home-based businesses, making the tax rules 
     easier and clearer for us is essential. Congress couldn't 
     send a clearer message of its support for the small business 
     community than by passing this tax bill.
       And, I hope that this is just a first step in the process. 
     I would like nothing more than to change the entire tax 
     system so it truly encourages investment, savings and the 
     entrepreneurial spirit that has made this country so great. 
     But, I will leave those thoughts for another day. Thank you 
     very much for allowing me this time to speak with you.


     
                                  ____
                                                    Paul Jost,

                                                   Alexandria, VA.
       Good morning. I'm Paul Jost. I'm the president of Chandler 
     Development Corporation. We are a small business based in 
     Alexandria, Virginia, which buys and manages apartment 
     buildings.
       We are members of the NFIB and the National Apartment 
     Association. Our business currently has 35 employees.
       I started the business in 1988 raising capital from friends 
     and family. We have just over 100 investors, most of whom are 
     small investors. In addition to the 35 direct jobs we have 
     created, we also employ a number of independent contractors 
     who do such things as maintain the lawns, service the pools, 
     and paint and clean the apartments between residents. In all, 
     we probably provide employment for over 100 people.
       The high capital gains tax rate limits my ability to raise 
     capital to finance new acquisitions which would provide more 
     jobs and more housing for families. A high capital gains tax 
     also distorts our ability to make decisions of whether to 
     sell or hold properties. That decision should be based on 
     profitability, not the tax implications.
       I believe that a reduction in the capital gains rate would 
     generate more taxes. For example, we own a property in Texas 
     which we would probably sell if the rate were lowered. And 
     that sale would generate substantial tax revenues.
       We would use the after-tax profits to purchase several 
     other properties, in Texas and in Virginia. At the current 
     capital gains rate, however, our investors prefer not to sell 
     because too much of the profit would be taken by the federal 
     government.
       The net result is that a profitable sale will probably not 
     occur, which hurts us and actually leads to a loss of tax 
     revenue for the federal government. Everybody loses because 
     of bad tax policy.
       Last year, we were able to sell a property and buy another 
     using a 1031 like-kind exchange which enabled us to roll our 
     gain into the new property and defer taxes on the gain. That 
     mechanism, however, is very complicated and is only available 
     to those who can afford high priced lawyers and accountants. 
     There are also numerous risks and restrictions involved in 
     such exchanges which make us unlikely to use them in the 
     future. that transaction also did not produce any tax 
     revenue for the federal government.
       Everyone (except our lawyers and accountants) would have 
     been better off had the rate

[[Page E1334]]

     been lower. We would not have had to jump through these hoops 
     and the government would have collected some taxes.
       I also believe that the death tax exemption should be 
     increased. While I currently do not have children, I would 
     like to think that I could some day pass on my business to my 
     children. Many of my investors are also concerned with the 
     death tax. This has led some of them to make their 
     investments through trusts in their children's names. This 
     leads to additional paperwork and more profit for our lawyers 
     and accountants. We would all be better off if the exemption 
     were raised and the rules were simplified.
       Thank you very much for giving me the change to share my 
     views with you. I know you are busy and I appreciate the time 
     you have given me.

     

                          ____________________