[Congressional Record Volume 147, Number 134 (Tuesday, October 9, 2001)]
[House]
[Pages H6438-H6440]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             THE BRIDGE ACT

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from South Carolina (Mr. DeMint) is recognized for 5 minutes.
  Mr. DeMINT. Mr. Speaker, today the gentleman from Washington (Mr. 
Baird) and I are introducing the BRIDGE Act of 2001. BRIDGE is short 
for Business-Retained Income During Growth and Expansion. This is bill 
number H.R. 3062.
  I am introducing the bill on behalf of myself, the gentleman from 
Washington (Mr. Baird), the gentleman from Illinois (Mr. Crane), the 
gentleman from California (Mr. Matsui), the gentleman from Illinois 
(Mr. Manzullo), the gentlewoman from New

[[Page H6439]]

York (Ms. Velazquez), the gentleman from Pennsylvania (Mr. Toomey), the 
gentleman from New Jersey (Mr. Pascrell), the gentleman from Kentucky 
(Mr. Lewis) and the gentlewoman from Pennsylvania (Ms. Hart). We are 
confident many other Members will join us in cosponsoring this very 
timely and bipartisan bill.
  This bill is the result of extensive discussions with Members, staff, 
and business trade groups, hearings before the Committee on Small 
Business, as well as the vital input of Tatum CFO Partners, a national 
financial services firm.
  I appreciate the work of the gentleman from Illinois (Chairman 
Manzullo) and the gentleman from Pennsylvania (Chairman Toomey) in 
scheduling the hearings on access to capital for small and growing 
businesses, and their support of the bill, as well as the support of 
the ranking member of the Committee on Small Business, the gentlewoman 
from New York (Ms. Velazquez), and other members of the Committee on 
Small Business, as well as members of the Committee on Ways and Means, 
who have joined us as original sponsors of this bill.
  Based on extensive experience in providing chief financial officers 
for emerging growth companies, Tatum CFO has helped bring awareness to 
the problems small businesses and medium-sized businesses face during 
high-growth periods, and they have been instrumental in helping to 
design this legislative solution.
  Currently, a number of business trade groups are supporting the 
BRIDGE Act, including the Council of Growing Companies, the National 
Association of Small Business Investment Companies, Small Business 
Survival Committee, and Small Business Legislative Council.
  These groups represent thousands of small and emerging growth 
businesses.
  The BRIDGE Act is designed to address two significant financial 
problems for fast-growing entrepreneurial businesses. First, fast-
growing companies quickly outstrip capital financing based on the 
entrepreneur's personal credit, and they soon face what is called a 
capital funding gap, when their business financing needs grow between 
$250,000 and $1 million.

                              {time}  1930

  This bill bridges that gap until a company reaches 10 million in 
sales, a size that is significant enough to readily attract external 
financing at an affordable rate.
  Second, fast-growing companies on accrual accounting may be 
profitable for tax purposes but face an increasing negative cash flow 
as the company expends its cash to keep up with growth. The faster the 
rate of sales growth, the more the company faces a negative cash flow 
under accrual accounting.
  Most importantly, the Bridge Act would benefit the vital 
entrepreneurial segment of our economy which has provided most of the 
net new jobs in this country over the last decade as well as during the 
current economy as much larger firms downsize.
  The Bridge Act would allow a firm growing by 10 percent or more and 
with sales of 10 million or less to defer, not deduct, up to $250,000 
in Federal income tax liability for 2 years and to pay the deferred tax 
over the following 4-year period. Interest would be paid to the 
government at the Federal underpayment rate during the entire deferral 
period. The tax-deferred amount would be deposited in a trust account 
at a bank and/or other financial institution and could be used as 
collateral for business loans. The Bridge Act would sunset after 2005 
to allow a review by Congress and a study by the General Accounting 
Office.
  In summary, the Bridge Act would allow growing entrepreneurial 
businesses to retain a portion of their Federal income tax liability 
for a limited period, payable with interest during a critical time when 
outside financing is extremely difficult and costly to obtain. The bill 
would provide additional needed capital to be reinvested in the firm's 
continued growth. This added capital source would help to create a 
potential of up to 641,000 new jobs during the first 3 years thus 
helping to reinvigorate our economy.
  I have attached to this statement a table showing how the new job 
projections are derived as well as the estimated revenue effect of the 
bill. The joint tax committee staff estimates that the bill with the 
2005 sunset would result in a temporary revenue loss during the first 4 
years, followed by a revenue pick-up during the next 6 years for a net 
revenue gain of over a billion dollars for the 10-year period.
  Mr. Speaker, the Bridge Act is a bipartisan proposal that would have 
a significant economic job tax revenue multiplier effect which is 
needed in the current economic situation. The bill is very timely and 
needs to be passed this year in order to have the most impact on the 
down economy and the capital markets.
  In my statement, I am including a summary explanation of the Bridge 
Act and the economic reasons for the bill as well as the table showing 
the projected new jobs and estimated revenue effect.

                 Summary and Reasons for the Bridge Act

       Bridge Act Summary: The Bridge Act would allow a deferral 
     of up to $250,000 in Federal income tax for two years, with 
     payment over a 4-year installment period, and with interest 
     paid on the deferral at the Federal rate. Businesses that 
     grow at least 10% in gross receipts above the prior 2-year 
     average would be eligible if they are on accrual accounting 
     for tax purposes and have $10 million or less in gross 
     receipts. The deferred amounts would be placed in a trust 
     account at a bank or other qualified intermediary, for use as 
     collateral for a business loan. the deferral would sunset 
     after 2005, with a GAO study (in consultation with the 
     Treasury and the IRS).
       Capital Needs of Growing Entrepreneurial Businesses: The 
     Bridge Act would provide an efficient source of critically 
     needed capital funding for entrepreneurial businesses to keep 
     investing and growing. Capital funding in the range of 
     $250,000 to about $1,000,000 is very difficult and costly to 
     obtain for growing businesses. Limited capital availability 
     limits the ability of the business to keep expanding sales 
     and employment. A rapidly growing company can grow itself out 
     of cash, unless it can obtain outside financing. The 
     temporary tax deferral would allow the entrepreneur to 
     utilize the funds in the business until it can grow large 
     enough to obtain financing from more traditional sources.
       Employment and Economic Growth: By providing needed capital 
     to keep expanding the business, the Bridge Act would assist 
     the entrepreneurial sector (the ``emerging growth 
     companies'') that has created most of the net new jobs in the 
     U.S. economy in the past decade. A Cognetics, Inc. study, 
     Who's Creating Jobs? 1999 (David Birch, Jan Gundersen, Anne 
     Haggerty, William Parson), indicates that 85% of the new jobs 
     for 1994-1998 were created by companies with 100 or fewer 
     employees. There are indications that these rapidly growing 
     companies are the only ones that are generating net new job 
     growth in the current economic situation. The bill would help 
     to reinvigorate the economy by offsetting employment cutbacks 
     elsewhere in the economy. The Bridge Act would provide 
     critically needed capital for these companies, which could 
     help create over 600,000 new jobs during the first three 
     years, based on sample data from financial statements of 
     profitable firms with $10 million in sales or less (database 
     sample provided by Dr. Michael Camp, Economist and Vice 
     President of Research, the Kauffman Center for 
     Entrepreneurial Leadership, Kansas City, MO) (see attached 
     Table).
       A recent study by the National Commission on 
     Entrepreneurship (High-Growth Companies: Mapping America's 
     Landscape, July 2001) reports that rapidly growing companies 
     (15% or more growth per year in their Census survey for 1992-
     1997) are in all industry sectors and in all Labor Market 
     Areas in every State in the United States. For State data, 
     see web at: www.ncoe.org/lma
       Timing of Income Tax Liability for Growing Small 
     Businesses: Because of the microeconomics of rapid growth, an 
     expanding business on accrual accounting that is experiencing 
     increased revenues and book (accrued) profits can also be 
     simultaneously experiencing negative cash flow due to 
     reinvestment of the cash to fund the growth. When a growing 
     business, with negative cash flow, has to come up with 
     immediate cash to pay an accrued tax liability, this can have 
     a severe adverse financial effect on the firm's ability to 
     survive until it receives more cash inflow. The bill would 
     allow the realignment of the timing of the tax payment until 
     the entity can more readily obtain the necessary capital to 
     pay the tax, which would be payable in installments over four 
     years after a 2-year deferral (all with interest).

[[Page H6440]]



 PROJECTED NEW JOBS UNDER THE BRIDGE ACT TAX DEFERRAL FOR GROWING ENTREPRENEURIAL BUSINESSES, FISCAL YEARS 2002-
                                                      2004
 [Data in thousands of dollars, except as noted]--[Based on $250,000 tax deferral limit and 10% business growth
                                                      rate]
----------------------------------------------------------------------------------------------------------------
                                                                     2002             2003           2004 \1\
----------------------------------------------------------------------------------------------------------------
(1) Tax revenue effect (Joint Tax estimate)..................      (2,400,000)      (6,300,000)      (8,200,000)
(2) Assumed average business revenue per $1 of capital \2\...            $3.36            $3.36            $3.36
(3) Projected increase in business revenue under Bridge......        8,064,000       21,168,000       27,552,000
(4) Assumed business revenue per full-time employee \2\......           88.515           88.515           88.515
(5) Projected new jobs from increase in business revenue (not           91,000          239,000         311,000
 000s) \3\ (rounded).........................................
----------------------------------------------------------------------------------------------------------------
\1\ Joint Tax revenue estimates of proposal, with Dec. 31, 2005 sunset ($ billions): -6.0 (2005); +1.4 (2006);
  +6.9 (2007); +6.9 (2008); +5.2 (2009); +2.9 (2010); +0.8 (2011), for a net total of a positive (+) 1.1 for
  2002-2011.
\2\ Average based on a sample database of financial statements of 72,682 profitable firms with revenues of $10
  million or less, as compiled by the Kauffman Center for Entrepreneurial Leadership (Kansas City, MO) (data
  compilation for the sample coordinated and confirmed by Dr. Michael Camp, Vice President of Research).
  Original data was collected by Dun & Bradstreet. Neither the Kauffman Center nor Dun & Bradstreet should be
  considered as endorsing any specific legislative proposal.
\3\ Projected, potential new jobs as a result of the additional capital provided to the firms under the Bridge
  Act tax deferral, calculated as follows: (1) (2) = 3; (3)/(4) = 5.

  

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