[Congressional Record Volume 156, Number 31 (Friday, March 5, 2010)]
[Senate]
[Pages S1230-S1233]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. BENNETT:
S. 3083. A bill to amend the Internal Revenue Code of 1986 to allow
the expensing of certain real property; to the Committee on Finance.
Mr. BENNETT. Mr. President, we got some numbers this morning.
Unemployment seems stuck at 9.7 percent nationally. We lost more jobs.
In my home State of Utah, unemployment is at a 23-year high at 6.8
percent. I know there are States represented by Senators here that
would love to have 6.8 percent as their unemployment rate, but we in
Utah do not like it.
I want to talk about one aspect of the unemployment rate that I think
has been ignored in the debate we have had around the country. The
President says we are out of the woods, not far out of the woods, to be
sure, but that we have turned around, that the recession has started to
fade, and we are starting to come back. He looks at macronumbers and
makes that statement with respect to GDP and all of the rest of that.
He is missing a very important fact I want to highlight here today in
the introduction of this bill.
The economy is driven by a variety of forces. But the one thing we do
know about economic activity is that jobs are created primarily by
small businesses. When I say small, I mean really small. Over 7 million
jobs have been lost since the beginning of the recession. We must ask,
How many of those have been lost in small businesses? The answer is,
over half of that number. Over 3.5 million of the jobs that have been
lost have been lost in small businesses.
We hear and look at the reports that are in the newspaper about big
companies that have had layoffs and big companies that have stopped
hiring. But it is the small businesses in the United States that have
been the engine of economic growth and the engine of hiring all the way
through.
I have talked before about my own experiences as a small businessman,
and I will revisit that here for a moment to put this in context.
I have been involved in the creation of a number of businesses. Most
of them have failed. That is the norm for small businesses. People get
an idea. People get excited. They get caught up in the idea of having
their own business. They start their own business, and they find it is
much harder than they thought. They find the challenge is much more
difficult than they thought or they simply run into challenges that are
beyond their control and they end up failing.
It is all summarized in a comment made by a woman who attended a
meeting of Inc. magazine. Inc. magazine every year chooses the
``Entrepreneur of the Year'' across the country in the various States.
I was honored enough to be chosen as the ``Entrepreneur of the Year''
when I was CEO of a business in Utah, and as a reward for that we went
to this convention down in Miami Beach. A panel was being held of small
businesspeople.
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Just prior to the panel, they announced that after the panel was over
there would be a wine and cheese tasting event to be held on the patio
of this hotel. Then they turned to the panel, and one of the women on
the panel said: Entrepreneurs do not drink wine. Entrepreneurs drink
vodka, neat. We can't do with this gracious living stuff. We are caught
up in the tremendous pressure of trying to keep our businesses open.
I do not drink wine or vodka, but I identified with her comments and
her sentiments about how tough it is.
Well, the President may think the GDP numbers show we have turned the
corner. The people in small business recognize that in their part of
this economy, we have not. Let me quote from an article in the Wall
Street Journal regarding the National Federation of Independent
Business' small business optimism survey. It was in December of last
year, and author noted:
Small-business owners grew even more pessimistic in the
final month of 2009, capping off what was a trying year for
their businesses. . . .
Regular borrowers--those accessing capital markets at least
once a quarter--also continued to report difficulties in
arranging credit at the highest frequency since 1983,
according to the report.
Mr. President, 1983, for those of us who remember, was the depth of
the recession that followed the great inflation of the Jimmy Carter
years, as President Reagan and the Congress were dealing with the
dreaded double dip. We came out of the Jimmy Carter years with a
recession, a recovery, and then another recession--the dreaded double
dip or the ``W-shaped'' recession. Mr. President, 1983 was a very
challenging year. I was running a small business at that time as well
and I remember it very well. All right--the worst attitude with respect
to their opportunities in small business since 1983, according to
people who were on the firing line in small business.
So what do we need to try to help small business recover and start
creating jobs again? Again, the point I made earlier: More than half of
the jobs that are created in America are created with small business,
and these are small businesses that are doing less than $5 million a
year. As I say, I have been involved in creating many of these
businesses. Many of them failed. Fortunately, the small businesses I
was involved in creating that did not fail earned enough money to repay
me for all that I lost in the ones that did and created enough jobs to
overcome the loss of jobs in the ones that failed, and the small
business we created for which I won the award at Inc. magazine
ultimately went to the New York Stock Exchange and employed 4,000
people. Not bad for a small business that started in somebody's
basement with originally four full-time employees. I was No. 5 in that
business.
So I have seen it happen on both sides--the failure side and the
success side--and I know what it takes. I can tell you, the kinds of
things the President is talking about and we have been doing here in
this Chamber are not the things small business needs to survive. Let me
talk about some of those, and they are in the bill I am offering today.
One of the first things we have to recognize is that the worst thing
that can happen to a small business financially is to earn a profit.
You say: Now wait a minute, obviously you want to earn a profit. Yes,
you want to earn a profit. But the worst thing that can happen to you
is--as you are struggling on a cashflow basis to keep this business
going and you cross the line into profits--the government shows up and
says: We want half your profit immediately, and we want it in cash.
You want your profit invested in inventory. You want your profit
invested in accounts receivable. You want your profit invested in the
capital investments that will allow your business to survive, and the
government says: No. You have earned a profit and we want it in taxes
and we want it in cash, and we won't take a percentage of your
inventory and hold it to let you make the business grow. You have to
liquidate that inventory to pay your taxes in cash.
So the first thing that is in my bill will provide a 10-year net
operating loss carryback provision for qualifying businesses whose
average gross revenue per year is $5 million or less.
You struggle with the business; you lose money the first year. You
struggle with the business; you lose money the second year. You
struggle with the business; you lose money the third year. But you keep
it afloat, and in the fourth year, you start to earn money. And there
is the government saying: We want our share of your profits, and we
don't care that you have been losing money while you have been building
this business--you have been losing money on an accrual basis while you
have been borrowing from your brother-in-law and your credit card and
your bank, and whoever would give you money to cover those losses, and
now you are finally at the point where you are making a little profit--
we won't give you any consideration for all of those losses you have
put into building this business. We are going to take our tax bite out
of this year's profits, and that can be enough to sink the business.
So this has a net operating loss carryback provision for qualifying
businesses whose average gross revenues are $5 million or less.
This is not a break for American Airlines. This is not a break for
General Motors. This is a break for the person who is trying to
duplicate the success I was lucky enough to be involved in--where we
start something in a basement or a garage and see it grow to the point
where it can go to the New York Stock Exchange.
You could say: Well, Senator Bennett, you didn't need this net loss
carryback provision when you did that business. That is true because we
grew that business in what the New York Times and other publications
called the decade of greed. It was the years of Ronald Reagan when the
top marginal tax rate was 28 percent, which meant even paying taxes, we
got to keep 72 cents out of every dollar we generated in profit. That
was enough to allow us to fund the growth of that business. Today, the
top marginal tax rate is over 40 percent. There is a great deal of
difference. If we had had to try to grow that business in today's tax
environment--and it went up to that level when Bill Clinton became
President--we probably would not have been able to grow the business
and we would not have created those jobs and we would not have been
able to ultimately build a company big enough to go to the New York
Stock Exchange.
All right. I can't deal with the marginal tax rate. We don't have
enough votes to do that. If I could, I would like to get it back to the
28 percent it was with Ronald Reagan. If we are going to have the tax
rate where it is, we need at least some kind of relief for small
business. The 10-year net operating loss carryback provision is a way
to give them some kind of relief in this time of great economic stress.
No. 2--and this gets a little technical--I want to expand the
definition of section 179 expensing to include structural changes to
the physical property and make the current $250,000 deduction limit
permanent.
When you are making an investment in your business of a capital good
that you need, whether it is a lathe in a machine shop or whether it is
a warehouse and something that requires you to stockpile with material
before you send it out to retailers, whatever it might be, you don't
want to have to start paying taxes on the money you put into that
capital good. You need the deduction for expensing that right now. That
is another way to hold your taxes down.
This second provision is tied to the first. The first gives you the
net operating loss carryback provision. This one says you can expense
in a much better fashion the money you are putting in up front for your
structural activity.
Then, No. 3: It sounds very minor, but to a business of the size we
are talking about it can be significant. I want to increase the current
startup cost deduction from $5,000 to $20,000. This will encourage
entrepreneurs to invest right now rather than wait for the economy to
improve.
These are the three primary things that will be in the bill I am
sending to the desk and introducing today.
I wish to conclude with these comments. As I move around my State,
and as I move around the country talking about the state of business--
back to the reference to the NFIB and their survey about optimism or
pessimism among small business owners. I have
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never seen a time of more pessimism than we have now. Even back in the
1980s when I described the businesses that I was involved in then and
the dreaded ``double dip,'' businessmen were not as pessimistic as they
are now. They still had hope we could come out of this. Now, even while
the national GDP numbers are looking good to the people at the White
House, to the people on Main Street it doesn't look so good.
This is what I hear: The venture capitalists tell me we are not
making venture capitalist investments anymore. Why? Because the venture
capitalist is there to capitalize and to finance the startup, and then
the system is supposed to take over and finance the growth. We pick the
entrepreneur who has the widget or the gadget, whatever it might be
that is going to change the world.
We say: Yes, your widget is marvelous, and we are going to fund that
so you can get that going. But once you get it going, the system takes
over. The banks give you the tools you need for your capital
investment. Other investors come in who are not taking as big a risk as
we are because they see now that your widget really does work. So the
level of risk is lower, the system takes over, and we can take our
venture capital and go out and look for the other entrepreneur who has
a new invention. That is how the whole thing works.
They tell me: We discover now the system doesn't take over. We
discover now the money we have put into the widget, the entrepreneur,
the inventor, isn't followed on by additional funding. If this
investment we have put in is going to survive, we have to double down
our bets.
Instead of our venture capital now going to the inventor and the
entrepreneur, our venture capital is going to places where it has never
been required before. As a result, we don't have any left over for the
true venture capital, and the whole system is shutting down in terms of
job creation. We are getting to a circumstance where new jobs are not
coming as a result of venture capital activity. This job creation I
talked about and these small businesses are being stifled. That is the
first part of the pessimism.
The second part of the pessimism, of course, is that the stimulus
money we have put into the system isn't getting down to small
businesses at all. I received a letter from a small businessman in
Utah. I identify with him because he has created a business of the same
kind I have tried to create over my career before I came here.
He says: I am writing because I am frustrated. I own a small business
here in Utah--he names it. We employed 20 people.
In the macro of the world, 20 people aren't very much, not enough to
really worry about; except this fellow and his 20 people are
representative of more than half of the job creation that is going on
in this country historically.
He says:
I have a small business here in Utah that employs 20
people. Now I am down to 4 people as I can't get financing. I
put close to $2 million in technology development.
There is the venture capitalist side of it.
We are ready to launch our new system and services, but
have run out of funds and can't find investor groups that
would be willing to take a risk on technology at a relatively
new company. Why can't some of the stimulus money come to us?
I would hire 25 to 30 new people if I could receive funding
that I need to launch my product and services. Banks won't
lend, individuals are holding on to cash, VC groups are
looking for companies that have been around a few more years.
I don't want to violate SEC rules. Raising funds is
difficult.
I don't have a solution to everything he is saying, but I do believe
the kinds of reforms that are in the bill I am introducing will create
a better environment for small business and make it easier for him and
others like him to go to investors and say: Look, if you put some money
into our business, we would not have to pay taxes as soon as it turns
the corner because we will have this net operating carryback for 10
years. We can expense some of the capital investments we make so we
would not have to worry about paying taxes on it, and we have a current
startup tax deduction that has gone to $20,000.
These are very modest kinds of proposals, but they are the kinds of
proposals that are rooted in real experience in Main Street rather than
Wall Street; from real people who are creating jobs, have created jobs,
who are hurting the most in this economy, and upon whom we depend
primarily for the new job creation.
As I said at the outset, we have bad numbers today. Unemployment has
not come down in the Nation. More jobs have been lost. In my home State
of Utah, we have hit a 23-year high in unemployment. We must look to
where the jobs come from, and the answer to that is small business, and
we must do everything we can to try to help small business get started
and get going and get growing, and that is a way we will get out of
this recession.
Mr. SESSIONS. Mr. President, will the Senator yield for a question?
Mr. BENNETT. I will be happy to yield.
Mr. SESSIONS. I value the Senator's views on these issues so much. I
recall when the Senator chaired the Joint Economic Committee, the
Select Committee of the House and Senate. He was our chairman. Since
then he has been known as one of the authoritative voices on our
economy, as well as Senate business.
I guess I would first say that I am very intrigued by your
legislation. It sounds as though it is something that is exactly what
we need. I don't, I guess, want to be in a political tit for tat, but I
remember and recall the Senator from Utah opposing the stimulus package
that was on the floor and voting against that and raising concerns
about it. I think the general concern most often raised was one that
Nobel Prize Laureate Gary Becker raised: It wasn't one that creates
jobs.
I guess I would ask, based on the Senator's experience in the Senate,
the amount of money that went into that bill--the purpose was supposed
to be to create jobs--give us your honest evaluation of how well it has
performed.
Mr. BENNETT. I thank the Senator from Alabama for his kind words. My
own impression is that the stimulus package has created a few jobs with
a very marginal kind of effect. Most of the money, it seems to me, has
been spent in efforts aimed at research, which may or may not produce
jobs 3 years, 4 years, 8 years, 10 years from now.
As a member of the Appropriations Committee we held a hearing just
yesterday with the Department of Energy and looked at the amount of
stimulus money that was going into fund research in the Department of
Energy and pointed out to the Secretary of Energy that only 7 percent
of the stimulus money had been spent. To get ready for the energy
research they were going to do, they had to hire new people. It,
perhaps, has created some government jobs to get ready to examine all
of the grants and look at all of the proposals and so on. I am not
opposed to research, but this is not an immediate creation of jobs in
the middle of a recession to be spending stimulus money in this
fashion.
I have also come to the conclusion that the jobs that have been
created or saved, as this administration tries to add that word to it,
have primarily been government jobs.
I don't object to people working for the government. We have many
civil servants who provide great value added in the work they do for
the government. But the long-term projection of jobs that will add to
the economy create new jobs and create new wealth. I do not see that
the stimulus has produced any significant difference in that arena.
Mr. SESSIONS. I thank the Senator from Utah for those thoughts. What
a tragedy that is. I don't think people realize how much $800 billion
is.
So the Senator's legislation would be far less expensive and would
immediately help small businesses create jobs without a government
bureaucracy telling them what to do. Is that fair to say?
Mr. BENNETT. I would say to the Senator that is the whole purpose of
this. Let entrepreneurs who are taking the risks--drinking vodka neat,
if you will--have the opportunity to create their businesses without
the government showing up immediately and saying: By the tax law, we
are going to punish you for getting your initial beginnings of success.
Instead, we are going to delay the impact of the taxes on you until you
have a sound financial footing under you. When you have that
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financial footing under you, you can afford to pay the taxes and, more
important, you can afford to hire more people who, as a result of their
jobs, will also pay taxes.
We must understand a very large reason we are having this deficit is
not just the spending, as important as that is; it is the drop in
revenue, and the drop in revenue comes because the economy is so bad.
We must understand around here that revenue does not come from the
budget.
Revenue comes from the economy. We can budget any kind of revenue
number we want, but if there are no profits and there are no jobs, that
means there is no income, and the income tax, by definition, is
dependent on income before it produces any revenue. We will not have
the money we need to run the government because the economy will not be
producing that revenue.
I learned in business you cannot cost-cut your way to profitability.
Cost-cutting is important in a business, and you should make sure you
are not doing stupid things--and there are businesses that can spend
themselves into bankruptcy--but you cannot cost-cut your way into
profitability. The top line, the sales, the growth of the company is
what creates profitability.
The same principle applies to this economy. Yes, we must cut costs,
we must cut spending in the Congress, but the way for a vital country
is to grow the economy, and the biggest engine of growth in the economy
has been and remains small business.
Mr. SESSIONS. I thank the Senator.
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