[Congressional Record (Bound Edition), Volume 147 (2001), Part 6]
[House]
[Pages 7492-7497]
[From the U.S. Government Publishing Office, www.gpo.gov]



                          SMALL BUSINESS WEEK

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 3, 2001, the gentleman from Illinois (Mr. Manzullo) is 
recognized for 60 minutes as the designee of the majority leader.
  Mr. MANZULLO. Mr. Speaker, as chairman of the Committee on Small 
Business of the House of Representatives, I am pleased to join with the 
President in helping to celebrate Small Business Week. We have several 
members of our Committee on Small Business here on the floor today, and 
I would recognize and yield to the gentlewoman from West Virginia (Mrs. 
Capito).
  Mrs. CAPITO. Mr. Speaker, I thank the chairman of our Committee on 
Small Business for yielding to me.
  I come to the floor today as a member of the Committee on Small 
Business to recognize the significant role of small businesses in the 
spirit of National Small Business Week. In my home State of West 
Virginia, where small business is big business, 90 percent of the 
businesses employ less than 20 people. Those smaller-sized firms employ 
nearly 60 percent of West Virginia's private sector employees. They are 
at the forefront of job creation, adding a net total of 4,700 employees 
between the years of 1995 and 1996 in West Virginia alone.
  These numbers prove that small business is the backbone of our 
economy. But small businesses often serve other roles: as a second 
family to the employees or as pillars to their community. Often small 
businesses invest time and resources in other causes and organizations, 
or they become involved in local schools, churches, and sports teams.
  In Charleston, West Virginia, my home, Bill Signorelli, the owner of 
Security America, sponsors a Little League team, along with 
volunteering much of his free time to the Charleston area chamber of 
commerce. Bill has built his business from the ground up, and now his 
business works to encourage the same work ethic that he used as a young 
person in many children through their baseball team.
  In Lewis County, West Virginia, a man by the name of Frank Brewster 
owns and runs Sun Lumber Company, a company that employs about 10 
employees. Aside from running his own business, Frank spends many hours 
of his valuable time as the head of the employer support of the Guard 
and Reserve for West Virginia. Frank's tireless commitment helps 
strengthen our country by easing the way for other small businesses to 
serve in the National Guard and in the Reserves.
  That kind of spirit and local involvement is not unique to these 
particular small businesses; rather, it is very common among small 
businesses across the country. That spirit is why I stand here today, 
and that is why I wish to join in the celebration of National Small 
Business Week.
  So today, and for the rest of the week, we recognize, celebrate, and 
commend the vital and significant contributions of small businesses, 
not only to our families, to their employees, but also to our local 
communities and our country.
  Mr. MANZULLO. I have a question for the gentlewoman. She was kind 
enough to participate in a full small business hearing that we held 
this past week concerning the purchase of berets for our soldiers.
  Mrs. CAPITO. Yes.
  Mr. MANZULLO. About $29 million in purchases, of which only about $4 
million was domestic and the rest was procured overseas. We have 
succeeded to a large part in stopping the overseas procurement, but the 
gentlewoman had mentioned to me something to the effect that just this 
past week she lost several hundred jobs involved in the clothing 
industry; is that correct?
  Mrs. CAPITO. Yes. Over the last several months we have lost an 
enormous employer in Roane County, in Spencer, West Virginia, which 
actually had a factory for clothing and textiles sewing. So we would 
have liked to have had that business in Spencer, West Virginia. It was 
a small business, and it has kind of gutted the community now that they 
have left. So if the military is going to rebid that, we sure want to 
be in on that.

                              {time}  1545

  Mr. MANZULLO. There is about $40 billion a year worth of all types of 
procurement coming from the Department of Defense; a good percentage of 
that is clothing. I know that your heart was hurting over the fact that 
3- or 400 people lost their jobs.
  Mrs. CAPITO. Yes.
  Mr. MANZULLO. And being it is a small town in a rural county, it is 
very difficult to find work elsewhere.
  Mrs. CAPITO. That is right. I appreciate your bringing that to my 
colleague's attention. When you lose that many jobs, it not only guts 
the community in terms of the economics, but also the local 
involvement, the church, the Little League teams, school fund-raisers, 
all of these things start to fall apart when you lose a large employer 
like that.
  Mr. MANZULLO. Mr. Speaker, I appreciate the gentlewoman's 
participation in our special order this afternoon.
  Mr. Speaker, I yield to the gentleman from Indiana (Mr. Pence).
  Mr. PENCE. Mr. Speaker, I thank the gentleman for yielding to me.
  Mr. Speaker, each year for the past 38 years the President has issued 
a proclamation calling for the celebration of National Small Business 
Week. National Small Business Week, which is sponsored by the SBA, is 
being held this week. We honor the estimated 25.5 million small 
businesses in America that employ more than half the country's private 
workforce and create three out of four new jobs, and generate a 
majority of American innovations.
  As chairman of the Subcommittee on Regulatory Reform and Oversight, I 
would like to lay out the principles that I believe should inform this 
body's agenda for our Nation's small businesses.
  First, we need tax relief for small business owners. The House has 
taken a step in the right direction in passing a fiscally responsible 
budget that leaves room for tax relief. Contrary to what our opponents 
charge, cutting rates in the highest income tax brackets does not yield 
benefits just for the wealthy. Most small businesses pay taxes as 
individuals. Sixty-three percent of tax filers who will benefit from 
the top rate cut are small business owners who will likely reinvest 
their money in their businesses.
  The Department of Treasury reports that a top tax rate reduction 
could increase small business receipts by 9 percent. The tax reform and 
relief allowed by today's budget will help encourage risk-taking and 
investment in small businesses.
  Secondly, we need health care reform that protects employees and 
small businesses. In many cases, associations and industry 
organizations can provide health care to their member organizations at 
lower cost than those charged by traditional providers. We should 
actively promote legislation that will free small businesses to choose 
health benefit packages that will attract and retain the best people.
  Right now, government employees, our own staffs, have far more choice 
in health plans than the small businesses in our districts. Colleagues, 
this ought not to be. Let us let small business employers offer the 
same health care choices to their workers that our staffers on Capitol 
Hill are given. In reforming health care, we must not extend legal 
liability to employers for health care decisions made by HMOs or other 
similar providers. Holding small businesses responsible for mistakes 
made by health care providers will drive many of them out of business 
and millions of employees out of insurance.
  Thirdly, I believe we must create high-tech infrastructure that aids 
entrepreneurs. If we do not create an economic environment that allows 
for high-tech innovation, our small businesses will stagnate, unable to 
keep up with competitors in the high-tech marketplace.
  Increasingly, new small business owners are starting their own 
businesses in cyberspace. Unless the high-tech infrastructure is in 
place to make this possible, there will be a dangerous divide between 
the ``haves'' and ``have-

[[Page 7493]]

nots'' which could significantly undermine business growth and 
development in small and medium-size towns, like many which I represent 
in east central Indiana. Without access to the information 
superhighway, both education and local economies will suffer.
  Fourth, we need regulatory reform which is informed by sound 
scientific information and careful and unbiased research. Much of the 
debate in the small business area is driven by Federal regulatory 
agencies and the new policies they create for health, safety and the 
environment. While the government has made great strides in recent 
years to improve compliance assistance and review for impact on small 
businesses, much more remains to be done. Let us work together to 
remove the regulatory impediments to innovation and problem solving.
  Congress must ensure that the engine of our economy, our Nation's 
small family-owned businesses, are not undermined by flawed and 
burdensome regulations.
  Finally, we must explore new opportunities for trade to open up new 
markets and opportunities for small businesses. Small manufacturers and 
entrepreneurs are increasingly successful because they are able to win 
new customers in overseas markets. Congress should help the President 
win access to new markets through fast track trading authority. Also, 
we must work to expand free trade zones around the world. The 
President's recently announced initiative to advance a Free Trade Area 
of the Americas is a visionary first step. By fighting for fair free 
trade in our own hemisphere, we will help end unfair trade practices 
that undermine America's natural competitive advantage. These new 
markets will help grow our economy and ensure that our allies in the 
Western Hemisphere continue to grow politically and economically.
  Our Nation's small businesses are the strongest in the world. With 
tax relief for small business owners, health care reform that provides 
choice for employees, high-tech infrastructure that aids entrepreneurs, 
and regulatory reform to eliminate burdensome regulations, combined 
with expanded international trade, I believe that our small businesses 
will continue to be the backbone of our economy in the 21st century.
  Mr. Speaker, I thank the gentleman from Illinois (Mr. Manzullo) for 
the opportunity to speak during this special order and for his 
leadership of the Committee on Small Business, and permitting me to 
join with you in celebrating the small businesses of Indiana and the 
small businesses of America.
  Mr. MANZULLO. Mr. Speaker, I thank the gentleman from Indiana for 
participating in our special order today.
  Mr. Speaker, I yield to the gentleman from New York (Mr. Grucci).
  Mr. GRUCCI. Mr. Speaker, I thank the gentleman from Indiana (Mr. 
Manzullo), the chairman of the Committee on Small Business, for 
yielding to me to honor America's small businesses, and I thank him for 
his guiding and stable hand in directing the committee which is doing 
so much good work for our small businesses throughout this great 
country in helping to create the economic stability or the cornerstone 
of our economic revival.
  As you may know, Mr. Speaker, over 22 million viable small businesses 
are thriving across the United States. Small businesses with fewer than 
500 employees make up the vast majority, 99.7 percent of all employer 
firms. Let me repeat that number. It is 99.7 percent of our small 
businesses make up our employer firms.
  Small businesses generate approximately 50 percent of all U.S. jobs 
and sales. One of small businesses' biggest contributions to the 
economy is that they hire a greater population of individuals who might 
otherwise be unemployed than larger businesses. Very small firms with 
fewer than 10 employees hire part-time workers at a rate twice that of 
large firms of 1,000 or more employees. These small firms employ a 
higher proportion of workers under 25 and age 65 and older.
  Mr. Speaker, I would like to focus my remarks this afternoon on the 
benefit of streamlining the paperwork across the board to improve the 
efficiency of America's small businesses as well as their experiences 
with the Federal Government.
  During my career both in the private sector, and as a small family 
businessman, and in the public sector where I served as supervisor of 
the largest town in Suffolk County on Long Island, I have always been a 
proponent of streamlining the costly bureaucracy that hinders the 
success of small businesses and stifles the entrepreneurial spirit.
  In my small family business, I experienced firsthand how 
encyclopedia-sized applications discourage owners from competing for 
government projects. I had to hire additional attorneys, accountants 
and consultants just to fill out the basic paperwork. These 
requirements place unnecessary burdens on the backbone of our Nation's 
economy.
  As a local town supervisor, I streamlined and enhanced the planning 
review process on so many small businesses so that they could obtain 
permits at a faster pace. I created a streamlined, one-stop shopping 
system where small business owners and potential entrepreneurs could 
find all of the information and permits they needed to quickly expand 
their business or, in fact, start up a new one. For example, my 
policies afforded a high-technology company the opportunity to begin 
construction on a 40,000 square foot facility that created new jobs in 
less than 30 days. Without my streamlining plan, this process could 
have taken months, if not years, and those jobs would have been lost.
  By streamlining the process, small businesses open faster, expand at 
a greater rate, create additional jobs and improve the quality of life 
for all Americans. In addition, I implemented budgets that cut the 
property tax burden on homeowners and businesses by $72 million. The 
result was the creation and retention of more than 20,000 good-paying 
jobs in less than 5 years.
  Once again, I ask my colleagues to join in honoring small business 
owners across the Nation.
  Mr. Speaker, I thank the gentleman for his leadership of the 
committee.
  Mr. MANZULLO. Mr. Speaker, this is National Small Business Week, and 
it is a time to reflect on exactly who these small business people are, 
why they are involved in small businesses operating for themselves as 
opposed to working for somebody else. There is a lady back home by the 
name of Rebecca Hillburst in Rockford, Illinois, and she has been 
honored this week in the field of government procurement as the 
Regional Subcontractor of the Year.
  Mr. Speaker, few people know that small businesses provide over $63 
billion worth of goods and services to the Federal Government. Rebecca 
is the first in our region to receive this award. Rebecca's father 
started the Commercial Printing Company in Rockford in 1948. She 
assumed the helm of the company in 1989. The business performs 
customized and commercial printing jobs. Rebecca Hillburst and her four 
employees, George, Lars and Eleanor Hillburst, as well as Darcie 
Powelson, are symbolic of the small entrepreneur enterprise that makes 
America great. I applaud their hard work and dedication.
  When I was 4 years old in 1948, my father bought a grocery store on 
the southeast side of Rockford, Illinois. At that time, right after 
World War II, times were very difficult. The immigrants coming from 
eastern Europe would often stop right in front of my father's grocery 
store, which was also a bus stop, and they would walk in with a piece 
of paper which would say, ``See Frank at Frank's Port Market when in 
Rockford.'' Likewise, hundreds of families came out of Arkansas, came 
to Rockford because of a huge crop failure in Arkansas at that time.
  Dad, over the period of years that he had that grocery store, 
grubstaked literally hundreds of families who otherwise could possibly 
have starved. He would extend them credit based upon the fact that he 
knew he would get repaid and he was doing the right thing.
  He was also a master carpenter. I recall on occasions when dad would 
take the Blue Star potato chip boxes which

[[Page 7494]]

were about an inch thick, he would go to garages and places where these 
people lived and use those potato chip boxes to insulate their homes so 
the cold air would not come right through the board walls. Those were 
times when in the summer, people lived in tents, and many times people 
lived in basements, not being able to build the house on top of the 
basement that they themselves had constructed.

                              {time}  1600

  Dad chose to go into small business because of his desire to work for 
himself. He could have earned a lot more money working for other 
people, but he envisions today what we know as the entrepreneurial 
spirit. That spirit gave rise to a sense of social consciousness that 
has been passed down to me. Oftentimes on Saturday night, Dad and other 
people in the community would get a large painter's tarpaulin and hang 
it from a billboard and get the 16-millimeter projector from Morris 
Kennedy School and show Hopalong Cassidy movies and all types of movies 
that those people in this country that are in their 50's will remember 
at that time.
  The small businesses worked very closely with the schools and the 
churches and brought together what we call this sense of community, 
people working together to make a community a better place to live. 
When I ran for Congress, I would talk about my father and his 
commitment to the people. Time after time people would come up to me 
and say, Mr. Manzullo, we knew your father. Were it not for him, our 
family would have had a very difficult time making our way even to live 
in this country. He found us places to live. He found us jobs. We would 
go into the grocery store with a cut hand, and he would be there to 
break open a package of Band-Aids just to help us.
  But Dad is not unique. He envisioned along with my mother the spirit 
of entrepreneurship and, that is, you work as hard as you possibly can 
to get ahead in life. But he also recognized something else. Dad was 
not much about government. Oh, he voted all the time and believed that 
government was necessary; but he also believed that government was 
getting involved in too many areas where it should have stayed out of, 
the regulations that hit Dad's grocery and then eventually the 
restaurant business that he went into in 1953. My brother Frankie 
carries on that tradition today with Manzullo's Famous Italian Foods. I 
told my brother I think that name is a little bit facetious, but he 
believes that his menu is famous; and he believes that the fact that 
people eat that Italian food, that they will be famous also. But 
Frankie also with his 13 tables and a small Italian restaurant carries 
on the tradition of entrepreneurship. He believes very strongly that 
people are supposed to work hard, it is an ethic that is ingrained into 
our system of America today, and that small businesspeople should be 
rewarded, not asking for anything except to keep the fruits of their 
labor.
  What do we have today? We have a government that has gotten so big, 
so large, exercised jurisdiction where it has no business being, that 
small businesses are crushed under the burden of regulations.
  Mr. Speaker, I yield to the gentleman from Pennsylvania.
  Mr. TOOMEY. Mr. Speaker, I would like to thank the chairman for his 
leadership. And advocating for small businesses, the gentleman 
understands very well the critical role that small business plays in 
our economy, that small business plays in our entire society. I am sure 
he is well aware of the fact that small businesses have in recent years 
created 80 percent of the new jobs in America. It is very hard to 
overstate the importance of small business, and so it is fitting that 
we recognize small businesses this week. I just want to recognize and 
commend him on his leadership, the hearings that he has held and the 
attention that he has focused on finding ways that the government can 
relieve the burden that government imposes on those people creating 
these jobs and really contributing so much to our economy.
  I wanted to speak in particular about why today is a big day for 
small business owners across America and not just small business owners 
but every single person who is employed by a small business, the people 
who provide supplies and services to small businesses, the communities 
that derive tax revenue from small businesses and suffice it to say our 
entire economy and that is the budget resolution that we passed today. 
One of the highlights of the budget resolution is the tax relief that 
is contemplated, it is allowed for by this budget resolution. It is 
modest tax relief. If you look at it in any historical standards, it is 
quite modest. If you look at it compared to the size of our economy it 
is quite modest; but it is important because it is significant, it is 
across the board, it will provide tax relief for all tax-paying 
Americans, and it is the most significant tax relief in a generation.
  Why is it so important? There are a number of reasons, but let me 
focus on one in particular. The tax relief that we voted to allow today 
with our budget resolution, if enacted, which I believe it will be and 
I am sure the President will sign it into law, it is going to lead to 
economic growth and prosperity. It is going to increase the economic 
output of our country, and that means productivity of our workers is 
going to rise, that means workers' wages will go up, that means 
standards of living will improve and that means a better quality of 
life for all Americans. That is why this is a big day, not just for 
small businesses really but for everybody, but especially for small 
business. Part of what is going to help small businesses in particular 
is lowering of the marginal rates of taxes.
  As the gentleman knows, many small businesses, probably most small 
businesses in America, are taxed using the personal income tax rates, 
especially those that choose a subsection S designation, which is to 
say most, they are subject to personal tax rates. When we lower the tax 
rate that that small business is going to pay, we increase the 
incentive to work, to save, to invest and to grow that business.
  Now, the fact is the majority of people in America are going to get 
up and go to work every day whether or not we lower taxes. That is a 
fact. But growth occurs on the margin; and many small business owners 
have flexibility, they have a choice, they have a decision to make. 
Should they put in extra time, extra work, more effort, more risk, more 
of their capital at risk, expanding their business, growing their 
business, should they do that? Or should they spend that marginal 
savings, time, energy doing other things, spending it with their 
families, spending it at leisure, spending it doing something else? If 
you think about it, when we increase the rewards that that small 
business owner is going to be able to take home by lowering the amount 
of money we confiscate from him in the form of taxes, when we increase 
the rewards for working and saving and investing, people choose to do 
more working, saving and investing.
  Every single time in our Nation's history that we have had 
significant across-the-board tax relief, we have seen a corresponding 
increase in economic activity and economic productivity, in growth and 
prosperity. That is what is going to happen when we finish through this 
process and we enact the tax relief that is contemplated by this 
budget. I am convinced if we continue on this path and we follow 
through with this budget resolution and we provide this tax relief, and 
frankly I hope that this will be a floor, not a ceiling, in terms of 
tax relief, there are many important elements that we could include, 
that we could add to the tax relief that was proposed by the President, 
I hope we will because we should, if we do that, we are going to 
increase the rewards and we are going to increase the incentives and we 
will see a corresponding increase in the output of economic activity, 
and that is higher wages, higher standards of living, greater economic 
growth.
  That is what this is all about. It is going to give people the 
opportunity to develop and accumulate capital which gets invested in 
this economy and really leads to all good things and continued growth 
in the tremendous engine

[[Page 7495]]

of growth for our economy which small business has been.
  I am delighted today to recognize the contribution small businesses 
make to our economy, to our prosperity, and to recognize also that the 
budget resolution we passed today is going to help everybody who is an 
owner, an employee, a provider of services or products for small 
businesses. That is a big step forward for all of them.
  Mr. MANZULLO. I would like to ask the gentleman from Pennsylvania a 
question if he has the opportunity to stick around for a few minutes.
  Mr. TOOMEY. Certainly.
  Mr. MANZULLO. So often we hear people saying, well, look at all the 
things that government can do for businesses. I would like to ask the 
gentleman what in his mind he envisions when he hears that question 
asked.
  Mr. TOOMEY. One of the best things that I think government could do 
for business is get out of the way. We share several things in common, 
one of which is our historical involvement in the restaurant industry. 
My brothers and I have been in the restaurant industry, I no longer am, 
but for many years we were in this business, having started a 
restaurant business from scratch. The regulations are extremely 
onerous; but even more onerous from my point of view was the tax burden 
and the Tax Code, both obviously visited upon business owners by the 
Federal Government.
  To give my colleague an example, or to put it in perspective, I think 
of the restaurant business in many ways; it is a simple business. You 
go out, you buy food, you cook it, and you sell it. It is not terribly 
complicated. But every year at the end of the year when it comes tax 
time, I have to hire an accountant and pay a great deal in fees for the 
accountant to go out and calculate what our tax obligation is. What he 
sends back to me, or what he used to when I was an owner of these 
restaurants, would be a stack of documents at least an inch high with 
instructions to fill out a check for a particular amount, sign the 
form, send it in and hope for the best.
  That is what small business owners do every day. There is no reason 
for that. There is no justification for a Tax Code that is too 
complicated to understand. There is no justification for a Tax Code 
that rewards and punishes people with their own money based on whether 
they behave in a fashion that is approved of by politicians. This is 
not the way we ought to be doing things. Part of what we need to do is 
move on and provide meaningful simplification of our Tax Code and more 
fairness in our Tax Code.
  When I talk to the people who are still in small businesses back in 
Lehigh and Northampton Counties and Montgomery County in Pennsylvania, 
the folks across the Upper Perkiomen Valley and the Lehigh Valley who 
are creating all those jobs, what they tell me is, Give us some room. 
Just step back, lower our tax burden, lower the regulatory burden and 
we will be fine. These folks are not looking for a gift; they are not 
looking to be given anything except the opportunity to go out and run 
their own businesses as they see fit. I think they deserve that.
  Mr. MANZULLO. I concur with the gentleman. The best thing that 
government can do for all businesses is to stay out of the way. 
Obviously, there are necessary things that the government has to do 
with regard to safety. We are not questioning those things. But take 
the area, when my mother died about 1 year ago and although our 
brother's business is not affected because of the very modest amounts, 
I would like to ask the gentleman what in his opinion this death tax 
does when the owner of the business dies and he wants to pass it on to 
his children. What has been the gentleman's experience on that?
  Mr. TOOMEY. I know of a number of cases and circumstances in which 
the effect is devastating. An important point to remember is that the 
death tax which the gentleman is referring to, which is the tax whereby 
at the occasion of a person's death the government comes in and 
confiscates up to 55 percent of everything that person has left over, 
let us step back and remember that whatever a person has left over is 
left over after multiple layers of taxation were already paid.
  Mr. MANZULLO. During the lifetime.
  Mr. TOOMEY. During the course of a working person's lifetime, the 
person pays tax on their income. If there is a little money left over 
from that and you save it or invest it, you pay taxes on dividend or 
interest. If you have a capital gain because an asset appreciates in 
value, you pay a tax on that. If you still manage to have something 
left over after all those taxes are paid at the end of your life when 
you die, the government comes in and takes more than one-half of that. 
I think to most Americans that is absolutely unreasonable and unfair to 
have that many layers of tax on the same income, the same savings. But 
nevertheless that is what we do.
  What are the ramifications of that? They are extremely negative. One 
example that is all too common is that small businesses, farms, they 
might grow to the point where there are assets that are substantial, 
they may be several million dollars, but very frequently they are not 
cash, they are not in the form of securities. They are not liquid 
assets that are available to pay bills. They are investment in plants, 
in equipment, in factories, in land, in very tangible real property but 
property that is not liquid.
  When suddenly the government comes in and says we are going to assess 
the value of this entire operation, and we want more than one-half of 
it now, that forces the heirs to that person's family business or farm 
to make some very, very difficult and sometimes devastating decisions. 
Often they have to sell the entire thing to generate the revenue to pay 
the tax bill. Sometimes they have to sell portions of it. Sometimes, 
Mr. Speaker, a family is forced to take on a huge amount of debt to pay 
the tax bill, continue to try to operate the business now with this 
huge debt that has saddled them and sometimes they have to lay off 
workers, sometimes they have to cut back on their workforce in order to 
afford the service on the debt.
  The point is the Tax Code should not be driving that kind of 
decision. It should be the economics of the operation that determine 
whether you sell the operation, take on debt, not a Tax Code that says 
it is time for the government to take one-half of their value. That is 
the kind of devastating impact it can have. It can force farmers to 
sell their farm, it can force small businesses out of business 
altogether, and it can force small businesses to have to take on a 
mountain of debt which their business may not be well equipped to 
handle.

                              {time}  1615

  It can have all of these unintended consequences, all in the name of 
trying to confiscate a person's savings at the occasion of their death.
  So it is important to remember that this is not just a tax that 
penalizes those people who chose to be frugal and to save and invest 
and accumulate an asset over their life, but also they are employees; 
the contribution that business makes to the community; the revenue that 
is derived from people who provide goods and services to that business; 
the ramifications spread out from there, and they do much harm.
  Mr. MANZULLO. One of the things that I have seen taking place is 
farmers that really want to pass the farm on to their kids but they 
know the death tax would be so excessive that they sell out because the 
capital gains tax is cheaper than the death tax and the capital gains 
tax can be timed over a period of time.
  Some folks in our country are concerned, and in many cases rightly 
so, over the loss of green space. A person wants to sell his or her 
farm, that is obviously their right of private property. But to sell 
it, essentially prematurely, that is not the way it should be.
  Mr. TOOMEY. If the gentleman will yield, in my district in the Lehigh 
Valley and the Upper Perkiomen Valley of Pennsylvania, we have 
beautiful rolling countryside, farmland and a rural area, within a 
short distance of the center cities that make up the heart of my 
district.

[[Page 7496]]

  Many people are quite justifiably concerned about the sprawl that is 
going on; the development that is extending ever further outward; the 
congestion that arises as a result of that; the diminution of the 
quality of the countryside as these developments have gone on.
  What we have is we have a Tax Code that encourages that. In some 
ways, the Tax Code forces that kind of development because just as the 
gentleman points out, it is an economically rational decision in many 
cases, not a decision a farmer wants to make but an economically 
rational decision, given the Tax Code, to sell that farm, even though 
he would much prefer to pass it on to his children.
  To sell that farm, who is the likely buyer of a farm? It is going to 
be a developer.
  Mr. MANZULLO. I was in a position years ago, as an attorney in Ogle 
County, Illinois, when a family had to sell half the 640 in order to 
keep the 320, just to pay the death taxes. That is not nice. That was 
before there was the unlimited marital deduction.
  To see the widow and the kids devastated by the sale of that farm, 
and money just to pay taxes and they had worked on that farm their 
entire lives. What we see is the farmers who have to have a tremendous 
amount of capital assets, and restaurant owners, grocery store people, 
people with construction companies literally can run into the millions 
of dollars worth of equipment in many cases to make a very modest 
living. They are absolutely totally devastated.
  Take the difference between a professional person such as an 
attorney. He does not need but literally a few thousand dollars' worth 
of equipment to get started. At the end of that person's career, the 
cases are picked up by other people within his office and not taxed. 
The firm is not taxed.
  Yet, for a farmer or the grocery store owner or the restaurant owner, 
that cannot be done because their wealth, their income, is based upon 
the use of assets that cost a tremendous amount of money.
  So we see that 80 percent of small employers have to spend costly 
resources to protect their families from the death tax. There is a 
tremendous amount of money in attorneys' fees, accountants' fees, life 
insurance premiums all going towards that eventual date when the person 
dies that there be enough resources out there to pass that farm on to 
the kids. What happens when that money is used for expenses like that, 
it does not get plowed back into the business.
  Mr. TOOMEY. If the gentleman will yield once again, that is a very 
important point. There is an enormous amount of money, by many 
responsible estimates, as much or more than what is collected from the 
death tax every year, is spent to avoid it.
  Now think of how counterproductive that is; to force people to spend 
that kind of money all to circumvent this onerous tax. The gentleman is 
exactly right. This money is going to pay attorneys and accountants to 
set up trusts and all kinds of funds and to pay massive amounts of 
insurance premiums, which is such a counterproductive use of this 
capital.
  This is money that could be invested in our economy to grow the 
economy, to grow those small businesses, to create more of those jobs 
that we know these businesses are so inclined to do if given the 
opportunity. But instead, we force them to allocate resources in a way 
that makes no economic sense; no sense for their business; no sense for 
our economy. It is all driven by this terrible flaw in the Tax Code, 
which is why it is so important that we repeal the death tax in its 
entirety rather than just create some increase in the exemption.
  If we just increase the exemption, we have not gotten rid of the 
problem. We have diminished it somewhat, but the only way to resolve 
this problem is to repeal an unfair tax.
  Mr. MANZULLO. If we just increase the exemption, then the next 
Congress can come back and lower it way back again. Back in 1992, 
before I was elected to Congress, there was a bill that was introduced 
that would lower the then-exemption from $400,000 to under $200,000, 
which would make it even more obstructive.
  We have introduced a bill called the Small Employer Tax Relief Act of 
2001, H.R. 1037, that is a bipartisan bill. I signed onto it, helped 
draw it, along with the gentlewoman from New York (Ms. Velazquez), who 
is the ranking minority member on the Committee on Small Business. I 
believe that this is a breakthrough, a bill that really will help small 
businesses.
  First of all, small businesspeople that are not incorporated should 
be allowed to write off 100 percent of the cost of health and accident 
insurance for the self-employed. My brother is facing $600 and $700 a 
month for health and accident insurance, and there are small 
businesspeople that actually go out of business, decide to work for 
somebody else, simply because they can get the health insurance 
benefits. So it is time that this Congress really stepped up to the 
plate and said, look, for too long we have gone with playing games. Now 
I think it is only 60 percent is deductible.
  Mr. TOOMEY. Again, I think this is a very important point, because 
again we have a Tax Code that causes such an inappropriate distortion 
in our economy. We have a Tax Code that says if a corporation goes out 
and buys insurance, health insurance for an employee, the corporation 
can deduct that as a legitimate expense. It is deducted from their tax 
liability. That is fine.
  When an individual or a small business, unincorporated small 
business, goes out and tries to purchase that identical policy, that 
person cannot deduct it.
  Now, what is the possible justification for that?
  Mr. MANZULLO. There is no rationale for it.
  Mr. TOOMEY. It is not rational. It is not in the interest of anybody 
to do this, but yet we perpetuate this, even in light of the fact that 
we have millions of Americans who are uninsured.
  Clearly, many of those would be better able to afford the insurance 
if they could deduct it; just as corporations already do.
  I think what the chairman is suggesting is merely that individuals 
get the same kind of treatment that corporations already get.
  Mr. MANZULLO. Yes.
  Mr. TOOMEY. Why would we not extend that tax treatment to 
individuals?
  Mr. MANZULLO. It is just something that the small businesses have 
been trying and trying for the longest period of time to get, and it 
has had a very difficult time getting through. Hopefully, it will get 
through this year.
  On this bipartisan bill, as to which I believe the gentleman is a 
cosponsor, it would get rid of it by repealing the FUTA, a 2 percent 
surtax. It would increase expensing up to $50,000. In fact, we are in 
the process now of looking at whether or not the small business owner 
or the casual investor should be allowed to set his or her own 
depreciation schedule.
  I just put a rubber roof on a building, a 130-year-old building, not 
worth that much but the roof cost $25,000. The law says one has to take 
39 years to depreciate it. It has a 10-year warranty on parts and a 5-
year warranty on labor. It absolutely does not make sense to have 
arbitrary rules like that.
  If we allowed the small business owner to set his or her own 
depreciation schedule, then, for example, I could choose the number of 
years I want to do it, say 4 or 5 years, but if I expense it then I 
could no longer add it to the basis for the property when I sell it. 
Well, that is all right.
  To have to go through that tremendous expense and really get very 
little tax break to help with it, simply does not make sense.
  So there are a lot of things that we can do. This small business bill 
also allows small businesses with annual gross receipts of $5 million 
or less to automatically use a cash method of accounting as opposed to 
the accrual system.
  The gentleman would recall a hearing that was held in the Committee 
on Small Business where people were involved in the installation of 
drywall. It was a very small company and the Federal Government said 
even though they did not have a storehouse where they

[[Page 7497]]

took the drywall, and even though they called the wholesaler and the 
wholesaler delivers the drywall directly to the place where it is to be 
installed, that we are going to consider this to be inventory and, 
therefore, we are going to tax them on the accrual method, which means 
that they are taxed based upon what they bill as opposed to what they 
receive.
  This is a company of about 12 people, got hit with a $200,000 tax 
bill. Now, it does not make sense because essentially the Federal 
Government collects no more money on the accrual system than it does on 
the cash system.
  Mr. TOOMEY. It is really a question of timing, is it not, in terms of 
the Federal revenue on the taxes?
  Mr. MANZULLO. It is.
  Mr. TOOMEY. It is a question of timing, which is not terribly 
important to the Federal Government but it is incredibly important to 
the small business operator who in the example the gentleman just 
presented is forced to pay a huge tax bill on income that he has not 
collected yet. Is that correct?
  Mr. MANZULLO. And may never collect.
  Mr. TOOMEY. Right.
  Mr. MANZULLO. In fact, the IRS had entered into some type of an 
agreement with a dentist in downstate Illinois that said he would have 
to be on the accrual method. We got wind of this and worked with a 
couple of organizations. I actually sat down with Commissioner Rossotti 
of the IRS. His background is in systems as opposed to being a tax 
attorney. He was really surprised that one of his 106,000 employees had 
forced this dentist to do that, and he put an end to it.
  So we see all of these tremendous numbers of abuses and we are really 
working on, I believe, some monumental, in fact bipartisan, legislation 
to help out the small businesspeople.
  I appreciate the gentleman from Pennsylvania joining us today for 
special orders.

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