[Congressional Record (Bound Edition), Volume 149 (2003), Part 2]
[Extensions of Remarks]
[Pages 2602-2603]
[From the U.S. Government Publishing Office, www.gpo.gov]




       SMALL BUSINESS AND THE PRESIDENT'S ECONOMIC GROWTH PACKAGE

                                 ______
                                 

                        HON. DONALD A. MANZULLO

                              of illinois

                    in the house of representatives

                      Wednesday, February 5, 2003

  Mr. MANZULLO. Mr. Speaker, yesterday the House Small Business 
Committee held a roundtable with sixteen small business owners and 
representatives on the President's Economic Growth Package. The small 
business groups were unanimous in their support for the small business 
provisions of the President's proposal.
  Specifically, the small business groups cited the acceleration of the 
tax rate reductions enacted as part of the Economic Growth and Tax 
Relief Reconciliation Act of 2001 and the expansion of the small 
business expensing provisions for new investment as vital. According to 
the participants, the President's proposal would enable them to 
purchase more equipment immediately. In addition, the capital freed up 
by the acceleration of the tax rate reductions would permit the vast 
majority of small businesses to reinvest that money into their 
businesses.
  At the roundtable, we were honored to have the Honorable Hector V. 
Barreto, Administrator of the U.S. Small Business Administration, 
present the President's Economic Growth Package. In my opinion, 
Administrator Barreto's statement was an exemplary testament on the 
state of small business in our economy today and a compelling account 
of why small businesses need economic growth assistance. Small business 
creates jobs. The President's proposal will ensure short-term and long-
term growth for small business and ensure sustained growth for our 
economy.
  The Administrator's statement was so compelling that I wish to share 
it with my colleagues.

   Statement of Hector V. Barreto, Administrator U.S. Small Business 
                             Administration

       Good Morning, Chairman Manzullo and distinguished Members 
     of the Committee. I am pleased to be here this morning to 
     participate with all of you in this roundtable discussion on 
     the small business provisions of the President''s economic 
     growth package. It's good to be among so many friends who 
     share the President's views on these important changes.
       Small businesses are the backbone of our economy--they 
     employ more than half the private work force, generate about 
     50% of the nation's gross domestic product, and create two-
     thirds to three-fourths of the net new jobs. And research 
     shows that the vast majority of these new jobs are 
     established in the first two years of the business. Small 
     business entrepreneurs are key to our economic vitality, and 
     the President's plan offers specific relief and the 
     opportunity for them to grow and create more jobs for 
     American workers.
       This roundtable is a perfect way to talk about the 
     President's plan and narrow in on making sure government 
     policy helps small business. This format is one that the 
     President personally believes in. I have been with the 
     President quite a few times over the past year at roundtables 
     where the President solicits feedback and support from the 
     small employer community. From the economic summit in Waco, 
     TX, to Louisville, KY, to St. Louis, MO, to Alexandria, VA--
     the President's purpose is clear--to hear from the employer 
     community about what will work best for this country.
       The President has called on Congress to act swiftly to pass 
     his economic growth package. Your voice will be critical to 
     this effort and we thank you for your commitment and active 
     participation in these deliberations.
       Through a combination of income tax rate reductions, an 
     increase in allowable deductions for expenses and the 
     permanent repeal of the estate tax, American small business 
     owners and their families will get to keep more of what they 
     earn. The President has pointed out that under his plan, ``a 
     family of four with an income of $40,000 will receive a 96 
     percent reduction in federal income taxes.''
       That's nearly a complete elimination of that family's 
     federal income tax burden and translates to more disposable 
     income to be invested, saved or spent.
       For small business owners, many of whom are subject to 
     personal income tax rates on their business, the reduction in 
     rates will mean an increase in capital to expand their 
     business, hire new workers and provide new or improved 
     products. As proposed, the reduction in the top marginal rate 
     scheduled to take effect in 2006 (to 35 percent) would take 
     place retroactively in 2003, resulting in tax cuts averaging 
     $2,042 for some 23 million small business owners. These 
     hardworking entrepreneurs would receive 79 percent (about 
     $10.4 billion) of the $13.3 billion in tax relief from 
     accelerating the reduction in the top tax bracket. Since 
     small business owners are so closely tied to the personal tax 
     rates, lowering individual marginal rates will have a 
     positive affect on the ability of many entrepreneurs to 
     expand. As Princeton University Economist Harvey Rosen stated 
     in a May 2001 report to the SBA, ``Taxes matter. As tax rates 
     go up, entrepreneurial enterprises grow at a slower rate, 
     they buy less capital, and they are less likely to hire 
     workers.''
       Additionally, a proposed 200% increase in year one 
     expensing deduction for new investments--``Section 179 
     expensing''--would encourage small business owners to 
     purchase the technology, machinery and other capital 
     equipment they need to expand. The amount of investments that 
     may be immediately deducted--beginning in 2003--by small 
     businesses would increase from $25,000 to $75,000. This new 
     amount is permanent and indexed to inflation.
       Expanding the eligible write-offs for small business 
     investments has strong support in the small business 
     community. All White House Conferences on Small Business have 
     recommended increases in direct expensing. Moreover, SBA's 
     Office of Advocacy has long supported proposals to increase 
     such write-offs and testified in support of this change 
     before the Senate Finance Committee in March of 2001.
       From an economic development perspective, this is more than 
     a simple tax code change. There have been several studies 
     that have found links between taxation and investment. A 1998 
     Bureau of Economic Research paper concluded that marginal tax

[[Page 2603]]

     rate changes significantly change investment spending 
     patterns. The study suggested that tax rate changes would 
     alter the cost of capital for new investment decisions, and 
     that the lower tax rates would make more projects viable. And 
     by making this change permanent and predictable for small 
     businesses, it will yield greater results as capital spending 
     patterns rise from year to year.
       According to SBA's Office of Advocacy, there are over 22 
     million small businesses in the United States. [Note that of 
     these about 16 million have no employees.]
       If, with the President's plan, on average, they increased 
     their equipment purchases by only $10,000, almost $230 
     billion would be pumped into the economy annually, creating 
     jobs and expanding the tax base. As the President stated in 
     his recent visit with me to a flag manufacturing company in 
     Alexandria, VA, ``this is a plan that says if you're willing 
     to take risk and invest more, that there's a benefit for 
     doing so. It's an incentive for small business to increase.''
       The President has also proposed the permanent repeal of the 
     estate tax so small business owners will no longer be faced 
     with the prospect of leaving their family an insurmountable 
     tax bill along with the family business--and the difficult 
     decision of whether or not to sell the business to pay the 
     tax. Instead of forcing their heirs to sell the business to 
     pay the government, the repeal will provide certainty for 
     family-owned small businesses that want to transfer the 
     business to the next generation of entrepreneurs.
       And finally, the President's plan to abolish the double tax 
     on dividends will help businesses to grow and create jobs by 
     reducing the cost of capital. Most dividends received by 
     shareholders will be tax free. Small businesses that retain 
     corporate earnings will not face capital gains taxes on the 
     increase in the value of the firm from retained earnings that 
     could have been distributed as dividends. This will benefit 
     the owners of 2 million ``C'' corporations, including many 
     small corporations.
       Our President and Administration are strongly committed to 
     helping small business by removing or reducing barriers that 
     stand in the way of faster economic growth. Besides the 
     significant changes outlined in the plan, let me take this 
     opportunity to mention a couple of other items the President 
     talks about in his agenda for small business--streamlining 
     small business regulations and the need for tort reform to 
     curtail frivolous lawsuits.
       We know that small businesses are hardest hit by 
     regulations. Firms employing fewer than 20 employees face an 
     annual regulatory burden of $6,975 per worker--60 percent 
     more than a firm employing 500 or more people. And tax 
     compliance costs are twice as burdensome on small businesses 
     compared with their larger counterparts. The Federal 
     government has a new web site--www.regulations.gov that makes 
     it easier to participate in Federal rulemaking. Small 
     businesses can review and submit comments on proposed 
     regulations that are published in the Federal Register. 
     Americans spend nearly a trillion dollars a year complying 
     with state and federal regulations, so having this website 
     provides an opportunity to hear from those unfairly burdened.
       Tomorrow, I will be testifying before the Senate Committee 
     on Small Business and Entrepreneurship on another 
     Administration priority--the need for Congress to pass 
     Association Health Plan (AHP) legislation to help small 
     business have access to affordable health care for their 
     employees. Another issue that the community has been very 
     pro-active in pursuing.
       Taken together, these changes send a strong signal that 
     this Administration understands that our economy can thrive 
     only if our small businesses thrive. As the economy continues 
     to trend upward, America's small businesses can be counted on 
     to continue to provide strength, resilience and optimism. 
     Thanks to the President's aggressive agenda, small business 
     owners can count on an environment in which their efforts 
     will be encouraged and their success will be sustained.
       Thank you again for including me in today's discussion, and 
     I look forward to working with you in the months ahead to 
     achieve passage of the President's economic growth plan.

                          ____________________