[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
FULL COMMITTEE HEARING ON
TAX INITIATIVES THAT PROMOTE
SMALL BUSINESS GROWTH
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
May 5, 2010
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 111-066
Available via the GPO Website: http://www.access.gpo.gov/congress/house
----------
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
DENNIS MOORE, Kansas
HEATH SHULER, North Carolina
KATHY DAHLKEMPER, Pennsylvania
KURT SCHRADER, Oregon
ANN KIRKPATRICK, Arizona
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
MELISSA BEAN, Illinois
DAN LIPINSKI, Illinois
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
BRAD ELLSWORTH, Indiana
JOE SESTAK, Pennsylvania
BOBBY BRIGHT, Alabama
DEBORAH HALVORSON, Illinois
SAM GRAVES, Missouri, Ranking Member
ROSCOE G. BARTLETT, Maryland
W. TODD AKIN, Missouri
STEVE KING, Iowa
LYNN A. WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
BLAINE LUETKEMEYER, Missouri
AARON SCHOCK, Illinois
GLENN THOMPSON, Pennsylvania
MIKE COFFMAN, Colorado
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Karen Haas, Minority Staff Director
.........................................................
(ii)
STANDING SUBCOMMITTEES
______
Subcommittee on Contracting and Technology
GLENN NYE, Virginia, Chairman
YVETTE CLARKE, New York AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon W. TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
______
Subcommittee on Finance and Tax
KURT SCHRADER, Oregon, Chairman
DENNIS MOORE, Kansas VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona STEVE KING, Iowa
MELISSA BEAN, Illinois W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, Pennsylvania, Chairman
HEATH SHULER, North Carolina MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana LOUIE GOHMERT, Texas
(iii)
Subcommittee on Regulations and Healthcare
KATHY DAHLKEMPER, Pennsylvania, Chairwoman
DAN LIPINSKI, Illinois LYNN WESTMORELAND, Georgia,
MELISSA BEAN, Illinois Ranking
JASON ALTMIRE, Pennsylvania STEVE KING, Iowa
JOE SESTAK, Pennsylvania VERN BUCHANAN, Florida
BOBBY BRIGHT, Alabama GLENN THOMPSON, Pennsylvania
MIKE COFFMAN, Colorado
______
Subcommittee on Rural Development, Entrepreneurship and Trade
HEATH SHULER, North Carolina, Chairman
MICHAEL MICHAUD, Maine BLAINE LUETKEMEYER, Missouri,
BOBBY BRIGHT, Alabama Ranking
KATHY DAHLKEMPER, Pennsylvania STEVE KING, Iowa
ANN KIRKPATRICK, Arizona AARON SCHOCK, Illinois
YVETTE CLARKE, New York GLENN THOMPSON, Pennsylvania
(iv)
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Graves, Hon. Sam................................................. 2
WITNESSES
Koenig, Mr. Dave, Director of Tax and Profitability, National
Restaurant Association......................................... 3
Joyce, Mr. Hugh, James River Air Conditioning, Richmond, VA. On
behalf of Air Conditioning Contractors Association............. 5
Collins, Mr. Chad. Bone Dry Roofing Company, Director, Athens,
GA. On behalf of National Roofing Contractors Association...... 7
Green, Mr. Christopher J., AIA LEED AP, AGO Studios, Inc. Avon,
CO. On behalf of The American Institute of Architects.......... 9
Dubay, Mr. Curtis, Senior Policy Analyst, Tax Policy, The
Heritage Foundation............................................ 11
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M.......................................... 22
Graves, Hon. Sam................................................. 23
Joyce, Mr. Hugh, James River Air Conditioning, Richmond, VA. On
behalf of Air Conditioning Contractors Association............. 25
Koenig, Mr. Dave, Director of Tax and Profitability, National
Restaurant Association......................................... 32
Collins, Mr. Chad. Bone Dry Roofing Company, Director, Athens,
GA. On behalf of National Roofing Contractors Association...... 39
Green, Mr. Christopher J., AIA LEED AP, AGO Studios, Inc. Avon,
CO. On behalf of The American Institute of Architects.......... 44
Dubay, Mr. Curtis, Senior Policy Analyst, Tax Policy, The
Heritage Foundation............................................ 53
Statements for the Record:
H.R. 4841: "Small Business Tax Relief and Job Growth Act of 2010" 62
Associated Builders and Contractors, Inc......................... 66
Associated General Contractors of America........................ 68
(v)
FULL COMMITTEE HEARING ON
TAX INITIATIVES THAT PROMOTE
SMALL BUSINESS GROWTH
----------
Wednesday, May 5, 2010
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room
2360 Rayburn House Office Building, Hon. Nydia Velazquez
[chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Moore, Dahlkemper,
Clarke, Ellsworth, Bright, Graves, Thompson, and Coffman.
Chairwoman Velazquez. This hearing is now called to order.
In recent weeks, our economy has shown promising signs of
recovery. Gross domestic product grew at 3.2 percent during the
first quarter of this year, marking the third straight quarter
of economic growth.
Consumer spending is on the rebound. March saw the sixth
straight month with a rise in individual spending. Most
importantly, the U.S. economy added 162,000 jobs in March, the
largest increase in nearly 3 years.
The American Recovery and Reinvestment Act fueled much of
this progress. Not only did that measure boost infrastructure
spending. It provided billions of dollars in tax cuts,
including $15 billion in targeted tax relief for small firms.
Today's hearing would allow the Committee to analyze how
tax policies can sustain and further accelerate our economic
recovery going forward.
Since the Recovery Act's passage, we have built on its
momentum, extending many provisions that would have otherwise
expired at the end of 2009. More recently, the Hire Act was
enacted, providing a tax credit for small businesses that bring
on new employees. It also extended a credit for entrepreneurs
purchasing business equipment, helping firms to expand and
stimulating demand for everything from trucks to computers to
machinery.
Our witnesses today will be able to give us an assessment
of how well these initiatives are working and how to improve
them. In every previous economic recovery, small firms have led
the way, creating more jobs and generating them more quickly
than their big business counterparts.
Following the recession of the early 1990s, small firms
created 3.8 million jobs. After the recession of 2001, micro
businesses alone generated one million jobs. Entrepreneurs will
be just as important to bringing our nation out of today's
downturn but only if they have the right tools.
While showing promising signs, today's recovery is in its
earliest, most fragile stages. As our recovery gains traction,
it is vital that our tax policy promotes small business job
growth and does not hinder it. In that vein, it is my hope that
today's hearing will help improve existing tax programs while
generating new ideas for targeted tax relief.
With that, I would like to take this opportunity to thank
all of the witnesses in advance. And I now yield to Ranking
Member Graves for his opening statement.
Mr. Graves. Thank you, Madam Chair, for calling this
hearing on the critical topic of tax incentives that promote
small business growth. I would also like to thank our
witnesses. Some of you have come from a ways away and obviously
taken time away from your company to be here with us today. So
thank you very, very much.
The economy is still struggling. And outlook is still
uncertain. We have got foreclosures, credit card defaults, and
bankruptcies that still remain high. And unemployment is still
hovering around 10 percent. For businesses and especially small
ones, capital markets remain tight. Few are expected to hire or
expand. Companies remain skeptical about a lasting economic
recovery.
Small businesses are reeling from the news. And under the
new health care law, they are going to be forced to provide
health insurance or pay a penalty. And that is in addition to
the myriad of new regulations and reporting requirements.
Just one example, in section 9006 of the new law, it
requires businesses to submit a form 1099 for every business-
to-business transaction at $600 or more of property of
services.
Small businesses already bear a heavy burden of paperwork
compliance. And this is just another example of forcing small
business owners to take time away from the business to comply
with an unnecessary mandate.
Of course, small business owners could choose to outsource
the paperwork to an accounting firm, but either way, the
entrepreneur loses scarce resources that could be spent gaining
more customers or producing more product.
Higher taxes, more mandates, new regulations, and piles of
paperwork do not foster an environment that is conductive for
creating jobs. Taxes are a constant concern for small
businesses. In this economic climate, every expense is an added
burden. Small businesses pay more per employee to comply with
the tax code and often can't afford the experts to help
navigate through it.
Entrepreneurs depend on tax incentives to offset some of
the costs of innovation and expansion. While I support
temporary tax provisions or entendres because I know they are
critical to small businesses, their temporary nature causes
uncertainty.
Not knowing whether these tax provisions are going to be
renewed makes it very difficult for small businesses to plan
for future growth. And I also believe we must make permanent
the 2001 and 2003 tax provisions, which lowered marginal rates.
And that is why I have introduced legislation to do just that.
Finally, I want to say a word about the estate tax. In my
support for complete repeal, if Congress does nothing, the top
marginal rate of 55 percent and an exemption of just a million
dollars is going to take effect in 2011.
Small businesses and farms are often operated by families
who transferred from one generation to the next. And to pay the
estate tax, their heirs could be forced to sell the very land
or equipment that is needed to operate that family business. As
you have heard me say before, death should not be a taxable
event. We must kill the death tax.
Again, thank you, Madam Chair, for holding this hearing on
the vital subject of taxes. I look forward to that testimony.
Chairwoman Velazquez. Thank you.
And now it is my pleasure to welcome Mr. Dave Koenig. He is
the Director of Tax and Profitability for the National
Restaurant Association. Mr. Koenig has over two decades of
experience in the tax and regulatory areas. The National
Restaurant Association, founded in 1919, represents more than
380,000 restaurants and suppliers. Welcome. And you have five
minutes.
Mr. Koenig. Thank you.
STATEMENT OF DAVE KOENIG, DIRECTOR, TAX AND PROFITABILITY,
NATIONAL RESTAURANT ASSOCIATION
Mr. Koenig. Chairwoman Velazquez, Ranking Member Graves,
members of the House Committee on Small Business, I appreciate
the opportunity to testify before you today on behalf of the
National Restaurant Association.
My name is Dave Koenig, Director of Tax and Profitability
at the Restaurant Association. I am here today to ask Congress
to make permanent the 15-year depreciation schedule for
leasehold improvements, restaurant improvements and new
construction, and retail improvements. In addition, I ask that
Congress increase the business meal deduction from its current
level of 50 percent to 80 percent to provide additional
stimulus to the economy.
The restaurant industry plays a significant role in this
nation's economy. There are 945,000 restaurant and food service
outlets in this country. Seven out of ten restaurants are
single-unit operators, which means the restaurant industry is
an industry of small businesses.
Most eating and drinking establishments employ 50 or fewer
employees. Restaurants also serve as the conference rooms for
many of the self-employed and other small businesses.
This year the restaurant industry is estimated to generate
$580 billion in sales, with an overall economic impact of $1.5
trillion. Every dollar spent dining out generates $2.34 in
business for other industries.
The 15-year depreciation schedule for leasehold
improvements, restaurant improvements and new construction, and
retail improvements expired at the end of 2009 and must be
retroactively extended through the end of 2010 and, in fact,
should be made permanent. Bipartisan legislation, H.R. 4306,
introduced in December 2009 by Representatives Kendrick Meek
and Pat Tiberi would make the 15-year depreciation schedule
permanent.
The 15-year depreciation schedule has made significant
capital available for restaurant owners to make capital
expenditures with the tax savings. These capital expenditures
translate into jobs in the rest of the economy.
In addition, a faster, more accurate depreciation schedule
has a direct impact on a restaurant's bottom line. The
shortened depreciation schedule provides restaurateurs
additional cash flow to reinvest in their businesses, allowing
them to expand restaurant jobs and contribute to the community.
Even during these difficult economic times, restaurateurs
are planning capital expenditures to improve or expand their
businesses. According to the National Restaurant Association's
most recent tracking survey, last month, 47 percent of
restaurant operators plan to make a capital expenditure for
equipment, expansion or remodeling in the next 6 months. The
ability to plan for these expenditures and know what the tax
treatment will be in subsequent years, particularly during
these tough times, is important to those making such decisions
right now.
This provision is an important driver of economic stimulus.
Making the depreciation schedule for restaurant improvements
and new construction permanent will fuel economic activity and
create jobs.
It is important to note that 15 years, rather than the
current law, 39 years, is also a much more accurate time frame
for depreciating or writing off restaurant buildings. With 133
million Americans patronizing restaurants every day, restaurant
building structures experience a daily human assault, unlike
that borne by any other type of retail building. In fact, our
research shows that most restaurants remodel and update their
building structures every six to eight years.
The other issue I would like to talk about in my oral
statement is the need to increase the business meal deduction
to stimulate the economy. We strongly urges Congress to provide
economic stimulus by increasing the deduction from 50 to 80
percent for spending on business meals and entertainment.
For many small companies, the ability to conduct business
over a meal is their only means of advertising and marketing
their business. While officially the recession may be ending,
the restaurant industry is still feeling the effects of
decreased consumer spending and increased unemployment.
Increasing the business meal deduction to its previous level
would encourage consumers to dine out and would also benefit
small businesses.
This Committee has been a long-time supporter of increasing
the business meal and entertainment deduction as a means of
providing a boost to the economy and tax relief for a
legitimate business deduction incurred by our nation's small
businesses.
Last Congress this Committee included a provision to
increase the deduction from 50 to 80 percent in the Small
Business Tax Modernization and Stimulus Act of 2008.
In closing, I greatly appreciate the opportunity to testify
on behalf of the restaurant industry before you today. And I am
happy to answer any question that you may have later on. Thank
you very much.
[The statement of Mr. Koenig is included in the appendix.]
Chairwoman Velazquez. Thank you, Mr. Koenig.
Our next witness is Mr. Hugh Joyce. He is the owner of
James River Air Conditioning located in Richmond, Virginia. The
company was founded in 1967 and now has over 150 employees. Mr.
Joyce is testifying on behalf of Air Conditioning Contractors
Association, ACCA, representing over 4,00 air conditioning
contractors.
Welcome.
STATEMENT OF STATEMENT OF HUGH JOYCE, JAMES RIVER AIR
CONDITIONING, ON BEHALF OF AIR CONDITIONING CONTRACTORS
ASSOCIATION
Mr. Joyce. Good afternoon, Chairwoman Velazquez, Ranking
Member Graves, and members of the Small Business Committee.
Thank you for the opportunity to provide testimony on behalf of
small business service contractors that make up the heating,
ventilation, air conditioning, and refrigeration industry.
My name is Hugh Joyce. I am the owner of James River Air
Conditioning, a family business that offers commercial,
residential heating, cooling, plumbing, and electrical services
started by my dad in 1967.
I come before you this afternoon as a former Board Member
and Member of Air Conditioning Contractors of America. Every
day, more than 4,000 ACCA small business contractor members
across the nation help homeowners and small businesses and
building managers realize the comfort, convenience, and cost
benefits of energy-efficient HVAC equipment.
My comments this afternoon summarize my written submitted
testimony and focus on energy conservation tax incentives and
how they benefit not only residential homeowners and commercial
building owners but also the small businesses of the HVACR
industries that serve them.
Financial incentives, such as tax credits, tax deductions,
and accelerated depreciation, are a powerful way to encourage
homeowners and building owners to reach for and obtain higher
efficiency HVAC equipment. Financial incentives, like section
25C, the homeowners tax credit, help soften the initial cost of
installation and shorten the payback period.
The residential tax credits in the stimulus bill have been
crucial in driving investment. They have incentivized
homeowners to retrofit their homes with higher-efficiency HVAC
appliances, saving energy, and creating jobs, particularly in
my business.
In response to a survey conducted in preparation for my
testimony today, 75 percent of ACCA contractors have seen such
an increase in the sale of qualifying higher-efficiency
equipment.
Sugar, in this case tax credits, is very effective with
consumers and businesses. It gets them to take action and helps
them overcome inertia, particularly in the recessionary time.
It is an excellent catalyst for investment. Financial
incentives to install energy conservation measures are a
quadruple bonus. They save consumers and small businesses
money. They create jobs. They result in less greenhouse gas
emissions. And they help the environment.
Our company helps consumers aggregate credit programs and
assists them in finding what they qualify for. And, in fact,
right now our firm is reconstructing 2 1940s homes, deploying
every practical energy durability, sustainable strategy that we
are aware of, including things like rainwater recovery, high-
efficiency HVAC, solar voltaic panels, super insulation, et
cetera.
These homes will serve initially as model idea homes so our
clients can see, feel, touch, and experience near net zero
living. And since over 50 percent of American homes were built
prior to efficiency standards, there is a huge opportunity to
reduce energy consumption and increase sustainability with
retrofit programs and incentives.
The gains as a result of the tax code changes in the
stimulus bill could come to a halt at the end of this year.
ACCA urges Congress to extend these important incentives. ACCA
also encourages a robust rebate program in Home Star to
complement the 25C tax credit incentives.
There is also no doubt tax credits in the stimulus bill
have made high-efficiency HVAC equipment more affordable for
homeowners. However, the stimulus lacked a companion incentive
for commercial and small business building owners.
We expect the commercial market to be sluggish for some
time. And incentives to upgrade and improve can make
significant impact quickly. Just look at my state's solar and
wind tax credit program, which sold out in hours. There is an
appetite for these types of investment assistance.
Additionally, I encourage Congress to reinstate the 50
percent bonus depreciation allowance that expired at the end of
2009, which could also be used for HVAC equipment.
There is a significant amount of deferred maintenance of
this type of work that will drive growth while the new
construction market sorts itself out over the next two to five
years, which is how much time we think it is going to take.
Let me finish by saying fear is crippling American business
managers and owners, fear of the unknown and what will come up
next. The people I speak with on a day-to-day basis are afraid
to do anything right now because they are concerned with the
impact of limited credit, new taxes, new rules, health care,
and other regulations. We just don't know what will happen
next.
We feel we have few advocates other than this Committee.
You can help us by sending the right signals and reduce that
fear for us as business people. And I can assure you we will
work hard to create jobs.
[The statement of Mr. Joyce is included in the appendix.]
Chairwoman Velazquez. We have done that in the past. And we
will do it again.
Mr. Joyce. Thank you.
Chairwoman Velazquez. Thank you.
Our next witness, Mr. Chad Collins, is the co-owner of Bone
Dry Roofing Company in Athens, Georgia. Bone Dry Roofing
Company is a full-service residential and commercial roofing
contractor. Mr. Collins is also a Director in the National
Roofing Contractors Association. NRCA is a nonprofit
association that represents all segments of the roofing
industry. Welcome.
Mr. Collins. Thank you.
STATEMENT OF CHAD COLLINS, BONE DRY ROOFING COMPANY; AND
DIRECTOR, NATIONAL ROOFING CONTRACTORS ASSOCIATION
Mr. Collins. Madam Chair, distinguished members of the
Committee, I would like to thank you for the opportunity to
testify on behalf of the National Roofing Contractors
Association. I am Chad Collins, President of Bone Dry Roofing.
And we have offices in Augusta and Athens, Georgia.
Established in 1886, NRCA is one of the nation's oldest
trade associations and the voice of professional roofing
contractors worldwide. NRCA has roughly 4,000 members from all
50 states and 54 countries. And our members are typically small
businesses.
Unemployment in the construction industry is an alarming
24.9 percent according to recent government statistics. While
it was recently reported that the economy grew at an annual
rate of 3.2 percent during the first quarter, the data also
show that both commercial and residential construction continue
to struggle. Clearly the construction industry is one of the
hardest hit sectors of the economy.
NRCA urges Congress to take immediate action on targeted
policy measures that will spur job growth. We strongly support
the Green Roofing Energy Efficiency Tax Act and Small Business
Tax Relief and Job Growth Act and believe that the passage of
these initiatives will help create jobs in the construction
industry, particularly among small businesses.
The roofing industry is uniquely positioned to play an
important role in creating high-quality jobs. One of the ways
that this can be done is by enhancing the energy efficiency of
our nation's buildings.
The Green Roofing Energy Efficiency Tax Act will
immediately create an estimated 40,000 new jobs within our
industry while also helping to conserve energy and reduce
carbon emissions. GREETA also will provide savings to small
businesses of all types through a simpler and more equitable
system of taxation and lower energy costs.
Passage of GREETA is necessary because between 1981 and
1993, the depreciation schedule for nonresidential property was
increased from 15 years to 39 years. However, the current 39-
year depreciation schedule is not a realistic measure of the
average life span of a commercial roof, which we estimate to be
approximately 17 years.
The large disparity between the 39-year depreciation
schedule and the average life span of a commercial roof serves
as a major incentive for building owners to delay the
replacement of failing roofs as long as possible.
An owner who replaces a roof before 39 years have elapsed
must continue to depreciate that roof for tax purposes, even
though it no longer exists. This incentive to delay roof
replacement is slowing the adoption of more advanced energy-
efficient and environmentally beneficial roofs in today's
marketplace.
GREETA will rectify this situation by reducing the
depreciation schedule from 39 to 20 years for roofs that meet a
benchmark energy efficiency standard.
Given GREETA's unique combination of job creation and
environmental benefits, this legislation enjoys strong support
among both business groups and organized labor. NRCA is also
working with our union and industry partners on a targeted
version of GREETA that is designed to maximize job creation and
energy efficiency in commercial buildings in the short term.
Under this targeted proposal, 20-year depreciation would be
made available to building owners for energy-efficient roofs
only in 2010 and '11 and would adopt the more stringent energy
efficiency standards contained in the Energy-Efficient
Commercial Roofs Act of 2009.
I want to emphasize that GREETA will create jobs, not
through a special tax incentive but by the removal of an
obstacle in the tax code which restricts economic growth and
impedes the movement towards green buildings that can help us
achieve important environmental policy objectives.
NRCA wishes to again thank Chairwoman Velazquez and
Representative Moore for your continued support for GREETA. And
we urge other members of the Committee to sponsor GREETA as
well.
Like other small businesses, many NRCA members have
experienced great difficulty in obtaining access to credit in
the current economic environment. The scarcity of credit is a
key factor in preventing entrepreneurs from expanding
businesses and creating jobs.
NRCA wants to commend Chairwoman Velazquez for introducing
the Small Business Tax Relief and Job Growth Act, which will
help create jobs by providing tax relief targeted at helping
entrepreneurs start and grow businesses.
This legislation will increase the tax deduction for
business start-up expenditures; will allow businesses to
expense structural improvements to buildings, including roofs;
and will reduce the capital gains tax rate of small
corporations from 35 to 15 percent. NRCA believes these target
measures will significantly increase the capital that
entrepreneurs need to grow their businesses and create jobs.
To conclude, NRCA urges Congress to address the alarming 25
percent unemployment rate in the construction industry by
approving the Green Roofing Energy Efficiency Tax Act and the
Small Business Tax Relief and Job Growth Act.
Thank you for your time, and I will be glad to answer any
questions.
[The statement of Mr. Collins is included in the appendix.]
Chairwoman Velazquez. Thank you, Mr. Collins.
Our next witness is Mr. Christopher J. Green. He is
President of AGO Studios in Avon, Colorado. AGO Studios is an
architectural firm with commercial, hospitality, and
residential clients.
Mr. Green is testifying on behalf of the American Institute
of Architects. AIA is the leading professional membership
association for licensed architects, emerging professionals,
and allied partners. Welcome.
Mr. Green. Thank you.
STATEMENT OF CHRISTOPHER J. GREEN, AIA, LEED AP, AGO STUDIOS,
INC., ON BEHALF OF THE AMERICAN INSTITUTE OF ARCHITECTS
Mr. Green. Chairwoman Velazquez, Ranking Member Graves, and
members of the Committee, I am Christopher J. Green, AIA,
President of AGO Studios, a two-person architectural firm based
in Avon, Colorado. I want to thank you for giving me the
opportunity to testify today on behalf of my firm and the
American Institute of Architects.
The written testimony I have provided you describes in
detail the economic challenges facing our profession and
proposals to help bring about the economic recovery, but today
I would like to use my time to talk about what this crisis
feels like in my community and in communities around the
country.
We, like everyone else, see the stock market moving up and
down and hearing the analysis about the positive signs of the
economy, but what we see on Wall Street is not what we are
seeing on Main Street with regard to the architects.
First of all, the architects in our organization are, by
and large, small business people. And, in fact, 95 percent of
those architecture firms employ 50 or fewer people. They are
truly the engine that drives the design and construction
industry.
Today my industry and colleagues are suffering. Our
unemployment rate is 25 percent. That is one of four people is
looking for work. That is only counting those who have applied
for unemployment insurance.
Many of my colleagues report being underemployed or working
without pay for more than a year. And many of those small
business owners are not able to get unemployment because they
own their firms and, therefore, are not able to be seen in the
numbers that we see at the federal level.
It is a huge burden to bear for the workers who have
families to feed, mortgages, and tuition bills to pay. At my
firm, billings are down significantly from a year ago.
Construction starts are few, primarily because the clients I
work with are either unable to get the necessary credit to help
finance new construction or the remodels that they are
contemplating, and they are facing falling property values that
are skewed by comparables to short sales or foreclosures that
are unnecessarily offsetting the real value of their property.
And in a number of instances, municipalities have cut back
so heavily on budgets, personnel, and services that capital
projects are not being considered unless absolutely necessary.
And in some cases, those are the life blood of some of the
firms that do work in our area.
These problems are not unique to Colorado. They are being
repeated in virtually every community around the country. And
while there are glimmers of hope in the economic figures, I am
here to tell you that for our industry, the light at the end of
the tunnel is still a distant flicker. Our data shows that we
are still at least a year away from having a healthy business
environment in the design and construction industry.
A colleague recently came back from a conference with the
Associated General Contractors, who indicated that some of the
large firms that do large construction work have a nine-month
backlog at best. Our industry provides the work that they use,
and it takes 9 or 18 months to get stuff off the drawing boards
for these guys to build.
With that in mind, there are a number of tax-related policy
incentives that Congress should take and ones Congress should
avoid in order to help small business get on their feet.
First, Congress needs to extend and expand clean energy tax
incentives. That is why the AIA with a broad coalition of
environmental, business, real estate, design and construction
groups strongly supports H.R. 4226, the Expanding Building
Efficiency Incentives Act of 2009. In particular, the AIA has
long backed increasing the energy efficient commercial
buildings tax deduction from its current $1.80 per square foot
to $3 per square foot.
Because the provision allows for the deduction to be
assigned to the designer in the case of a public building, many
architects have been able to take advantage of it to lower
their tax burden.
In fact, one accounting firm has reported it has secured
almost half a billion dollars in tax deductions for firms in
the last year alone, and this with nearly half going to firms
with 50 or fewer employees. This means greener buildings, lower
energy costs, and money back in the pockets of small design
firms.
Second, Congress needs to expand tax incentives for small
businesses. I am very pleased that Chairman Velazquez has
introduced H.R. 4841, the Small Business Tax Relief and Job
Growth Act of 2010, which would help small businesses gain
access to capital and create jobs.
And, third, Congress needs to oppose tax increases on small
businesses. It is my understanding there is a proposal being
floated in the Ways and Means Committee to significantly
increase the payroll taxes paid by S corporation shareholders.
This proposal would hurt small firms, like mine, who are
struggling to get back on their feet.
In conclusion, I would like to thank Chairwoman Velazquez,
Ranking Member Graves, and the members of this Committee for
giving me the opportunity to testify before you today. And I
will be happy to answer any questions you may have.
[The statement of Mr. Green is included in the appendix.]
Chairwoman Velazquez. Thank you.
The Chair recognizes Mr. Graves for the purpose of
introducing our next witness.
Mr. Graves. Thank you, Madam Chair.
Madam Chair, I am pleased to introduce Curtis Dubay, who is
a Senior Policy Analyst for the Heritage Foundation, where he
specializes in tax issues.
Before coming to Heritage, Mr. Dubay was a Senior Associate
with PricewaterhouseCoopers, previously has served as Senior
Economist with the Tax Foundation, and has done research on a
wide range of tax issues, including income tax, sales tax,
capital gains dividends, and corporate tax.
Welcome to the Committee.
STATEMENT OF CURTIS DUBAY, SENIOR POLICY ANALYST, TAX POLICY,
THE HERITAGE FOUNDATION
Mr. Dubay. Madam Chairwoman, Ranking Member Graves, members
of the Committee, thank you for the opportunity to testify on
what can be done through federal tax policy to help small
businesses.
My name is Curtis Dubay. I am a tax economist at The
Heritage Foundation, a non-profit research organization based
in Washington, D.C. with over 650,000 members nationwide and
growing rapidly.
The views I express in this testimony are my own and should
not be construed as representing any official position of the
Heritage Foundation.
Many small businesses are struggling to survive as economic
recovery remains precarious. There is much the federal
government can do to help them, mostly by allowing the recovery
to continue without the threat of punitive new taxes and
burdensome new regulations. Eliminate these threats, and small
businesses will then thrive as the recovery quickens its pace.
Unfortunately, Congress is threatening to do the opposite
in four ways. The first threat is a scheduled increase of
income tax rates. On January 1st, 2011, the top two income tax
rates will rise from 33 percent and 35 percent to 36 and 39.6
percent. According to the Treasury Department, the 8 percent of
small businesses that pay the highest 2 tax rates earn 72
percent of all small business income and already pay 82 percent
of all income taxes paid by small businesses.
Higher tax rates on these most productive small businesses
would drain the businesses of cash flow, the lifeblood of any
business, and would diminish the incentives to grow and add new
workers.
Instead of raising these rates, at the very least, Congress
should drop its plan to increase top tax rates on small
businesses and make permanent the current-law tax rates for all
taxpayers. This would be the best stimulus for the economy to
date.
The second threat is the impending increase of taxes on
capital. Under current law, the tax rate on capital gains will
increase to 20 percent. And that on dividends will increase to
39.6 percent on January 1, 2011.
Congress should at the very least hold these rates at 15
percent and make permanent President Obama's sensible plan to
provide immediate small business expensing of all capital
purchases.
The third threat is the planned increase of the death tax.
The death tax returns to life in full force on January 1st,
2011. Despite the common misconception that the death tax
impacts only wealthy estates, economists now generally agree
that the death tax is actually a tax on capital because of its
impact on businesses and workers.
The death tax is a drag on America's small businesses,
destroys jobs, and lowers wages while raising little revenue.
As such, Congress should kill the death tax once and for all to
remove an unfair burden from the backs of American small
businesses and their workers.
The fourth threat is the burden of new regulation. A little
noticed provision added to the new health care law will harass
small businesses with new paperwork. Section 9006 of the new
law requires businesses to issue 1099s whenever they do more
than $600 of business with another entity.
Small businesses will now have to issue reams and reams of
new forms to the IRS. While large businesses can absorb the
cost of this new bureaucracy with their large legal and
accounting teams, the new requirements will inundate small
businesses with an avalanche of paperwork. The paperwork burden
will force small businesses to redirect scarce resources from
productive activities that could grow the business, add jobs,
and pay higher wages to complying with the onerous new
reporting requirements.
Now, many in Congress would prefer to offer targeted tax
credits to specific small businesses, instead of keeping income
tax rates and taxes on capital low for all small businesses.
The targeted tax cuts are no substitute. Of course, the
businesses that receive the targeted tax cuts will benefit, but
Congress should not be the arbiter of which businesses succeed
and which do not.
Its track record of making such choices is far from
exemplary. And further efforts to manipulate the market based
on the whims of the moment could actually prevent breakthroughs
that would benefit the economy and the United States.
Thank you. And I look forward to your questions.
[The statement of Mr. Dubay is included in the appendix.]
Chairwoman Velazquez. Thank you.
I would like to address my first question, if I may, to Mr.
Koenig. A true economic recovery is going to rely on improving
consumer confidence and overall spending. Recent reports
indicate spending is on the rise. Can you comment, please, on
where your industries stand today, as opposed to 12 or 18
months ago?
Mr. Koenig. Certainly, Chairwoman Velazquez. The restaurant
industry was certainly not immune from the economic troubles of
the last couple of years. We have had well-documented in the
public media stories about demand being way down because of
consumer spending and unemployment. Recently--and we do regular
surveys--we see an up tick. Anecdotally speaking, we see an up
tick in overall business in the industry.
Not to say that conditions are ideal, but I think it is
safe to say that from the restaurant industry's standpoint, we
are cautiously optimistic that things are on the up turn, at
least with our business.
Chairwoman Velazquez. I have noticed it in my district.
Mr. Koenig. Glad to hear it.
Chairwoman Velazquez. You know, I didn't have to make
reservations two, three months ago.
[Laughter.]
Chairwoman Velazquez. Mr. Collins, can you explain how
outdated depreciation schedules for commercial roofs affect
economic activity within your industry? And do you find that
these businesses are choosing to repair older, inefficient
roofs because they do not have the necessary incentive to do
so?
Mr. Collins. Yes, ma'am, absolutely. And we see it time and
time again, regardless of reason, whether it is a facility that
is being held for an investment and going to be turned or
whatever the reason, the current depreciation schedule has
created a disincentive for the owner to be proactive in
addressing the issues. And it is literally as simple as that.
Activity like GREETA that would provide incentive would
immediately create results. I mean, there is no doubt about
that at all.
Chairwoman Velazquez. And how would decreasing the recovery
period encourage more businesses to upgrade their
infrastructure?
Mr. Collins. Well, it would encourage the activity by the
tax breaks, by the incentives that would be present.
Chairwoman Velazquez. Mr. Joyce, I have introduced the
Small Business Tax Relief and Job Growth Act, which will expand
section 179 to include roofs, electrical systems, HVAC systems,
and other structural improvements.
Do you believe that these incentives would encourage
businesses to make those investments now? And is it enough to
help businesses overcome the challenge of up-front costs?
Mr. Joyce. Absolutely. And by allowing that early and quick
depreciation, it is just enough to bump them off doing nothing.
And right now we see businesses make repairs to old,
inefficient machines that if there was just a little extra
incentive out there for them to go ahead and buy a new
efficient machine with better refrigerant, more environmentally
friendly operating characteristics, they would do that.
What I have told some folks, the way the depreciation
schedule is on HVAC now, you almost have to pay for the
equipment twice when you buy it. You write a check to me when
it is put in. But then you have got to gross up your income 30,
40, 50 percent to offset that because it is after-tax money.
And then you have to depreciate over such a long time you never
recoup it. So it is almost like a double payment where the
changes that you have introduced would give immediate relief.
And folks are sitting there waiting for an excuse to act.
And we see and we saw it residentially with the $1,500 credit
for energy efficiency upgrades that literally kept us from
laying off a single person over the past year. So yes,
absolutely.
Chairwoman Velazquez. Thank you.
Mr. Graves?
Mr. Graves. Thank you, Madam Chair.
My question is to all of you. And whether it is your
individual business or your members, you can comment. We have
got the 2001-2003 tax cuts expiring, which is going to raise
the marginal rate structure.
I am curious how it is going to affect your members,
specifically if you are filing. You may have your business, but
you may be filing as an individual or as a couple, whatever the
case may be. But I would be very curious, Mr. Koenig.
Mr. Koenig. Thank you, Ranking Member Graves.
Certainly the National Restaurant Association, we represent
all restaurants, from the local entrepreneur with one
establishment to multinationals. As I said earlier in my
testimony, most of our members are your traditional small
businesses.
Almost two-thirds of our membership operate as so-called
subchapter S corporations. So for those who are in the 33
percent or 35--and, of course, for tax treatment purposes, S
corporations, the income flows through to the individual
shareholders. For those in the 33 percent rate and the 35
percent rate, they will see their taxes increase if nothing is
done before the end of the year.
Mr. Graves. Mr. Joyce?
Mr. Joyce. It is a very difficult time. It is a very
difficult time to see any type of increase because, you know,
most of us are living right on the edge, whether profitable or
not profitable.
If that rate goes up, all of our banks sit and look at our
financial statements and our balance sheets. And we may have
made commitments to buy capital and things that we are paying
with after-tax dollars.
Maybe it is a business buyout from a family member or
whatever. And every time these things change, they have
dramatic impact on our cash flows, what we are showing in our
banks, and how we move forward, whether we can invest, buy that
next truck or whatever that is.
So I can't say enough how important it is to get some
stability across the board in some of these tax areas. And I
think the velocity--you know, if we can get business growing,
the velocity of new business and paying at a little bit lower
rate will far outpace what you would get from an increase.
And, again, I feel so backed in a corner as a business
person because every penny of my after-tax money is committed
to do something with. So if taxes go up ten percent and we
expect a tough couple of years, it really puts me in a jam,
particularly on the credit side. A lot of people don't think
about that.
So anything you can do to help and just get stability
there, just don't increase it. If you leave it where it is, we
will make it work, but if you keep going every which way
because we have already got, you know, health care increases
and other areas that we have got to pay. So anything that can
be done to stop that will be a big help.
Mr. Graves. Mr. Collins?
Mr. Collins. And to echo, NRCA membership as a whole, you
are roughly talking about 97 percent of our membership would
fall in what the government would quantify as a small business.
So when I speak to the effect personally, I am speaking to the
effects of the association as a whole and its membership base.
And it would be the same. I mean, the fear that is out
there is stagnating growth. And uncertainty is compounding that
problem. And whether it is through stability or whether it is
through stimulating activity like GREETA, those are the things
that we are looking for and trying to encourage.
Mr. Graves. Mr. Green?
Mr. Green. I would echo those comments. I think anything we
can do to keep the tax rates from going up would be beneficial
to all the small business owners, not just the architects but,
as we have heard at this table, anybody that is working hard
right now to keep food on their table that lower tax rates
would be critical.
Our industry is absolutely subject to the credit market.
And, in addition to keeping the taxes low, what we really need
to do is we need to get control of the credit markets so that
we can be putting projects on the boards that these gentlemen
can be working on. And until we get those credit markets
stabilized and we get strong rules on them, it is not just the
taxes, but it is the credit markets that are affecting our
industry in an enormous way.
Mr. Graves. Mr. Dubay?
Mr. Dubay. Raising taxes on small business at any time is
not a good idea, but doing so now seems particularly unwise. We
often hear it argued that raising the top two rates wouldn't
impact small business because only a few of them will actually
pay that.
Well, like I said in my testimony, according to the
Treasury Department, it is true that only eight percent of
small businesses pay at the top two rates, but those small
businesses earn a vast majority of the income earned by small
businesses and pay almost all the taxes paid by small
businesses.
They are the biggest ones that create the most economic
activity. They are the ones we need to help pull us out of this
recession or get the recovery going and creating jobs. Now is
not the time to raise taxes on them.
Mr. Graves. Okay.
Chairwoman Velazquez. Mr. Moore?
Mr. Moore. Thank you, Madam Chair.
None of you want to see tax increases on small business or
tax increases generally, I think. And I don't personally like
tax increases either. When I came into Congress in 1999, the
national debt was about $5.8 trillion. The next two years,
there were balanced budgets both years and no additional debt.
The next 8 years under the President Bush, we accumulate more
than $5 trillion more debt, almost double, almost doubled.
What do we do? How do we get back to fiscal responsibility
and start living within a budget like most, not all but most,
American families do if we are not going to do something with
this tax situation to try to deal with this horrible debt that
we have and passing this horrible debt onto future generations,
our children and grandchildren?
We start down here and just move down the line.
Mr. Koenig. Congressman Moore, I wish I had an answer for
you. Obviously--
Mr. Moore. I do, too.
Mr. Koenig. Obviously it is a difficult situation, so
difficult that the President has gotten a commission together,
a bipartisan commission, to try to examine all of the issues
and putting everything on the table. I would say that that is
probably what needs to be done, is having everything examined
at once and hopefully a solution.
Mr. Moore. Thank you. Can I stop right there and go back
here and then go down this way, please? And we have 3:19. I
sure would like to hear from all of you. If you can each take
just about 45 seconds or something, we can get this in. Thank
you. Mr. Dubay?
Mr. Dubay. Well, if you look at the projections from the
Congressional Budget Office for the end of this decade, tax
revenues will be back to 18 percent of gross domestic product.
That is where we were for the last 60 years, about the average.
Over that time, we averaged spending about 20 percent of
GDP. So we had a deficit somewhere around two percent of GDP.
That is sustainable, more sustainable than the course we are
on. It is not perfect, but it is better than where we are.
And if you take the new health care legislation, the new
law, the tax revenues would actually be higher than 18 percent,
the post-war average.
So my point is that we have a spending problem, not a
taxing problem. If spending is brought back down to historical
averages, the deficit will be brought back down as well.
Mr. Moore. Mr. Green?
Mr. Green. I would submit that we have got short-term and
long-term issues here. The short-term is everybody wants to get
the deficit down, but we are also in an economic situation
where we can't generate the income to tax right at the moment.
So if we can figure out elements that we can address right
now makes sense, but we also have to look at the long-term, as
Mr. Dubay here says, of saying, how do we stimulate the
spending so that we can legitimately get tax revenue back up to
where it once was? And then we can deal with the spending
issues. I think it is a balanced approach. And I think that
makes a lot of sense in the overall scope of what you are
asking.
Mr. Moore. Thank you, sir.
Mr. Collins?
Mr. Collins. I agree and would like to see just the ability
to operate day to day and not have the restrictions and
regulations that we see increasing at what appears to be more
regularity so that we can continue to create jobs, that we can
continue to--we are fortunate.
And, again, our size is representative of average
membership, where we create jobs that are across anywhere from
office staff to field technicians, mechanics, superintendents.
We have a wide range of employment and feel like when left
alone and left to be creative and left to do what we do, we
have the ability to generate more revenues and more income for
those employees.
Mr. Moore. Thank you.
Mr. Joyce?
Mr. Joyce. I would just say currently be gentle with the
tax increases to get our velocity back. If I had my druthers, I
would just look at our total budget, and I would roll it back a
couple of percent every year for the next few years.
I would focus across the board, everybody, just like we
have done in business in America. Every household in this
country has rolled their budget back.
And I would said, military, you are going to get across the
board. Gentle on taxes. Let's see what traction we get. And
then there are a lot of things that are off the grid that
aren't taxed. And the tax has gotten to the point where things
are outside of the system. We need to get those back in the
system and then move forward.
And I think we can get the two across relatively quickly,
but it has got to be a team effort.
Mr. Moore. Thank you. Thank you, Madam Chair.
Chairwoman Velazquez. Time has expired.
Mr. Thompson?
Mr. Thompson. Thank you, Madam Chair, Ranking Member, for
this important hearing. And thanks to all of the witnesses
today for your expertise and representing all of those small
businesses that you do.
I certainly agree that the mounting debt is a problem. It
provides us a really rocky terrain to do business in. And I
appreciate what the debt has been accumulated over the years.
I certainly want to note, though, that President Obama's
doubling down on the debt in the past 16 months has really
taken us to the edge of a cliff. We need to reverse direction.
And I think that we are all in agreement with that.
Mr. Dubay, I wanted to ask you. Last Wednesday this
Committee did a hearing on trade and small business. I happen
to believe that for our small businesses, where we can, that is
an important market to reach out to the rest of the world.
I want to get your opinion on--we have, I believe it is,
the second highest corporate tax rate in the world. And many of
our small businesses incur that burden. Your opinion on, is
that a disadvantage and how to our small businesses to compete?
Mr. Dubay. The corporate income tax rate is a huge
disadvantage for American businesses. Right now our rate is the
second highest in the developed world. We trail only slightly
Japan.
When you take the top federal rate at 35 percent and add on
state corporate tax rates, it gets pretty close to 40 percent.
That is, like I said, higher than almost every other developed
country. It is one of the major factors driving businesses
overseas, driving them to open up new operations overseas, send
jobs overseas.
The average in the Organization for Economic Cooperation
and Development, the 30 largest economically developed
countries, is about 25 percent. So we are ten percentage points
over that rate.
Over the last 10 to 15 years, most countries have been
cutting their rates. I think every country except us cut their
rate over that period. So by standing still, we have fallen
behind.
It is absolutely imperative that action be taken soon.
Otherwise we are going to keep seeing jobs go overseas.
Mr. Thompson. Okay. Thank you.
Mr. Green, in your testimony, you said that billings at
your company are down due, in part, to tight credit, the
result, you say, of conflicting bank policies and additional
requirements. Now, you believe the financial regulatory reform
legislation being considered by the Senate will add or reduce
the tight credit?
Mr. Green. I am hopeful that it will increase the credit
available. I think what we are seeing is there are enough mixed
signals in the credit markets that there is inconsistent policy
that we are seeing right now that says, what is your loan-to-
value ratio? What is the consistent loan-to-value ratio? What
are the incentives? What are the capital requirements on a
project that is being considered? And then what are the pro
forma requirements for that in order for the financing to be
considered a solid financing package for our client?
So hopefully we will see that, but we need to get that
under control and get a consistent level of rules and
regulations in right now.
I think we spoke a little bit to the fear factor. There is
a significant uncertainty on Main Street about what is being
asked of and required of folks that are thinking about really
good projects right now.
Mr. Thompson. I see that in my discussion with job
creators. And you represent the job creators. They are sitting
on the sidelines. They are normally small men and women who
take a percentage of their profits, reinvest it in their
company, hire more people. And they are afraid. They are
sitting on the sidelines.
Mr. Collins, you mentioned in your testimony about the
effect of tight credit. Do you believe that credit markets are
easing for small companies? What are you seeing out there?
Mr. Collins. I don't believe so, no. You know, we rely on
not only what we see but some pretty substantial indicators as
well that either confirm or deny what we are seeing in-house.
And one of those is activity of general contractors, the other
being the activity in the surety market. Those are really
strong indicators of what is going on around us.
I can say with certainty from either conversations that we
have had with both or with just real examples of what we have
experienced that there is no movement and no encouraging
outlook there. If anything, it is the opposite. It is that the
commercial element of what we do has really yet to potentially
fully bottom. And when it does, the idea that there is going to
be a rebound of any sort is not there.
If it hasn't bottomed, once it does, it is going to bounce
there. And the surety underwriting market is shrinking today.
Mr. Thompson. Yes. Thank you, Madam Chairwoman.
Chairwoman Velazquez. Time has expired.
Chairwoman Velazquez. Ms. Dahlkemper?
Ms. Dahlkemper. Thank you, Madam Chair.
I want to say as a business owner, bonus depreciation has
been something we have used successfully in keeping our fleet
modern and buying equipment to make us more efficient and look
forward to seeing that type of legislation move forward.
I wanted to ask all of you just real quickly because we
have votes and I only have five minutes here, but do you feel
the IRS adequately is providing the business community with the
information that you need so that you know what tax incentives
are out there for you? And just very quickly, if you can let me
know how you find out what is out there for your industry? And
if you could just give me a short answer, Mr. Koenig?
Mr. Koenig. Congresswoman Dahlkemper, we try to keep on top
of things within the restaurant industry and feed information
out to our members constantly through a combination of working
with the IRS on new forms, on new laws, working with our state
partners. We think that they do a pretty good job of keeping us
informed.
However, I find them I think probably overburdened in the
years to come with a lot of the new responsibilities that the
health care law has placed on the IRS. So I think it will be
interesting to see how their level of service to the small
business community is impacted by that.
Ms. Dahlkemper. Mr. Joyce?
Mr. Joyce. Typically we get our information from our CPAs
as we go through the review. We really count on them to back
into what is appropriate for us and what is not appropriate to
us. So we feel like it is the IRS's job to--
Ms. Dahlkemper. So your CPAs are doing that?
Mr. Joyce. Yes, they are doing that.
Ms. Dahlkemper. Thank you.
Mr. Collins?
Mr. Collins. The same.
Ms. Dahlkemper. Okay. Mr. Green?
Mr. Graves. We have CPAs, but we also have clients that are
trying to work through some of the energy credits and some of
the sustainability issues. And some of that gets a little
convoluted and tough to understand. Whether it is a credit,
whether it is an additional line item on the taxes, those could
be a little more clear to us.
But we are with these guys. The CPAs provide a lot of
information. Every now and then, they get confused. I am not
sure tax regulations are that simple.
Ms. Dahlkemper. No, they aren't. That is why I was
wondering how each industry--Mr. Dubay, I have a separate
question for you. You had mentioned that in your testimony, you
had said that the death tax, the estate tax, you said it raises
little revenue I think were the exact words you said. And it is
estimated that for 2009, there will be 14,900 estate tax
returns filed; of those, 5,500, actually very few, across the
country who will owe that estate tax. But it is going to total
$13.8 billion.
Do you think $13.8 billion is just a little bit of revenue?
Mr. Dubay. Well, compared to the total federal tax
revenues, yes. I mean, the federal government collects about $3
trillion a year.
Ms. Dahlkemper. Okay. But if we don't have the $13.8
billion, what are we going to do about making up that amount of
money?
Mr. Dubay. Well, there are actually studies that show that
if you repealed the death tax, you would get increase in
economic activity so much that it would make up for all of the
revenue on the income side.
Ms. Dahlkemper. I don't think I totally agree with you on
that. Last year we tried to pass a permanent fix because, as
some of the business owners mentioned here, part of the issue
with business--and I say this as somebody who has a business
back home--it is the uncertainty.
So this year the estate tax has gone back down to zero. And
next year it is going to go to a million. Last year it was 3.5
and 7. And so we tried to fix that in December. We passed a
bill through the House to permanently fix the 3.5 and 7, which
it seemed most people in my district were very comfortable
with. And it would give some certainty to business owners and
farmers and people who may have enough in their state to cause
that to be an issue for them.
So I guess I am just questioning that we have got 5,500
people who may owe this in 2009, bringing in $13.8 billion
raised. Of course, this year in 2010, it is expected that
70,000 people will be affected because, again, the uncertainty
with allowing that fix that we had tried to get through the
entire Congress didn't pass. I guess I just want your opinion
on that.
Mr. Dubay. Right. I agree that stability matters. All
businesses crave it. But it doesn't matter how many estates are
being impacted by the death tax. What matters is the economic
impact that is created by that tax.
What we have seen is that it is a huge economic impact.
Businesses, especially small family-owned businesses, get hit
particularly hard. They can't afford the expensive preparation
that bigger, larger estates can afford.
So when the death tax hits, they are often stuck with large
bills. And they have to liquidate part of their firms or the
whole thing. That means they cost people their jobs. That means
the business cannot expand.
Chairwoman Velazquez. Time has expired.
Ms. Clarke?
Ms. Clarke. Thank you, Madam Chair.
It is a very interesting debate because we are trying to
find the balance. And I don't know how you necessarily strike a
balance. But that is why we are trying to get informed by you.
Clearly we don't want to inhibit innovation. We don't want
to inhibit business growth and expansion. But, like all other
entities in the United States of America and individuals, there
is an expectation that there is going to be revenue generated.
So my question to you is, giving through to where we are
right now in the development of our economy and given the fact
that there are a number of tax incentives made available to
small business, where do we draw the line? Where do you feel
that there is an obligation for you to pay revenues, to pay
taxes?
Mr. Dubay, your answer at one point was that, well, you
don't feel that it is appropriate to pay taxes, there is never
really a good time. You know, if you were negotiating, what
would you say is appropriate?
Mr. Dubay. What I said is it is never a good time to raise
taxes, not to pay taxes. We should all pay taxes. We all have
an obligation to pay them.
But from an economic standpoint, there is never a good time
because all tax increases, all taxes have economic drag. So
raising them during a recession seems unwise to me. Even though
we are not in a recession anymore, we are trying to recover.
But as recovery is trying to take off and still going slowly,
it seems unwise to raise them now.
I mean, at the very least, I would suggest extending the
2001-2003 tax cuts for at least the next couple of years.
Ms. Clarke. So you feel that extending the tax cuts would
give you sort of the ground you need to sort of lift the
companies? Is that your contention?
Mr. Dubay. I will leave that to the other gentlemen, who
can speak more personally to that.
Ms. Clarke. Okay.
Mr. Dubay. But I would say so, yes.
Ms. Clarke. Would anyone else care to? Please?
Mr. Joyce. It would be a big help to not have--you know, in
a lot of the businesses, when you get into rates, you know,
most of us are in the 40 to 50 percent when you look at the fed
and state and add it together if it's an S.
And I think that when you start going past that, you grind
up so much disposable capital it becomes very difficult to do
things, create jobs, take risks because you are always trying
to leave a cushion. And if the taxes take the cushion, you get
into the fear slot. So anything that can be done to moderate
and flatten them?
And I would just like to say one thing on the death tax.
Having gone through a very difficult transfer between the death
of my mother and the father to the business to me and buying my
sisters out,--and they did an incredibly good job of planning--
it was so difficult you cannot imagine the pain it puts on a
family.
And if we could come up with some 20-30 percent number and
call it a transfer tax and just let us transfer at any time you
want and not make it happen at death. Causing everything to go
down in the nine-month death period is so difficult.
I have got your attention. If there is anything that could
ever be done, it would be wonderful because it is so difficult,
having done it.
But back to the tax part, my late father said, ``And it is
our duty to pay tax. And I want to pay tax.''
Ms. Clarke. Yes.
Mr. Joyce. I would like to just keep it in a gentle ramp
and have everyone doing it and have everyone playing, rather
than it be punitive in one direction or another.
Ms. Clarke. Thank you very much, Madam Chair.
Chairwoman Velazquez. Mr. Joyce, what would you think is--
what will stimulate the economy? If we cut taxes to 95 percent
of American families or just 1 percent of American families, we
need to increase consumer spending. What will generate the type
of activity in terms of consumers: the 1 percent cut to the
wealthy families or the 95 percent to all American families?
Mr. Joyce. I think a combined approach would do it, some
incentives for the families where it is that piece. And if we
could take the 1 or 2 percent that are paying 50-ish percent--
and I am not asking for tax decreases.
I would also say I think we are very close to a breaking
point for medium to large or small--you have got little teeny
smalls, and then you have got this medium group of smalls,
which I kind of fall in. We are real close to a breaking point.
And I think if we could just be given a cushion and no more
increases, let it all settle out, we will drive it and give the
95 percent incentives.
Chairwoman Velazquez. That balance was what we tried to do
in the stimulus package, where so many tax cuts and credits
were provided to small businesses because you are the ones
creating the jobs that we need in order to get this economy
growing again.
Mr. Joyce. Thank you. And it is working.
Chairwoman Velazquez. I ask unanimous consent that members
will have five days to submit a statement and supporting
materials for the record. Without objection, so ordered.
This hearing is now adjourned. Thank you.
[Whereupon, at 2:09 p.m., the foregoing matter was
concluded.]
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