[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

BURIED IN PAPERWORK: A 1099 UPDATE

=======================================================================

HEARING

before the

COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

HEARING HELD
FEBRUARY 9, 2011

__________

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Small Business Committee Document Number 111-059
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HOUSE COMMITTEE ON SMALL BUSINESS

SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts

Lori Salley, Staff Director
Paul Sass, Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Directory

C O N T E N T S

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Opening Statements:
Graves, Hon. Sam............................................. 1
Velazquez, Hon. Nydia M...................................... 2

WITNESSES

Lungren, Hon. Daniel E., U.S. House of Representatives (CA-03)... 4
Kivett, Mr. R. Jerol, President, Kivett's, Inc., Clinton, NC. On
behalf of the National Federation of Independent Business...... 34
Eagleton, Mr. John ``Mark'', Managing Member, Eagleton Ventures,
LLC, The Egg & I Restaurant, Golden, CO. On behalf of the
National Restaurant Association................................ 24
Shipley, Mr. Seth, Owner, Shipley's Fine Jewelry, Hampstead, MD.
On behalf of the National Retail Federation.................... 19
Kegley, Mr. Mike, President, B.O.L.D. Homes, Inc., Union, KY. On
behalf of the National Association of Home Builders............ 41

APPENDIX

Prepared Statements:
Lungren, Hon. Daniel E., U.S. House of Representatives (CA-
03)........................................................ 7
Kivett, Mr. R. Jerol, President, Kivett's, Inc., Clinton, NC.
On behalf of the National Federation of Independent
Business................................................... 37
Eagleton, Mr. John ``Mark'', Managing Member, Eagleton
Ventures, LLC, The Egg & I Restaurant, Golden, CO. On
behalf of the National Restaurant Association.............. 26
Shipley, Mr. Seth, Owner, Shipley's Fine Jewelry, Hampstead,
MD. On behalf of the National Retail Federation............ 21
Kegley, Mr. Mike, President, B.O.L.D. Homes, Inc., Union, KY.
On behalf of the National Association of Home Builders..... 43
Statements for the Record:
Altmire, Hon. Jason.......................................... 64
Landry, Hon. Jeff............................................ 67
Tipton, Hon. Scott........................................... 65
West, Hon. Allen............................................. 66
Society of American Florists................................. 107
United States Chamber of Commerce............................ 95
National Association of Chain Drugstores..................... 89
National Association of the Remodeling Industry.............. 78
National Community of Pharmacists............................ 92
The Computer Technology Industry Association................. 80
American Association of Orthodontists........................ 75
Associated Builders and Contractors, INC..................... 71
Owner-Operator Independent Drivers Association............... 73
Letter to the Committee on Ways and Means.................... 68

BURIED IN PAPERWORK: A 1099 UPDATE

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WEDNESDAY, FEBRUARY 9, 2011

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. Sam Graves (Chairman
of the Committee) presiding.
Present: Representatives Graves, Bartlett, Chabot, King,
Coffman, Mulvaney, Tipton, Fleischmann, Herrera Beutler, West,
Ellmers, Walsh, Landry, Velazquez, Schrader, Critz, Altmire,
Clarke, Chu, Cicilline, Richmond, Peters, Owens and Keating.
Chairman Graves. Good afternoon, and we will call this
hearing to order.
Again, I want to welcome all of the new Members as well as
returning Members to the 112th Congress and to the Small
Business Committee. I look forward to working with everybody. I
want to give a special thanks to Chairman Lungren and all of
our small business witnesses that are going to be here today.
We are depending on small firms to reinvigorate our
economy, so we must provide an environment in which I think
that they can flourish and do just that.
We begin with session's hearings by examining the state of
the health care reform and the effect on small businesses.
Today, we focus on the health care law's provision that expands
the business 1099 reporting requirements. Under the new
provision, reports will also be required for goods and property
as well as services. Additionally, reporting on payments to all
corporations that are not tax-exempt will be required if they
meet the $600 threshold.
To reiterate, small business owners could be forced to fill
out all this paperwork over and over again because of hundreds
of ordinary business purchases that add up over the course of a
year; business purchases such as equipment, furniture, office
supplies, software and fuel.
Scheduled to take effect in 2012, the expanded 1099
reporting provision was added to the health care law to help
close the so-called tax gap by generating revenue to pay for
the law. However, a report by the IRS Taxpayer Advocate Service
notes that the new reporting burden, particularly as it falls
on small businesses, may turn out to be disproportionate as
compared to any resulting improvement in tax compliance. In
other words, the reporting requirements may not accomplish its
intended purpose and could be an administrative nightmare for
small businesses.
In addition, the Taxpayer Advocate Service has raised
questions about the significant administrative challenges that
the requirement may pose to the IRS. This new 1099 requirement
will cause an avalanche of additional 1099 forms to be filed
and affect over 36 million entities.
At a time when we should be making it easier to create
jobs, promote growth and invest in our economy, small firms
don't need yet another costly and burdensome mandate. Although
attempts were made last session to repeal this provision, those
efforts were unsuccessful. We must repeal it immediately so
small businesses do not begin to devote scarce resources to
compliance.
I am pleased that over 260 Members from both sides of the
aisle have cosponsored Chairman Lungren's repeal legislation
and that President Obama called for repeal in the State of the
Union address. And last week, the Senate passed an amendment
doing just that in its repealing of this provision.
Today we will hear from small business owners who would be
affected by this new 1099 requirement and from the House author
of the legislation to repeal it. And so I want to, again, thank
all of you for being here and providing your testimony.
I now yield to Ranking Member Velazquez for her opening
statement.
Ms. Velazquez. I thank the gentleman for yielding.
Today's hearing will focus on an issue that could impact
millions of small businesses across the country. While there is
often little agreement in Congress on many policies, there is
bipartisan consensus that the issue of 1099 reporting must be
fixed.
As we examine the problems this requirement could pose, it
is important to understand the concept's history. While some
might like to believe it was created minutes before it was
added to the health reform bill, it is a proposal that was
years in the making.
Originally proposed by the Bush administration, the
reporting provision was intended to ensure accurate income
reporting. The Taxpayer Advocate suggested this type of change
won't reduce the so-called tax gap and level the playing field
and ensure all businesses pay their taxes.
Although there may have been a laudable goal behind the
1099 requirement, the new law will have severe unintended
consequences for entrepreneurs with little benefit. Small firms
already spend 1.8 billion hours on tax compliance, and the new
1099 rules will add to that burden.
It also does little to limit tax avoidance, as estimates
have found it will improve tax compliance by only a half
percent. Clearly, this minimal improvement is not worth the
significant economic effects.
At a time when America needs to promote economic activity,
the 1099 requirements could hamper transactions between
businesses. If Congress does not act, businesses will see
additional paperwork every time they buy equipment, sell goods,
or make capital investments. Our Tax Code should reward growth,
not serve as a roadblock to growth. That is why repeal is the
only solution.
It is my hope that we can address this problem immediately.
Many businesses are already spending money on compliance. If
Congress acts quickly, small firms will see immediate benefits,
freeing up capital for growth and job creation. As the economy
continues improving, small businesses need to focus on what
they do best: developing innovative new services, bringing
additional products to market, and creating jobs.
This hearing can also serve as a starting point to examine
other ways to limit burdensome regulations. Today's discussion
offers witnesses an opportunity to expose not just the problem
with 1099s but also highlight other regulatory reforms that may
help entrepreneurs.
Throughout the 112th Congress, I will stand committed to
working in a bipartisan way to remove or revise policies that
stifle entrepreneurship, innovation and growth. That has been
the spirit of this committee for the last many years, since
Chairman Talent was the chairman, and then Steve Chabot was the
chairman, and then when I came here. We do understand the
important role that small businesses play. And compared to many
other committees, we should be proud of the products that we
reported out of this committee.
So, hopefully, fixing 1099 will be the first of the many
issues that the committee can approach with enthusiastic
support from both sides of the aisle. I would also hope that
our focus today remains on the regulatory burdens facing small
firms, and we do not get bogged down repeating political
debates from last Congresses.
With that, let me welcome Chairman Lungren to the committee
as well as the small businesses who have taken time from their
busy schedules to testify before this committee.
Welcome.
Thank you, Mr. Chairman.
Chairman Graves. At this time, I would ask if there are any
other opening statements, please submit them for the record. We
will have a series of votes shortly, and I want to make sure
that we get through Chairman Lungren's testimony.
Chairman Graves. It is my pleasure to introduce the first
witness. He is chairman of the House Administration Committee,
Congressman Dan Lungren from California. He has been the leader
in the 1099 repeal. In fact, he introduced his bill in 2010
shortly after the health care law was passed, and he has
reintroduced it and now has 260 cosponsors.
Welcome, Chairman Lungren.

STATEMENT OF THE HON. DANIEL E. LUNGREN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Lungren. Thank you, Mr. Chairman.
And thank you, Madam Ranking Member.
After those opening statements, I just have one thing to
say: Amen and thank you.
First of all, let me thank you for the opportunity to
testify regarding this legislative proposal, which has now been
given the number H.R. 4. And I wish to acknowledge that the
Small Business Committee is the appropriate place to begin the
discussion of the bill.
If I were to summarize the bill, I would say that we are
trying to get rid of something that shouldn't have been there
in the first place. It is a totally ineffective way to solve
the so-called tax gap problem. And only in Washington, I guess,
could searchers for a needle in a haystack enlarge the
haystack. This is exactly what the 1099 requirement does.
If you check U.S. tax compliance, it is among the highest
in the world; if not the highest in the world, over 86 percent.
And this provision would affect businesses most likely who are
already in compliance. So it is misguided.
The idea for H.R. 4 had its genesis in the groundswell of
concern among the small business community over the unintended
consequences of a 170-word Section 9006 of the bill that
contained over 240,000 words. Essentially this section would
require all businesses and nonprofit organizations--oh, and by
the way, and congressional offices. Every congressional office
would be required to file 1099s for every vendor that you would
transact business with over $600 a year. Perhaps that is the
good part of it. We would have to follow the same law that
small businesses would.
This new mandate is set to take effect on January 1 of next
year. Now, regardless of one's view on the health care bill,
the new 1099 filing requirement could not be more ill-
conceived. The focus of this committee relates to expanding
opportunities for small businesses. And, unfortunately, this
section of the health care bill takes us in precisely the
opposite direction.
I know I have heard from many members of this committee
that they are looking for ways to free small businesses from
undue burdens. We should look for ways to free up the--as they
call it--the animal spirits in order to encourage
entrepreneurship. And rather than imposing these obligations
for companies, we should seek ways to start--restart the engine
of job growth.
The ranking member mentioned that this had its genesis with
the Bush administration, and that is partially correct. The
Bush administration Treasury Department talked about requiring
corporate services--that is corporations providing services--
that in that regard 1099s ought to be filed. They never, as far
as I am concerned, I don't know where this idea came from, that
you would have to file 1099s for purchase of goods. That is an
entirely new concept. And, frankly, I am not sure any hearings
were ever held on that, any consideration on what that would
do, and the tremendous range of application that that would
have.
Look, we don't have the luxury of thinking that the small
business community is this constant variable that can easily
absorb additional requirements, additional burdens. Even in
normal terms, it is challenging enough for new business
ventures to succeed.
In my district, we have an unemployment rate of over 12.5
percent. Small businesses are having a tough time even hanging
on. We hear from small businesses talking about the difficulty
they have getting credit just to keep their businesses going.
And then, on top of that, to face this kind of regulatory array
of obligations is entirely unnecessary.
If we really seek to increase investment, hiring and
business growth, we need to look for an environment that is
more friendly to entrepreneurship.
When I first heard of this, actually it was a briefing that
Congressman Burgess had to look at the business implications of
the health care bill after it passed. The NFIB identified this
as a problem. When my staff brought it to my attention, we
started to examine it. And one of the things we discovered is
not only would it be a burden on all businesses, but it would
be a double-edged sword with respect to small business. Because
if you want to minimize the number of 1099s you file, are you
going to go to your local restaurant? Are you going to your
local hardware store? Are you going to go to your local
provider when you will have to keep track of every single
purchase you make so that, if it reaches that $600 threshold in
a calendar year, you are going to have to file? Or if you want
to minimize your 1099s, won't you go to the big box store?
Won't you go to the big chains? In other words, this is a
tremendous disincentive for the small business entrepreneur in
all of our districts, and I am not sure anybody really thought
about that.
One of the--someone who has been involved in small business
before told me this, and he said it is obvious that whoever put
this in the bill never has laid awake on a Thursday night
trying to figure out how to make payroll for their employees on
Friday. This is just an additional burden.
There are those who have said, the Tax Advocate for the
Internal Revenue Service indicated that there is a questionable
return on investment here, for the cost of the reporting placed
on a small business could very well outweigh anything that the
government gets.
Here is the last thing I would say is this, look, we talk
about a tax gap, and that is a nice technical term. What we are
suggesting is that people are cheaters. Now I think most people
follow the law. And to suggest that virtually the entire
business community, especially the small business community, is
made up of a bunch of cheaters and we should then have a
reporting requirement that doesn't go to the person who is
filing the report, the 1099, as to any obligation they have,
but rather as a report on somebody else with whom they have at
most an arm's length transaction, that somehow that is to get
information on that other person, I just think is--I don't want
to overstate it, but almost un-American. It is almost like we
are asked to be a nation of snitchers.
When you look at it that way, you have to say: What is the
original purpose of 1099? When you file a 1099, it is to, in
many cases, ensure that you make sure that payroll taxes are
paid. It is an obligation on your part. Then we extend a little
bit further because we say, well, this is an easy way of
getting some reporting that we can check on. Then we finally
extend it to every purchase of every product possible over a
12-month period of time. It really boggles the mind to think
that we think that this could be effective.
According to the National Taxpayer Advocacy Service
analysis of 2009 IRS data, about 40 million businesses and
other entities will be subject to this new requirement,
including roughly 26 million nonfarm sole proprietorships, 4
million S corporations, 2 million C corporations, 3 million
partnerships, 2 million farming businesses, 1 million
charities, and other tax-exempt organizations, and more than
100,000 government entities, including each and every one of
your offices. So I hope you are ready to have an accountant
take care of this to make sure that you do not violate the law.
I just would say that we are now up to 270 cosponsors,
which is kind of nice because when I introduced this a little
less than a year ago, I had one sponsor, myself. And the
response has been--it is bipartisan. I believe I have 34
Members from the minority that have signed onto this now. We
have from the most conservative Members to my good friend
Barney Frank have signed on. So if anybody wants to find a
bipartisan piece of legislation, it is the only thing that I
could find in the President's State of the Union address that
he specifically mentioned that ought to be passed. So I hope
that we can do that, and I hope we can do that with dispatch.
I thank you for your time and consideration.
[The statement of Mr. Lungren follows:]

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Chairman Graves. Thank you, Mr. Chairman.
I just have one or two questions just out of curiosity. Can
you tell me what on earth the IRS is going to do with all of
this paperwork if this were to be implemented?
Mr. Lungren. Well, if they are going to do anything with
it, they are going to have to hire more people and they are
going to have some new software and new hardware to figure out
what they are going to do with it.
Chairman Graves. And that is my next question. How many
would they have to hire?
Mr. Lungren. Lord only knows. This is actually true. When I
started to consider this bill last year after the health care
bill passed, we called the IRS and asked them if they could
tell us how it would apply and in what fashion. And their
response to us was, we have to wait for guidance from Secretary
Sebelius.
Chairman Graves. That is interesting.
Mr. Lungren. That is one of the problems you have when you
mix up some bills.
Chairman Graves. I will turn to Ranking Member Velazquez
for questions.
Ms. Velazquez. Thank you, Mr. Chairman.
Thank you, Mr. Lungren, for your testimony.
My question to you is, you have a bill that has bipartisan
support. You have a precedent that is on record. You have most
of the members of this committee supporting the repeal of 1099.
Do you support the recently passed legislation in the Senate,
which has bipartisan support and was revenue neutral?
Mr. Lungren. Well, they added some language in that. It was
an amendment, and it was an amendment to a bill, FAA bill, and
it involves tax policy. So there is a question of whether or
not a provision like that can actually initiate in the Senate
or rather it has to initiate in the House under the section of
the Constitution that requires us to initiate tax legislation.
So all I can say is that I am glad for their support. I am
happy they have taken a position, and my feeling is that if we
can have a freestanding bill, H.R. 4, passed, I can't see how
it wouldn't be passed in the Senate.
Ms. Velazquez. H.R. 4 repeals the 1099 provision, but it
does not address the issue of the $22 billion in revenue that
would be lost.
Mr. Lungren. Correct.
Ms. Velazquez. What is your position on that?
Mr. Lungren. Well, my position on that is that this was
largely an unknown section of the bill. I do not recall us
debating this on the floor of the House. I don't even know
whether they debated it on the floor of the Senate. We found
out after the fact that they scored it for somewhere between
$19 billion and $22 billion, and to suggest that because we are
going to repeal a provision that has never gone into effect
based on a scoring of tax revenue that they say they have never
received before and that we, therefore, are obligated to
substitute other taxes, frankly, I think that is a game that
the American people ought not to play.
So I do not have a reflected amount of money, a respective
amount of money for that. This simply gets rid of a provision
of law that never existed before. It does not deny any taxes
that had been collected before. And under the Rules of the
House adopted on the opening session, it is not required
because it deals with the health care bill.
Ms. Velazquez. Mr. Lungren, I understand and I hear what
you are saying. But conceptually, whether or not you agree with
the process, would you agree that it would be fiscally
irresponsible for us not to pay for, not to find----
Mr. Lungren. No, not at all, because if I accept that
proposition, I have to accept the argument that a provision
that was not debated in the public, not understood by the
public, never presented to us in the House, that never existed
before, gets into law and we realize it is a huge mistake, that
we are then obligated to introduce legislation that increases
taxes by a like amount; I frankly just--let me just put it this
way. I offered that question to my constituents and they
overwhelmingly said no. Because you made a mistake last year,
don't then double down on that mistake by saying, well, we are
going to increase your taxes by a like amount for a program
that never existed in the first place. So I don't think it is a
budgetarily or fiscally irresponsible to pass----
Ms. Velazquez. It is because it is going to expand on the
deficit. It is going to broaden the deficit.
Mr. Lungren. Well, see, I understand what you are saying.
But with all due respect, I will say this, I think that kind of
an argument is the kind of argument that upsets our
constituents at home because the collection of these revenues
never existed before; there is an argument that it is somewhat
fanciful in terms of the number they came up with; and third,
you have the IRS tax advocate saying that the imposition of
this may cause a greater burden dollar-wise on the affected
small business than it would ever garner for the government.
Ms. Velazquez. We don't agree, but JCT is a bipartisan
body.
Thank you, Mr. Chairman.
Chairman Graves. Thank you.
Mr. Chairman, real quick, since when does money that the
government is not receiving contribute to the deficit?
Mr. Lungren. It is the language in Washington, D.C., where
we talk about expenditures. Have you ever heard the word ``tax
expenditure''? That is used to say that if we grant you a tax
cut or don't increase your taxes, that amount of money you owe
us. Philosophically, the only way I can understand that is if
you absolutely believe that the first dollar that someone earns
is the Federal Government's first and you only get to keep it
at their acquiescence.
Chairman Graves. We are going to have to move fast because
we do have votes any time now. So I will call on Mr. Tipton of
Colorado. We will try to get through them. If we don't, then we
will then break for votes.
Mr. Tipton. Thank you, Mr. Chairman.
And thank you, Chairman Lungren, for being here at well.
I am a little curious, you may have covered this, but what
is the cost, you listed off the millions of businesses that
would have to comply with this if it stands as is, what would
be the cost to those businesses?
Mr. Lungren. I haven't seen an actual number. I am sure
maybe some of the other witnesses might be able to tell you
that. I just will say this, that the tax advocate said that the
cost may in fact not be worth it in terms of that money that
goes to the government. And I would agree with the tax advocate
on that one.
Mr. Tipton. But would it be a reasonable extension--I am a
small business owner as well; you know, you scrap for every
penny you have--that this, actually, if it stood, it would
actually be more of a job inhibitor at a time when we are
trying to create jobs?
Mr. Lungren. Well, you are going to take money to do this
that you would use to hire somebody to do productive activity,
I would think. And you have got to make sure that you are not
wrong because you are subject to filing penalties if you don't
file it correctly.
Mr. Tipton. Thank you.
Mr. Chairman, I yield the balance of my time.
Chairman Graves. Mr. Critz of Pennsylvania.
Mr. Critz. Thank you, Mr. Chairman, Chairman Graves and
Chairman Lungren, for appearing here.
I just have one quick question, something I learned during
this debate. And by the way, I am one of those 34 cosponsors of
the bill.
Mr. Lungren. Thank you very much. Talk to some of your
colleagues, please.
Mr. Critz. Well, one of the things that I just learned that
I did not know was that $600 threshold was actually set in
1954. And the last time I checked, $600 in 2011 does not buy
the same amount as it did in 1954. And as we debate this
reporting, shouldn't we also look at this reporting threshold
as a possible way to also reduce small business reporting?
I mean, we all love accountants--who doesn't--and we would
love to give them more work like this provision does, but I
would be curious to have your feedback on that threshold limit.
Mr. Lungren. You are right. We do love our accountants. I
am not sure I would allow my daughter to date one, but I think
you are absolutely correct. We ought to do that. I thank the
gentleman for bringing that to our attention.
Mr. Critz. Thank you, and I yield back.
Chairman Graves. Mr. Fleischmann from Tennessee.
Mr. Fleischmann. Thank you, Mr. Chairman.
Chairman Lungren, thank you. I am also a cosponsor of this
bill, and proud to do so.
I just returned from my district last week. I met with
business people, small business people, chambers of commerce,
and good hardworking people. Their question to me is basically
with over 200 cosponsors of this bill, with the President's
support of this bill, you have indicated that the Senate has a
bill, perhaps, with some language in there that we can't
necessarily live with but could possibly correct; what is the
prospect of passage of this bill and how swiftly can we get
some relief for the small business people in this country?
Mr. Lungren. All I can say is I have 270 cosponsors, and I
introduced it with H.R. 4 with more than a majority in the
House. I don't know when that has ever been done. The Speaker
gave us H.R. 4. And as you know, the Speaker has the first 10
numbers that he designates for important legislation. The
President gave us a shout out in his State of the Union
address. The Senate has passed language that is exactly the
same but with some additional language. If I were a betting
man, I would say the chances are pretty good and we ought to do
it fairly quickly.
Mr. Fleischmann. Thank you.
Mr. Chairman, I yield back.
Chairman Graves. Mr. Keating of Massachusetts.
Mr. Keating. Thank you, Mr. Chairman.
I just had an interesting metaphor from the northeast that
I think we could all take home with us in terms of the need to
pass this quickly. It is more of a statement than a question.
I heard from people in Cape Cod, and I, too, am a cosponsor
of the bill, but I heard from people from Cape Cod who just
impressed upon me how many businesses this really--the scope of
the businesses that this--you know, people from bed and
breakfasts to U-Hauls to people in the tourism industry. But
the one that, the letter I got that would be interesting to
share was from a woman who told me that every time it snows,
and we have had our share of snowfall in the northeast, every
time it snows, remember that she has to fill out a new form
because she is in the tree repair business, and every time
there is a snowstorm, the trees need repairing. And every time
it snows, remember when I am down here, she will be filling out
another form. So given the climate this year, I hope the
climate for change is as great. I think you will see great
bipartisan support for your bill.
Thank you.
I yield my time.
Chairman Graves. Mr. Landry of Louisiana.
Mr. Landry. Thank you, Mr. Chairman.
That is what happens when you are a freshman, you see; I
don't where the buttons are--or the bathrooms, I guess.
I certainly support this. As a former small business owner,
I know exactly the kind of onerous burden this would place on
small businesses and the impact it would have.
I guess my question is the IRS National Taxpayer Advocate
report said there was concern that the new 1099 reporting,
especially for small businesses, may be disproportionate
compared with any of the other improvements in the tax
compliance; do you agree with that?
Mr. Lungren. Oh, yes. They went on to say the requirement
would require widespread administrative burden disproportionate
to the value of the information to the IRS. They said that
precisely because this extends itself to all goods purchases.
It also went on to say the IRS will receive millions of such
reports on paper, requiring it, meaning the IRS, to devote
significant resources to entering the data into its systems
manually, increasing the risk of transcription errors and
rendering the data less reliable.
Mr. Landry. Thank you. I certainly appreciate your answer.
I yield back the balance of my time.
Chairman Graves. Mr. Owens of New York.
Mr. Owens. I just want to state that I am a cosponsor. I
also was a sponsor of a piece of legislation last year to
accomplish this goal. And I certainly support what you are
doing. I think we do have some dispute as to whether or not
there is a necessary pay-for here. But I think we are moving in
the right direction, and I hope that this gets acted on
promptly and we reach a bipartisan compromise on the pay-for
issue. Thanks very much.
Chairman Graves. Mrs. Ellmers of North Carolina.
Mrs. Ellmers. Thank you.
I would just like to say as a small business owner, a nurse
for 20 years, I understand how cumbersome this is and how
difficult it will be for our businesses to adhere to this. My
question and the question that I have received from my
constituents has been one thing. Now I know this is IRS
legislation and language that has existed for quite awhile, but
whose brilliant idea was it to put this in the health care bill
in order to help pay for it?
Mr. Lungren. My understanding is that it came in on the
Senate side, although I have not found a rush to claim
fathership or mothership of this particular section.
Mrs. Ellmers. That is my understanding, no one seems to be
coming to the forefront. Thank you.
Chairman Graves. Chairman Lungren, I want to thank you for
coming in. We have a vote going on right now. We will adjourn
for approximately 20 or 25 minutes or so. We only have two
votes, so it won't be too bad. So we will stand in recess until
that time.
[Recess.]
Chairman Graves. The hearing will come back to order.
We have the second panel up, and you have 5 minutes. If you
go for a little bit, I am not going to break your arm or
anything, but please try to keep it to 5 minutes.

STATEMENTS OF SETH SHIPLEY, OWNER, SHIPLEY'S FINE JEWELRY,
HAMPSTEAD, MD, ON BEHALF OF THE NATIONAL RETAIL FEDERATION;
JOHN ``MARK'' EAGLETON, MANAGING MEMBER, EAGLETON VENTURES,
LLC, THE EGG & I RESTAURANT, GOLDEN, CO, ON BEHALF OF THE
NATIONAL RESTAURANT ASSOCIATION; R. JEROL KIVETT, PRESIDENT,
KIVETT'S, INC., CLINTON, NC, ON BEHALF OF THE NATIONAL
FEDERATION OF INDEPENDENT BUSINESS; AND MIKE KEGLEY, PRESIDENT,
B.O.L.D. HOMES, INC., UNION, KY, ON BEHALF OF THE NATIONAL
ASSOCIATION OF HOME BUILDERS.

Chairman Graves. And I will recognize Mr. Bartlett to
introduce our first witness.
Mr. Bartlett. Thank you very much. I am very pleased this
is the second panel. I thought I was going to miss the
opportunity to introduce the witness from my district. I was
off the Hill giving a talk, but I got back just in time.
Of all of the counties I represent, I think probably in
many respects the prettiest county is Carroll County. Everybody
there takes an enormous amount of pride in their county. I have
never seen such manicured farm fields as you see in Carroll
County. And if you were to pick a town in Carroll County that
kind of typifies Carroll County, I think it would be Hampstead.
My district is a small business district. It is made up of
small businesses. I was in a former life a small business
person, and so I am very pleased to have been able to be on
this committee for 16 years now. I am happy to introduce one of
my constituents, a small business person who is struggling to
stay in business in spite of stifling regulation and over-
taxation.
Congratulations, sir, for being a survivor, and welcome to
the committee.
Chairman Graves. You are recognized for 5 minutes.

STATEMENT OF SETH SHIPLEY

Mr. Shipley. Mr. Chairman, Ranking Member Velazquez, and
honorable members of the committee, I thank you for the
opportunity to address your committee this afternoon about a
pending threat to small businesses that I can best describe as
formidable, frustrating and frightening.
My name is Seth Shipley, owner of Shipley's Diamonds and
Fine Jewelry in Hampstead, Maryland. I appear before you on
behalf of both the National Retail Federation and the Maryland
Retailers Association.
From a small business perspective, the health care reform
law enacted last year is at best a mixed bag and looks to me
like it will hurt far more than it will help. Retailers
recognize that repeal of the entire health care reform law is
difficult given the current makeup of the Senate as well as
President Obama's veto power. Therefore, we also support
specific changes to The Patient Protection and Affordable Care
Act, such as the repeal of the expanded Form 1099 reporting
requirements.
Section 9006 of the PPACA will impact small business owners
like me in ways we are sure of and in other ways we only
imagine. There will be nothing positive or economically
stimulating about it; really quite the opposite.
Requiring reporting for all noncredit card transactions
over $600 in a year will create a blizzard of reports that
needlessly bog down commerce while also swamping the IRS. This
provision has no relevance to our health care system and should
promptly be repealed.
I strongly support H.R. 4, the Small Business Paperwork
Mandate Elimination Act of 2011, introduced by Congressman
Lungren. The National Retail Federation also strongly supports
this bill. This necessary change to the PPACA rightly enjoys
broad bipartisan support and received an overwhelming Senate
vote of 81-17 February 2, 2011, on a dispositive procedural
motion. We look forward to its prompt approval in the House as
well.
My small store in rural Carroll County, Maryland, serves
about 6,000 customers a year. According to the government Web
site, it only takes 18 minutes for me to fill out a 1099 form.
Even so, that means many, many more hours of work that will
have to be devoted to filling out these forms. I conduct
transactions with over 200 jewelry suppliers each year and will
invest more than $600 with each of them. That means additional
hours of work to fill out those forms.
What I find extremely frustrating, however, is that there
is nothing in the 18-minute government estimate that considers
the time I will need to invest tracking each of my transactions
throughout the year. In addition to all of the 1099 forms, I am
told by my accountant that each 1099 form should have a
completed W-9 form. This is a request for taxpayer
identification and certification.
Ultimately, the bookkeeping requirements mandated by this
new law will require hours and hours of additional work. My
conservative estimate is that I will have to expend more than
$35,000 each year to comply with this new law. That is a
significant blow to my net business income. At the moment, I do
not know how I will be able to financially comply with this
mandate.
I began my business in 1991 in my parents' basement. I have
struggled and sacrificed to make my business what it is today.
I have received no government loans or subsidies. I believe I
have made a positive contribution to the economy in my town, my
State, and ultimately my Nation. I have worked hard and been
blessed with a small part of the American dream. If this law
takes effect next year, I believe that dream will vanish for me
and tens of thousands of small business owners across our great
Nation.
I urge your immediate action to repeal this onerous
legislation. I appreciate the chance to appear before you today
on behalf of The National Retail Federation and the Maryland
Retailers Association. Retailers look forward to working with
you to repeal this burdensome reporting mandate and to help
promote the enactment of a more positive health care reform.
Thank you.
[The statement of Mr. Shipley follows:]

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Chairman Graves. Thank you, Mr. Shipley.
I now yield to Mr. Coffman to introduce his constituent
witness.
Mr. Coffman. Thank you, Mr. Chairman.
It is a pleasure to welcome a fellow Coloradoan and
constituent, Mark Eagleton, to the committee.
Mr. Eagleton is a managing member of the Egg & I Restaurant
in Arvada, Colorado. In addition, he serves on the State Board
of the Colorado Restaurant Association. Outside of his
business, Mr. Eagleton serves as a volunteer Jefferson County
reserve deputy sheriff. He and his wife, Sandy, have been
foster parents to a total of 38 children.
Welcome to the committee, Mr. Eagleton. I look forward to
hearing your testimony.

STATEMENT OF JOHN ``MARK'' EAGLETON

Mr. Eagleton. Chairman Graves, ranking member Velazquez,
Colorado Congressman Scott Tipton, and my Colorado
Representative, Mike Coffman, and members of the House Small
Business Committee. Thank you for the opportunity to testify
before you today on behalf of the National Restaurant
Association and the Colorado Restaurant Association on the
impact of the expanded 1099 reporting requirements on small
business.
My name is Dr. John ``Mark'' Eagleton. I am a franchisee
and owner of the Egg & I' Restaurant in Arvada,
Colorado. I began in the restaurant industry when I was 14
years old working as a busboy at the International House of
Pancakes' to help pay my high school tuition. After
that, I was with Arby's' restaurants for 21 years,
eventually serving as the general manager and COO of Colorado's
largest Arby's' franchisee, The Bailey Company,
LLLP.
When I left there 6 years ago, my wife, Sandy, and I
decided to take a chance. We leveraged everything we had to
open our own restaurant. I cashed out my 401(k). I emptied my
savings accounts. I sold my investments. I took out a second
mortgage on my home. I just did everything I could to find
every dime I could find. I even had my best friend chip in a
small loan, and we opened our restaurant. And with the help of
the Small Business Administration, I obtained a 7(a) loan and
began business in April of 2004. I cannot emphasize enough that
we invested every dime we had in our business, and I am proud
of what we built.
We are a 133-seat restaurant open for breakfast and lunch
from 6 a.m. to 2 p.m. every day. I have 26 employees, including
my wife, two sons, and my adopted daughter. I love what I do,
but every day I fight to succeed. I, and my team of 22, know
that if the restaurant succeeds, we all succeed. And if the
restaurant fails, my family and I face financial ruin and 22
families lose their source of income and their livelihoods. Any
variable can tip the balance from being a going concern to just
another failed business. The added 1099 reporting requirements
may sound simple to comply with, but mandating that I track all
vendors from whom I purchase at least $600 in products and
services each year and issue 1099s will be significant in both
time and money.
I work with 200 to 300 vendors a year. Generally, I pay in
cash or check. For instance, every single day I go across the
street to the grocery store and buy a fresh head of lettuce to
put in my salad mix because if I buy it in bulk, it goes old
before I can use it all. That lettuce costs $1.79. And if I do
that 363 days a year, for every day I am open, that exceeds the
$600 total. So, I now have to issue a 1099 for buying a head of
lettuce every day. That is just ludicrous.
The expanded 1099 requirement will force me to monitor all
purchases like this one. In addition, I will need to buy new
software, track down each vendor's tax ID number, their
address, key in that information, compile the data into 1099s,
print and mail forms to the vendors and to the IRS. And still
the process is unclear to me because I worry about the
accuracy. What if my books don't agree with a vendor's records?
How will we reconcile disagreements? Will I face fines if there
is some sort of confusion?
So, to me, next comes a choice: I can either do the work
myself or pay someone else to do it. I don't have the money to
pay someone else to do it, so that means it falls on my
shoulders. The past few years have been extremely challenging.
For 2 years in a row, I have seen sales decline. The choice I
make is, can I raise prices to cover the costs of doing all
this? I don't think I can because I compete in a marketplace
where my customers can easily go to my competitor.
I am also concerned about my guests. Almost every week a
business networking group spends $80 for a meal at my
restaurant. Once a month, a department from a local business
comes in for a business lunch and spends $60 while they discuss
workplace issues. They often pay in cash or by check. Will they
continue to patronize my restaurant if they need to worry about
1099 requirements.
In addition to the 1099 provision, I urge Congress to
address the fundamental changes within the entire health care
law. My written testimony details the deep and growing concerns
of my industry. Please consider who is affected if a restaurant
like mine shuts its doors. One server who has been with me
since I opened, Danielle, put herself through nursing school
with our company's help. One of my cooks, Jeff, has a wife and
two kids, and she is a schoolteacher.
I employ college students who work with me on the weekends.
Their age group faces the highest unemployment rate in decades.
I worry what they will do if increased government regulations
tip the scales and force me to close.
I hope this committee will convey our concerns and Congress
will repeal the 1099 provision as soon as possible. The
National Restaurant Association and the Colorado Restaurant
Association look forward to working with you to revise health
care laws generally.
Thank you again. I would be happy to take your questions at
the appropriate time.
[The statement of Mr. Eagleton follows:]

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Chairman Graves. Thank you, Mr. Eagleton.
I will next recognize representative Mrs. Ellmers to
introduce her constituent witness.
Mrs. Ellmers. Thank you, Mr. Chairman.
It is my distinct pleasure to introduce to you my friend
Mr. R. Jerol Kivett. He is president of Kivett's, Inc., located
in the district that I represent in Clinton, North Carolina.
The Kivetts started their family business years ago in
1958. Along with his father, they pooled their money together
to start their business and continue it on. The Kivetts are the
largest family-owned-and-operated pew manufacturer and
refinisher in the United States for churches across the United
States. Mr. Kivett has been at the helm since 1972. He is
testifying today on behalf of The National Federation of
Independent Businesses founded in 1943. The NFIB is the leading
small business association representing small and independent
businesses.
Welcome, Mr. Kivett. We are anxiously awaiting your
testimony for 5 minutes. Thank you.

STATEMENT OF R. JEROL KIVETT

Mr. Kivett. Thank you, congresswoman.
Good afternoon, Chairman Graves, Ranking Member Velazquez,
and members of the committee. My name is Jerol Kivett, and I am
the owner of Kivett's, Inc. I am pleased to be here as a small
business owner and a member of the National Federation of
Independent Businesses, the Nation's leading small business
advocacy organization, to discuss the negative impact expanding
the 1099 reporting provision will have on my business and small
businesses in again.
I would also like to thank Congresswoman Ellmers for
working with me to participate in this important hearing.
Kivett's, Inc., is located in Clinton, North Carolina, and
is the largest family-owned-and-operated church furniture
manufacturer and pew refinisher in the United States. In
addition, our company manufactures and refurbishes other church
furniture and fixtures, such as steeples and stained-glass
windows. We also build and refurbish furniture for courtrooms.
Kivett's provides a full range of services. We build new
furniture, refurbish existing furniture, and provide both
delivery and installation.
Our business was started by my father in 1958, and I took
over in the early 1970s. At that time, we had fewer than 10
employees. But with hard work, we grew the business, and at our
peak, we employed around 160 workers. When business was at its
best, we were completing about one church per day. For the last
few years, business has been down by 50 percent. The church
furniture industry is small and competitive. With the
recession, many of our customers saw donations drop, meaning
they had less to spend on renovations and expansions. As a
result, our current work force has dropped to about 55
employees.
In the face of the economic challenges facing small
businesses like ours, we are confronting daunting new policy
challenges as well. Working through a recession is tough, but
adding to the burden with confusing new laws and regulations
makes the recovery twice as hard. The uncertainty being created
by Washington is stifling a small business recovery.
The new health care law and uncertainty it is creating for
small business owners makes it harder for us to determine what
our cost will be. The expanded 1099 reporting requirement
included in the health care law is a good example of the kind
of misguided policy that works against the interest of small
businesses.
Filing our annual tax return is never a task we look
forward to, but making filing more burdensome only drains
resources from small businesses like ours. In fact, in a recent
NFIB Small Business Problems and Priorities Survey, tax
complexity was ranked as the fifth biggest problem for small
business owners.
Small business owners spend on average $74 per hour for
paperwork associated with tax compliance, the highest paperwork
compliance imposed on small businesses by the Federal
Government. The expanded 1099 reporting requirement in the
health care law adds to this already heavy burden and increases
our operating costs. Previously, businesses were required to
file a form 1099 for services received from an unincorporated
business of over $600. The health care law expands the
requirement in two ways: First, businesses must file for
services received of over $600 from both incorporated and
unincorporated businesses; and second, for property or material
purchased in excess of $600.
Over the last 3 years, we filed approximately 25 form 1099s
annually. And at our business peak, we filed 50 per year. With
the new health care law, we will average about 300 filings
based on today's business activity. If we reach our peak again,
we will file about 600 forms annually. I will have to dedicate
additional time and money to ensure that I comply with this new
requirement. This diverts resources away from the core
functions of my business.
The burden can't simply be measured in the number of forms
but also in the information that we will have to track to
complete the forms. We will have to follow the amounts of our
purchases from each vendor to determine when or if we meet the
$600 filing threshold. In addition, we will have to request the
taxpayer identification numbers of our vendors, as well as
correct addresses to send the final forms.
The expanded reporting requirement also applies to my
customers, meaning that we will receive requests for
information and more 1099s for the work and property we supply.
Our customers, mostly churches, compose a unique problem for
us: Churches are not sophisticated taxpayers. This places the
burden upon my company to ensure that their forms are completed
properly. This means more resources being dedicated to filling
out forms and less dedicated to serving our clients and growing
our business.
This new reporting burden falls especially hard on small
businesses. Unlike large firms, most of the small businesses
lack an in-house accounting department to handle tax filings.
For the smallest businesses, increased paperwork is often
handled by the owner.
The new 1099 requirement would also place small businesses
at a competitive disadvantage. Some businesses may look to move
to larger vendors to consolidate their purchases and reduce the
number of forms they file, or they can handle the reporting
burden for them, meaning fewer customers and opportunities for
small businesses.
The expanded 1099 reporting requirement places an
unnecessary and onerous burden on small business owners. It is
time for Congress to repeal the provision before it goes into
effect next year.
Thank you for the opportunity to appear before the
committee. I look forward to any questions at the proper time.
[The statement of Mr. Kivett follows:]

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Chairman Graves. Thank you, Mr. Kivett.
At this time, I recognize Ranking Member Velazquez for her
witness.
Ms. Velazquez. Thank you, Mr. Chairman.
It is my privilege to introduce Mr. Mike Kegley. He is the
president of the B.O.L.D. Homes located in Union, Kentucky.
B.O.L.D. provides residential construction, commercial
construction, remodeling, land development and real estate
services. Mr. Kegley is testifying on behalf of the National
Association of Home Builders. The association was founded in
1942 and has more than 160,000 members. Welcome.

STATEMENT OF MIKE KEGLEY

Mr. Kegley. Thank you, Chairman Graves, Ranking Member
Velazquez, on behalf of the 160,000 members of the National
Association of Home Builders, I thank you for the opportunity
to testify today before the House Small Business Committee.
My name is Mike Kegley, and I am a builder in Union,
Kentucky, and the 2011 president of the Home Builders
Association of Kentucky.
In 1986, my two brothers-in-law, my wife Janet and I
started our home building business in northern Kentucky; 6
years ago, our son joined the family business.
Few industries have struggled more during this recession
than the home building industry, and it has been no different
for us. Our production has dropped from 16 homes built with 17
employees in 2007 to 6 homes last year built with 7 employees.
We started performing remodeling work to make ends meet, and my
wife had to leave the company and return to her field of speech
therapy.
In this economic environment, any additional administrative
costs imposed upon me will greatly affect the future of my
company and the jobs of my employees.
Mr. Kegley. So I am pleased the committee is focusing today
on the impact of the new 1099 information reporting
requirements on small businesses.
The new requirement will substantially increase the
reporting requirements on small homebuilders. In January, the
NEHB conducted a survey of builders to determine how many
additional form 1099s would be issued under the new law. The
medium result was 40 additional 1099s, but 38 percent of the
responders indicated they would issue 50 or more additional
1099s, and 17 percent would issue 100 or more additional forms.
For my company, if the new law had been in effect, I would
have issued approximately 144 additional 1099s in 2008, 122
additional forms in 2009, and 173 additional 1099s last year. A
major reason for the increase in 1099s is not just the removal
of the corporate exemption but imposing reporting requirements
on a host of new transactions, such as goods, utility payments,
and freight.
In the homebuilding industry, our employees can be spread
across multiple building sites. For example, the simple task of
tracking fuel purchases from multiple gas stations in possibly
multiple States is daunting. It is not just as simple as
collecting receipts; we would need to determine the taxpayer
identification numbers for each gas station as they are likely
owned by different franchise owners.
We further estimated that it would cost my company an
additional $6,400 in administrative costs for the first year
the new law takes effect to obtain and catalog the additional
W-9 forms. Succeeding years would run about $1,900 annually to
keep up with the new W-9s and make sure they are correct.
In addition, we estimate the added cost of creating the
additional 1099s had the law been in effect would have been
nearly $2,200 in 2008, over $1,800 in 2009, and $2,600 last
year. These numbers do not include the software upgrades I
would have to purchase.
I have also checked with three different accounting
services in Kentucky. Their average cost for preparing a form
1099 was $50 for the first form and $25 for each additional
form, with some volume discounts for over 100. Of course, even
that does not include the cost of obtaining and updating the W-
9 forms or other administrative costs.
To conclude, I am convinced that the additional compliance
outweighs any of the estimated tax revenue. I also believe that
these reporting requirements will make small businesses less
competitive relative to larger corporate businesses.
There is a solution, and I urge Congress to move swiftly to
repeal these new information reporting requirements. Thank you
for allowing me to testify, and I look forward to your
questions.
[The statement of Mr. Kegley follows:]

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Chairman Graves. Thank you, Mr. Kegley.
Mr. Kivett, you have pointed out how many 1099s you are
going to have to fill out with this, but I would be curious as
to what the rest of you think it is going to do in terms of how
many of these you are going to have to fill out. Obviously we
have a variety of businesses here. We have a service business.
We have a retail store, which has inventory, and I am assuming
everything you buy is going to be over $600 easily, but I would
be very curious where you think this is going. How many are you
going to have to file? And how much time is this going to take
specifically?
I will start with you, Mr. Kegley.
Mr. Kegley. Altogether, we are probably averaging about 30
1099s now. And over the last 4 years would have been an average
of 150 additional ones for a total of 180 to 200 total forms.
That breaks down to about 41 in general overhead expenses, and
then approximately about 64 different ones for each and every
home that we might build.
Chairman Graves. Mr. Shipley.
Mr. Shipley. We have estimated approximately 200, based on
how many vendors we currently use; let alone we also buy scrap
gold. Anybody that we buy scrap gold from, it creates a
personal issue for them; they have to give us their Social
Security number, and we run the risk of losing that business.
Chairman Graves. Mr. Eagleton.
Mr. Eagleton. My best estimate is between 60 and 100. Not
knowing how many businesses buy meals from me regularly and how
many of my customers is kind of an unknown, but for vendors
that I buy from for goods and services that I don't pay by
check, 61 is my best estimate.
Chairman Graves. And we heard from you, Mr. Kivett.
Now just a real quick yes or no question: Does it aggravate
you to know that you may have to do this requirement knowing
full well that the IRS may not know what they are going to do
with this information in the end?
Mr. Eagleton. Absolutely.
Mr. Shipley. Without a doubt.
Chairman Graves. Ranking Member Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Kegley, as you noted in your testimony, new reporting
rules apply for landlords that are in effect now. Do you think
that it is likely that many property owners will end up exposed
to potential penalties because they are unaware of the new
rules?
Mr. Kegley. Yes. You are talking about the Small Business
Jobs Act of 2010 exempted what we call independent landlords,
and that would be people like yourself or me that are just
renting one or two homes. And that requirement starts this year
and was only published about 3 months before the end of last
year. We feel like there has been very little advertising about
this requirement, that most landowners are not even aware of
it. There is a very high fine for not reporting properly as
well.
Ms. Velazquez. Can you tell me if the Treasury Department
has given any guidance?
Mr. Kegley. Not that I am aware of, no.
Ms. Velazquez. Mr. Shipley, the IRS has attempted to reduce
the paperwork burden on small businesses by exempting credit
card payments from 1099 reporting. Unfortunately, many small
firms do not accept credit card or debit card payments. Is
there a potential small firms may be put at a competitive
disadvantage because of the exemption for credit card payments?
Mr. Shipley. I am sorry, could you repeat the question?
Ms. Velazquez. The IRS has attempted to reduce paper by
exempting credit card payments, but there are some small
businesses who do not accept credit cards. My question is, will
those small businesses who do not accept credit card or debit
card payments be put at a disadvantage?
Mr. Shipley. I think so without a doubt.
I also think a lot of the small businesses that don't
accept credit cards right now are on the fringe of going out of
business because of that.
Ms. Velazquez. And I would like for each one of the members
of the panel to answer this question: After health care reform,
the IRS mailed small businesses more than 4 million postcards
to inform them of the small business health tax credit. So I
would like to ask you, do you feel the IRS is adequately
working with the business community to answer entrepreneurs'
questions on the new 1099 rules?
Mr. Kegley.
Mr. Kegley. I think they are not doing so. And really the
issuance of a postcard, frankly, I don't really even see all
the mail and don't recall ever getting that.
Ms. Velazquez. But they did it for small businesses to
inform them that as a result of the health care reform bill,
there were tax credits. So, on the 1099, have you seen anything
coming out of the IRS?
Mr. Kegley. Not at all. And if it wasn't for my involvement
in the National Association of Home Builders, I wouldn't be
aware of it.
Mr. Shipley. Not at all.
Mr. Eagleton. I haven't seen anything.
Mr. Kivett. Not at all for me.
Ms. Velazquez. Okay. And of course, it is your position
that they should do more or better in terms of educating the
small business sector as to the new rules regarding 1099.
Thank you, Mr. Chairman.
Chairman Graves. Mr. King of Iowa.
Mr. King. Thank you, Mr. Chairman.
I want to thank the witnesses for your testimony and for
making the trip here today to help illuminate this subject
matter.
I spent my life in the construction business--we are now in
the 35th or 36th year. And it started out with a little, one-
man operation. My biggest fear was government regulators. And
of those regulators, my biggest fear was the IRS. And now a
generation and a half, almost two generations have gone by
since then, and I would start with Mr. Kivett and say, is there
any agency that you have more trepidation about than the IRS?
Mr. Kivett. If there is one, I am not aware of it.
Mr. King. If we can go on down the line.
Mr. Eagleton.
Mr. Eagleton. Well, certainly in our industry, we worry
about Homeland Security, and we also worry about the Department
of Labor, but the IRS is number one.
Mr. King. Thank you.
Mr. Shipley.
Mr. Shipley. Without a doubt, the same.
Mr. King. And Mr. Kegley.
Mr. Kegley. The IRS and the Environmental Protection
Agency.
Mr. King. Ah. I am glad you got that plug in there. I have
certainly lived through these things myself.
I am one who has also made a point, and I just make a point
of reservation here for the panel and the witnesses and people
in the room that we have a larger elephant in the room here--I
actually don't think he falls under the species of elephant--
and that is the ObamaCare legislation that is the father of
this 1099 rule that is before us here today.
It has been real clear where I stand, and I think two-
thirds of the American people seek to abolish and repeal
ObamaCare in all of its aspects. And I have taken the position
that we need to go after the whole thing, and that if we take
small parts of it out, that it diminishes some of our
resistance.
I would just ask, as I go down the line again, starting
with Mr. Kivett--not that we disagree here because I am going
to support this legislation, but have you concerned yourself
with the idea that if we pull out the most egregious aspects of
ObamaCare, we may be stuck with the broader components of it?
Mr. Kivett. That is a concern. And of course, I think the
health care law is the biggest burden on small business today.
It is the biggest burden I have seen in the 30-some years that
I have run my business has come across. I am not sure how we
are going to handle this. Small business will survive, but we
are not going to be able to create jobs that are required for
the 65 percent that we are supposed to generate. I don't see
how we can with this burden on our shoulders.
Mr. King. And Mr. Eagleton.
Mr. Eagleton. Thank you.
I really worry about the health care legislation and its
impact on my business.
Last year, I did about $940,000 in sales as a restaurant.
My net income after debt service was minus $500. So any
government mandate on my business will force me to close, and
22 employees and my family and I will be ruined.
The health care legislation that is mandated, currently I
employ or have insurance on four employees. That cost has gone
up from $11,000 in 2004 to over $30,000 in 2011. I don't know,
if I have to pay for health insurance for my employees, how I
am going to survive. I will shut my doors. I don't know how I
am going to make it through this.
Mr. King. And Mr. Eagleton, as I hear this, I think you
said $944,000 in gross receipts, $500 in net.
Mr. Eagleton. Negative $500.
Mr. King. Negative $500. Sorry, I missed that. I have lived
a little of that myself.
There seems to be an attitude on the part of the
administration that even small business is making large
margins. And I think they don't understand how much of this
is--it is a life that we live because we want to have the
freedom to be able to raise our families and do those things
that you get from being self-employed. I would just offer that
same question to Mr. Shipley and see if he cares to respond.
Mr. Shipley. I agree 100 percent with how you stand on
this. It is very difficult. It is something that if, as you all
know, being self-employed, there are nights when you lie awake
and you wonder, what is going to happen tomorrow. Am I going to
be here not only for my salary, but for the people I employ?
How am I going to pay them? How am I going to keep this going?
I heard a story, I don't know if this is the best analogy,
somebody said if you lifted a stone out in the desert and there
was a rattlesnake under it with a bunch of baby rattlesnakes,
would you just take care of the big rattlesnake or would you
take care of them all? So, as a small business owner and the
people I represent, we would agree, the whole thing is scary
for us as a small business owner.
Mr. King. Thank you, Mr. Shipley.
I am watching my clock tick down. I will turn to a little
bit different question to Mr. Kegley. And that is that as I
listen to the testimony of the witnesses here and their
responses, the IRS and the regulations and the burden of these
1099--squeal forms we always called them and I think we still
do--what does it do--you are in business. What does it do to
the people who are thinking about starting a business when they
are staring in the eye the 1099 squeal forms and the weight of
the IRS and the other regulations--the EPA that you brought up,
Mr. Kegley--what would be the response to whether we will have
more or less entrepreneurs in America?
Mr. Kegley. I think there will be less because any time
government puts up these artificial barriers for new
businesses, then it is that much more difficult to start a new
business, and there will be less and less of that.
Mr. King. Thank you. Thank you, Mr. Chairman.
I yield back my negative balance of time.
Chairman Graves. Thank you.
Mr. Cicilline. Cicilline, that is Italian?
Mr. Cicilline. Yes, it is.
Thank you, Chairman Graves. I want to thank you and our
ranking member for convening this hearing.
I just want to follow up on that question that was just
asked to Mr. Kegley. We are all working hard to build this kind
of new innovation economy of entrepreneurship. The President
just launched a new initiative, ``Innovation America,'' really
focused on that. And I take it everyone would agree with Mr.
Kegley that this kind of requirement is likely to inhibit
innovation and entrepreneurship by creating this kind of a
burden early on in the startup of a business. Is that a fair
statement?
Mr. Kegley. Yes.
Mr. Shipley. Yes.
Mr. Eagleton. Absolutely. I met last week with a
prospective franchisee for The Egg and I, and they were just
trying to pick my brain and see what it is like to be in
business. I told them that I don't know that I would start my
business again with the imposing health care burden that is
forthcoming.
Mr. Cicilline. I am actually talking about the 1099
question.
Mr. Eagleton. Okay, excuse me.
Mr. Cicilline. But is it the same as the 1099, that that is
an additional burden?
Mr. Eagleton. Absolutely.
Mr. Cicilline. And I come from a State that has been very
hard hit by this recession, Rhode Island, we have the fifth
highest unemployment rate in the country. I just was home this
past week and convened a group of Business Leaders on Jobs and
the Economy, an advisory group, and this is one of the issues
they raised, the 1099. I was proud to tell them I am a
cosponsor of the legislation to repeal this provision. I think
it is very important to small businesses, which are the
backbone of our economy in Rhode Island and I think in this
country.
But I do think we owe it to you as business leaders and to
the American people to be honest about this. The reality is
this was a provision which was projected to produce in the last
budget year $22 billion in revenue. My guess is that by
stripping away this, it will allow small businesses to grow and
we will make that up tenfold; I mean, that is the hope. But we
need to be honest about it. We cannot engage in this sort of
mental gymnastics to say there is no cost to the repeal.
So I think we should do it. I am a cosponsor of it. But I
think we need to be honest with the American people because
there is a projection when you build a budget of certain
expenses and certain revenues. And the projection by the
independent Joint Tax Committee is that it would generate
between $19 billion and $22 billion in revenue. That is the
reality. And so stripping it away, which is the right thing to
do, we need to acknowledge that that is a responsibility we
have in balancing all of the equities within a budget and
making tough decisions.
But this notion that we can repeal it and magically that
$22 billion is erased from the budget, but we don't have to do
anything about it is mental gymnastics, and I think we owe it
to the American people and we ought to honor your work as great
business leaders and entrepreneurs to be honest about that. I
am prepared to say it is worth spending that money--we have got
to figure out how to do it--but I am not going to just
magically say it evaporates. And I think that is what we heard
earlier in the hearing today. I think it does a disservice to
the American people.
And I thank you for your really powerful testimony about
the kind of burden this imposes. I couldn't agree with you
more. I heard it firsthand from Rhode Island businesses. I
think it is a bad provision. I think it will inhibit small
business growth and job growth. And I think at least my sole
function of coming to Congress is to get people back to work,
to get my State back on the right track and get this country on
the right track.
But I think one of the reasons that I came to Congress and
saw--confronted some of these great financial challenges that
we face is because we haven't been honest about some of the
budget implications of what we are doing. I think we have to be
honest in this context to say that is the loss of revenue that
will happen and acknowledge it and be able to deal with it like
adults. So I hope we can do that on both sides of the aisle.
I thank you and yield back the balance of my time.
Chairman Graves. Thank you very much.
We will go to Mrs. Ellmers.
Mrs. Ellmers. Thank you, Mr. Chairman.
I have a question for all of our panel, and again thank all
of you for coming and participating today. I know it is not
easy to talk about what is happening in our small businesses
today because it is not very positive.
As a small business owner and with the issues that we face
in the economy, my question to you is, with the bleak forecast
that you have had to weather now and into the future, what
effect has that had--I have two questions for you. One, how
have you survived this? Have you had to dip into your own
personal savings, retirement, things like that, to keep your
doors open and to keep the bills paid?
And also, Ms. Velazquez, Chairwoman Velazquez, had
mentioned receiving a postcard in the mail with the health care
issue, pointing out the advantages to small businesses. Did you
get that postcard? And do you see and can you take advantage of
that? Because it is my understanding that very few small
businesses can actually take advantage of any of those
provisions that have been put in place. And thank you.
Mr. Kegley. Probably one of the toughest dinners I have
ever had at home was about 3 years ago when I had to tell my
wife, who started the company with me, that we didn't have a
place for her in the family business anymore and she had to go
find a job somewhere else.
As far as the health insurance credit, of our seven current
employees, five have left the coverage that our company was
able to offer to go with a spouse, which was considerably less
expensive. So with the two of us that are left, the credit
would not be of any benefit at all.
Mrs. Ellmers. Thank you.
Mr. Shipley. The credit wouldn't benefit us as well. To
make ends meet, to answer that question, my wife started back
to work again at a local college, and we had to refinance our
building and some things like that to keep our payroll paid and
taxes.
Mrs. Ellmers. Thank you.
Mr. Eagleton. I am not sure how well I am surviving this. I
have had 2 years of sales declines, and we have simply not be
been able to take a lot of money out of the business to live
on. So it has been very tough on us. Even the 1099 reporting
could force us to close.
I don't recall getting the postcard in the mail, so if I
did receive it, I didn't recognize it for what it was and paid
no attention to it.
Mrs. Ellmers. Thank you.
Mr. Kivett. Well, my company has been in business for 53
years and you kind of plan ahead, hoping that you don't run
into these rainy days, but we do. We went through one in 1974.
We went through one in the early 1980s, in 1986, and then
things went well for a while. And then, of course, we have been
in a long decline. And we have been chipping away at money that
we had set aside and hoped to keep and use for expansion,
equipment, and we have used that money.
Then we got down to a point that I cut my salary in half.
That was 3 years ago, and I don't see a chance for me putting
my salary back up. I am hoping to just meet payroll. It is very
difficult, and I have been in business for 53 years.
So this is the worst time I have ever seen. And it seems
like everything is stacked up against small business. But we
will survive. But what is going to happen, we are not going to
be able to generate the jobs that you want us to generate
because we are going to have to shrink down. We will survive,
but we are not going to generate jobs for you. And no, the
incentives are not going to help; they have no bearing at all
in my business.
Mrs. Ellmers. Thank you all for your honest and compelling
testimony.
Chairman Graves. Ms. Chu from California.
Ms. Chu. Yes, I would like to follow up on the issue that
Ranking Member Velazquez raised about the credit cards.
One of the difficulties for implementing these 1099 rules
is the fact that the IRS is exempting credit card reporting,
but sometimes businesses pay vendors using credit cards and a
check or cash, so if you have this combination, there is a
potential for confusion.
So I would like to ask you, Mr. Shipley, and any of the
others, are there times when you make purchases or sales that
involve a combination of credit cards and other payment
methods? And what kind of challenges would this reporting
requirement pose for you?
Mr. Shipley. In the past, I had done more with credit card
payments. I have actually gotten away from that because of the
stress of worrying about then how to pay the credit card off. I
found that was more of a struggle, so I just got to the point
where I would only pay with checks.
Ms. Chu. I would like to have any of the others respond to
this.
Mr. Kegley. We have suppliers that we both pay with check
and credit card. A lot of times might be when we first move
into a new neighborhood to build a home, we might pay with a
credit card on the first few purchases, but then once this
person becomes a trusted supplier, we would go ahead and set up
an account and pay by check.
Ms. Chu. And would this pose some challenges for you,
having this exemption for one aspect of the payment versus the
other?
Mr. Kegley. I am thinking it might. I don't know how to
keep it straight at this point. When we print off a job cost, I
wouldn't know how I would know which ones were paid by credit
card and which ones were paid with a check. It would take some
sort of entry that we are not doing at this current time.
Mr. Eagleton. Currently, about 90 percent of my
transactions when I buy a good or a service is by check.
Probably 1 percent is credit card, and the rest is cash. We
keep track of all the purchases in our bookkeeping system, but
sorting that and categorizing that would just take a lot of
additional time and a lot of additional effort.
Mr. Kivett. We use very little credit cards in my industry.
There are no churches that use credit cards, so it would have
no effect on me.
Ms. Chu. Well, there is another aspect of this
recordkeeping that could be problematic, and that is that the
1099 rules are in compliance with the calendar year system, but
we know that some small firms do not use a calendar year
bookkeeping method. And they will have to reconcile their
accounting system to these new rules. How will this affect you
in terms of your business?
Mr. Kegley, let's start with you.
Mr. Kegley. We operate all of our small companies on a
calendar basis, so it really wouldn't be an issue with us.
Mr. Shipley. As well, we do a calendar basis.
Mr. Eagleton. Of The Egg and I franchisees, I am the only
franchisee that is on a calendar. The rest use a 4-4-5 method
because we try and compare similar days and similar weeks to a
prior year to predict business trends. It will create quite a
bit of work for them to convert that back to a calendar
accounting system if they have to.
Mr. Kivett. And we would have no effect. We use a calendar
year.
Ms. Chu. Okay. Thank you.
And I yield back.
Chairman Graves. Mr. Coffman of Colorado.
Mr. Coffman. Thank you, Mr. Chairman.
Thank you all so much for coming today. I spent 17 years as
a small business owner, a majority shareholder in a property
management firm, and I remember what the stresses were like and
what the hours were like and what the challenges were like. I
think I learned how to make payroll and run an organization
efficiently enough to make a profit and balance a budget. That
is something that Congress could learn.
But I would like all of you to talk about, outside of the
1099 issue, because I think we have had a lot of great
testimony on that and there is no question that that is
incredibly egregious, but I think from having been in Congress
now going on my third year, as a former small business owner,
let me tell you, I don't see a lot of, shall I say, knowledge
about small business, having come out of the Congress certainly
in the last 2 years. I wonder if you could talk about just at
any level of the government, what have been your challenges
outside the 1099 in terms of whether it is State, local or the
Federal Government? What do you need relief from in order to
produce jobs?
Why don't we start with you, Mr. Kivett, and we will work
our way over.
Mr. Kivett. Well, of course, the first thing is health
care, which we talked about. I am talking the entire bill; that
is the biggest burden on us.
The other thing is energy. Our energy costs are just
skyrocketing, and it affects all of us. It affects all my
suppliers. Anything that is coming in, of course, it is not
just gasoline. For example, the theory of cap-and-trade scares
us to death. We are already hit hard with energy costs. But the
fuel/gas issue, energy issue would be a concern for us.
Mr. Coffman. Mr. Eagleton.
Mr. Eagleton. I would say a couple. One is we need access
to capital to grow, and right now lenders still aren't lending.
That would be number one.
Number two would be, we are just seeing huge increases in
all of our costs of doing business, from oil and gas to
commodity prices to feed prices to raw material goods prices.
And we can't pass these along. And any regulation that makes
that more complex and makes that more expensive hurts us. So
those would be my comments.
Mr. Coffman. Mr. Shipley.
Mr. Shipley. As Mr. Kivett said, health insurance is
obviously a big issue. I feel overwhelmingly taxed all the
time, from a small business owner. I feel like every time I
turn around, I am getting hit with a new tax or a new fee. I
was at a tri-State board meeting last night for local jewelers
in our area, and they want to raise the fee on our license for
precious metals from $75 to $300. It is these things that all
the time we get hit with that add up, and that is the tough
part as a small business owner.
Mr. Coffman. Mr. Kegley.
Mr. Kegley. One of the biggest problems our members are
having across the country is finding the credit they need to
not only keep their businesses running, but to expand those as
well. The banks are really valuing our assets at just a few
cents on the dollar, and therefore, collateral that was
adequate 3 or 4 years ago is not adequate for the loans we have
now.
And beyond that is the regulatory burden that we see in
construction now from the EPA and OSHA. And all of us builders
are outdoorsmen. We are all environmentalists, and we most all
want to protect the environment, but the regulations that we
are seeing are just about running a lot of people out of
business and making it much more difficult to continue our
business.
Mr. Coffman. Could you all answer one quick question really
quick because I am running out of time, and that is simply
whether or not you plan on adding employees in 2011, starting
with you, Mr. Kivett?
Mr. Kivett. I am adding no employees. I will cut
employees--I have to.
Mr. Coffman. Mr. Eagleton.
Mr. Eagleton. I have a building of 5,000 square feet, and
3,800 square feet of it is my restaurant. I have 1,200 feet
next door that I am paying for to be empty. I would love to
start another small business in that space that I already pay
rent on. If I could find the capital to operate another
business and hire more employees, I would do it tomorrow.
Mr. Coffman. Mr. Shipley.
Mr. Shipley. No, sir.
Mr. Kegley. We sent layoff notices to three more employees
on Monday.
Mr. Coffman. Well, I want to thank you all so much for
coming. I know how tough it is being out there, and the fact
that you have all taken time to come here and testify, not only
on behalf of your businesses but on behalf of small businesses
across America. I really want to thank you.
I yield back my time, Mr. Chairman.
Chairman Graves. Ms. Clarke of New York.
Ms. Clarke. Thank you very much, Mr. Chairman.
And thank you, Ranking Member Velazquez.
I am a supporter of making it easier for small businesses
to compete and grow as we continue to turn around the economy.
The central Brooklyn district that I represent is filled with
commercial corridors of locally owned mom-and-pop small
businesses that are a huge part of each neighborhood's unique
character. I can appreciate that the President in his State of
the Union speech addressed the issue. And while I differ on
certain particulars, I do support the policies that keep our
small businesses competitive.
So my question to each of you gentlemen is, acknowledging
that expanded reporting adversely affects small businesses,
what suggestions would you make with regards to the intent of
the expanded reporting, which is to enhance the ability to
monitor large transactions, without the undue burden that comes
with the implementation of this policy? Is there an alternative
that you could think of that would meet the same ends but not
through the same means, or have you given it any consideration
at all?
Mr. Kegley. The only consideration that we have thought
about is if you raise the threshold beyond the $600. When it
was first enacted in 1954, that was a lot of money, but our
economists figure that if you allow for inflation, that would
be closer to $5,000 today.
Ms. Clarke. Anyone else given any thought to it? Not
really? You just think dispensing with it is just ultimately
the best thing to do?
Mr. Eagleton. Correct.
Mr. Kivett. Exactly.
Ms. Clarke. And you haven't thought about what we would do
around the transaction issue.
Ms. Eagleton. My only comment would be is, we log every
transaction now in our bookkeeping systems. We report all
income and expenses already. I don't know why it is up to us as
small businessmen to track that for the government so they can
tax it or make sure they have gotten their tax on it. I don't
think that is our responsibility.
Ms. Clarke. Okay. What about people who don't pay their
taxes?
Ms. Eagleton. Should that be a small business person?
Ms. Clarke. I am just asking.
Ms. Eagleton. I don't know that it should be.
Mr. Kivett. I agree. I don't think it is our
responsibility. We do our part. And of course 86 or 87 percent
compliance is pretty good. It is the highest in the world.
Ms. Clarke. I agree. Thank you very much, gentlemen.
I yield back the balance of my time.
Chairman Graves. Ms. West.
Ms. West. Thank you, Mr. Chairman, and also Ranking Member
Velazquez.
I guess one of the key things, we probably have already
discussed it, but for myself, coming out of south Florida in
Congressional District 22 where unemployment in Broward County
is close to 11 percent unemployment; Palm Beach County is very
close to 12 percent. So we are looking at our small businesses,
our economic engine there. What would you say are the top two
things that we could alleviate off of your backs that will help
you to expand and to grow your business and get back to hiring
Americans.
Subject to your questions, I will yield back to the
chairman.
Mr. Kivett. My opinion of course is the health care law;
that is the number one thing, and of course, any other
regulations that are put on us with the EPA, as Mr. Kegley
mentioned. The EPA is on us. OSHA, the same thing. Not that we
don't need regulations, but adding more and more every year is
just hard to understand and comprehend why it is necessary.
That is my answer.
Ms. Eagleton. My answer would be, one is access to capital
to expand and grow and provide jobs. Two would be to reduce
taxes so that I have more money to hire more people and build
my business.
Ms. Shipley. As I mentioned earlier, if there was a way we
could reduce taxes, that would help us as a small business
owner.
Mr. Kegley. I agree with everyone else, with the added
comment that if government would just get out of the way, I
think we would take care of the problem.
Ms. West. But I guess, just codify getting out of the way,
because that could go from one extreme to the other. What
specifics?
Mr. Kegley. I think primarily some of the restrictions that
have been put on the banking, as far as limiting the loans that
they are able to make to our businesses; the regulations, by
the EPA in particular in our industry as well. Some of the
mandates about construction techniques and products that are
used, and just the lack of--government seems to have the
opinion that people can't make up their own mind and can't do
what they think is best for themselves. They are wanting to do
too much thinking for those folks, and people should be able to
act upon their own.
Ms. West. Thank you very much, gentlemen.
Mr. Chairman.
Chairman Graves. Ms. Mulvaney.
Ms. Mulvaney. Thank you, Mr. Chairman.
And very briefly, I apologize for having to come and go. So
many of us have other meetings at the same time, so I
appreciate your patience.
I also appreciate your perspective. I am a restaurant
owner, have been a homebuilder. I have never built any church
pews, but my next door neighbor makes pipe organs, if you can
believe that. And as for jewelry, that is another story
entirely.
A quick question for Mr. Kegley, because one of the things
we are seeing obviously in our market, we are a northern South
Carolina suburb of the Charlotte market, and we have a
tremendous inventory of housing on the ground, built housing,
empty. Traditionally what we would see in this marketplace in a
similar type of downturn would be that these would be snapped
up oftentimes by individual investors. There was a great
article in the Wall Street Journal I think about how this is
starting to happen in the Miami market--we are not starting to
see it yet--where individual investors are starting to snap up
properties, undervalued properties, for the purpose of putting
it back into the marketplace as rental property. Tell me a
little bit about how you think this bill--excuse me, this
provision, if we don't repeal it, would impact our ability to
get people, essentially small business people, entrepreneurs
back into that rental property market.
Mr. Kegley. I think there are two ways. Number one, as they
rehab those rental properties, they are going to have to meet
that 1099 reporting requirement. So you are talking about a lot
of times a small father-and-son type operation that maybe
doesn't have a full-time bookkeeper, so they are going to have
to keep better track and report these items. That is going to
mean hiring some additional help. It is going to be
nonproductive for their business just to keep up with the
reporting requirements.
Then with the landlord provisions, they are also going to
have to continue those reporting requirements as long as they
own that property for any additional repairs or upkeep they
have to do. So I think it is going to discourage a little bit
of that.
Ms. Mulvaney. And especially at that very small level, at
that micro level. If you have one house or two houses, there is
only one place you can go to to make up that shortfall, which
is raising your rents, which sort of defeats the whole purpose
of trying to get the thing back into the marketplace as well.
I agree with you. I am glad to see that we are getting rid
of this bill. I am especially glad, by the way, that the
President said he supported getting rid of it this year. I
remember that he said specifically last year that he would
oppose repealing this, and I am glad that he has seen the
light.
So thank you, gentlemen, for coming out today.
Chairman Graves. I yield to the Ranking Member. Do you have
any comments?
Ms. Velazquez. No. I just want to take this opportunity to
thank all of you. Especially on this committee, we work in a
bipartisan way. When we talk about small businesses, there is
no Republican or Democratic approach to it. And I am happy to
see that there is bipartisan support to repeal 1099.
In the last Congress, in the 111th Congress, Chairman
Lungren introduced a--he filed a discharge petition that if he
gets 218 signatures, Members to sign into that discharge
petition, that will allow for the bill to come to the floor.
And so given the fact that the leadership, the President, all
of us are supporting repeal of 1099, and given the fact that
you are making statements to the fact that this will stifle job
creation in America, I don't see any reason as to why we cannot
bring this bill to the floor, either this week or next week.
And if we don't, then we should file a discharge petition. He
has 269 cosponsors, and I would be one of the first to sign
onto that discharge petition.
Thank you, Mr. Chairman.
Chairman Graves. Thank you, Ms. Velazquez.
And I apologize that my mike is not working, but I do want
to thank all of the witnesses for coming today. There is
bipartisan support to eliminate this 1099 provision.
There is a little bit of controversy over cost, which is
frustrating to me in that this has been estimated to generate
somewhere between $17 billion and $22 billion worth of revenue,
but the fact that this revenue is not being received as of yet
because this hasn't been implemented, the notion that that
would be a cost to government is very frustrating to me,
because I don't understand when something that the government
is not receiving becomes a cost, which kind of brings us to the
real issue. And that is that the deficits, whether it is a
Republican majority or a Democrat majority, are a result of
spending; not as a result of revenue. It is not a revenue
problem; it is a spending problem.
With that, I am going to compile all of the information we
got today, and I will be sending a letter to the Chairman of
the Ways and Means Committee summarizing everything that took
place in the hearing.
With that, I would ask unanimous consent that Members have
5 legislative days to submit statements and supporting material
for the record.
[Supporting material for the Record follows:]

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