[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
IS THE TAX CUTS AND JOBS ACT A HELP OR HINDERANCE TO MAIN STREET?
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JULY 24, 2019
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-038
Available via the GPO Website: www.govinfo.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
37-102 WASHINGTON : 2020
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
JUDY CHU, California
MARC VEASEY, Texas
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TRENT KELLY, Mississippi
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
Adam Minehardt, Majority Staff Director
Melissa Jung, Majority Deputy Staff Director and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nydia Velazquez............................................. 1
Hon. Steve Chabot................................................ 2
WITNESSES
Ms. Jane Gravelle, Senior Specialist in Economic Policy,
Congressional Research Service, Washington, DC................. 5
Mr. Grafton H. Willey, IV, CPA and Small Business Owner, Sole-
Proprietor, Portsmouth, RI, testifying on behalf of the NSBA-
National Small Business Association and the RI Society of CPA's 6
Mr. Muneer Baig, Founder & CEO, SYSUSA, Inc., Manassas, VA,
testifying on behalf of Small Business Majority................ 8
Mr. Justin Conger, President, Conger Construction Group, Lebanon,
OH............................................................. 10
APPENDIX
Prepared Statements:
Ms. Jane Gravelle, Senior Specialist in Economic Policy,
Congressional Research Service, Washington, DC............. 35
Mr. Grafton H. Willey, IV, CPA and Small Business Owner,
Sole-Proprietor, Portsmouth, RI, testifying on behalf of
the NSBA-National Small Business Association and the RI
Society of CPA's........................................... 46
Mr. Muneer Baig, Founder & CEO, SYSUSA, Inc., Manassas, VA,
testifying on behalf of Small Business Majority............ 68
Mr. Justin Conger, President, Conger Construction Group,
Lebanon, OH................................................ 72
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Statement of Hon. Troy Balderson............................. 78
Chamber of Commerce of the United States of America.......... 82
Heritage Action for America.................................. 85
NFIB......................................................... 87
SBCA - Small Business Council of America..................... 93
Letter from Anne Zimmerman................................... 98
Packet of letters from Conger/Minority Staff................. 103
Letter from PATG............................................. 124
Other letter packet.......................................... 152
IS THE TAX CUTS AND JOBS ACT A HELP OR HINDERANCE TO MAIN STREET?
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WEDNESDAY, JULY 24, 2019
House of Representatives,
Committee on Small Business,
Washington, DC.
The committee met, pursuant to call, at 11:32 a.m., in Room
2360, Rayburn House Office Building. Hon. Nydia Velazquez
[chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Finkenauer, Golden,
Kim, Davids, Chu, Evans, Schneider, Delgado, Houlahan, Craig,
Chabot, Balderson, Hern, Hagedorn, Stauber, Spano, and Joyce.
Chairwoman VELAZQUEZ. Good morning. The committee will come
to order.
I thank everyone for joining us this morning, and I want to
especially than the witnesses for being here today.
America's small businesses are a catalyst for creating
employment opportunities and driving growth in the U.S.
economy. The estimated $30 million small firms in the U.S.
represent 99 percent of all employers and support nearly 56
million jobs.
One way for Congress to support small businesses is through
well-conceived and targeted tax policies that help small
businesses to grow and expand. Over the years on this
committee, we have heard that small firms need a simple tax
code, one that levels the playing field and tax policies that
create certainty for small companies across the country.
It has now been a full year since full implementation of
the tax law, and by any objective measure the Tax Cuts and Jobs
Act shortchanged small firms.
Take, for example, the signature piece of the Trump-led tax
law, a permanent reduction of the corporate tax rate from 35
percent to 21 percent, a simple, easy to understand, permanent
benefit for corporate America. This tax cut for Wall Street
will not only balloon our deficit; it puts big business over
small. This is because 95 percent of the over 33 million small
businesses in the United States are not organized as
corporations and will not see any benefit from a lower
corporate tax rate. Unlike the permanent reduction in the
corporate tax rate, provisions meant to benefit small firms,
like increased Section 179 expensing allowance are set to
expire.
Small business owners deserve the same certainty that the
tax law currently provides large corporations, and this is
another example of a missed opportunity to meet their needs.
We will also hear today about Section 199A which was
intended to level the playing field by creating a new deduction
for small business income. Unfortunately, we have heard that
this provision is incredibly complex and penalizes small
business owners simply for operating in a particular industry.
We have also heard horror stories from CPAs and small firms
attempting to utilize this provision with little or no guidance
from the IRS, leaving some small firms wondering if their next
phone call is not from a customer but rather one from the IRS
audit division.
For the small firms that have used it, many have spent
countless hours and money on tax professionals only to find out
that the costs and time wasted outweigh any benefit. This is
not the simple, straightforward tax reform small businesses
deserve or demanded, and it is certainly not the simple tax cut
that corporate America received.
What we are seeing nearly a year after the tax law was
passed is that Main Street sees little to celebrate. That is
why it is not surprisingly that nearly 50 percent of small
firms said that the new tax laws have no impact on the growth
or profitability of their business. And when small businesses
are short changed, so too is the rest of our economy.
The Republican-led tax bill promised to pay for itself,
lead to increased economic growth, and create higher wages for
American workers. In fact, the exact opposite has happened.
Deficits are rising, growth is slowing, and there is no
indication of any wage increases for middle-income workers. And
we also know that the President's words rang hollow when he
said the rich will not be gaining at all in this plan. A
doubling of the estate tax exemption, corporate stock buybacks
of nearly $1 trillion in 2018 alone, and the top 1 percent
receiving an average tax cut of over $60,000 demonstrates the
wealthiest among us did gain while small businesses and working
families were an afterthought.
At a time when small entities are reeling from trade
tensions with some of our largest trading partners, real tax
reform will put Main Street ahead of Wall Street.
The fact is real bipartisan tax reform that helps small
businesses, American families, and is fiscally responsible
could have been achieved. Unfortunately, the tax law was pushed
through rapidly, aimed at achieving a political goal, a goal
that is not good for small businesses, not good for working
families, and not good for the economy.
It is my hope that this hearing will shed light on the many
issues small businesses are facing and Congress can work
together just like this committee does day in and day out to
find more responsible tax solutions that truly help small firms
and strengthens our economy for the long term.
With that I want to again thank each of the witnesses for
joining us, and I look forward to your testimony.
Now, I will yield to the Ranking Member, Mr. Chabot, for
his opening statement.
Mr. CHABOT. I thank the gentlelady for yielding.
We oftentimes in this Committee say how bipartisan we
operate. And just last week we passed five bills that were
bipartisan. It had to do with small business veterans and
having opportunities to create jobs and do well in this
country.
This is one of those times when we do not necessarily agree
but we will do so respectfully, and we can disagree without
being disagreeable, even though she was just wrong on
everything she said.
No, I am joking. Just kidding. Not kidding. No, really.
But we really do care about each other in this Committee,
but this is one where we just philosophically have some
differences.
Almost exactly a year ago, this Committee held a hearing on
the impact of tax reform on small businesses across our nation.
As I mentioned in that hearing, the economic and philosophical
debate on tax benefits will surely continue as it is here today
in this Committee. However, the success of the Tax Cuts and
Jobs Act will be measured on its direct impact on the ground in
people's lives, both individuals and small businesses. Simply
put, are small businesses better off now compared to where they
were before tax reform was implemented?
Today, the national unemployment rate stands at about 3.7
percent. This hovers around historic record lows. Consumer
spending is up, and retail sales have also increased. Pro-
growth policies are moving this economy in the right direction.
At the small business level, surveys across the country
show the same thing. Small business owners remain very
optimistic about this economy. According to the latest U.S.
Chamber of Commerce and MetLife Small Business Index from the
second quarter of 2019, almost 60 percent of small businesses
say the economy is in good health or better. In the same
survey, nearly 70 percent of all small business manufacturers
had a positive outlook for the economy. Seventy percent in an
industry that has been hit for quite some time. The NFIB
Monthly Survey also remains near record levels.
When small business owners are asked specifically about the
tax reform, we are seeing basically the same results. Within
NFIB's 2019 report on taxes, nearly 75 percent, or three out of
every four businesses reported that tax reform would have
either a positive or very positive effect on their business.
Beyond statistics and survey data, it is not hard to see
the impact in our communities. Trucks carrying goods and
products are bustling up and down our roads, and stores are
keeping their lights on late at night and they are hiring
people.
However, it is best said from small business owners
themselves. I have a whole series of letters from small
business folks in my district that all say essentially the same
thing; that tax reform allowed them to invest and expand their
businesses. Just to name a few of these, E-BEAM Services, Inc.;
Harrison's Pro Tree Service; Minuteman Press of Lebanon; Jim
Osborne Trucking; Honor Construction and Remodeling; Total
Quality Manufacturing; and on and on.
We can debate economics all day long, but when small
business owners are using the Tax Cuts and Jobs Act to reinvest
in their companies, their employees, and their communities, the
intended effect of that legislation is being realized all
across America, and certainly in my district. It is clear,
small business owners are able to hire more workers, give
bonuses, and reinvest in equipment because of the Tax Cuts and
Jobs Act. As a result, the small business economy is healthier
now as compared to a few years ago.
I think we look forward to hearing from our witnesses
today. We want to thank them for their participation, and I
would just note as in all hearings, the majority gets to pick
75 percent of the witnesses, three out of four, so my guess is
three out of four are maybe going to have a different view than
me here, but we will disagree without being disagreeable as
well.
So thank you all for being here and I yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Chabot. And the
gentleman yields back.
And if committee members have an opening statement
prepared, we will ask that they be submitted for the record.
I would like to take a minute to explain the timing rules.
Each witness gets 5 minutes to testify and the members get 5
minutes for questioning. There is a lighting system to assist
you. The green light will be on when you begin, the yellow
light comes on when you have 1 minute remaining, and the red
light comes on when you are out of time, and we ask that you
stay within the timeframe to the best of your ability.
I would now like to introduce our first witness, Ms. Jane
Gravelle. Ms. Gravelle is a Senior Specialist in Economic
Policy at the nonpartisan, independent, Congressional Research
Service. Ms. Gravelle has written extensively on economic tax,
among other issues.
Our second witness is Mr. Grafton Willey, IV, a CPA and
small business owner. Mr. Willey has more than 30 years of
experience as a tax accountant and consultant to privately-held
business owners. He has twice been selected as the Rhode Island
Small Business Accounting Advocate of the Year and once as the
New England Small Business Accounting Advocate of the Year by
the National Small Business Association. He is testifying today
on behalf of NSBA and the Rhode Island Society of CPAs.
Our third witness is Muneer Baig, founder and CEO of
SYSUSA, Inc., in Manassas, Virginia. He has over 2 decades of
experience in IT operations, government risk management, and
compliance. Prior to SYSUSA, Mr. Baig worked at Microsoft where
he was responsible for the development and execution of an
enterprise-wide information security risk assessment program.
He is testifying today on behalf of the Small Business
Majority, a national small business advocacy organization
founded and run by small business owners.
And now I would like to yield to our Ranking Member to
introduce our final witness.
Mr. CHABOT. Thank you, Madam Chair.
Our witness here, the final witness today will be Justin
Conger. Mr. Conger is president of Conger Construction Group in
beautiful Lebanon, Ohio, which happens to be located within my
congressional district. It is a really beautiful, beautiful
town. Conger Construction Group has been a trusted leader in
southwestern Ohio since it was founded in 1992 by Justin's
father, Larry. Justin Conger took over the role of President of
the company in 2016, and really has not looked back. Beyond his
role with the construction firm, Mr. Conger serves on the
Workforce Investment Board of Butler, Clermont, and Warren
County. Additionally, he is a board member of the Warren County
Chamber Alliance. For those of you that do not know Warren
County, it is northeast of downtown Cincinnati. It is an area
that is really thriving. It is the third fastest growing county
out of 88 counties in Ohio. Mr. Conger, we really appreciate
you being here today and taking time away from your business.
And I yield back.
Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
And now Ms. Gravelle, you are recognized for 5 minutes.
STATEMETS OF JANE GRAVELLE, SENIOR SPECIALIST IN ECONOMIC
POLICY, CONGRESSIONAL RESEARCH SERVICE; GRAFTON H WILLEY, IV,
CPA AND SMALL BUSINESS OWNER, SOLE-PROPRIETOR; MUNEER BAIG,
FOUNDER & CEO, SYSUSA, INC.; JUSTIN CONGER, PRESIDENT, CONGER
CONSTRUCTION GROUP
STATEMENT OF JANE GRAVELLE
Ms. GRAVELLE. Thank you for the invitation to discuss the
issue of the effect on the December 2017 tax revision,
popularly known as the Tax Cuts and Jobs Act on small business.
This revision was estimated to reduce taxes by almost $1.5
trillion over 10 years. For fiscal year 2018, the Act was
estimated to reduce individual taxes by $65 billion and
corporate taxes by $94 billion, in the case of corporations
primarily by reducing the rate from 35 percent to 21 percent.
Individual rates were also reduced but by less, and $28 billion
of the individual cut was due to a pass-through deduction that
allowed owners of pass-through businesses, such as partnerships
and proprietorships taxed under the individual income tax, a 20
percent deduction for certain business income. These individual
provisions are scheduled to expire after 2025, but not the
corporate rate cut.
The tax cut can affect small businesses through two
different mechanisms: by an increase in overall economic growth
through demand for their products and through a decrease in tax
burdens on investing and operating their businesses.
Most analysts prior to the tax cut projected a relatively
small effect on the growth rate in 2018 with the CBO projection
of 0.3 percent near the middle of the forecast. Actual growth
appeared to be relatively consistent with these effects,
growing at slightly below the CBO forecast.
Business investment growth was strong in 2018, but the
extent to which that growth is due to the tax cut is unclear.
Investment response takes time to plan and is volatile. Also,
the components of investment that had the largest incentives
did not grow at the highest rates. So the pattern of growth is
inconsistent with supply side incentives.
In the intermediate and longer run, forecasters project a
wider range of outcomes, although most with a modest growth
rate averaging around 4/10th of a percent. I want you to note
that this is a change in the level of projected output and not
a change in the growth rate. If occurring over 10 years, it
implies an annual increased growth rate of 4/100th of 1
percent.
In the longer run, the effects will largely arise from
investment incentives, but these incentives will likely be
increasingly offset by crowding out as increases in the debt
cause resources to be drawn away from private investment.
There is at least a possibility that small business will
benefit less from any economic effects particularly in the
first few years. As considering investment goods, small
business plays a larger role in construction and corporations,
a larger role in manufacturing. Focusing on the demand for
construction, the overall demand for business structures may be
offset by decreased demand for owner-occupied housing due to
the reduction in itemizers. These incentives will expire after
2025 if not extended but so will the incentives for small
business who are the major investors in business structures and
rental housing.
Turning to the direct effects of the tax cuts, small
business benefits not only from the pass-through deduction but
from the individual tax cuts. An estimate suggests they are of
similar importance. With tax rates leading to a 3.8 percentage
rate deduction and the pass-through, a 3 percentage point
deduction. This is less than half the rate of the corporate
rate cut.
The effect of the pass-through deduction is reduced because
it is phased out at high income through earnings of ineligible
service firms and for other firms if they do not provide enough
wages or own enough assets. Estimates indicate that the cost
would increase by 66 percent if the phase out were not imposed
and the service business restriction was responsible for about
60 percent of that cost saving.
The study also found that three types of business
operations were responsible for only half of the reduction from
the phase out: professional services, health, and finance and
insurance. The pass-through deduction has added complexity,
considerable complexity to tax compliance and administration,
including equity choice, and has contributed, along with some
rate reductions to complications in tax planning. For example,
choosing to be an independent contractor would be an example.
For a variety of reasons, the business rate reductions may
not be very effective in providing investment incentives
because they interact with expensing provisions in a way that
causes a disincentive for certain investments because they are
phased out, creating disincentives in the phase out range and
because they are temporary. Arguments may be made that these
tax cuts are important in providing cash flow, although much of
a tax cut is likely a windfall that does not affect investment.
There are alternative ways to address investment by small
business, including increasing access to credit and tying tax
deductions directly to investment. Thank you.
Chairwoman VELAZQUEZ. Thank you. Mr. Willey.
STATEMENT OF GRAFTON H. WILLEY, IV
Mr. WILLEY. Good morning, Chairwoman Velazquez and Ranking
Member Chabot and members of the House Committee. In addition
to being a CPA, I am also a small business owner. I have an
interest in an Italian restaurant and some businesses in the
cranberry industry. And so I am here representing myself as a
tax practitioner, myself as a small business owner, and the
NSBA and the Rhode Island Society of CPAs.
In responding to questions about taxation, there is always
one stand answer which is ``it depends.'' That is applicable to
the Tax Cut and Jobs Act. There are some good things in this
bill, there are some bad things in this legislation. I view it
as a work in progress. In fact, according to the NSBA Economic
Survey, 29 percent of small business owners said that filing
taxes in 2018 was more difficult when compared with 2017. And I
can tell you the tax practitioners can say the same thing.
In my estimation, the primary need in tax reform was to
address the competiveness that the U.S. was experiencing in the
international taxation for C corporations with the highest tax
rate in the world or close to it at 35 percent, although some
of that was reduced with special deductions. We were getting
killed when it came to competing with countries like Ireland at
12.5 percent and much of Europe in the mid-20s. Global
financing will find a way to minimize international tax burdens
and the movement of capital is very fluid. I believe most in
Congress understood that when they were addressing tax reform.
Bringing the corporate rate down to 21 percent has kept us
competitive and there will be less incentive to move from place
to place.
The National Small Business Association established its
basic principles of tax reform a few years ago. I was a
contributor to that thing. And we have put that in our package.
I will not go over those.
The Tax Cut and Jobs Act only partially measures up to
these principles. We have concerns that more should be done to
ensure simplification, fairness and long-term sustainability.
And according to the report, when asked how to fix the Tax Cuts
and Jobs Act, parity, simplification, and permanency were the
top priorities.
After much discussion and analysis, the NSBA did support
passage of the Tax Cut and Jobs Act. However, we recognize that
it is not perfect. It may be a good start at tax reform, but
more hard work needs to be done in the areas of simplification,
parity, and taxation between large corporations and small
businesses, doing away with sunsets, making tax reform
permanent, and addressing the deficit. The NSBA has done a Tax
Reform Report Card, again, which is in your package.
While it covers a lot of different areas of taxation, I
will focus on how it has impacted small businesses.
Tax simplification. If simplification was a goal of this
tax reform, it is a dismal failure from a small business
perspective. Individuals may see what seems to be a simpler
preparation but it is not that simple. You may have simplified
this Tax Code beyond all comprehension.
Tax permanency or rate reductions. That has been an
important aspect of this. Unfortunately, noncorporate and
individual taxpayers are not made permanent. When I first heard
about this I said, well, it may not be a problem. No Congress
in the future would allow those to expire. I have changed my
opinion there. I now foresee the real possibility and
probability that Congress, not agreeing on an extension in
2025, would result in a substantial tax increase without a
vote. They will be finger pointing both ways and the taxpayers
are going to get slammed.
The one issue I would like to comment on is the SALT issue.
There is a real concern on my part on SALT. I am not as
concerned about the individual real estate and income taxes. I
am very concerned about the business taxes. With a C
corporation, you get to deduct the SALT taxes on pass-throughs.
It falls through to the individuals and we cannot deduct those.
In Rhode Island where I am from, I have passed legislation to
fix that. Congress should pass it and make that a Federal
issue, not a state issue.
Chairwoman VELAZQUEZ. Thank you, Mr. Willey.
Mr. Baig, you are recognized for 5 minutes.
STATEMENT OF MUNEER BAIG
Mr. BAIG. Chairwoman Velazquez, Ranking Member Chabot, and
fellow members of the Committee. Good morning.
I would like to start by thanking you for inviting me to
speak with you today about the impact of the 2017 Tax Cuts and
Jobs Act on my and other small businesses.
I am the founder and CEO of SYSUSA, a HUBZone, women-owned,
and minority-owned company based here right in Northern
Virginia, Manassas, Virginia. SYSUSA specializes in
cybersecurity, governance, risk management, compliance, IT
modernization, and strategic consulting.
In addition to owning my own small business, I am also an
advocate for the small business community. I am one of the
58,000 entrepreneurs in Small Business Majority's Network. I am
also an active member of the Prince William Chamber of
Commerce. As a result of my involvement, I am aware of the
daily struggles many other small business community members
experience and I can speak to more than just about my own
challenges. I can say with confidence that small businesses
need more than just short-term benefits that are provided in
the legislation. We need a long-term, sustainable strategy for
growth.
The Tax Cuts and Jobs Act is providing a very small
percentage of small businesses with short-term relief, not
enough to deliver upon the promises made to the American
public.
Although it was billed by President Donald Trump as an
historic business tax cut that will really, really do good for
business owners and enable small firms to hire more employees,
unfortunately, it has failed to deliver upon its promise.
The first problem with the Tax Cuts and Jobs Act is
complexity of the code, which requires extensive consultation
with my accountants, and in some cases they, themselves, are
trying to struggle with it.
The second problem is that it did nothing to address the
pre-existing burdens in the Tax Code. Simplification was one of
the promises made not delivered upon.
The third problem is that most small businesses did not
save money it promised them to save. The Tax Cuts and Jobs Act
is not designed to help very small businesses like mine.
Whether a deduction is available for manufacturing businesses,
I am in the service industry and do not have much to deduct.
While my experience with the Tax Cuts and Jobs Act is
negative, it would be inaccurate to say that the new tax law
has not helped any small business. I have spoken to many small
businesses, including a distillery in my area that has
benefitted from the reduction of the Federal Excise Tax.
However, they may be heading towards crisis even though they
waved money.
Unlike many of the large corporations that used their
savings from the Tax Cuts and Jobs Act to buy back shares and
increase the value of their business, most small businesses
reinvested in growing their business. This by no means is a bad
thing. The problem, however, is the temporary nature of some of
the new deductions set to expire in the next year or so.
Businesses that are investing their savings now may not have
the extra cash in 2 to 3 years to continue investing and the
projects might not get completed. This can result in a total
loss of their investment.
In order to make the Tax Code work for Main Street small
businesses, I have the following recommendations:
Replace the Tax Cuts and Jobs Act's pass-through component
with a provision allowing small businesses to deduct their
first $25,000 in business income.
Raise revenue by closing inefficient corporate loopholes,
including international tax policies, carried interest,
accelerated depreciation.
Introduce and enact the Protecting Taxpayers Act.
Create small business opportunities through tax credits and
incentives.
Make the New Markets Tax Credit permanent.
Pass healthcare tax equity for the self-employed so that
freelancers can deduct their healthcare expenses from their
FICA tax obligations.
Create tax incentives for workforce development.
As a small business, if I hire people, I have to pay for
their training and sometimes they have to go for a weeklong
training as well, so I am basically heading into a double-edge
sword. I have to give them a week off and then pay for the
training as well. Having some incentives there that can offset
one or the other will be greatly appreciated.
In conclusion, I am concerned about the long-term impact of
the tax cut. It increases the deficit by $1.9 trillion in order
to dramatically lower the rates for large corporations and the
very wealthy while offering very little benefit to Main Street
small business owners. In addition, the cuts for pass-through
entities are structured in a way that gives the majority of
benefits to the largest 2.6 percent of pass-through business
entities.
If policymakers are serious about wanting to level the
playing field for small businesses and drive our economy from
the bottom up, they need to implement policies that will help
all entrepreneurs, rather than giving the tax breaks to those
who need it least.
Thank you again for the opportunity to share my story. I
look forward to your questions.
Chairwoman VELAZQUEZ. Thank you, Mr. Baig.
Mr. Conger, you are recognized now for 5 minutes.
STATEMENT OF JUSTIN CONGER
Mr. CONGER. Thank you, Chairwoman Velazquez, Ranking Member
Chabot, and the members of the Committee. I am honored to have
the opportunity to testify before the Committee today on how
the Tax Cuts and Jobs Acts helps small businesses.
As Representative Chabot said, my name is Justin Conger. I
am a second generation owner and president of Conger
Construction Group, a commercial construction company located
in Lebanon, Ohio. On behalf of Conger Construction Group, our
employees, our clients, the 4,700 small businesses in Warren
County, and 109,815 employees I represent as a member of the
Warren County Chamber Alliance, thank you for the opportunity
to submit this statement for the record before the Committee on
Small Business' hearing.
Not only am I a second generation business owner and
entrepreneur, I am the current Board Chair of the Workforce
Investment Board of Butler, Clermont, and Warren Counties as we
are the Area 12 utilization of WIOA Federal funding. I am also
the Board Chair of The Associated Builders and Contractors
(ABC) of Ohio, and a member of the JobsOhio Regional RDI
Cincinnati Board. I present this to you to understand my
participation in these organizations is not about personal
recognition; it is to put into context and to attest to my
qualifications to present this testimony. I bring a unique
perspective on the positive impact local, state, and Federal
tax policy has on small businesses.
The portion of the Tax Cuts and Jobs ACT that impacts
Conger Construction most deeply is the provision that lowered
the Federal corporate tax rate to 21 percent. You see, I am a
small business owner and I am not on Wall Street, and we were
founded as a C corporation. So the 21 percent tax change has
dramatic impact on our business and how we function day in and
day out. Under the Tax Cuts and Jobs Act, the much-needed
savings provides more capital to reinvest in our business and
in our employees.
From 2016 until 2018, I am proud to say our business has
grown 110 percent. This growth would not be possible without
the Tax Cuts and Jobs Act of 2017. See, our commercial
construction company is located in southwest Ohio, and 100
percent of our revenue is generated from projects within a 100-
mile radius of our office. In the southwest Ohio 16 county MSA,
there are currently over $2.5 billion in active construction
projects. This uptick in commercial activity has increased
dramatically in the past 18 to 20 months.
The economic expansion provides opportunities for Conger
Construction Group and hundreds of our subcontractors,
suppliers, vendors, and their employees. We only self-perform
10 to 15 percent of the work. We sub out 85 to 90 percent of
our work to subcontractors. These subcontractors and their
employees are feeling the benefits of a robust economy. In some
ways, commercial construction has a waterfall effect. Conger
Construction is experiencing large economic growth and
prosperity, and so are thousands of other frontline workers
employed by our partners and subcontractors. Continued economic
expansion is providing increases in wages never before seen in
my 18 years in this business. All of which is great for the
American economy.
Conger Construction Group is a prime example of one of the
many businesses across the country growing and expanding by
utilizing the benefits of the Tax Cuts and Jobs Act and
reinvesting in our business. As I mentioned previously, we have
grown 110 percent. As a business owner, entrepreneur, and
community leader, I am proud of this growth over the past 3
years. I am even more proud we have grown our culture and
employee base. Since 2016, we have increased our employee
headcount from 28 full-time equivalents to 48 full-time
equivalents and counting. We have increased our wages by over
$1.5 million, and in 2017 and 2018, we paid out over $381,000
to those 30 employees that were nonowners in business.
As a business owner, I believe I have a responsibility not
only to support my family but to support the families of our
workers. With record low unemployment, finding talented workers
to fill open jobs is harder than ever. From my experience on
the Workforce Investment Board, there is a workforce shortage
of epic proportion. If businesses want to continue to grow,
they must take care of their employees, both personally and
financially. Growing wages is a major part of that.
As I said, the 21 percent tax cut for a C corporation like
ourselves, we are continuing to reinvest in our business, not
only growing our employees and doubling, but we are reinvesting
in our business currently as we are undergoing an expansion and
renovation of a project.
Another aspect that has a tremendous impact on our business
is the ability to accelerate depreciation on our investments of
equipment. Not only office equipment, but large heavy equipment
machinery we need to utilize day in and day out to complete our
projects.
Thank you. I appreciate the time and opportunity.
Chairwoman VELAZQUEZ. Thank you, Mr. Conger. And thank you
all for what you have shared with us.
I will begin by recognizing myself for 5 minutes.
Ms. Gravelle, we were told that passing this tax bill will
benefit the economy overall. In the interest of time, can you
answer this question with a yes or no answer?
Will the tax cuts create enough economic growth to pay for
themselves?
Ms. GRAVELLE. No.
Chairwoman VELAZQUEZ. Have provisions like the pass-through
deduction simplified the tax code for small firms?
Ms. GRAVELLE. No.
Chairwoman VELAZQUEZ. Is it not true, corporations used
their tax savings to purchase nearly $1 trillion in stock
buybacks in 2018 alone?
Ms. GRAVELLE. Apparently.
Chairwoman VELAZQUEZ. Is this an accurate quote from your
report? And I quote, ``While evidence does not indicate
significant repurchases of shares, either from tax cuts or
repatriated revenues, relatively little was directed to paying
work bonuses.''
Ms. GRAVELLE. Yes.
Chairwoman VELAZQUEZ. Thank you.
Mr. Willey, we have heard that Section 199 is incredibly
complex. Can you briefly walk us through the steps a small firm
must go through before even determining if and how much they
qualify for?
Mr. WILLEY. It is a very complex calculation. You have to
determine whether you are qualified as a small business. There
are some firms that are not qualified, primarily the service
businesses. There is an income threshold that you have to--if
you are below that you can deduct it even as a service business
but it gets phased out relatively quickly. And there are
limitations of W-2 wages which make it complex. So it is an
extremely complex calculation, and sometimes you do not get the
full benefit you think you would be getting.
Chairwoman VELAZQUEZ. So it seems to me that Section 199A
is picking winners and lowers between small businesses that can
utilize the deduction assuming you can navigate that web of
complexity.
Mr. WILLEY. It is picking some winners and losers. And I do
not have a big problem with excluding the public service or the
professional services business. I mean, if I operate as a C
corporation, I take most of my income out as a salary and I pay
at 35 percent compared to somebody who would be able to take
the 21 percent deduction using the same money as a pass-
through, I do not have as much a problem there but it is
complex. They did pick some winners in there, primarily the
architects. I am not sure why but I am sure there was some
political pressure along the way. So it did pick some winners
and losers. But there are----
Chairwoman VELAZQUEZ. Thank you.
Mr. WILLEY.--some abuses.
Chairwoman VELAZQUEZ. Thank you.
Mr. Baig, you just discussed how creating and decreasing
complexity are two goals for small firms when it comes to tax
policy. The corporate tax cut was made permanent while the
individual and Section 199A deduction for small firms expires
in 2025. How does this lack of permanency impact your business
planning?
Mr. BAIG. First of all, you know, being a small business
who is in the service industry, so the tax cut does not really
help me much. You know, it is not designed for service industry
people as Mr. Willey was referring to. It helps more on the--it
has winners and losers, and I am one of the losers of the tax
cut. It actually places a burden on me by kind of having to go
through the navigation of it. And then the 21 percent tax cut
or the income that I can get the pass-through, it is set to
expire. So if I am benefitting from it today, and most of my
benefits, any penny we make extra, we try to see if we can
bring another person onboard that can help us basically grow
the business. And it does not happen overnight. It takes a few
years to develop that process. And if I do not have this in the
next 3 years, the potential of the loss can be significant
because anything that I will invest in somebody for the next 3
years will be lost all of a sudden.
Chairwoman VELAZQUEZ. Thank you.
Mr. Willey, a postcard filing form was touted as the game
changer of tax reform. Are any of your clients filing their
taxes on a postcard?
Mr. WILLEY. No.
Chairwoman VELAZQUEZ. Mr. Baig, how much more time do you
spend speaking and working with your accountant to ensure
compliance?
Mr. BAIG. This year it took a few more extra days out of me
during the tax season where it used to take me an hour or hour
and a half to get things done.
Chairwoman VELAZQUEZ. Thank you.
My time has expired and I now recognize the Ranking Member.
Mr. CHABOT. Thank you, Madam Chair.
Mr. Conger, let me begin with you if I can. I think you
mentioned that the most important part of the Tax Cuts and Jobs
Act that affected you was reducing the rate from 35 down to 21
percent. And if you look at some of the debates that have been
televised recently at the presidential level, to listen to some
of the folks talking about the tax cuts bill, you would think
that what you did and people like you that own small businesses
across the country and large ones, we would think that they
just bought another yacht with that money or they found some
more ingenious way to exploit their employees or perhaps harm
the environment or some other nefarious use of that money. What
did you and your company do with the additional money that you
were able to keep rather than send it up here to Washington?
Mr. CONGER. That is correct. One of the three or four major
things that we have done with the extra money and the tax
savings we have is reinvest it in our business. As a small
business owner an entrepreneur, you have to constantly be
competing against other businesses and most of that competition
comes through the form of employment and employees. One of my
mentors told me years ago hire smart people and get out of
their way. And so we have been able to increase our employee
count, our head count. As I mentioned, we have doubled our
employment in the last 2-1/2 years, adding over $1.5 million in
jobs in that payroll. And again, we are a small business. There
are only 48 employees. Those are real numbers and big numbers
to an economy like Warren County, Ohio, and Lebanon, Ohio. We
have also increased payout of bonuses. So again, instead of,
when you have a workforce shortage, you have to take care of
your employees. We are providing better healthcare benefits. We
are providing more PTO. We are providing larger bonuses based
on their performance year in and year out. Those things are
helping us to continue to attract new employees, to attract
smart people to come to work for us that will then enable us to
grow. And so it is a major part of we are trying to, you know,
we have a fiduciary responsibility and an ethical
responsibility to our employees to provide the best
opportunities for them to grow. You know, they are middle class
workers. Our least paid employee is a laborer who makes $18.50
an hour. He is an unskilled worker that we are trying to put
through training and we continue to use training to raise our
employees up. But we are paying good wages, better than good
wages to unskilled workers and we are still trying to
continually invest in them and grow them.
One of the other things we have done is we are expanding
our office. Due to the increase of employees and head counts,
we need more space. And so we are using that money to expand
our offices, provide a better work environment that is more
collaborative, that helps us execute our mission and deliver a
good service to our clients.
Mr. CHABOT. So is it accurate to say that you are able to
pay your employees more, so they receive more income from their
job, and on the individual tax cuts, because about 85 percent
of the people across the country got their taxes reduced. In
our area, for the average family of four it was about $2,400.
So they are getting an additional, say, hike in their pay or
more money going in to their retirement through the company, et
cetera, plus their individual taxes for the most part have been
reduced as well, so they get two bangs for the buck so to
speak. Would that be accurate?
Mr. CONGER. That is accurate.
Mr. CHABOT. Okay. Thank you.
Mr. Willey, let me turn to you at this point. I definitely
agree with some of your sentiment that you mentioned. I would
very much like to have seen the tax bill simplified more. And
with folks on the individual level, there were a lot of people
that did get it simplified to the extent that many more no
longer had to itemize. They were able to take the standard
deduction. That increase was pretty much dramatic. And when
they talk about the postcard, and this is kind of an example of
the postcard that we were talking about there, that was never
intended to be for a small business and the complexity of a
business to be able to file it on this. We were basically
talking about individuals; is that correct?
Mr. WILLEY. Yes, that is correct.
Mr. CHABOT. Okay. And I also agree with your point about
the permanency. And I also share your concern about making
these permanent. I would have liked to have seen both at the
business end and the individual end having it a permanent tax
relief. And the Bush tax cuts, back at that time we had a
similar situation where they essentially ended after 10 years,
and the argument was made, well, Congress will renew those tax
cuts, and we did. So the tax cuts ultimately remained
permanent. And I would just encourage my colleagues on both
sides of the aisle, when that day comes and we ought to make
those permanent, and I am committed to doing that for
individuals as well as businesses. But I think both of those
points that you raised are very good ones. So thank you.
My time is expired. I yield back.
Chairwoman VELAZQUEZ. The gentleman's time has expired.
And now we recognize the gentleman from Maine, Mr. Golden,
Chairman of the Subcommittee on Contracting and Infrastructure.
Mr. GOLDEN. Thank you, Madam Chair.
I wanted to pick up with you, Mr. Willey. I have spent 4
years prior to this on the Maine State Legislature and I,
coming from a working, middle-class kind of state have always I
think put a bigger focus on middle class tax cuts and how tax
policies impact them.
You mentioned something I think about having to make some
changes in Rhode Island relative to state and local taxes, the
SALT changes in this tax law, and also talked a little bit
about some of the difficulties with figuring out how S-
corporations operate with the pass-throughs. I just wanted to
ask you if you had any specifics you wanted to share with us
quickly about what kind of fixes, I mean, what did Rhode Island
do that you would like to see at the Federal level?
Mr. WILLEY. In my package, I gave you a copy of the bill
that I drafted for that.
Mr. GOLDEN. Perfect.
Mr. WILLEY. But basically, a C corporation can deduct state
income taxes at the entity level.
Mr. GOLDEN. Correct.
Mr. WILLEY. The tax law says that if the tax is paid at the
entity level, it is an allowable deduction. What in Rhode
Island we did was we said, okay, let the state assess at the
entity level and pass through a tax credit for the individuals.
I feel comfortable that is going to be an allowed deduction for
Federal tax purposes.
Mr. GOLDEN. I was going to ask if you are running into any
troubles with implementation.
Mr. WILLEY. Well, Connecticut has passed a similar law
ahead of us. They are effective for 2018. Ours is effective for
2019. The IRS has attacked the restricting of real estate taxes
as a charitable deduction and I tend to agree with that. That
is kind of a sham. I think this makes sense and it is fair and
it gives some parity. They have not attacked that yet. They
know it is out there but we are going to see if Connecticut
gets attacked before ours are implemented. Again, I think this
should be fixed at the Federal level, not necessarily the state
level.
Mr. GOLDEN. Yep. Thank you.
I think, you know, it sounds like, we all know that we have
kind of, you know, regional economies as well, and I am glad to
hear that the construction economy is booming in your area. I
think sadly that is not the case everywhere you go in the
country, and I think in Maine, obviously, we would like to see
it doing far better than it is. So some of the benefits of this
may not have made it all the way up.
I am hearing from some workers in the trades, people, we
have got general contractors, of course. We have got, you know,
people, carpenters and others who are complaining to me that
they are having a hard time figuring out, I think, how to get
the most out of this tax law, concerns about their inability to
write off certain deductions that were really critical to them
as small business owners and their fear that they are having a
hard time figuring this out.
Do any of you want to field this question in regards to
whether or not you think it is just the complexity of the law
or is it some kind of change that is making it so that workers
or small business owners in the trades are not going to be able
to write off some of their businesses expenses that they used
to?
Mr. WILLEY. I will take a stab at that. I think there are
some limitations in primarily the entertainment area that is
affecting them, and small businesses use entertainment more
than big businesses. I think the complexity is going to require
more small businesses to use professional people. That is good
for me but not necessarily good for the client.
Mr. GOLDEN. Yeah. That is helpful. Thank you.
Something I was interested in in this, Ms. Gravelle of, you
know, when you have got a lot of very small businesses, family-
owned ones, sometimes you have some years where you suffer some
losses, do you think it is impacting a lot of small businesses
negatively that they can no longer carry back net operating
losses?
Ms. GRAVELLE. Well, I do not know. I have not been able to
find any data on this because it is so soon but I would
certainly think, and in general, for all business, that the
carryback of net operating losses generally is viewed as a good
policy. It tends to even out the taxes over time. So it is
really better to have carrybacks that can retain their full
value. And it is helpful for businesses to go through ups and
downs.
Mr. GOLDEN. Thank you.
I am pretty close to being out of time so I am just going
to go ahead and wrap it up right there.
Thank you very much, Madam Chair.
Chairwoman VELAZQUEZ. The gentleman yields back. Thank you.
The gentleman from Minnesota, Mr. Hagedorn, is recognized
for 5 minutes.
Mr. HAGEDORN. Thank you, Madam Chair.
I appreciate this hearing. Actually, I think this is a
great hearing to talk about some of the progress that is being
made in the country, how strong the economy is, and how strong
many of our small businesses are across the country.
First of all, I would ask unanimous consent or whatever to
add to the record four articles that I have here talking about
some of the things that have happened in the state of Minnesota
with 3M, Hormel, and others, larger companies, but how the tax
cuts have been helpful to some of our employees.
Chairwoman VELAZQUEZ. Without objection.
Mr. HAGEDORN. Thank you, Madam Chair. And my statement.
And just last week we had a small business owner from
Mankato. Jeff Royce was here. He was talking a little bit about
the Minimum Wage Bill that we had before the Congress and he
said, you know, ironic, because of what has been going on with
the growth in the economy and the demand for the windows that
they produce, they are fine windows that they produce right
there in southern Minnesota and go all across the country,
sometimes across the world. He said, you know, all their
contractors and then they are paying more than $15 an hour,
such demand. And I hear this everywhere. First of all, I have
never met a small business owner in southern Minnesota, and we
meet scores and scores of them all the time and not one of them
has been demanding that we repeal these tax cuts. I have not
heard anybody say that. They might want them tweaked, fixed. No
doubt about it there are some things about it that we can
improve. I have not heard anybody say let's repeal them and
help our small business. That is just something as an aside.
But whether it is Lindsay Windows in Mankato, or Alumacraft
in St. Peter where they make fine boats, and we go to
Construction 99 North in Rochester, Wieser Construction, La
Crescent, all these places, it is the same thing. Since the
election in 2016, a little bit of a different thought about
what is going on in the economy, and after these tax cuts
people feel like things are booming. And the proof is, kind of
to me, in the pudding. Their biggest complaint is they cannot
find workers to help them expand more and do even more
business. And the reason the economy is not even stronger is
simply because of that. The demand is out there. They cannot
fill it. And so what they are looking for from government, I
think good government policies in all these areas, like
regulations, health care. Obviously, energy. They want
vocational training. And when it comes to the tax cuts, I
agree. We can do better. We should do more for individuals. We
should have individual tax reform. Make it simpler, fairer,
flatter, where people can save, invest, hold, spend their own
money the way they see fit, not the way the Federal Government,
the bureaucrats, the politicians, and others tell them to. So
going forward, I would work in bipartisan fashion to make those
things happen.
But the need for skilled workers is important. I guess I
would just open it up to any on the panel. Other than, I mean,
first of all, does anyone here really want the tax cuts
repealed? Is there anyone here that would say we should repeal
them for small business? Okay. But am I wrong? I mean, is the
demand out there that you could probably fill even more
projects if you had 20-25 more workers?
I will ask you, Mr. Conger.
Mr. CONGER. Most definitely. We experience that day in and
day out. We are continuing to hire and invest a lot of time and
resources and do hiring, not only skilled workers, unskilled
workers, and management staff as we continue to keep up with
the demand of the construction marketplace. And as a commercial
construction company, we are not employed and there is not jobs
if there are not businesses out there expanding. If there are
not manufactures growing, if there are not healthcare
industries growing. So the growth of the economy and the growth
in the various industries we serve is a direct impact to our
business. And then again, the waterfall effect down to our
subcontractors, suppliers, and frontline workers. So the
economy is very well in a multitude of market sectors in
southwest Ohio. And we see that day in and day out.
Mr. HAGEDORN. And a lot of that has to do with the
confidence that people have, either in their own livelihoods,
the money that they make. They can go out and make purchases.
Like I said, Alumacraft, where they make fine bills, you know,
people, that is an investment they want to make. It is
something aside, not something they need to get through life
every day but, you know, want to go out and enjoy our beautiful
lakes in Minnesota. Many of them in Congressman Stauber's
District and ours. I think it just shows that the economy is
strong. People are excited about the way things are going. I
think we want to keep moving it in the right direction. And I,
again, pledge my bipartisan support to do whatever we can to
improve this act and to do what we can for our businesses to
make sure that they can grow and thrive into the future.
Thanks very much. I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
And now we recognize the gentlelady from California,
Chairman of the Subcommittee on Investigations, Oversight, and
Regulation, Ms. Chu.
Ms. CHU. Mr. Baig, as a member of the Ways and Means
Committee where the Tax Cuts and Jobs Act was being considered,
I raised concerns early on about the pass-through provisions in
the Republican bill creating more unnecessary complexity for
small businesses and allowing millionaires who can afford
armies of accounts and lawyers to game the system. In fact,
when we were considering the law, tax attorneys publicly stated
that they were thrilled about the changes, one attorney at the
time even told a news outlet, this is an entirely new concept,
and from a tax lawyer's perspective, it is like a new paint
box. We have a new tool to play with.
Well, we know that many small businesses do not have the
ability to afford high-powered tax layers to play with the new
tools that the Republican tax law provided.
So Mr. Baig, your small business was forced to spend more
on accounting services due to the complexities of the law.
Major corporations can devote resources to identifying tax
loopholes. Do small businesses have the same resources, and are
you an isolated case or have you heard from other small
businesses that were forced to spend more on tax advice?
Mr. BAIG. I am not actually just talking about myself but
all the small businesses that I have talked to in my community
and across. Everybody is feeling that pain. I have, from my
perspective, I used to have, at the end of the year I send my
accountant a report and that was the end of it and they will
process it. Now I have an internal operations person who is
actually managing this on a day-to-day basis. And not only
that, I still need to do that accountant stuff on a monthly
basis to make sure that I am complying. Because as a CEO, I do
not want to see the auditor knocking at my door. That is the
last thing a small business wants to see is something take more
out of you because as a small business owner, we wear too many
hats. And adding one more hat can sometimes be the end of your
small business. So basically, you are already stretched to a
level beyond, you know, you are to the breaking point. And
adding more burden to the small business, you know, you look at
small businesses. A majority of the small businesses are pass-
throughs. They are not C corporations. So if you are looking at
the majority of them, they are not benefitting from it. And the
risk of the expiring provision in the tax cut is significant
because as of now we are talking, yeah, there is a tax break,
we are getting some money out of. Okay, let me take that money
and invest it somewhere else. But at the same time, not if the
project that we are trying to invest, if it does not mature in
the next 2 to 3 years, all this 3 years of saving that I save
for my tax cut that I invested in with additional revenue into
that particular opportunity is all gone.
This is the risk that we are facing right now. There is a
complexity to understanding and uncertainty what is going to
happen down the road. And we know it very well. Businesses with
uncertainty do not do very well. The risk is significantly
higher. If we have some sort of a certainty, permanency of
these tax cuts that are in there, that will help a lot of small
businesses to plan and also then we know what to play for from
the accounting perspective as well. Right now I do not know
what I need to plan for next year, whether the provisions are
going to expire, what I need to plan for the year after.
Ms. CHU. Thank you. Thank you, Mr. Baig.
Ms. Gravelle, as the bill was going through, I believe that
the needs of women small business owners were not considered at
all. We know that the vast majority of women-owned businesses,
in fact, 88 percent of them, have revenues of $100,000 or less.
However, more than 90 percent of the benefits of this tax bill,
particularly the pass-through deduction that was intended to
help small businesses, actually goes to those businesses with
revenues of more than $100,000.
Ms. Gravelle, in your research, did you find that most of
the benefits of the pass-through deduction go to businesses
making more than, in fact, far more than $100,000 in revenues?
And why is this the case?
Ms. GRAVELLE. Well, most small business owners do fall into
the higher income brackets. So they tended to get larger tax
cuts. Despite the phase out of the pass-through, they tended to
get the larger concentrations. Studies by the Joint Tax
Committee, studies by the Treasury Department have shown both
the pass-through and the rate reductions were very highly
concentrated at high income levels. The people that got the
least from the tax cut were the lower 20 percent, lower 40
percent, lower half of the income distribution and that is
certainly true of the pass-through deduction. It is true of the
rate cuts, and it is true of the entire tax since most
corporate rate cuts eventually benefit high income people.
Ms. CHU. And so for these women-owned businesses that have
$100,000 or less in revenue?
Ms. GRAVELLE. They probably got very little. I do not know
individually, but they probably got very little, if anything.
Ms. CHU. Okay. Thank you.
Chairwoman VELAZQUEZ. The gentlelady yields back?
Ms. CHU. I yield back. Yeah.
Chairwoman VELAZQUEZ. We recognize the gentleman from
Minnesota, Ranking Member of the Subcommittee on Contracting
and Infrastructure, Mr. Stauber.
Mr. STAUBER. Thank you, Madam Chair. And I appreciate you
holding this hearing with the Ranking Member, and to the
witnesses, thanks for your testimony.
I just want to talk about some success stories in
Minnesota's 8th Congressional District, which is a blue-collar
district in Northeast Minnesota.
There is a brewery in Two Harbors which shared with me that
they were able to save thousands of dollars because the Federal
tax on a barrel of beer was cut in half, close to $60,000.
And a knife sharpening company in Ely, Minnesota, told me
they were able to invest in new sharpening equipment thanks in
part to the Tax Cut and Jobs Act which doubled section 179 that
allows businesses to expense equipment.
A manufacturing facility in International Falls, Minnesota,
GreenTech Manufacturing, a leading outdoor furnace
manufacturer, has added seven new positions at their small
business thanks to the savings from the Tax Cuts and Jobs Act.
There was a witness that I brought here to this Committee
earlier this year. He owns a rental company in Duluth,
Minnesota, and he is also a constituent who testified in front
of this Committee just a few months ago. He told the Committee
that he saved $7,200 last year with a 20 percent pass-through
deduction.
These are small businesses in our district that benefitted
from the Tax Cuts and Jobs Act. I think everybody understands
that it was an important piece of legislation that helped many.
Are there things that we now know can we do better at? Of
course we can, and I look forward on this Committee to work
towards that solution that continues to move our small
businesses forward.
Mr. Conger, I do have some questions. Would you support
making the individual rates permanent?
Mr. CONGER. Yes.
Mr. STAUBER. And do you think the economy is heading in the
right direction?
Mr. CONGER. Most definitely.
Mr. STAUBER. Mr. Willey, would you support making the
individual tax provisions permanent?
Mr. WILLEY. Yes.
Mr. STAUBER. I would just like to ask any of the witnesses,
Mr. Conger, with you first, are there any improvements that
Congress can make to build on the Tax Cuts and Jobs Act?
Mr. CONGER. Not knowing the Tax Cuts and Jobs Act inside
and out, one of the provisions that we had utilized, we do both
public and private construction, is there is a 179D tax credit
deduction program for construction companies that create or
work on construction projects that are publicly funded that
make energy efficiency upgrades. That is my understanding, that
179D deduction is till kind of in limbo but there are some good
savings of construction companies, suppliers, vendors that work
in that realm that are making energy efficiency upgrades to tax
our utilities less. There is a good savings there.
Mr. STAUBER. Okay. For my remaining minute and a half and
the three other witnesses, Mr. Braig, quickly, what is
something that you would like to see added to the Tax Cut and
Jobs Act that can even make it better?
Mr. BAIG. I think just like the manufacturing sector and
other sectors you mentioned, they are getting tax cuts and
hopefully they will be permanent and they can continue.
Something for the professional industry because our expenses
are laptops and phones. So if there is something for the
professional industry.
Mr. STAUBER. Mr. Willey?
Mr. WILLEY. I have a bunch of things. One is making the tax
cuts permanent. The other is looking at the 199A deduction. The
20 percent deduction really is not parity with the C
corporations. It should be closer to 27-28 percent. The
research and development credit, one of the things that bothers
me there is we are playing around with that every year and
there seems to be no consideration that research takes time and
planning. And you do not know whether it is going to be
effective the way it was a year from now. This one is still in
flux. So keep that consistent.
Mr. STAUBER. Thank you.
Ms. Gravelle, you have got 20 seconds.
Ms. GRAVELLE. Well, I do not know that I can recommend
anything but there are a lot of options you could consider. But
I think one thing we should be looking forward to is this
proposal to amortize R&D down the road. I think that is
something that somebody needs to think about.
Mr. STAUBER. Great. Thank you very much.
I want to thank each and every one of the witnesses for
your testimony today, and we appreciate your time.
Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back. And we
recognize the gentleman from Pennsylvania, Mr. Evans, Vice
Chair of the committee for 5 minutes.
Mr. EVANS. Thank you, Madam Chair.
I want to thank you and your leadership as Chairperson of
this Committee because I think it has been really fantastic at
this time.
I, like a couple of other members on your Committee, are
members of the Ways and Means Committee. And I believe that the
reason some of these complication issues have come up is
because any time you do a tax package as was done in 51 days
and no hearings, I mean, clearly mistakes are going to be made.
So we need to state that. Fifty-one days, no hearings. And I
have only been here for 2 years and 5 months, and I am happy to
be on this Committee because it works together with the Ways
and Means.
So I want to start with Ms. Gravelle. How does the absence
of clear guidance make the tax compliance difficult for small
firms?
Ms. GRAVELLE. Well, I think we have seen it with the pass-
through deduction. They finally got the regulations out but you
had to deal with your taxes before those. For example, a simple
issue like combining businesses under one ownership. That was
an issue up in the air. When you became a service corporation,
if your skill or reputation was supposed to determine that. So
I think putting something into effect very quickly and then a
lag in regulations and still uncertainties in the regulations I
think is problematic when you do something quickly.
We also have a lot of technical corrections that need to be
considered like accidentally causing improvements to be
amortized over 39 years instead of expensed and things like
that.
Mr. EVANS. So in other words, 51 days, no hearings, you are
going to make mistakes like that?
Ms. GRAVELLE. I do not think it is just hearings. I think
letting the professionals out in the community read what you
are planning to, and hearing from them is a very important part
of the process. But you know.
Mr. EVANS. But that does not happen if you do not go
through a deliberate process.
Ms. GRAVELLE. No, you do not have time.
Mr. EVANS. Right.
Ms. GRAVELLE. A few things they caught but you do not have
time for a lot of this.
Mr. EVANS. Mr. Willey, will you please share the survey
results you find more compelling that the Committee should take
under consideration? There is a survey, my understanding. In
your statement you referred to statement in which only one in
three small business owners say the Tax Cuts and Jobs Act
brought a direct benefit for their business. Most small
businesses owners are still unsure.
Mr. WILLEY. Yeah. The NSBA did do a survey on that. And I
listed that in my written testimony. I think one of the
complexions is that I am not sure they really know what the
results of the tax cut are, so I think they are making some gut
decisions. I think at the time the survey was given, I am not
sure they got the results from their accountants yet. But there
are concerns they are not getting the benefit that they thought
they were going to get.
Mr. EVANS. Real quickly, well, can you walk the Committee
through the difficulty you faced when filing taxes after the
passage of your bill? And the follow up would be, how would you
simplify administration and compliance to help your business?
Mr. WILLEY. It was a bill that was put together very
quickly. Getting the regulations under control was a problem. I
would tell you that in some cases, especially in the
international area, we got regulations and procedures April
13th from the IRS. And sometimes we have already paid the tax
on that. So there was a lot of confusion on what actually was
happening. There was confusion on the pass-through and the
199A. It was a difficult year to pull this all together because
it was a substantial change.
Mr. EVANS. Okay. Real quick. I want to go to Mr. Braig is
your name?
Mr. BAIG. Braig.
Mr. EVANS. Braig. Sorry about that.
What actions could this Committee take to level the playing
field for taxpayers who own small businesses?
Mr. BAIG. I think looking at the small business, and I will
not go into the SBA stuff. Looking at the small business NAICS
codes I think is also something we need to take a look at as
what qualifies really a small business? In every small
business, as per SBA, makes $50,000 a year. And if you look at
the U.S. Census information from the Small Business Annual
Survey of Entrepreneurs of 2014 and every small business earns
less than $400,000 annually.
So this is what the small business is, really. They are not
multimillion dollar businesses. And a lot of that goes back
into the wage and stuff like that. Having pass-through ability,
that is great. But when you start hiring people and paying
employees you get penalized. So how do you make some of these
incentives permanent? When you are hiring people, you are
paying people, you can give incentives for those as well rather
than just pass-through to your personal tax cuts.
Mr. EVANS. I yield back the balance of my time and I thank
you, Madam Chair.
Chairwoman VELAZQUEZ. The gentleman yields back.
And now we recognize the gentleman from Florida, Mr. Spano,
for 5 minutes.
Mr. SPANO. Thank you so much, Madam Chair. And thank you,
witnesses, for being here and offering your testimony.
I am a new member of Congress. I was not here when the Tax
Cuts and Jobs Act was passed, but I do have a unique
perspective on the topic. I have been a small business owner
for about a decade and a half. The impacts that I have observed
in my own small business and for other small businesses in the
community that I represent, I have been a board member on the
Chambers there. I am involved in two or three chambers over the
course of the last couple of decades. And I have personally
seen the benefit to our community. It has been instrumental in
the economic success of our community. You know, Main Street of
our town is just booming and whatever you want to attribute it
to, I think at least in part the Tax Cuts and Jobs Act have had
a positive impact. Our economy is thriving.
And so while I was sitting here waiting, I have my
accountant that has done our personal taxes for about a decade.
And I said, hey, just give me kind of your anecdotal
impression. You know, is your assessment, is your understanding
of what is happening consistent with what I am feeling? And his
response to me was, all capital letters with four exclamation
points, BENEFIT!!!! I asked him, does the Tax Cuts and Jobs Act
benefit or has it been bad for small business? BENEFIT!!!! Four
exclamation points.
Two senior helper franchises saved $3,200 and $4,400 in
taxes. One local restaurant saved $2,800 in taxes on just the
20 percent pass-through deduction only. It does not even
include savings from tax ratings going down. So his impression
was the same as mine. The small business that I had was I owned
my own law practice. We did a lot of estate work over the last
several years. So one of the major benefits that I see in the
tax bill is an increase in the estate tax exemption.
And Mr. Willey, you said, and I quote, ``The estate tax
often is very much a small business issue. We applaud the
increase in the estate tax exemption but we are concerned that
the provision expires in 2025.''
My experience is that many small business owners, one of
the issues that their families have when they pass away is they
do not have the liquid assets to keep the business running
because of the estate tax responsibility. And so, in my person
opinion, and I would like to hear yours as well, the increase
in that estate tax exclusion, will it allow small businesses
and their families if they want to generationally continue
practice in this area or work in this area of their business,
will this increase in estate tax exclusion help them do that?
Mr. WILLEY. I view the estate tax as a small business issue
really. I have less concern about people who clip coupons but
the small business, if they get subject to an estate tax it
takes money out of their cash flow, their ability to reinvest.
It is a small business issue, and I think the increase will
help most small businesses avoid it.
Mr. SPANO. Yeah. So in my experience, especially with
family farms, right, the family farm situation, the major asset
of your business is your land. And if you have got to sell your
land that you are farming on to pay an estate tax, you are on
longer in business. So this is a very important issue to me.
One of the things I think we have broad consensus on here
today that we have kind of all agreed on it seems to me, tax
cuts should be made permanent, and it needs to be simpler.
Let's get it done. Let's make it happen. There is no reason why
we cannot see those two things happen. I think we are all in
agreement that those two things should happen and that they
would benefit small businesses.
With that, I yield back. Thank you.
Chairwoman VELAZQUEZ. The gentleman yields back. And now we
recognize the gentlelady from Ohio, the Chairwoman of the
Subcommittee on Rural Development, Agriculture, Trade, and
Entrepreneurship, Ms. Finkenauer.
Ms. FINKENAUER. Thank you, Madam Chair. And thank you so
much for our witnesses here today and taking the time out of
your schedules to be here. It means a lot.
You know, when I came to Congress, I knew that the new tax
law did not deliver the way that it should have for hardworking
Iowans. But honestly, I did not realize the amount of
unintended consequences it created until I started hearing from
people in industries that have suffered and have actually taken
the time to come here and talk about some of those issues. An
error in the tax bill that makes it harder for Iowa's local
restaurants and Main Street stores to invest in renovations and
improvements to their storefronts just to name one of them, the
tax bill no longer allowed our workers to deduct the cost of
basic things associated with their jobs, like uniforms or
travel. And then some small businesses, specifically pass-
through entities, may qualify for a new 20 percent deduction,
but I have learned that the rules are so complicated for some
that businesses are not able to take advantage of it. On top of
that, this deduction expires in 2025, giving business owners
absolutely no certainty.
Iowa's rural electrical cooperatives are among those hurt
by the unintended consequences and have come to visit. They
stay tax exempt but they have to maintain an 85/15 revenue
split, meaning 85 percent of their revenue has to come from
customers. The new tax law has made that hard though by
counting Federal grants and awards, even Federal aid from FEMA
after a disaster as noncustomer income and then throwing off
that revenue split.
I am cosponsor of several bills to fix these types of
errors, but issues like these are exactly why we need a
bipartisan approach when it comes to tax reform. This bill was
put together essentially behind closed doors, and quite
frankly, it shows.
Mr. Braig, what kind of impact do errors like this have on
small businesses? In considering changes to tax law, what
should Congress do differently in the future to make sure that
both parties and stakeholders are heard?
Mr. BAIG. I think we need to get the small businesses a
little bit more involved in this because making the decisions
based on a limited understanding of things sometimes and a
quick decision process, it hurts the small businesses. The
example I would use, if somebody who is living at the
penthouse, he sees sunlight all the time. But somebody who is
in the lobby does not see the sun. So the person in the
penthouse would make the policies to limit the sun, while the
person in the lobby does not see any at all. So they are
contradicting each other. So if we can have some kind of
involvement on the small business side where small businesses
can be participating in the whole process, rather than making
it in 51 days, if it takes 5 months, that is perfectly fine but
with a better solution.
Ms. FINKENAUER. Thank you.
You know, I often tell my constituents that a day in my
life in Congress actually looks quite a bit different than what
you see on TV at night. And on this Committee, I mean, we
probably work across the aisle to improve the lives of
entrepreneurs and workers across the country. You know, just
last week, the Small Business Committee passed five bills that
helped veteran entrepreneurs start and grow their small
businesses. These bills are an example of exactly what we
should be doing here in Washington and how we should be
legislating. And I cannot say that about the Tax Cuts and Jobs
Act. The law was not negotiated in a bipartisan manner. It was
put together far too quickly. It disproportionately benefits
those in the top 1 percent and it will add, again, trillions to
our national debt here.
Ms. Gravelle, can you explain to us what the average tax
cut would look like for the middle 20 percent of Americans
versus the top 1 percent income group by the year 2025?
Ms. GRAVELLE. Well, I am not sure I have those numbers
right in front of me but it is a very, you know, a very small
fraction of the taxes. For most people who were not itemizing,
they actually gained very little because even though there is a
bigger standard deduction, it was offset by the loss of the
personal exemption. So all of that pretty much washes out. So
you are talking about a very small tax cut for those people.
Ms. FINKENAUER. Well, thank you.
And thank you guys again for being here and having this
discussion. You know, we need to make sure that we are putting
dollars into the pockets of hardworking Iowans and folks across
the country, but these types of things should be done with,
again, our middle class in mind, and what we have seen here, I
was disappointed with the last few years and hope that we can
have better discussions moving forward. And again, thank you so
much for your time and your expertise being here.
And with that, I yield back, Madam Chair.
Chairwoman VELAZQUEZ. The gentlelady yields back.
And now we recognize the gentleman from Pennsylvania, Dr.
Joyce, Ranking Member of the Subcommittee on Rural Development,
Agriculture, Entrepreneurship, and Trade.
Mr. JOYCE. Thank you, Madam Chair.
Before I ask my questions, I would like to highlight what
the impact of the Tax Cuts and Jobs Act had on my district in
Pennsylvania. At the beginning of the year, we polled 4,500 of
my constituents, and 85 percent of them reported that they
support making the tax cuts permanent, exactly what you
testified to us today. This statistic is particularly impactful
when you understand that 99.6 percent of businesses in
Pennsylvania are small businesses.
While some of my constituents do work for larger
corporations, the vast majority of them are self-employed or
employed by small businesses. One constituent who has
benefitted from the tax cuts is Guy Berkebile, who is the owner
of Guy Chemical Company in Somerset, Pennsylvania, in my
district. Guy Chemical is an S corporation, which primarily
manufactures adhesives. These products are made here in the
United States but shipped all over the world and shipped into
my district as well.
Before the Tax Cuts and Jobs Act, nearly 50 percent of Mr.
Berkebile's profits were lost to the government in the form of
taxes. Since the tax cuts, Guy Chemical has invested in new
equipment, built a new lab that is five times larger than the
previous one, purchased new mixing equipment, and new
production equipment. Additionally, they added 29 new jobs,
increased salaries, and gave bigger bonuses, all of which Mr.
Berkebile points to as the result of these tax cuts.
With that said, the bill was not perfect. I wholeheartedly
agree that the tax cuts for small businesses and individuals
need to be made permanent. Additionally, Congress has intended
to provide retailers with the ability to fully and immediately
expense interior remodels to their buildings. But an
inadvertent drafting error termed ``the retail glitch'' has
resulted in grocers and restaurant operators, amongst other
small business owners, having to expense improvements over 39
years instead of the 15-year depreciation period they qualified
before the implementation of the tax cuts.
Despite the issues that I have highlighted to you, it is
overwhelming apparent based on conversations with my
constituents, that the reinvestments that I have seen in my own
community, these tax cuts were overall great for small
business. There is a bipartisan consensus, which you have heard
today, that many of the issues mentioned need to be addressed
and legislation has to be introduced to do so.
My colleague, Mr. Brady, has introduced H.R. 22 to make the
2017 tax cuts permanent for middle class and small business
owners like yourselves. Mr. Jason Smith has introduced the Main
Street Tax Certainty Act to make the tax deduction for
qualified business income permanent. Mr. Panetta has introduced
H.R. 1869, the Restoring Investment and Improvement Acts to fix
the retail glitch that I just talked about. Yet, we are almost
7 months into this Congress and the majority has not allowed
the House to consider any of these legislative fixes. I urge my
colleagues across the aisle to work with us to fix these issues
as soon as possible.
Now I would like to ask a few questions.
Mr. Conger, would making the 2017 tax cuts permanent for
the middle class and small businesses positively affect your
business?
Mr. CONGER. Yes.
Mr. JOYCE. Would it allow for you to make plans to expand
your business well past 2025?
Mr. CONGER. Most definitely. It would help us to plan out
and further grow well into the future.
Mr. JOYCE. Conversely, repealing the tax cuts, how would
that affect your business?
Mr. CONGER. It would have a negative impact of epic
proportion, I believe, because it would affect so many other
small businesses that would then stop to invest in their
businesses, grow their facilities, buy additional equipment,
and then in turn, need additional space, which is what the
construction services provide.
Mr. JOYCE. In your expert testimony, which was brilliantly
given to us today, you outlined the importance of growth and
development in your own company by these tax cuts. Will these
tax cuts, if made permanent, allow that to continue for you?
Mr. CONGER. Yes. I look forward to doing that. As you grow
a business, as an entrepreneur, you are always planning and
looking for and trying to look through a crystal ball out into
the future, and through strategic planning, if we have
certainty around the tax codes, we can better plan and better
look forward into the future and make good business decisions.
Mr. JOYCE. Thank all of you for your testimony today and I
thank you, Madam Chair.
Chairwoman VELAZQUEZ. The gentleman yields back. And now we
recognize the gentleman from Oklahoma, Mr. Hern, Ranking Member
of the Subcommittee on Economic Growth, Tax, and Capital Access
for 5 minutes.
Mr. HERN. Thank you, Madam Chairwoman.
This is a topic I wish we had about 3 hours to talk on. I
could take all 3 hours.
I have been a small businessman for over 34 years across
multiple sectors: banking, technology companies, real estate
development, McDonald's restaurants. I also spent 5-1/2 years
on McDonald's tax policy team where we had AICPA folks on
there. First, under Senator Levin and then Kemp and then
Brady--or Ryan, then Brady. So I have seen all this. And so the
talk of bipartisanship, it has never been there. In fact, I
want to ask a question in a minute. But as we get to talking
about what is happening in our districts, it did make a
difference. We heard about all the one-time benefits of giving
bonuses, so people were able to do that. They attributed that
directly to the Tax Code. And to say that it did not attribute
to the Tax Code would be to call those individual CEOs liars.
And we are not going to do that. They know what they could
afford and what they could not.
It does have a different impact. Mr. Willey, you know, you
are a witness for the democrats. I am going to ask you a
question in just a second, but I really appreciate your
testimony because you have covered the entire gamut of why we
needed it for C corporations and why we also need to make it
more simple and permanent for small businesses. I think you
captured it very accurately.
Madam Chairwoman, I have information from NFIB I would love
the support, ask unanimous consent to put into the record. They
represent over 300,000 small businesses in America. I think
they do a great job of referencing and showing the mood of the
small businesses in America. And I would love to put this into
the record.
Chairwoman VELAZQUEZ. Without objection, so ordered.
Mr. HERN. Thank you.
I would like to ask each one of you, and just a simple yes,
because I have got like a ton of questions for you, has there
ever been a simple Tax Code, Ms. Gravelle?
Ms. GRAVELLE. Not in my recollection.
Mr. HERN. Okay. Mr. Willey?
Mr. WILLEY. I have not seen one, but every time they say it
my business goes up.
Mr. HERN. Mr. Baig?
Mr. BAIG. Yet to see one.
Mr. HERN. Okay. Mr. Conger?
Mr. CONGER. No.
Mr. HERN. So, we are all arguing about whether this code is
simple or not, but there has never been one. So we have nothing
to reference for, it is just it is different from the last one.
The last time we had a comprehensive tax reform was in 1986. We
have had all kinds of iterations of messing with it along the
way. But, you know, one thing that we could ask ourselves, you
know, regulation, we just had a field hearing in Tulsa this
past week, or Monday, on regulation. Regulation is a longer
word for tax. And you as small business people know this. You
see what those imposed on you.
So the one thing we do have that we know, we know facts.
And small business people, business people in general, love
facts. We have the lowest unemployment in many, many months. We
have the highest employment possibly ever in the history of our
company. We have growing wage rates. And so those are, you
know, we can say those are happening by happenstance but there
is something that is attributing those. So people are going to
work. We have 7.6 million jobs unfilled and 6 million people
looking for jobs. We need to do a lot of work in training these
folks to get into those jobs.
Mr. Willey, I will come back to you. You were not
originally on my question list but I want to ask you this.
Recognizing that we had to do something on a global scale
because we were one of the highest industrialized Nations from
a tax rate standpoint, and you alluded to the fact that we went
from one of the highest to now one of the lowest, and we have
fundamentally changed how some of the Northern European
countries are doing business with their Tax Codes, and we have
changed the flow of foreign direct investments coming into this
country where they were leaving or not coming here before. Is
that correct?
Mr. WILLEY. Yes. I would say though we were in the middle
now. We are not the lowest but we are in the middle, in the
20s.
Mr. HERN. You are right, because what happened after we
changed ours, some of the Northern European countries actually
went and lowered theirs even lower so that they were not not
the lowest anymore. So we fundamentally affected the world. So
that is how you can see as a response what happened when we
changed our Tax Code.
I will be the first to tell you that I agree that this code
should be simpler. It is not simple. When you take away the
personal side and also change the pass-through side it gets
very convoluted. In fact, I am on the record saying when I was
asked early on how did this affect you, I said I will tell you
when my taxes are due how it affected me. Because it is
different. I would say as my friend from Florida said is that
we do need to make it more simple.
I also sit on Budget. And we talk about this a lot. To make
it permanent, that last 4 years will cost the Federal
Government revenues $957 billion. I will let you all figure out
whether we can replace $957 billion in 2025 or not, but it will
be a monumental lift. You are exactly right in your
determination.
I think each one of you would agree that the permanency of
this is important for certainty, because while the C
corporations, the large multinationals, were able to have
certainty, as you as small business men and women and the
people you represent want permanency. It will be a huge lift.
I want to tell each of you, I appreciate that this panel is
always so great because we remove the count of the Ds and Rs
from the conversation when the witnesses come and it is great
to hear the facts being given out by you all today. And so
thank you so much for traveling in and testifying to us.
Thank you, Madam Chairwoman.
Chairwoman VELAZQUEZ. The gentleman yields back.
And we will go to a second round. I have a question. If you
want to ask any other questions.
Mr. Golden, you are recognized for 5 minutes.
Mr. GOLDEN. Thank you, Madam Chair.
And I just want to quickly thank you for holding this
hearing. I think it is important oversight work. I think the
good news for all of you sitting out there is we have not heard
a whole lot of people talking about repealing these outright,
but I do think that we have to go in there with a scalpel and
try and fix any unintended consequences. That is our job.
Congress has done that already in a bipartisan fashion.
There was an effort put forward by Congresswoman Elaine Luria
and the For Country Caucus where it was unintended but it
happened where the survivors of service members killed in the
line of duty suddenly had their widows' benefits taxed. And we
have gone back and we fixed that. That is good, hard work, and
it was the right thing to do.
Talking again a little bit about some of the tradespeople
in Maine where maybe our construction economy is not booming so
much. You can drive 6 hours in my district alone to cover it
from north to south and there are several hours more of it
south of us. So you can imagine losing your ability as a worker
to deduct transportation, meals, because you are having to
drive as far away as a place like Massachusetts to work. That
is a pretty big loss. You can see how your tax cut can suddenly
evaporate all of a sudden when you lose some of those other
deductions like SALT as well.
I think these are things that we should have conversations
about fixing. And when we do it, I think we are going to have
to figure out how to pay for it. And one of the biggest I think
problems we have all heard today is that while there may not be
a mass effort to repeal the tax cut outright, it was self-
sunsetting in that these personal exemptions or personal tax
cuts and other things are going away in 2025. There has got to
be some discussion about how to pay for that.
But I did just have a couple of quick questions for Ms.
Gravelle. And you may not have it in front of you so if you
could just maybe follow up if you do not know off the top of
your head.
On the estate tax piece, I am curious moving from $11
million to $22 million jointly in terms of that exemption. How
many family-owned estates or small businesses, family-owned
small businesses, like let's say a farm are we talking about
here? Do you have those numbers either as direct numbers?
Ms. GRAVELLE. I used to do estimates of how many farms paid
the estate tax under the old rules, and depending on which
state, sometimes I came up with a half a farmer. It was a very
small number. Only about 1/10th of 1 percent of decedents pay
the estate tax, and only about 2/10th of 1 percent before. So
nobody pays this tax to speak of.
Chairwoman VELAZQUEZ. Would the gentleman yield?
Mr. GOLDEN. Yes.
Chairwoman VELAZQUEZ. So just 6,460 of the nation's 2.7
estates owed any taxes in 2017. And just 20 of those taxable
estates, less than 1 percent, were small businesses.
Ms. GRAVELLE. That is right. I have a paper on this so I
have looked at this a lot. But there is just very little. This
is something people talk about more than actually happens. It
very rarely happens. Of course, there are a lot of ways that
you can delay the taxes and that you have ways to try to deal
with any liquidity, but it really happens because the taxes are
really due.
Mr. GOLDEN. I also want to ask, there was a lot of
conversation about closing the carried interest loophole. Did
that get closed in full?
Ms. GRAVELLE. No. No. There is conversation about it but it
never seems to happen. And that is one option that could be
considered because it is very high-income people who are
essentially, most people believe are really earning wages.
Mr. GOLDEN. Thank you very much.
Madam Chair, I want to thank you again, and I do think we
have got some good opportunities as a Committee to work
together in a bipartisan way to fix some things. And at the end
of the day, I think the conversation is, how do we make sure
that we do this in a way that is to the great benefit of small
businesses and working people first of all? So thank you very
much.
Chairwoman VELAZQUEZ. The gentleman yields back.
Mr. Evans, you are recognized for 5 minutes.
Mr. EVANS. Thank you, Madam Chair.
Madam Chair, I am sorry that my colleague who quoted that
it would cost $900 billion has left because budgets are about
choices. And obviously, there was a choice made. And I do not
get upset with it. It would not have been the choice that I
would make but a choice was made. My Republican colleagues made
corporate tax cuts their choice and passed the cost on to small
businesses because the small business tax cuts will expire. So
we need to set the record straight about what is happening
here. And we need to be very clear so people will know what is
happening here. So when we talk about that $900 billion, which
ultimately, the debate about how it is going to be permanent is
because a decision was made. Now, I would not have agreed with
that decision, but that decision was made.
So Ms. Gravelle, I am coming to you. How does the temporary
nature of these tax provisions that disadvantaged small
businesses have the impact when a decision was made to make the
corporate tax cut permanent and make the tax cuts to benefit
small businesses expire? That is a choice. So can you speak to
how does the temporary nature of these tax provisions put a
disadvantage to small business owners?
Ms. GRAVELLE. Well, there was a $1.5 trillion constraint in
the budget agreement. So by allocating a great deal to a
permanent corporate tax rate, it used up too much revenue to be
able to make these tax cuts permanent. Everything is about
tradeoffs. And I think one of the things that has been kind of
missed here is this debt issue is a serious issue. I mean, it
is going to crowd out capital. It is going to reduce the funds
available for private borrowing, and there is a great deal of
concern about already with interest $2 trillion. And then are
you going to add another trillion? So it is about what your
choices are.
Chairwoman VELAZQUEZ. Will the gentleman yield?
Mr. EVANS. Yes, I will yield.
Chairwoman VELAZQUEZ. On that point, Ms. Gravelle, so is it
fair to say that one of the reasons we find ourselves closer to
reaching the debt ceiling is because of lower corporate tax
revenues as a result of the tax law?
Ms. GRAVELLE. Yes. The revenues were well more than I think
about two-thirds or perhaps more of this total $1.5 trillion.
It was a big piece. And a lot of that revenue went to
companies, not like Mr. Conger's company. We could have done
something with his company with graduated rates or whatever. It
went to Apple and Facebook and these large multinational
corporations who then spent a lot of that money apparently in
share buybacks. They did not apparently make investments.
Mr. EVANS. Which in return in a state like the state I am
from, Pennsylvania, which we have that 99 percent of
businesses, small businesses, 99 percent are the backbone, the
fifth largest state in the Nation, as a result of a decision
that was made. And it was a primarily person-made decision. We
are now sitting in a situation that our small businesses are in
jeopardy in terms of their own situations of expanding on their
businesses and hiring people. Would you speak to that?
Ms. GRAVELLE. Well, I think if you give people a tax cut
and then you say it expires, but you, in the meantime, carry on
with a large--it is harder to see what is not obvious to us. So
we see what we do on our tax return. What we do not see is what
happens down the road when you have crowding out of investment
that pushes up interest rates. So in that sense, the small
businesses were the losers because they only got a temporary
tax cut. But they are going to have to bear the burden of the
borrowing cost of this additional debt, the corporations I
think----
Mr. EVANS. And that is why I thank the Chairperson of this
Committee, to me very appropriate having this discussion is
very helpful to the public because those very small businesses
that I was talking about, and she has been to my district which
has 26 percent poverty and those businesses, you know, cannot
have access to capital when you talk about crowding out.
So I want to thank the Chairwoman for really, this has been
a really insightful discussion in the challenges that we have
for the future.
I yield back the balance of my time.
Chairwoman VELAZQUEZ. The gentleman yields back.
And now we recognize the gentleman from Ohio, Mr.
Balderson, for 5 minutes.
Mr. BALDERSON. Thank you, Madam Chair. Thank you all for
being here today. I have been in a couple other Committees at
the same time today.
This Committee plays a critical role in the success of our
Nation's small businesses as well as our Nation's economy.
According to the Small Business Administration's 2018 Economic
Profile Report, 99.9 percent of businesses in the United States
are considered to be small businesses. From my home state of
Ohio, there are nearly 950,000 small businesses employing more
than 2 million people. Last year, Ohio's small businesses
purchased $10 billion in revenue, which funneled straight into
our economy. Needless to say, small businesses are vital to our
country's prosperity.
Since joining Congress, I have made it a point to engage
with and support the small business community in Central Ohio.
I have organized a Small Business Advisory Committee for the
12th District so I may better serve these hardworking pillars
of our community.
In my conversations with my constituents and small business
owners in Ohio, however, I have heard seamlessly endless
stories about the benefits of a single piece of legislation,
The Tax Cuts and Jobs Act. Just this past week I had the
pleasure of meeting with a group of small business owners from
across Ohio, including several from my district in Central
Ohio. The individuals in this group work in an array of
industries from auto parts dealers to manufacturers. And in
this meeting, each and every one of these small business owners
reiterated how beneficial the Tax Cuts and Jobs Act has been to
their small businesses and its employees.
One example that I would like to highlight is a constituent
of mine and a member of my Small Business Advisory Committee,
Kelly. She is a vice president of GKM Auto Parts in my hometown
of Zanesville, Ohio. In 2016, Kelly had to pull the plug on
providing healthcare benefits other employees because the
Affordable Care Act was not indeed affordable for many small
businesses. In her words, the ACA drove our premiums through
the roof, making it impossible for her to offer employees a
decent health plan.
In anticipation of the Tax Cuts and Jobs Act passing
Congress and being signed into law by President Trump in 2017,
Kelly and her business opted to once again offer medical
insurance to her employees with a 60/40 split in premiums. For
her, this was solely possible due to the financial savings the
Tax Cuts and Jobs Act produced for her business. In addition to
health benefits, GKM Auto Parts was able to give raises to
staff who had not seen a salary increase in 3 years. Kelly was
adamant in telling me that absolutely none of the tax benefits
her small business received as a result of the Tax Cuts and
Jobs Act went into her pocket as the owner. Instead, this money
was given directly to her employees through pay bumps and
health benefits.
I have also spoken with small business owners about how the
Tax Cuts and Jobs Act has resulted in their ability to expand
staff. This job creation profoundly affects not only the small
business itself, but to the community as a whole. In my home in
Muskingum County, the unemployment rate has been cut in half
since the enactment of Tax Cuts and Jobs Act now sitting at 3.7
percent.
Finally, and perhaps hitting closest to home, the family of
a member of my own staff has been positively impacted by the
passage of Tax Cuts and Jobs Act. Her parents' business,
Mansfield Distribution Company, has bene able to increase the
pay for their employees by $30 per week. Now, that might not
seem like a lot to some folks, but when you multiply that
amount by 52 weeks, that is an increase of $1,500 each year.
These employees have used this money to make home improvements,
buy new cars, and support other local businesses.
As a member of this Committee, I will continue to work in
support of small businesses of Ohio and around the company. We
still have much work to do, but I am committed to serving my
constituents in the Ohio 12th District who either operate or
are employed by small businesses.
My question is for Mr. Conger. In your opening remarks, you
discuss how your family's small business has seen a growth of
110 percent due to the Tax Cuts and Jobs Act. This is a
phenomenal example of this legislation's success, and I thank
you for sharing your story with this Committee. I believe you
are uniquely positioned to speak about the impacts the Tax Cuts
and Jobs Act has had on Main Street as you are the current
Chairman of the Board for the Associated Builders and
Contractors (ABC) of Ohio, the Chairman of the Board for the
Workforce Investment Board of Butler, Clermont, and Warren
Counties, and a board member of the JobsOhio Regional Economic
Development Initiative of Cincinnati, not to mention you are
also president of your family's small business, Conger
Construction Group.
In your testimony, you discuss how your business, along
with others in Ohio, have been able to reinvest in your small
business and the community-at-large thanks to the increased
revenue you have experienced through the Tax Cuts and Jobs Act.
Would you please elaborate more about how your business growth
and expansion has benefitted the town of Lebanon, Ohio and
Warren County as a whole?
Chairwoman VELAZQUEZ. Time has expired. I will give you 10
to 15 seconds.
Mr. CONGER. Thank you, Chairwoman.
The tax cut has greatly impacted the City of Lebanon in
Warren County, Ohio. We see a multitude of businesses,
manufacturers in Ohio being a day's drive from 60 percent of
the population in America. So the manufacturing that is going
on in Ohio and the growth of jobs and economic boom to
businesses growing and expanding not only affecting my business
but a multitude of others in and around Southwest Ohio.
Thank you, Chairwoman.
Chairwoman VELAZQUEZ. The gentleman's time has expired.
Let me take this opportunity to thank all the witnesses for
taking time to be here and for the insightful discussion we had
today.
We all agree that small businesses should come first when
it comes to tax policies and as I said at the onset, it has
become increasingly clear that the lion's share of benefits
from the Republican tax bill will flaw disproportionately to
the largest corporations and the very wealthy. What was touted
as a clearer, more simplified tax system has simply left too
many small businesses behind. Simply put, small businesses and
working families were not a priority when this bill passed. We
need to do better for Main Street.
With that I will ask unanimous consent that members have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
And if there is no further business to come before the
Committee, we are adjourned. Thank you very much.
[Whereupon, at 1:22 p.m., the committee was adjourned.]
[Mr. Justin Conger did not submit his Responses to
Questions in a timely manner.]
A P P E N D I X
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