morning everyone i know called this hearing to order on updating the internal revenue code to help small businesses stimulate the economy as we approach april fifteenth millions of americans are preparing success rather than a means of encouraging the expansion of their firm's today's hearing will look at ways to tax policy can be improved to provide immediate relief for these leaders of us economic activity while the  the committee will also released a report outlining those reforms that will help small businesses weather day economic downturn was on the path to recovery and its review of the nation's ta calling april fifteenth is right around the corner time a year that we all become more of the tax burden placed upon all of us by our federal and state governments small business owners feel th creation and puts a damper on our overall economy in many respects the tax code makes decisions for entrepreneurs and all too often those decisions are to not upgrade equipment or offer health insurance or make other key investments because of tax complex complications according to the nonpartisan tax foundation tax freedom day the day that we begin to work for ourselves as opposed to working to pay taxes falls on april twenty third this year so that means that the average person basically from january first through april twenty third all the income that they are goes to the government either the federal government state government local governments government in one form or another it's not till after april twenty third for the rest of the year that the person is working for themselves or their own family that's outrageous as far as i'm concerned that means we work one hundred thirteen days of each year or the state or local versions of uncle sam before we are in a single dollar for ourselves in two thousand and one and two thousand and three congress passed legislation to cut taxes across the board on all americans unfortunately these tax cuts are set to expire at the end of two thousand and ten and other words taxes will go up in two years and last congress takes action to prevent that from happening and that also includes the one of the most i believe agreed to taxes and that's the federal inheritance tax or the death tax in which the federal government can take up to fifty five percent of what a person has when they pass away and that's generally property that's already been taxed during a person's lifetime and the two groups that are most acutely with this tax are small business that's oftentimes why the business doesn't make it to the next generation because it has to be literally sold in order to pay for the federal death tax and those employees  lose their jobs oftentimes and the other group as farmers in this country that are most egregiously by this tax higher taxes particularly on capital because the level of private investment to fall a devastating blow to the many small businesses who rely on private investors for their livelihood before the sun sets i want to see congress make this tax relief permanent it's not just the added benefit of paying lower taxes but the certainty that comes with it small businesses are always better off when they can plan for the future and having stable and predictable bills is a big part of that the complexity of our tax code is staggering at over fifty four thousand pages or if you stack it one on top of the other it's eight  morass of laws and regulations that is bloated to an unmanageable proportion for small businesses just starting out it can be especially difficult to know exactly what to do and when to do it small businesses simply do not have the technical expertise and in many cases the financial ability to hire accounts to help them understand what deductions and benefits they might be eligible for there is also a huge disparity in the way in which smaller firms compare with larger ones when it comes to tax compliance in two thousand and one the small business administration's office of advocacy released a report on the radio story cost faced by small firms that contained an estimate of the paperwork compliance costs the report showed that small businesses with fewer than twenty employees spend over twelve hundred dollars per employee to comply with paperwork record keeping and reporting requirements more than double their large larger competitors sounder simpler tax policies would benefit both the government and small business owners by improving compliance and lowering costs a local veterinarian near my district in cincinnati found out the hard way just how complex the tax code is the practice employees hold that required  timely and important hearing as you both said tax policy is very important for small businesses i am a partner at chemical sermon allison montpelier vermont and so i'm here today wearing two hats one is a part owner of a small business that has to comply with the regulations that you both and provisions that you both mentioned and also i have the privilege of representing the wireless association and its many many members that are involved in a very high tech and competitive business of wireless business that i and one of the things we do is provide an electronic bill tracking system for folks that are following what's going on in our states in terms of legislation that affects of in many ways and so our business has been able to grow from eight employees in two thousand and six to twenty two today which you know that's not a lot of employees but for us it's a lot and quite simply we could not have grown our business without the advances that have taken place in the last few years in wireless technology communications technology and information services so when i talk to you about these provisions that affect the wireless industry these are also in directing our ability to be productive and make money and be successful in business there are many issues i could be talking about today some of the other panelists will address some of these i'm only going to focus on three the first one is the issue of cellphones as listed property the second is extension of the research and development tax credit and the third which is slightly off point but very important is a bill soon to be introduced which would impose a moratorium on discriminatory state and local taxes on on the wireless industry the first issue listed properly property is a very difficult paperwork burden that's being imposed on small businesses i mean basically what it says is if you provide a cellphone or a blackberry for your employees that's not deductible as a business expense unless those employees go through bill and identify each and every call and it's business purpose now we have ten employees that have cell phones the time that it would take for those employees to go through and look through hundreds and hundreds of calls is just a paperwork nightmare and the issue is that if the i r s were t audit us they would say that this is not a nontaxable french benefit it's a taxable item and therefore that we have to collect back payroll taxes social security and other taxes and so this issue needs to be addressed small businesses most of the folks i talk to don't even know what exist and yet on a lot of potentially they could be paying hundreds or thousands of dollars in back taxes so this issue needs to be addressed unfortunately there is a bill pending fifty four fifty by representative johnson and pomeroy that this and we urge this committee to support that the second issue is a research and development tax credit many folks may not the wireless industry is a small business because of the number of customers that subscribe to wireless technologies but having just come back from the show in las vegas there were thousands and thousands of small entrepreneurs that are developing little niche products and services that will run over wireless networks and there are in the crowd it is very important as all small businesses that are really on the cutting edge of technology and innovation and while our firm does not use the r and d credit we rely on those innovations and technologies that are coming out of the industry to provide us new tools to do business and be more productive and profitable so i think all small businesses whether they claim th credit or not benefit from the innovation and technology that comes from providing that credit to our smaller entrepreneurs and other businesses as well and then the final issue is a moratorium on discriminatory state and local taxes on wireless service i recently published a study which found that the typical wireless consumer pays double the rate of taxes that other taxable goods and services are taxed in and so this is a very important issue for businesses like mine and other small businesses that end up having to pay a lot of money in state local taxes on their wireless service fortunately representative can and will be introducing this week or next week i hear a moratorium on discriminatory taxes so this will allow states to tax wireless service if there are other goods and services at the same time but would prevent the singling out of wireless services and wireless could do to help small businesses that rely on wireless technologies to compete so in conclusion thank you very much for the opportunity to testify in these issues i look forward to any questions you might have at the conclusion of the panel and again thank you thank good morning thank you for inviting me ranking members and other distinguished members of the committee i'm here on behalf of the american institute of our three hundred thousand members represent literally millions of small businesses and at this time of the year especially we see first hand the both the staggering complexities that you mentioned in the un necessary cities that you mentioned that face small businesses when trying to comply with the tax laws we have submitted a number of important changes that we think could be made to modernize the tax code and help small businesses be more competitive especially in a global marketplace and i requested our previously submitted testimony to be included in the official record of this hearing today i'd like to focus on a few of those items that we believe could make the tax code simpler as you suggested some of those have to do with  corporations as you probably know s corporations are a very popular vehicle for small business owners when it comes to forming their corporations one significant hurdle that is faced by a corporation which wants to convert to an s corporation is the life recapture tax this is a tax which is computed on the difference for inventories computed under the life of a method of taxation in the five a method of taxation we tax and we believe that the repeal of this provision section thirteen sixty three d of the internal revenue code would allow more small businesses such as car dealerships jewelry stores and others to participate in this popular form of doing business the  corporation a second corporate level taxes paid by us corporations is what's known as the passive investment income tax are also more popularly known as the sting tax this is paid by many corporations who have previously accumulated earnings as they see corporation and when their gross receipts as an s corporation exceed more than twenty five percent or royalties rents interest and dividends more than twenty five percent of their gross income in many new business all businesses form partnerships and partnerships or limited liability company limited liability companies have become the preferred method for most new businesses that involve more than one person generally subchapter revenue code which governs the taxation of partnerships and partners can be extremely complex and yet there are only a limited number of them minimum rules or other ways for small businesses that are required to report under partnership rules to simplify their lives by electing out of subchapter one reason and created what is called the qualified joint venture and this was based on a noble rational desire to simplify the tax life of husbands and wives operating businesses together and to make certain that both spouses receive credit for purposes of social security and medicare this election allows the two partnership participating spouses to forget with respect to treating phone and personal as a person as listed property and we think that that should be repealed and finally we would like congress to change the rules which currently provide that a taxpayer can take a position without penalty on the internal revenue code that a tax preparer could not take without disclosure or being subject to penalty we think that that makes the playing field unfair and we would like to see that changed as well thank you very much possible tax rate small business within the broader private economy in two thousand and five businesses with less than five hundred employees represented ninety nine point seven percent of all businesses and accounted for half of all private employment government data also show that a relatively small number of large businesses also play an important role in the economy and as an example firms receiving more than fifty million dollars in receipts represent a tiny fraction of all firms yet they account for about sixty nine percent of total business receipts given the important role of both small and large businesses in the economy there's a general consensus among economists that the tax system shouldn't try to favor one form of business over another and the basic rationale is that in the absence of taxes the market economy on its own would come up with the best allocation of small and large businesses that would maximize output in the economy in the presence of taxes you wouldn't want to try to change the outcome that would occur without t fall disproportionately small businesses my written testimony touches upon several provisions in the tax code that create some distinctions between small and large businesses some of those differences are favorable to small businesses some are unfavorable the point i want to emphasize is that the inordinate compliance costs placed on small businesses  today iris data indicate that there are both significant amounts of underreporting of income by small businesses and significant compliance costs placed on small businesses and there may be a correlation between the two and while noncompliance is not to be condemned it can be understandable how the heavy compliance burdens may generate the result of noncompliance with some of the rules of the tax system examining compliance costs one iris study found that businesses with less than ten thousand dollars in annual receipts based compliance costs were twice as large as the total receipts of the business even if you expand  slightly larger small businesses for example those businesses with receipts between one hundred thousand and five hundred thousand compliance costs are estimated to be about five percent of total receipts again that's measured relative to receipts not income income for such firms on average is about seven and a half percent of total receipts as a result compliance costs for these businesses represent an additional sixty percent tax on their income in summary then if you think about reforming the tax system it's essential to drive down the cost of complying with the nation's tax laws by reforming them with the goal of producing a clear simple and transparent tax system as i mentioned at the beginning i think this can best be achieved by creating a tax system with the lowest possible tax rates on business and with a minimum of special  economy the restaurant industry is the second largest private sector employer outside of the federal government with more than thirteen million employees representing more than nine percent of the job the first is health care industry but we're a close second t restaurant industry sales for this year projected to five hundred fifty eight billion dollars four percent of the u s growth products nationwide there are nine hundred forty five thousand restaurants and food service more than seven out of ten of these are small businesses more than seven out of ten were truly a small business industry with it becoming an economic powerhouse more and more so each year i'm here today to discuss the need for reforms in depreciation schedule specifically to shorten the right of restaurant buildings and approach to fifteen years this change would create immediate economic activity within the industry which in turn would reverberate throughout the economy there is currently legislation pending in one hundred tenth congress which addresses the accelerator restaurant depreciation for new construction and improvements h r thirty six twenty two championed by congressman kendrick meek from florida and patrick there's no question that restaurant depreciation schedules are outdated according to the tax code restaurant buildings have a life of thirty nine a half years in which they're written off to suggest that a restaurant building to actually live a thirty nine and a half years is ludicrous in fact i to how many of you know an erosion of human existence thirty nine and a half years would any of you restaurant that had been updated forty years we do but i can't even imagine the condition of the bathrooms in the carpeting and in the building  hundred thirty three million individuals patronize this industry on a daily basis restaurants must constantly make changes to keep up with the daily assault of traffic in their buildings in fact most restaurants remodel and update the billings every six to eight years a much shorter timeframe is reflected in the current depreciation schedule over the years congress has made numerous changes depreciation schedules they were granted specific specific benefits to gas stations and convenience stores recognizing the need in those industries and there have been other changes that create faster write offs creating economic advantages the tax code should pick winners and losers in the restaurant industry it allow a level playing field which in today's environment with high commodity costs restaurants and small businesses are now yielding bottom lines of three to four percent down from ten percent in the eight most of these small businesses are unable to remodel their buildings it's going affect downturn of sales increase in costs and in many ways forcing small businesses to close when the patronage drops below an economic to spend seventy billion dollars over the next ten years for building construction renovation finally there is no question as to whether or not this provision would immediately spur economic activity what happened when congress enacted a provision provide restaurants  fifteen years schedule for improvements to restaurant structures in two thousand and four in two thousand and five that provision was in effect the restaurant industry spent more than seven point four billion dollars on a broom it's a forty two percent increase over the previous year before an act that we urge the members of this committee to consider the information as evidence to keep a strong restaurant industry and in order to help the overall economy inclusion on behalf of the national restaurant association thank you for manufacture wire baskets hooks and wire forms we have the capability to produce a wide range of custom products for our customers our products are used in industrial aerospace medical in automotive factories and industries we have clients like caterpillar toyota boeing thank you for the opportunity to let us appear today and on behalf moms to wire national manufacturers we appreciate it is the nation's largest industrial trade association and we represent small and large manufacturers in every industrial sector in all fifty states i'm pleased that you  addressed the subject of updating the internal revenue code it will help small businesses stimulate the economy the tax policy agenda is designed to promote u s jobs and competitiveness and ensure continued economic growth i'd like to touch on a few of the specific concerns that we have and they include making the income tax cuts permanent providing a strengthened  and repealing the three percent withholding requirement on all government contracts because marlin steel is an s corporation we pay taxes at an individual rate many manufacturers like us are in the same boat in fact about half of all and am members are similarly organized flow through companies meaning they pay individual rates for us the legislation passed in two thousand and one in two thousand and three lowered the top individual tax rates this is been very good for us lower tax rates mean more money after taxes to expand our operations and create new jobs when enough manufacturers expand we fuel economic growth this try inflates into more money for the government to spend and lower deficits it's paradoxical but true that lower rates mean higher tax revenues converse lee letting the bush tax cuts expire effectively raises taxes in two thousand eleven this will mean that will be thinking about cutbacks right in the middle of an economic downturn and a lot of talk recently about raising taxes only on the upper brackets but many folks  congress think this means that they're only raising it on the super wealthy and i'm here today to remind you that these rates will strike at the heart of small business my tax return includes all of my business income even though we've never paid a dividend we pour every prop penny of profit back into the company to let it grow this so called profit that the i r s is taxing the on is not cash in my pocket it's money that i keep in my company so we can buy another welding machine to make a basket like this right here is my taxes go up i'll have to have less money to buy that welding machine or less money to hire a welder in baltimore the toll not only be paid by manufacturers like myself but it's also going to be one machine that the welding machine company sells and so also going to be another unemployed person in baltimore city when it be better off if i was buying new equipment wouldn't be better off for me to be hiring new people and the unemployment rolls to be smaller the r and d tax credit is also instrumental in maintaining our competitive edge were the primary innovator in the united states manufacturers understand that r and d drives new productivity r and d is how we stay fresh how we stay competitive i can't compete with other countries when it comes to wages so i have to win on innovation chairman bill as quest let me give you a concrete example travers tool is one of the excellent companies in your congressional district they buy this basket right here for me they resell it worldwide no one is going to get rich from this just this one basket model travers needs a steady flow of new fresh ideas new products that are competitive that are different this r and d tax credit to do our thomas edison imitation so we can be different innovative and fresh and this tax credit helps marlen stay innovative and contributes to jobs in our district and your district unfortunately because it's a temporary nature this r and d tax credit on again off again the fact that we were never certain whether it's going to be extended it's very hard for me to decide whether or not we should continue plowing ahead reinvesting into the company as of right now the tax credits expired because congress failed to act we're going to get hit with a big tax increase making this credit permanent would end the years of speculation and it would give the business the certainty we need to plan ahead in conclusion the tax relief in acted in two thousand and one for families and businesses have played an important role in stimulating economic growth and job creation making this tax relief permanent be an insurance policy for continued economic growth lowering tax rates doing the permanent we are looking to whether or not we can do this is here and part of the problem is our bottom line stores drop to about three percent we're facing a perfect storm right now usually when we see economic dips like we're seeing right now we find that drops and therefore our costs of doing business supplies and food costs drop but with the weak dollar and extremely high commodity c line we don't know if we can take the risk to make that investment when we knew if we knew that we had the ability to look at getting accelerate appreciate you which would mean  supposed to and appreciate the opportunity madam chairman to have this hearing on taxes because i honestly believe that you can't tax and regulate yourself into prosperity and i think we're seeing that now especially with energy costs that are going up and  think we actually need a growth package and the best economic growth package is a good paying job it's not not higher taxes and more regulations that legislation does basically three things and i like for you to talk to me about how you see this working in the economy it would lower the top corporate rate from thirty five percent to twenty five percent that would bring us in line with the european union nations that would bring jobs back to america that have actually left america in my mind second thing it would do is allow for a meeting immediate indexing for new equipment and buildings and finally the third thing it would do is decrease the top corporate campaign to right to fifteen percent bringing in line with individual capital gains rates putting more money back into small businesses so they can go and create those jobs the ultimate best economic stimulus package if each of your some of you could talk about an economic growth package with those fundamental principles and what it would do to our economy i would appreciate your thoughts  thank you i think that any any package that reduces taxes will improve the economy you certainly put more money into the pockets of of small business owners i think it's a it and in an economic downturn i suppose that modernizing is more important than simplifying so i would say in general although your stimulus package will undoubtedly make the code more complex it could very well have the effect of stimulating the economy by putting more money in the pockets of small business owners  let me address the corporate rate reduction if you look back prior to nine hundred eighty six the united states had one of the highest corporate tax rates in the world the nine hundred eighty local corporate tax rate in the european union is less than twenty five percent it's about twenty four and a half percent so the u s operate by not changing on its own became out of line with our trading partners and in many cases creates a competitive disadvantage for u s companies and even at a twenty five percent federal rate companies would still be liable for state and local taxes which on average would close to four or five percentage points on top of that twenty five many companies might say the that's not even going far enough i think it was said here before i think it was said here before that most of us in small business are taking the money from our core profits and putting them back into our businesses what does tax rate it enables us to invest and expand at a greater rate when we're burdened with higher taxes most people don't realize that our industry the restaurant industry today is a highly professional industry that we are now providing the stereotype of minimum wage jobs where providing major jobs were folks who have growth opportunities in executive positions many of are in six years or more running restaurants and in order to expand that getting a great job we need to expand our business and when time when taxes are high and we're unable to use that money to buy back in our businesses then we obviously are going to provide those jobs this is a wonderful idea we need you to win we need more jobs to grow we need to invest more back into the company we need all of our other factories to invest back in we're not competitive right now our structure is not competitive against france it's not competitive against our major trading partners this is crazy we should be a low tax environment so we could fight the french so we can fight the germans so we can fight the canadians we're focusing on those things that can modernize the tax code and thank you for the specific bills that are that have been introduced one question for mr you mentioned in your testimony that the impact of sunsetting the bush tax cuts will have a terrible impact negative impact on small businesses like yours do you have any information or data to support  contention and the extent of that kind of a negative impact on small businesses thank you for the question will be the biggest tax increase in american history and that's the wrong thing you want to do when the in many other programs in order to pay for the extension of the tax cuts that were supposed to be sunset and so you know i am interested in the adverse impact of the sunsetting on small businesses so if you can direct me and  the bottom line is we're the ones that create jobs and we're the ones in our people pay the taxes that make this all work and if we're scared because the money is going to go away then we're not going to hire as many people and that's good it really  business income that would be impacted by a tax increase thank you five years when you took your position on the improvements for hundred seventy five thousand how much of that could go into one category or the other we like to get all the fifteen i'd like to see us get fifteen not just the restaurant business as well but i'd like to just have your thoughts on that how do you i open a business or something we put it to category the land it's zero thirty nine on the building in five years most of it you know whatever we can  component so just be interested your thoughts well we play that juggling game you know with small business entrepreneurs try to figure out how we spend as much time trying to figure out how to categorize things to maximize  depreciation however as you know there are restrictions on what we can go in for example if we put a kitchen in the only thing we can accelerate to the fire level is actual product will equip and that is used for cooking so we've tried to expand that to say well is the ductwork over the stove part of that and we've been rejected often by the i r s saying no that's not it's very literally interpreted so we wind today fifteen years ago a kitchen cost one hundred fifty thousand dollars to equip a casual dining seventy five hundred square foot restaurant and today we're looking at a half a million dollars for that same kitchen right the majority of which is it has to be  depreciated over thirty nine a half years so the answer to your question is there isn't enough in that lower category to offset the third i'd have your category and that's why i think it's important to get the accelerated preachers i support you blatt your comment one of the things i think a lot of people don't understand up here because they're not in business a lot of small businesses pass through income and what that means someone makes and someone said well that puts more money in a small business person's pocket it really doesn't i mean it does but it does i mean my net worth doing ality of it is if you make three hundred you pay a hundred fifty in taxes you buy some more inventory by end of the day i've seen so many business people say where's my cash so not much of it really flows through to the owner and then you need that money too so when they look at raising taxes from thirty five to forty five four and a half percent on taxes over one hundred fifty thousand some of the surtax up here that mentality a lot of it goes right to the heart of small business and i know a lot of people that make five hundred seven hundred eight hundred but it flows back into their businesses critical that we must understand that we're reinvesting everything back to stay competitive we're fighting china we're fighting japan we're fighting mexico and the only way we can be competitive is by reinvesting reinvesting and you know it's critical that we stay competitive and that's only going to happen because we keep the tax rates low and we plow more money into the company thank you that's it  story a businessman i was speaking to recently was talking about the cost of manufacturing a particular item and united states thirteen dollars in mexico three dollars in china twenty eight that's the disparity of what we're facing and the incentives to shift more and more manufacturing out of this country are very real because of differences of currency because of differences of labor and environmental standards and perhaps tax code differentials as well that discourage manufacturing investment here and this is a very serious problem that's not my question my question is i'd like to participate in these hearings in order to try to let me get this other way to participate in these hearings in order to discuss big ideas now all of you generously given of your cut time to come today but we're still caught in a framework of discussing on the margins what already is you know this area the tax code sample this depreciate that just walked out the room to talk to a group of people who have a very legitimate concern that their depreciation schedule is not consistent with the actual life of the equipment very legitimate but what are the big ideas that are out there can do that can start to fundamentally address earlier problem that i talked about encouraging a new spirit of innovation and entrepreneurship we have a new philosophical direction that's coming in the workforce mr rosenthal you've got employees that are looking to that you're working for you right now and are looking for and are learning as to how to potentially get in the business to compete with you one day and you know what we accept that as a way of doing business in this country and that's the spirit of innovation and entrepreneurship that i think we do need to encourage to do this is where most news most new jobs that help families come from in the country let's reframe the question what are the big ideas out there that can further drive an entrepreneurial spirit beyond what we traditionally think about which is access to capital proper education and a less regulatory barriers one of which and we've held many hearings on this in this committee is the problem of health care we have tethered to health care benefits generally to benefit to business because of the way the sixty year history of this has been its way it's written into the tax code but that's a possibility of an tethering that linkage so that people have portability and yet at the same time it can afford to insure themselves from vulnerable circumstances the other is how we structure the tax code and dr lyon perhaps you can address this in a way that facilitates the congregation of people in one place through because we depreciate real estate a particular way or assets a particular way versus allowing people to be dispersed and entering into new types of contractual arrangements from home or by telecommuting and giving incentives to do that which is much more consistent and in many ways with a lot of the new workplace philosophical paradigm that we're seeing in terms of this entrepreneurial spirit that might not work in all businesses where you have to have certain economies of scale restaurant or manufacturing but in a lot it may and are we impeding that progress because of certain structures that we have in the tax code these are the kinds of ideas that i want to try to get under and use you as experts in this field to help think constructively through all with a vision toward enlivening and animating a spirit of entrepreneurship in this country which we all agree is for the benefit and well being of american families so questions if you look at the compliance seen small businesses you certainly want to do everything possible to minimize the paperwork that they're required but short of trying to eliminate burdens in that way by just allowing a complete right i would say that the next best thing you can do is strive for the lowest possible rates business income and  by doing that it becomes less important whether something as a fifteen year life or twenty year life the the return to the business is being taxed at a lower rate entrepreneurs can spend their time generating income and instead of trying to live the tax law my time is done but if gentlemen to ruminate on these broad questions and were available for input and ideas about it out appreciate your input because of your expertise thank you time if you take a look at two thousand we're coming into a recession two thousand and one and two we do some sort of feel good tax cuts and then the first quarter of two thousand and three we do dividends and capital gains and almost instantly you see about you go from a a one barely over one percent g d p jumps to about four unemployment reverses almost overnight to losing a hundred  sixty thousand john hundred forty thousand jobs a month to gaining about one hundred sixty thousand within a period of a couple of months and you've got five or six years of very strong economy and most interestingly enough are people in government particularly people like to to spend government money the government revenues go up significantly so here you have a situation where we've actually cut taxes on businesses or at least made money available to businesses through the dividends capital gains tax cut and it appears to be paralleling what's gone on in ireland you know the irish about fifteen years twenty years ago decided to cut their taxes on business to be some of the lowest in the entire european union and now everybody in europe is trying to copy ireland because economy is just going like mad it would seem like what we're talking about here isn't that complicated what we need to do is to get capital working in small businesses that seems to be the basic principle and instead the fed keeps cutting interest rates and creating liquidity the dollar is just going down like a submarine it seems like we got our hand on the wrong lever what we should be doing is even though it's not very popular is just do dividends capital gains get the taxes off of business so that somebody said it's better to tax a peach than to tax a peach tree it seems like we're we're just doing it the wrong way anybody want to comment to comment on your question in the last gentleman's question together i mean i agree we need compliance costs we need to lower rates but more importantly i think when you look at the global economy we need to do whatever we can to make sure the dollars are invested in the united states of america because there are a lot of places for investors to put dollars right now and we are truly in a global economy when it comes to investment there are very few barriers to investment flowing to china to europe to other countries and so we need to look at everything we can do to make sure that investment happens here as the research and development the things that give us a competitive advantage if that money is not spent here we're going to lose that competitive advantage and unfortunately the industry that i work with closely with the wireless and  telecommunications we are saddled with a lot of tax provisions that still date back to the one nine hundred eighty s when computers depreciated over thirty years and we have many many problems with depreciation schedules with outdated federal state and local tax provisions that increase the cost of investing when i look at my business and when i look at the data on productivity and what's creating wealth in the united states it's investments in information t communications that are not just helping those industries but all the other small and large businesses that rely on that innovation like in my business to be able to make money to be able to create jobs to to be able to provide the kind of health insurance and other benefits that we provide for our workers so i don't know if that necessarily qualifies as thinking outside the box in the way that you are doing sir and i appreciate your question but we have got to get a tax code that number one make sure that investment is here and stays here so that our businesses will benefit that was my only question madam chair somebody else once again if i can if i may i think th the two ideas that you're trying to create is wonderful if we could create a one page tax code one page we would save so much money in compliance costs and being nervous that the i r s is going to do something to us and hiring accountants right now i could hire a full person that would make forty three something thousand dollars a year to weld or to design or to engineer as opposed to paying into an accountant it's insane that i'm spending it that way in china they don't do that in france they don't i i make one hundred percent of everything in baltimore city with and we import nothing from china we import nothing from the worry and so we're one hundred percent american made we believe that if you make the environment so good for americans will never think about you know putting a factory in in mexico or putting a factory in canada so what we need to do is make it so that we're such a competitive environment that would be you wouldn't consider going read the democrats broke it they ought to fix that so we actually get along very well as most people know that follow this committee you mentioned before h r fifty four fifty i happen to be a co sponsor of that which would deal with your problem the wireless phones and the reporting requirements personal vs business and that sort of thing could you tell us how much time is wasted in having to comply with existing law and and how often in the final analysis is it really enforced in any of that so there are people just spinning their wheels that's a great question i think not a lot time is spent and forcing it quite complying with it quite frankly because i don't think most businesses even though they're supposed to be complying with it and i think that the entities that have received audit notices from the i which of course means that employees lose the productivity benefits from having these hand held devices and phones that are so critical to you know to their ability to do their jobs i think if nothing is done about it and in for information about the provision and forstmann starts to be more widespread then i think you're going to see a huge amount of time and effort spent by small businesses first figuring out what to do and what their exposure is and trying to hire folks to you know to calculate their back tax liability and then secondly sort of deciding what to do about it and then if they do decide to continue to provide it i could i can see just for myself and i travel around the country and you know everybody's going to have to have a policy about whether you can call your husband or wife talk to your family when you're on the right mean they're just an endless amount of time and so much time i think that companies are going to really have to rethink whether to provide the benefit at all so it is a very onerous burden and should it be more in force it is just going to grow exponentially thank you yes you know when cell phones were first made listed property they first of all weren't nearly as common as they are today and they were much more expensive on a per unit basis so there was probably a good reason for treating them as listed property but now the cost of using a cell phone is so inexpensive and all th cooperation on this committee the chairwoman and i together met with and addressed the association of equipment distributors who are here from all over the country in this in this room yesterday and we both gave a little then answer questions and one of the first questions that we got was relative to life that you referred to could you go into a little more depth relative to what the problem is and what you believe that congress should do to address that problem well sure i'd be happy to talk about the life provision for s corporations or many businesses adopt the life method of computing their inventory and cost of goods sold and just briefly the way the life of a method works is that the costs associated with a particular sale you match up the cost of the last inventory that you purchased with a with a  particular sale so if i sell something tomorrow i would match up my cost with the with a product that i purchased today not with the pro or not with a product that i purchased some time  ago for a business that has been in existence for a long period of time what it typically happens is that the inventory on their balance sheet is reported as something significantly less than fair market value because inventory has accumulated over many years and of course replacing that even torii is much more the benefit of that of course is lower cost of goods sold in lower taxes by corporations when a corporation goes from being a corporation to an s corporation the corporation no longer pays a corporate tax but the shareholders pay an individual tax on the profits as mr greenblatt alluded to before  income immediately rather they would report it at the time a see cooperation would reported when thank you very much dr you had mentioned in your testimony that it's your that that is important and that's the better route to take well there are number of reasons one is to question whether the special incentives themselves really  make our economy more productive on the whole it's a little like industrial planning where we think certain activities are more meritorious than others and as we've observed japan at one time engaged in that a great deal of their economy has not done very well over the past decade so there's a question of whether we can really i guess the market in terms of what what the best activities are but the other point is simply to claim these benefits require a lot of time spent in understanding how the rules were showing that you're in compliance document in it and especially for small businesses the cost of going through that paperwork can eat up much if not all of the benefit that was intended from the provision if instead we had simply challenge that reduced tax collections through lower nine it's a different difficult there are some clear benefits of section one seventy nine that businesses don't have to keep paper track of depreciation of  and in rewarding investment in equipment that does qualify for it over other investments absolutely and reclaiming my time mr rosenthal if i can one of the common things you hear about the restaurant industry is that when new restaurants are started there's a fairly good chance that they're not going to make it that only so many make it beyond a certain year and and that sort of thing and how much of an outside force telling you have to charge when we say minimum wage is going to be this that or the other thing in various governmental involvement in your business how significant is that in the whole success or failure of a restaurant that handles our basically our tip employee wages and and that's all they do the administrative level of healing not only the paperwork but the people in there in the qualified people to do these jobs additionally we are faced with and we all of our businesses are operating separate corporation so for many reasons they may have another investor or someone else in there so they're set up separately which means we now operate seven businesses including the property which means we have seven federal and state tax returns and our accounting bills have gotten to a point we don't have a general manager making what our points that you emphasize was the importance of making the tax cuts that were already passed capital gains tax relief the marginal rates across the board all of the above make them permanent that's one of the main things that we could do you also talked about how many business owners aren't really taking a whole lot out of the company they're plowing it back in the business so where is it may look like they're rich people  wealthy people who some would argue deserve to be taxed more in reality by piling it back into the business growing that business and hiring a whole lot of other folks giving them a job is that a fairly accurate portrayal that i just made and would you like to expound upon that i think you summarized it wonderfully we are we are the job machine the small business manufacturers small business in general are the job machine and we're going to get us out of the recession and as you give us more impediments it's going to take us longer to get out of the recession and when you tax us we're less prone to reinvest back in the company we're going to be less competitive and we're going to lose more jobs to china we'll lose more jobs to these some of these other countries so the way for us to get motivated and start hiring again is to let us reinvest back in the company and grow the company and that's our future  necessary and has really thought that for a long time so thank you very much mr rosenthal mentioned that most of his business is in his industry and in fact most small businesses many small businesses too many small businesses fail in their first year existence right now almost all small businesses are required to adopt a calendar year couple of problems with that first of all that may not match up against the corporation's natural business year second if a corporation if a new business starts up in october or november after being in business in those critical months it has to stop close its books and prepare tax return this would give small businesses the opportunity to have a fiscal year that matched up with their business cycle and for a new business to have an opportunity to operate for a full other companies which are using the credit so we benefit indirectly so i think there are perhaps more small businesses that are able to take advantage of the credit that some people may generally realize and even if they don't take strides toward making it easier for small businesses to comply with the with the tax law and to put their time and efforts to turning more profits i mean one of the other members  was looking for the big idea i think that i've been in this business now for over thirty years and for and on and on ever in those thirty years everyone's always looking for the big idea but  my experience in judgment tells me that there really is no big idea and that we would make a lot more progress especially in a down economy by focusing on fixing the hundreds of things  that could be fixed relatively simply in the current tax code to make it more efficient and more and easier to comply with for small businesses the t t's a lack of understanding i think there's a lot of common sense that when it takes more time to compute your taxes businesses that have many other valuable things to do with their time and resources may find it more valuable to generate income instead of devoting resources to the compliance costs and so i do think as we simplify the tax laws  tax i think that there is no tax code simplification that could ever cure the tax gap when it comes to simply not reporting the income that everyone knows should be reported and sadly for all business owners sadly the evidence is irrefutable that when you have increased reporting you have increased compliance but also i would say based upon my experience in practice in dealing with my with my neighbors is that when there is a perception that the tax code is extraordinarily complex and unfairly favors  some groups over the other that people are less even less enthused about paying the taxes that they should they should pay so i think that the tax code in some cases contributes directly to the tax gap with its complexity and certainly in other think the i r s and others try as hard as they can to to make people comply with the tax code and i just want to leave that impression out there that all we have to do is try harder work or simplify the code which i do think we have to simplify but then we'll have more money that we can