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99–835 2016

REGULATION: THE HIDDEN SMALL BUSINESS TAX 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

APRIL 14, 2016 

Small Business Committee Document Number 114–056 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

CHRIS GIBSON, New York 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

YVETTE CLARK, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRENDA LAWRENCE, Michigan 

ALMA ADAMS, North Carolina 

SETH MOULTON, Massachusetts 

MARK TAKAI, Hawaii 

KEVIN FITZPATRICK, Staff Director 

EMILY MURPHY, Deputy Staff Director for Policy 

JAN OLIVER, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Chabot ................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Ms. Karen R. Harned, Executive Director, National Federation of Independent Business Small Business Legal Center, Washington, DC ................. 4 

Mr. Frank Earnest Knapp, Jr., President and CEO, South Carolina Small 

Business Chamber of Commerce, Columbia, SC, testifying on behalf of 

the American Sustainable Business Council ..................................................... 6 

Mr. Rosario Palmieri, Vice President, Labor, Legal and Regulatory Policy, 

National Association of Manufacturers, Washington, DC ................................ 7 

Mr. Thomas M. Sullivan, Of Counsel, Nelson Mullins Riley & Scarborough, 

Washington, DC ................................................................................................... 9 

APPENDIX 

Prepared Statements: 

Ms. Karen R. Harned, Executive Director, National Federation of Independent Business Small Business Legal Center, Washington, DC .......... 23 

Mr. Frank Earnest Knapp, Jr., President and CEO, South Carolina Small 

Business Chamber of Commerce, Columbia, SC, testifying on behalf 

of the American Sustainable Business Council .......................................... 33 

Mr. Rosario Palmieri, Vice President, Labor, Legal and Regulatory Policy, 

National Association of Manufacturers, Washington, DC ......................... 36 

Mr. Thomas M. Sullivan, Of Counsel, Nelson Mullins Riley & Scarborough, Washington, DC ............................................................................ 55 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

ABC - Associated Builders and Contractors, Inc. .......................................... 65 

NACD - National Association of Chemical Distributors ............................... 66 

NSBA - National Small Business Association ................................................ 68 

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(1) 

REGULATION: THE HIDDEN SMALL BUSINESS 

TAX 

THURSDAY, APRIL 14, 2016 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Steve Chabot [chairman of the Committee] presiding. 

Present: Representatives Chabot, Luetkemeyer, Hanna, Knight, 

Hardy, Kelly, Vela ́zquez, and Adams. 

Chairman CHABOT. Good morning. I call this hearing to order. 

We are here today to talk about small businesses and the hidden 

federal regulatory burden that is weighing them down. 

Small businesses are a huge contributor to the American economy. They employ nearly 57 million employees, create 7 out of 

every 10 new jobs, and produce nearly half of private sector GDP. 

In my home state of Ohio, 2.1 million Americans go to work every 

day at a small business. In fact, almost 90 percent of U.S. employers have 20 employees or less. 

The federal government should be doing everything it can to help 

these small but mighty job creators flourish. Unfortunately, federal 

regulators are doing the opposite oftentimes by layering on new red 

tape and hiding the real burden from the American public. 

Too often, agencies do a poor job of assessing the impact of regulations on small businesses. However, we know small businesses 

shoulder a disproportionate share of the federal regulatory burden. 

A 2014 study found that small businesses with 50 employees or 

less spend 17 percent more to comply with federal regulations and 

that regulations cost the economy over $2 trillion annually. 

The regulatory burden falls most heavily on small firms because 

they have fewer resources and do not have in-house lawyers and 

regulatory compliance staff to help them navigate complicated federal rules. That is why it is critical that federal agencies analyze 

the small business impacts of new regulations and reduce unnecessary and excessive burdens. Agencies have been required to do this 

for over 35 years but still avoid these requirements in many instances. 

We need to lighten the massive regulatory burden and make it 

easier for small businesses to start, grow, thrive, and create new 

jobs. So we need to understand the problems that small businesses 

are facing and develop bold solutions. 

One legislative solution that the Committee put forward last year 

is H.R. 527, the Small Business Regulatory Flexibility ImproveSBREP-219A with DISTILLER

2 

ments Act, which passed the House with a bipartisan vote. The legislative window is closing, so I hope the Senate will act quickly to 

move this important bill. 

I want to thank the witnesses for being here today, and I would 

now like to recognize our ranking member for her opening statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Reducing the cost of regulations is an important issue for small 

businesses. Complicated rules and duplicative requirements can 

create burdens for small firms across a wide range of industries. 

Unchecked regulations can over time become out of date requiring 

companies to devote significant resources to compliance. This hurts 

their bottom line and their ability to hire new employees. For these 

very reasons, Congress enacted the Regulatory Flexibility Act in 

1980. At its core, the act requires agencies to assess the impact of 

their regulations on small businesses. A panel process was also 

added in 1996 requiring the EPA and OSHA to hear directly from 

small businesses on the most potentially burdensome rules. CFPB 

was brought into the panel process in 2010 under the Dodd-Frank 

Act. Overall, the result of the Regulatory Flexibility Act has been 

impressive. 

Since 1998, through its enforcement of the Act, the SBA’s Office 

of Advocacy has reduced the burden of Federal rules on small businesses by almost $130 billion. The Regulatory Flexibility Act is 

making a real difference for entrepreneurs across the country. 

President Obama has built on this and taken further actions in 

this area. He has issued several broad-based executive orders on 

rulemaking. Most importantly, he instructed agencies to conduct 

retrospective review of their regulations. These reviews have resulted in near-term cost savings to the U.S. economy of $10 billion. 

He also has required agencies to estimate the costs and benefits of 

regulations, consider less burdensome alternatives, and incorporate 

those that are affected by regulations into the rulemaking process. 

Taken together, these efforts are helping to reign in regulatory 

costs, while ensuring that agencies can carry out their mission. 

While it is important to reduce the unnecessary burden on small 

businesses, we have to be careful to not impede the economic benefits of regulation. Clean water and air regulations help ensure a 

healthy workforce and are critical to many companies, especially 

those engaged in travel and tourism. Safety rules keep our workers 

healthy and enhance productivity by reducing workplace accidents. 

Financial regulation has prevented individuals from being taken 

advantage of. 

Earlier this month, we saw the CFPB close down a student loan 

debt management company that fleeced 3.6 million from 4,300 consumers through a 3-year scam, so we have to be careful to not use 

instances of regulatory burden to undo helpful rules. Reduce compliance costs? Yes. That is something we can all agree to, but neutralize critical environmental health and safety rules, no, that is 

too far. Too often this debate is framed in a strictly either/or context, meaning we must choose between harming small businesses 

and preserving important protections that keep workers and consumers safe. Perhaps a better option is to focus on regulating in 

a thoughtful manner that is sensitive to the burden imposed on 

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3 

small companies while maintaining their underlying policies. The 

regulatory review process that Congress and the president have 

laid out is meant to achieve that goal, taking small firms’ needs 

into account. 

Today, I hope to learn more about how mechanisms like the Regulatory Flexibility Act are minimizing their regulatory impact on 

small companies. Likewise, there might be other ways that federal 

agencies can lessen small business compliance costs, whether it is 

through compliance assistance, legal advice, or other steps, it is my 

hope that this sort of proactive thinking can also be part of the discussion. All of us share the goals of protecting workers, preserving 

our environment, and keeping consumers safe. Likewise, none of us 

want these protections to hurt small companies or impede job 

growth. It is my hope that by working together, we can achieve 

both goals. 

With that, I thank the witnesses for being here today, and I yield 

back. 

Chairman CHABOT. Thank you. The gentlelady yields back. 

If Committee members have an opening statement prepared, we 

ask that they submit them for the record. 

I will now take just a moment to explain our timing and lighting 

system. It is pretty simple. Each of you gets 5 minutes. We will 

then get 5 minutes to question you back and forth from Republican 

and Democratic side. The lights, the green light will be on for 4 

minutes, the yellow light will come on to let you know you have 

got a minute to wrap up, and then the red light comes on, and we 

would appreciate it if you would conclude by that time if at all possible. We will give you a little leeway but not a whole lot. 

Now I would like to introduce our witness panel. I will introduce 

our first witness, and then I will turn it over to the ranking member to introduce our second witness, and I will introduce the others. 

Our first witness is Karen Harned. Ms. Harned is the Executive 

Director of the NFIB, National Federation of Independent Business, Small Business Legal Center. The NFIB represents over 

325,000 small and independent businesses. The Legal Center advocates for small business in the nation’s courts and serves as a resource for small business owners across the country. Prior to joining the Legal Center, Ms. Harned worked at a law firm specializing 

in food and drug law. 

I would now like to yield to the Ranking Member for our second 

introduction. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

It is my pleasure to introduce Mr. Frank Knapp, Jr., the Founder, President, and CEO of the South Carolina Small Business 

Chamber of Commerce, which has more than 5,000 members and 

has a goal of making South Carolina more small business friendly. 

He also serves as Vice Chair of the American Sustainable Business 

Council, which advocates for the growing universe of sustainable 

and socially responsible businesses and social enterprises. Mr. 

Knapp holds a master’s degree in social psychology from the University of South Carolina and a bachelor’s degree in psychology 

from Indiana University of Pennsylvania. Welcome. 

Chairman CHABOT. Thank you very much. 

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Our third witness is Rosario Palmieri. Mr. Palmieri is the Vice 

President of Labor, Legal, and Regulatory Policy at the National 

Association of Manufacturers, or NAM. NAM represents manufacturers across the United States, the majority which are small businesses. Before joining NAM, Mr. Palmieri served as a staffer on 

several House Committees, including the Committee on Small 

Business, the most important Committee in Congress. 

Our final witness is Tom Sullivan, an attorney with the law firm 

of Nelson Mullins. He leads the Coalition for Responsible Business 

Finance, a group of businesses that advocate for the value of nontraditional lending opportunities for small businesses. Previously, 

Mr. Sullivan served as Chief Counsel for Advocacy at the U.S. 

Small Business Administration from 2002 to 2008. We thank you 

all for being here today, and Ms. Harned, we will begin with you. 

You are recognized for 5 minutes. 

STATEMENTS OF KAREN R. HARNED, EXECUTIVE DIRECTOR, 

NATIONAL FEDERATION OF INDEPENDENT BUSINESS, 

SMALL BUSINESS LEGAL CENTER; FRANK EARNEST KNAPP, 

JR., PRESIDENT AND CEO, SOUTH CAROLINA SMALL BUSINESS CHAMBER OF COMMERCE, TESTIFYING ON BEHALF OF 

THE AMERICAN SUSTAINABLE BUSINESS COUNCIL; 

ROSARIO PALMIERI, VICE PRESIDENT, LABOR, LEGAL AND 

REGULATORY POLICY, NATIONAL ASSOCIATION OF MANUFACTURERS; THOMAS M. SULLIVAN, OF COUNSEL, NELSON 

MULLINS RILEY & SCARBOROUGH 

STATEMENT OF KAREN R. HARNED 

Ms. HARNED. Thank you, Chairman Chabot and Ranking Member Vela ́zquez, for inviting me here today. On behalf of the National Federation of Independent Business, I appreciate this opportunity to testify on the hidden tax that regulation represents on 

small business. According to our latest NFIB Small Business Economic Trends Survey, 21 percent of small business owners cited 

government regulations and red tape as their single-most important problem. Despite the devastating impact of regulation on 

small businesses, federal agencies continue to turn out approximately 10 new regulations a day with a stunning 3,297 federal regulations in the pipeline. 

When it comes to regulations, small businesses bear a disproportionate amount of the regulatory burden as compared to larger 

businesses. This is not surprising since it is the small business 

owner, not one of a team of compliance officers, who is charged 

with understanding new regulations, filling out the required paperwork, and ensuring the business is in compliance with new federal 

mandates. The small business owner is the compliance officer for 

her business, and every hour she spends understanding and complying with a federal regulation is 1 less hour she has to service 

customers and plan for future growth. 

Today, I want to focus on a category of regulations that does not 

seem to get as much attention in Washington, and that is labor 

regulations. Small businesses can be found in virtually all industries. Whether you are a manufacturer, a baker, or a dry cleaner, 

the one thing you are going to have in common is employees. For 

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the small business NFIB represents, who on average have 10 employees or less, these regulations can be some of the most challenging. The small metal fabricator, for example, goes into business 

knowing how to finish metal products. He has a good sense of 

where he goes to get the supplies he needs and what kind of skills 

he is going to be needing in his workforce. But what he likely is 

not going to know is the best practices regarding wage and overtime calculation, compliance with various state and federal discrimination laws, and hiring. 

On July 6, 2015, the Department of Labor published a proposed 

rule that would more than double the minimum salary a worker 

must receive to $970 per week, or $50,440 annually, in order to be 

considered exempt from overtime requirements. The nearly $750 

million DOL’s initial regulatory flexibility analysis estimates small 

businesses would face in new costs during the rule’s first rule 

underestimates the true compliance costs for a small business. For 

example, DOL estimates it is going to take 1 hour for businesses 

to become familiar with the rule, but this assumption disregards a 

basic reality of regulatory compliance. It is the small business 

owner that will be wading through the rule’s regulatory text, not 

compliance specialists like those working for large corporations. 

This rule will not require just a simple look at a salaried employee’s weekly wages. If an employee is currently salaried and makes 

greater than the current threshold of $455 per week but less than 

the proposed $970 per week, the small business owner would spend 

a considerable amount of time calculating various scenarios. 

NFIB member Robert Mayfield owns five Dairy Queens in and 

around Austin, Texas, and he believes this rule would be bad news 

for employers and employees. Currently, Mr. Mayfield employs exempt managers at all five of his locations, and these individuals 

earn, on average, about $30,000 per year, and work between 40 to 

50 hours per week. The managers also receive bonuses, more flexible work arrangements including paid vacations and sick time, 

training opportunities, and promotions that Mayfield’s hourly employees do not get. Under DOL’s proposal, Mayfield predicted that 

he will need to move the managers back to hourly positions as 

there is simply no way he can afford to pay over 10 managers 

$50,000 each. Mayfield noted that rather than giving managers 

overtime, he is likely to hire a few more part-time employees. He 

says, ‘‘I feel most sorry for the many enthusiastic people who work 

for me, who have worked hard to advance into their dream of a salaried management position.’’ He continues, ‘‘How can you be a 

manager and punch a time clock? The idea is to do a job, not to 

keep track of your hours. This is the antithesis of building a management mentality or in training someone to be a manager. It 

would also disrupt the workplace and lead to fewer management 

opportunities. It would hurt, not help, the people we claim that we 

want to help.’’ 

As I detail in my written statement, DOL’s overtime rule is just 

one of many labor regulations, like OSHA’s silica rule and the persuader rule out of Department of Labor, that are imposing a hidden tax on small business, and these hidden taxes are in addition 

to those found in significant environmental regulations, like the 

‘‘waters of the U.S.’’ rule and EPA’s Power Plan rule. 

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Small businesses are the engine of our economy. Unfortunately, 

they also bear a disproportionate weight of government regulation. 

Complying with these and other regulations prevents small business owners from creating and growing new jobs. 

Thank you so much for holding this important hearing on regulations as a hidden tax on small business, and we look forward to 

working with you on these important issues going forward. 

Chairman CHABOT. Thank you very much. 

Mr. Knapp, you are recognized for 5 minutes. 

STATEMENT OF FRANK EARNEST KNAPP, JR. 

Mr. KNAPP. Thank you, and I apologize in advance. I have a 

cold. 

Thank you, Chairman Chabot, Ranking Member Vela ́zquez, and 

members of the Committee. My name is Frank Knapp. I am the 

president and CEO of the South Carolina Small Business Chamber 

of Commerce. I am also the board co-chair of the American Sustainable Business Council, which through its network represents 

about 200,000 businesses. The American Sustainable Business 

Council advocates for policy change at the federal level and at the 

state level that supports a more sustainable economy. 

Today’s hearing topic is important for small business and the vitality of our economy. Good regulations tend to stimulate innovative and entrepreneurship in addition to limiting or preventing destructive forms of economic activity. Bad regulations, whether because they are not designed properly or simply not needed, will be 

a burden on small businesses, and thus, harm our economy. Everyone here would prefer the former and not the latter. 

One example of what is working is the Regulatory Flexibility Act. 

In 2004, my South Carolina organization worked with our South 

Carolina Chamber and the NFIB to pass our Small Business Regulatory Flexibility Act modeled after the Federal law. Several years 

later, the then-chairman of the South Carolina Regulatory Review 

Committee told me that over the previous 7 years, his Committee 

had reviewed about 300 proposed regulations and identified only 10 

that raised their concern. His Committee worked with the State 

agencies promulgating these new regulations and satisfactorily resolved the issues. The Regulatory Flexibility Act has created an effective process to protect small businesses even if the process itself 

needs some attention from time to time. 

While some inside the Beltway claim that regulations are holding 

back our economic growth, the American Sustainable Business 

Council has a different view. Along with the other small business 

organizations, we released a poll of small business owners in February of 2012, which found that small businesses do not see regulations as a major concern. Our polling confirmed that small business 

owners value regulations if they are well constructed and fairly enforced. Eighty-six percent believe some regulation is necessary for 

a modern economy, and 93 percent of respondents believe their 

business can live with some regulation if it is fair and manageable. 

Seventy-eight percent of small employers agree regulations are important in protecting small businesses from unfair competition and 

to level the playing field with big business. Seventy-nine percent of 

small business owners support having clean air and water in their 

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community in order to keep the families, employees, and customers 

healthy. Sixty-one percent support standards that move our country towards energy efficiency and clean energy. 

Recently, Republican pollster Frank Luntz surveyed CEOs and 

found similar results as the American Sustainable Business Council polled. Regulations were identified as the seventh concern behind more pressing issues like creating economic opportunity, keeping taxes affordable, raising the minimum wage, and reducing income inequality. So if small businesses are not self-identifying regulations as their top impediment to growth, and businesses in general are not citing regulations as a significant problem, who are 

pushing the anti-regulation bills really representing? 

The answer is clear. Most of the complaints we hear in Washington are from only two industries. Those that are impacted by 

the Wall Street reform, Dodd-Frank, and new Environmental Protection Agency regulations. K Street lobbyists regaled Congress and 

the public about the dire economic consequences to small businesses of regulations that will prevent another Great Recession or 

protect the health and safety of our citizens or restrain the future 

wrath of uncontrolled climate change. In reality, the financial giants who drove our economy off a cliff and the powerful fossil fuel 

industry are driving the anti-regulation train using the name of 

small business to garner sympathetic ears. 

In conclusion, the regulation promulgating process can produce 

good results and good rules while protecting small businesses from 

unnecessary burdens if we provide the resources for agencies to expeditiously carry out the requirements. Congress has already put 

in place those requirements, but the federal government’s responsibility to impact small businesses should not stop there. Some small 

businesses will find compliance with federal regulations difficult. 

The answer is not to throw the baby out with the bathwater and 

invalidate existing rules. Instead, we believe the solution lies in expanding the capacity of the federal government to provide regulatory compliance assistance to small businesses. 

Thank you for the opportunity to speak before you today, and I 

welcome any questions the Committee might have. 

Chairman CHABOT. Thank you very much. 

Mr. Palmieri, you are recognized for 5 minutes. 

STATEMENT OF ROSARIO PALMIERI 

Mr. PALMIERI. Thank you, Chairman Chabot, Ranking Member 

Vela ́zquez, and members of the Committee, it is an honor to testify 

before you today about the impact of regulation on small business. 

The U.S. is still the world’s largest manufacturing economy, producing more than $2 trillion in value each year and directly employing nearly 12 million Americans and indirectly supporting 18 

million jobs. Manufacturers provide good high-paying jobs. Unfortunately, manufacturers lost 2.3 million jobs during the most recent 

recession, and since then we have generated over 802,000 net new 

jobs. But to regain manufacturing momentum and to return to net 

manufacturing job gains, we need improved economic conditions 

and improved government policies. 

The business community is often misunderstood about their 

views on regulation. Manufacturers believe regulation is critical to 

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the protection of workers’ safety, public health, and our environment. We believe some critical objectives of government can only 

be achieved through regulation, but that does not mean that our 

regulatory system is not in need of considerable improvement and 

reform. Regulations are often unnecessarily complex, duplicative, 

and ineffectively achieve their benefits. Excessive regulatory 

changes and uncertainty impose high costs, especially on small 

businesses. Small businesses, as we know, bear a disproportionate 

burden of regulation because of the often high fixed cost of compliance not subject to economies of scale. That is why the work of this 

Committee and the implementation of the Regulatory Flexibility 

Act are so important. 

Unfortunately, agencies are not anxious to analyze the impact of 

their regulations on small business. A recent study showed that between 1996 and 2012, fewer than 8 percent of rules were subject 

to the RFA’s analytical requirements. Although we had hoped that 

was because agencies made excellent decisions about which rules 

had those impacts, let me share a quick list of some of the most 

expensive EPA rules. EPA’s greenhouse gas limits on power plants, 

National Ambient Air Quality Standards for Ozone, Boiler MACT, 

the NESHAP 6X and the ‘‘Waters of the U.S.’’ rule. EPA certified 

that each of them would not have a significant impact on a substantial number of small entities. I think most of us would find 

that hard to believe. 

The reason it matters that these rules and thousands of others 

were not subject to the law is that the real businesses and real jobs 

are lost when small businesses are not considered. Last year, SBA’s 

Office of Advocacy saved small businesses $1.6 billion in first-year 

regulatory cost savings, and as Ranking Member Vela ́zquez noted, saved $130 billion since 1998. Imagine what could have been accomplished if fewer rules could evade these analytic requirements, 

and that is why a reform of the RFA is so urgent and why Chairman Chabot and this Committee’s leadership in proposing H.R. 527 

would help address these concerns. 

Additionally, there are a number of powerful and potentially bipartisan regulatory reforms to choose from. One would be for Congress to confirm the authority of OMB’s Office of Information and 

Regulatory Affairs to review the regulations issued by independent 

regulatory agencies and ensure their adherence to strong analytic 

requirements. Congress plays an important role within the regulatory process but does not have a group of analysts who develop 

their own cost estimates of proposed or final rules. Just like Congress has an independent CBO to check OMB budget assumptions, 

Congress should have a parallel office to OIRA and the agencies to 

review regulations and their impacts. 

While we have appreciated the Administration’s good efforts on 

retrospective review of regulations, they have not resulted in significant cost savings for our members or a change in culture in the 

federal agencies. To truly build a culture of continuous improvement and thoughtful retrospective review of regulations, different 

incentives are needed. To incentivize high quality reviews, existing 

regulations should automatically sunset unless they are affirmatively shown to have a strong continued justification. While the 

overwhelming majority of those regulations would be continued, a 

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cleanup of outdated or unnecessary regulatory accumulation would 

occur. The complexity of rulemaking and its reliance on highly 

technical scientific information has only increased since the passage of the Administrative Procedure Act. The APA is 70 years old, 

and it should be reformed by incorporating modern principles for 

sound rulemaking best embodied by President Clinton’s executive 

order into the DNA of every rule. 

In my written statement, I have included additional regulatory 

reform proposals for your consideration. I have outlined a number 

of challenging rules for small manufacturers. 

I appreciate the opportunity to provide testimony today on behalf 

of manufacturers across the country. I applaud you for holding today’s hearing, and I am happy to respond to any questions. Thank 

you. 

Chairman CHABOT. Thank you very much. 

Mr. Sullivan, you are recognized for 5 minutes. 

STATEMENT OF THOMAS M. SULLIVAN 

Mr. SULLIVAN. Thank you, Mr. Chairman, Congresswoman 

Vela ́zquez, members of the Committee. I am pleased to present my 

views on how small businesses are impacted by federal regulation. 

The bulk of my testimony will actually cover how small businesses 

can impact federal rules, or at least how the Regulatory Flexibility 

Act is designed to ensure that small business has a voice in the 

process. 

My testimony this morning is drawn from my two decades of 

work on small business regulatory issues and my overall desire to 

bolster the voice of small business in that process. I was confirmed 

to head the Office of Advocacy in 2002, and as you know, that office 

is responsible for overseeing the Regulatory Flexibility Act. I served 

until October 2008, and during my tenure, the Office of Advocacy 

issued approximately 300 public comment letters to 60 agencies, 

averaging about 38 per year. I have remained deeply interested in 

how small businesses are impacted by regulation and how small 

business involvement can benefit regulatory policy. 

I would like to share just briefly some good news and bad news. 

The good news is that federal agencies work with SBA’s Office of 

Advocacy, and EPA, and OSHA, and the CFPB, and they utilize 

SBREFA panels to explore how each agency can sensitize its regulatory approach to small business. The bad news is that there are 

still times when agency deadlines, whether they are judicial, statutory, or political, push folks at the agencies to approach the Reg 

Flex Act as a set of procedural hurdles. That concern is of utmost 

concern during this stage of the Administration when the clock is 

ticking down on when federal regulations will be finalized under 

President Obama. The end of administration phenomenon to cement its legacy through regulation is not unique to this presidency. 

There is plenty of data, research, and testimony on the subject of 

midnight regulations. One recent publication estimates 4,000 rules 

making their way through this Administration at a cost of more 

than $100 million. 

Unfortunately, I have more bad news. The most obvious example 

of an agency purposely, in my opinion, of an agency purposely 

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tion of the ‘‘waters of the U.S.’’ rule. The EPA and the Corps certified that the proposed rule would not have a significant economic 

impact on a substantial number of small businesses. 

More good news. A set of policies that is good news is that states 

continue to experiment with ways to make their regulatory climate 

more hospitable to small business. Frank Knapp already mentioned 

South Carolina, and in my home state, Governor Charlie Baker led 

an initiative to review all of the Commonwealth’s rules in a ‘‘spring 

cleaning’’ exercise last year designed to help small business. This 

is akin to my work as chief counsel when the Office of Advocacy 

worked with South Carolina, Massachusetts, and several other 

states to encourage state adoption of the Regulatory Flexibility Act 

at a state level, and it is good news that that effort continues. 

Unfortunately, the bad news is that States and their experiments 

also stumble into situations where they want to help but unintentionally harm small businesses. 

The coalition that I run, the Coalition of Responsible Business 

Finance, is monitoring a situation in Illinois and a situation in 

New York, up in Albany, where those legislators are considering 

small business lending provisions. It seems as though the goals of 

transparency and disclosure are good, but the other prescriptive 

underwriting standards and excessive regulatory mandates’ civil 

and criminal penalties, unfortunately, could do more harm than 

good. I am hopeful that in Springfield, Albany, and other state capitals, as I am optimistic here in Washington, D.C., that legislators 

and regulators can, and should, incorporate the views of small business before moving forward. That is the same principle of the Regulatory Flexibility Act. 

I am troubled by what happened with EPA’s ‘‘waters of the U.S.’’ 

rule and how its avoidance of the Regulatory Flexibility Act could 

not be challenged until the rulemaking was finalized, a year after 

they certified that it would not hurt small business. That certification part of the Reg Flex Act is truly the ‘‘fork in the road’’ when 

it comes to whether EPA should listen to small business and tailor 

its regulatory approach to accommodate small firms. H.R. 527, 

passed by this Committee, solves that problem, and I am hopeful 

that the Senate will look towards a similiar solution. 

I commend this Committee’s attention to the plight of small businesses that are trying to keep up with the flood of mandates emanating from our nation’s capital. Agencies need to continually hear 

from you, from the Office of Advocacy, from small business stakeholders like my fellow panelists, and from small business owners 

themselves in order to affect positive regulatory change. Thank 

you. 

Chairman CHABOT. Thank you very much. We appreciate the 

testimony of all the witnesses. Now the members on both sides will 

have an opportunity to ask a few questions, and I will begin with 

myself. 

Ms. Harned, let me start with you, if I can. Mr. Palmieri and Mr. 

Sullivan and you all believe and testified, and we obviously read 

your statements, that the Regulatory Flexibility Act needs to be 

strengthened and that loopholes need to be closed. I agree, and 

many of the members of the Committee do, and I have introduced 

legislation to do so. This Committee has held numerous hearings 

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11 

where we have heard about agencies bypassing the Regulatory 

Flexibility Act requirements or merely treating it as a ‘‘check the 

box’’ exercise. When agencies ignore the RFA’s procedural requirements, the only option left is litigation. Are RFA compliance disputes being resolved favorably for small businesses in the courts? 

And if not, why not, in your opinion? 

Ms. HARNED. Actually, in many instances they are being resolved favorably because, for example, the certification questions 

that even the ‘‘waters of the U.S.’’ rule presents. You either complied with the law or you did not. Right? We have won in past 

cases on those issues. The problem is they are Pyrrhic victories, because that win is going to take place years after the rule has taken 

effect. That is why the legislation that you supported, that the 

House has passed and, that the Senate needs to pass, is so critical, 

because it will allow for judicial review in that critical process 

where the agency has decided not to certify a rule or has failed to 

properly comply with doing an appropriate RFA analysis as the 

rule requires. 

Chairman CHABOT. Thank you very much. 

Mr. Palmieri, let me turn to you next. Notice and comment rulemaking is a critical process and ensures affected parties and other 

members of the public have input on regulations as they are developed. In the notice and comment, is it working well, or are there 

problems, such as short comment periods for complex rules? Do 

those types of things prevent small businesses from participating 

in the rulemaking process? What are your thoughts in that area? 

Mr. PALMIERI. Absolutely. When a rulemaking extends to hundreds of pages of extraordinarily complex and dense material that 

cannot be read by the average person, and then an agency, as in 

the case of the Department of Labor, gives a 30-day comment period, as they just did recently on a rule for federal contractors, it 

absolutely undermines the entire purpose of notice and comment. 

When asked for an extension of the comment period so that businesses could absorb the true impact of the rule and weigh in in a 

thoughtful way, they extended it for an additional 10 days. They 

could have just as easily refused if they had chosen to. There is 

really no excuse in the rulemaking process for agencies not to give 

sufficient time, especially if they have not done an advanced notice 

of proposed rulemaking or given an opportunity for early stakeholder input, like President Obama’s executive order recommends 

to agencies. 

Chairman CHABOT. Thank you very much. 

Mr. Sullivan, you mentioned the ‘‘waters of the United States’’ 

rule as an example of agencies deliberately avoiding compliance 

with the RFA. By certifying the rule, EPA avoided conducting a 

small business advocacy review panel and doing an analysis of the 

rule’s impacts. What can be done to address this kind of egregious 

behavior? Is the answer legislation or litigation or presidential 

leadership or some combination of those things? 

Mr. SULLIVAN. I think it is some combination of those things, 

honestly, Mr. Chairman. I think that H.R. 527 really fixes this 

problem, and that is the certification problem. Really what we are 

getting at is process versus result. Small businesses just do not 

want to be shut out of the process. They want clean water, they 

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12 

want clean air, but they do not want to be shut out of the process. 

At that critical decision point, when EPA or any other agency says 

it does or does not affect small business, I think there needs to be 

an independent assessment of that decision that happens before 7, 

8, 12 years later when it makes it to the Supreme Court, because 

small businesses need regulatory certainty. 

Chairman CHABOT. Let me squeeze in one quick question here, 

Mr. Palmieri. Ms. Harned had mentioned the silica rule in the $5.5 

billion annual compliance cost as one of the top issues. I know you 

had it in your written testimony as well. Would you discuss that 

briefly, the compliance challenges that small manufacturers are 

facing when it comes to the silica rule? 

Mr. PALMIERI. Sure. Manufacturers care deeply about the 

health of their employees and they are constantly, with or without 

the rules, able to address them. The real challenge of the silica rule 

is that OSHA will not allow businesses to prioritize personal protective equipment above costly engineering controls. Even in situations like in a foundry where it may not be feasible to implement 

the kinds of engineering controls OSHA has suggested, they are 

looking at extraordinarily costly measures when there are more efficient measures that will be just as protective. That is the real 

tragedy of this rule. 

Chairman CHABOT. Thank you very much. My time is expired. 

I would like to now recognize the gentlelady from North Carolina, Ms. Adams, who is the Ranking Member of the Investigations, 

Oversight, and Regulations Subcommittee, for 5 minutes. 

Ms. ADAMS. Thank you, Mr. Chair, and thank you, Ranking 

Member Vela ́zquez, for holding these hearings on tax implications 

for small businesses. It is of critical concern. 

Ms. Harned, you note that regulations are extremely onerous for 

businesses. How burdensome are regulations here in the U.S. compared to regulations in other countries, particularly those with 

similar economic structures? 

Ms. HARNED. Honestly, I would probably not be your person to 

answer that question. Our members really do primarily operate in 

the United States. They do not do much internationally. 

Ms. ADAMS. Would other members of the panel like to respond? 

Mr. PALMIERI. Sure, Ms. Adams. Part of the challenge for U.S. 

businesses is that often our compliance regimes are very different 

than in say some of our European allies and others where they 

may set a rulemaking standard but it is a goal as opposed to a floor 

or a threshold. Oftentimes you may even find similar regulatory 

standards internationally, and yet, their enforcement regimes have 

a different philosophy, and as a result, are far less costly to implement or they have a more cooperative relationship between businesses and regulators. What we certainly say, although they are 

not fantastic international quantitative comparisons, is that the 

U.S., when are business leaders operating in multiple jurisdictions 

surveyed, the U.S. is one of the most costly regulatory countries. 

Ms. ADAMS. Thank you, sir. 

Ms. Harned, many businesses are worried about duplicative regulations at both the federal and state levels. Can you discuss the 

extent to which firms face duplicative regulations? 

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13 

Ms. HARNED. Thank you for that question, because that is a 

very important issue that I have seen in my 14 years at NFIB. A 

state will tell somebody to do one thing. You will see it with building codes, all sorts of things. The federal government will come in, 

or an inspector will come in and say, oh, no, you need to do it that 

way. Really what I think all regulators need to do, and we need 

to come up with a system to meet the small business owner where 

they are, they need to know once I have gone through this one inspection, whether it is a state inspection, a federal inspection, even 

an inspection by a workers’ comp insurer, they have hit the marks 

that they need to hit, that they are good, because they want to 

meet the requirements that are asked of them. But, if the requirements are different for different people that are coming in at different times, it gets very confusing and challenging, and quite 

frankly, frustrating. 

Ms. ADAMS. Thank you. 

I have a concern about minority-owned businesses, and I wanted 

to ask if you had any thoughts on how red tape impacts minorityowned firms or disadvantaged businesses, and how the agencies 

can work with these firms specifically to provide technical assistance around compliance issues. 

Ms. HARNED. I actually think all small business owners, regardless whether minority-owned or not, are in it together on this 

issue, if I may, because I think that is the biggest issue. None of 

them are able to really find out what is required. I talked to colleagues, friends, members in different industries, and they really 

are relying on the trade association newsletter to alert them to 

things. Really, the outreach that can come to all communities, minority included, to the small businesses, there cannot be enough 

communication, enough channels of communication, in my opinion, 

because I still think so much of this comes as a shock. ‘‘Oh, wait. 

We need to be doing that? I had no idea.’’ I think that is particularly problematic if you are in a more insulated community or not 

as familiar with business, if, you are just new to business. 

Ms. ADAMS. So what is the solution then? 

Ms. HARNED. I have suggested to agencies before, partnering 

with small trades, getting the information, working with them to 

disseminate the information, get the information out. The same can 

be done with the minority communities. Bringing those organizations in to help them find their people, meet them, let them know 

what the rules are, and then also help them with compliance. Compliance assistance is key for everyone. 

Ms. ADAMS. Great. Thank you very much. 

Mr. Chair, I yield back. 

Chairman CHABOT. Thank you. The gentlelady yields back. 

The gentleman from Missouri, Mr. Luetkemeyer, who is the Vice 

Chairman of this Committee is recognized for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman, and welcome 

to all the panelists today. 

Ms. Harned, I serve on the Financial Services Committee as well 

and do a lot of work with regards to financial services issues, DoddFrank regulations, CFPB and, overreach. In fact, I am the author 

of the bill to stop Operation Chokepoint which affects lots and lots 

of small businesses. It is not based on whether they are doing 

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14 

something illegal, but based on the political bent and/or value system of the agencies, DOJ and FDIC in particular, with regards to 

certain individual industries. What is your experience with your 

members with regards to Operation Chokepoint, and have you seen 

a decline since FDIC has changed their policy? 

Ms. HARNED. We definitely are hearing more from members on 

this issue, and this was actually one of the regulatory, rules that 

has given us great concern. My Legal Center issued an underground regulation report last fall that highlighted the Operation 

Chokepoint and other mandates that have been coming out of 

agencies that have not gone through the process, have not had the 

benefit of Reg Flex. As a result, it seems it is targeted in different 

areas of the country, and so we are just seeing these complaints, 

if you will, come up through different industries, different parts of 

the country. But all of this is something that could have been foreseen had the agency gone through the requirements of the regulatory process instead of doing this through some DOJ memo or 

however this program unfolded. 

Mr. LUETKEMEYER. According to their own emails, their own 

internal emails, there is a concerted effort and a culture within 

these agencies that allows this to happen. So my question also, is 

have you seen as a result of this a decrease in the access to capital 

for your members? 

Ms. HARNED. Honestly, I cannot speak to that. I feel like that 

would be something for our research team, but I could get back to 

you. 

Mr. LUETKEMEYER. Sure. 

Mr. Sullivan, as an advocate for small businesses, I am sure you 

deal with a lot of different regulatory agencies. Have you seen the 

willingness of the agencies to work with you with regards to—I 

know a number of the panelists have made comments about concerns when rules are issued, nobody really does their analysis. I 

think it was 8 percent of the rules have basically a cost-benefit 

analysis done on it or any sort of other analysis, which is 92 percent short of the goal of what it should be. When you go back and 

talk to the bureaucracies, do they recognize this? Are they willing 

to work with you? 

Mr. SULLIVAN. This is another one of the good news, bad news 

kind of responses to your question, Congressman. The good news 

is yes, there are pockets of really good practices. You are familiar, 

certainly, with your work on Financial Services with CFPB. The 

good news with CFPB is they let you and the small business stakeholders know right at the beginning of a rulemaking that they are 

going to do a SBREFA panel. I wish EPA would tell everybody that 

they were going to do it. The challenge then is that when CFPB 

does it, it does not seem as though they are really incorporating 

those views into how they approach the regulation. That is kind of 

a sole agency good news, bad news. 

The Department of Transportation has a long history of working 

very well with SBA’s Office of Advocacy. OSHA actually releases its 

interaction with small business in a report prior to—— 

Mr. LUETKEMEYER. My question, sir, they are working with 

you but do they listen? Because I can tell you from talking with 

folks who have gone to some of these agencies, the fiduciary rule 

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15 

is a recent example. The QM rule with regards to qualified mortgages in CFPB, they ignored the discussion and the visits, because 

I had a group come to my office, and they said for the 42nd—we 

were the 42nd group to go in and talk to CFPB about the problems 

with QM and they said, well, we still know better than you what 

to do. It appears to me that even though you go talk to them, there 

is this attitude that we know better than you. Do you see that as 

prevalent, yes or no? 

Mr. SULLIVAN. Congressman, yes, I do see that continue to be 

a prevalent attitude, unfortunately. 

Mr. LUETKEMEYER. This is my concern because as I go home 

every week and I talk to my small business folks at home and I 

ask them, if you had one rule or regulation that you could get rid 

of, what would it be? They will tell me, you know what? It is not 

one particular one. It is this combination of all of them. It is the 

straw that finally breaks the camel’s back. It is not knowing what 

is coming to us next that is a concern to us, and as a result, we 

are sitting on our cash. I have small businesses that are sitting on 

tons of cash. They want to expand, hire people, put a new line in 

their manufacturing plant, and cannot because they do not know 

what is coming down the pike next. It is this uncertainty that 

causes us to not have, I believe, the kind of economy we could have. 

When you look at creating fewer businesses in the last 7 years 

than we have lost, that is a problem, and I know it affects you, Ms. 

Harned. 

I yield back the balance of my time. Thank you. 

Chairman CHABOT. Thank you. The gentleman’s time is expired. 

The Ranking Member, Ms. Vela ́zquez, is recognized for 5 minutes. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Mr. Knapp, a lack of regulation or regulatory enforcement can 

often lead to catastrophic results. Environmental disasters, such as 

those in West Virginia recently, or the BP oil spill, have been devastating to local small businesses. What do you think happened 

there? Was it lack of regulations or lack of enforcement? 

Mr. KNAPP. Thank you. In West Virginia, you are talking about 

the Elk River Spill. That was actually because, and I know this 

firsthand. As soon as that spill happened, I was in contact with the 

businesses there, which cost them, by the way, $19 million a day 

because they had to shut down their only source of clean drinking 

water. It was a matter that was not on the radar of anybody. You 

had this tank and nobody knew what was in it. Nobody was paying 

attention to it. It did not fall under any guidelines, any rules about 

how it had to be maintained. After that, the West Virginia legislature actually passed some very strict rules regarding aboveground 

storage and chemical storage. Unfortunately, the following year 

they turned around and gutted a lot of it. It is important. Regulations are important. They keep us safe. They protect our environment. They protect small businesses so that they do not have to be 

shut down when the drinking water is shut down, and they are important. I think everybody here recognizes that regulations do 

serve a purpose when they are done appropriately and are not too 

onerous. 

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I will go back to my statement. If we are talking about everybody 

thinks it is a good thing that agencies or the SBREFA process or 

everybody else has better outreach, we better fund it, because if we 

do not fund it, we are not going to be any better off than we are 

today. There is no sense in passing something and saying you will 

do this and then they go, ‘‘well, okay, we do not have time so we 

are going to still try to not do it’’. That is what I think goes on in 

these agencies with limited resources. It is funny. I was here nearly four years ago testifying before the same Committee, talking 

about the same thing. 

Ms. VELA ́ ZQUEZ. Yeah, well, I guess budgets have consequences. 

Mr. KNAPP. Yes, they do. 

Ms. VELA ́ ZQUEZ. Mr. Sullivan, I see in your testimony that you 

are leading the Coalition for Responsible Business Finance, a group 

of nontraditional small business lenders. As you know, I also serve 

on the Financial Services Committee, and I have pushed Director 

Cordray to issue regulations under Section 1071 of Dodd-Frank 

that will help us determine whether women-owned and minorityowned businesses are being discriminated against when they are 

trying to get loans. I will continue to push the director to do what 

we told him to do when we passed the Dodd-Frank. However, I am 

curious, from your standpoint, about how the CFPB can get this information without harming small lenders. Do you have an opinion 

on that? 

Mr. SULLIVAN. Thank you, Congresswoman, and thank you for 

being one of the first members of Congress to meet with the small 

businesses who are trying to provide capital to small businesses 

outside of the depository bank arena. 

Grady Hedgespeth was just appointed as the head of Small Business at CFPB. He comes from a career at SBA. He is a good guy, 

and he approaches these issues very thoughtfully and carefully. 

CFPB has a good start and a good man to hire to do this, but he 

has a tough challenge ahead. The answer to your question is: 

CFPB can get it right if it truly meets, listens to, and reacts to 

small businesses in this space, and that is the principle of the Reg 

Flex Act. If they do it right, then they will come out with a good 

regulation. 

Ms. VELA ́ ZQUEZ. We will be watching for sure. Thank you. 

Mr. Knapp, when agencies publish a proposed rule, the Reg Flex 

Act requires them to describe, and where feasible, estimate the 

number of small entities to which the proposed rule applies. Agencies often underestimate the number of small businesses impacted 

by proposed regulations, or simply say that the data is unavailable. 

Is it your experience that the burden is on small businesses to 

demonstrate that they will be affected? Mr. Sullivan, I would like 

to hear your comments on that. 

Mr. KNAPP. I do not know how much outreach the EPA did regarding developing the ‘‘waters of the U.S.’’ I have been told it was 

pretty extensive even though they did not go through the SBREFA 

process. Here is the problem. The problem is, when we even have 

advocacy and they have the panels, they are usually done in places 

where most small businesses are not. Okay? They are done in 

Washington, and that means trade associations are representing 

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17 

them, and trade associations are not necessarily representing the 

rank and file out there. I do not remember any of them coming to 

South Carolina to hold anything. 

I do not want to say it is the small businesses’ responsibility to 

tell an agency that yes, we will be impacted. I think that if we are 

going to be doing this type of outreach, they need to have the resources to go out to the small businesses. Instead of putting the 

burden on small businesses to say they are going to be impacted, 

let’s bring the two of them and let’s educate them. Let’s take them 

to where they are and then have those types of conversations. 

Ms. VELA ́ ZQUEZ. Thank you. 

Mr. Sullivan? 

Mr. SULLIVAN. Thank you, Congresswoman Vela ́zquez. 

First of all, I disagree vehemently with Mr. Knapp’s statement 

that trade associations do not represent their small businesses. I 

think that is absolutely false, and I think my tenure as chief counsel, my interaction with the trade associations was tremendously 

helpful to gauge where small businesses come from. They are busy 

running their businesses, and if they can afford $100 extra to join 

a trade association, they want the trade association to interact with 

the agencies so that they can put the lights on and turn the lights 

off at the end of the day to run their business. 

Now, as far as whether or not agencies underestimate or overestimate or who is responsible for the data, agencies have the resources to do the type of economic analysis. They know when they 

can get help from small businesses through their trade associations. I think the burden under the law is on the agencies to get 

it right, and I think that should continue to be where the emphasis 

is for producing analysis that you can benefit from, as well as small 

business owners in the process. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Chairman CHABOT. Thank you very much. The gentlelady’s 

time has expired. 

The chair would just note for the record that whereas private 

companies can screw up as they did in the chemical spill in West 

Virginia, that the government can screw up royally as it did out in 

Colorado some time ago in the Animas River when the EPA allowed huge amounts to go into the river there. That was the EPA. 

I would now like to recognize the gentleman from California, Mr. 

Knight, for 5 minutes. 

Mr. KNIGHT. Thank you, Mr. Chair. 

My question is for Mr. Palmieri. Mr. Hardy and I recently wrote 

a letter to Secretary Perez expressing similar concerns to the testimonies today. As you may know, Mr. Hardy and I are from two 

very different states—me from California, Mr. Hardy from Nevada—and we approach things quite differently in both of those 

states. Do your members bring up issues on how these proposed 

rules would affect them on top of the state regulations in different 

states? 

Mr. PALMIERI. Absolutely. We often have deep sympathy with 

our members in certain states that have a very challenging regulatory philosophy. Some of our members live in states where the 

regulatory philosophy is to accomplish the objective but to also remain the most competitive state in the country to attract busiSBREP-219A with DISTILLER

18 

nesses and invest. Obviously, we also suffer the challenges of, as 

Ms. Harned mentioned, differing enforcement regimes where a 

business that might have a facility on two sides of a border, in the 

Midwest or otherwise, where one of their facilities is in compliance 

with State inspectors in the program and the other is not, despite 

doing the same thing and meeting federal standards. There are any 

number of challenges that they face, and obviously, for some, they 

have made decisions to leave certain states because of their regulatory regimes or decided not to invest that next dollar or that next 

job in states that are not as welcoming. 

Mr. KNIGHT. Well put. Our job is to kind of get out of our way 

in California. I think Mr. Hardy’s job is to then take our jobs. I 

asked this because California just passed a minimum wage of $15 

an hour, and unfortunately, California sometimes leads, many 

times in the wrong direction. How do we see this $15 an hour minimum wage? Because it could be moving across the country. I know 

other states are talking about it and other states are considering 

this. How will this affect small business? This is for all four panelists. How much will this make the changes? I know that we had 

a good story about the five Dairy Queens and the change that will 

happen with the managers and now putting them back to salaried 

employees. Just the change in flexibility of not being able to allow 

your employees to have maybe a life instead of the things that the 

small business is going to have to go through with these huge 

changes from $8, $9, and $10 an hour, to now $15 an hour. 

Ms. HARNED. If I may, this has been something that NFIB has 

really been on the front lines of in the various states fighting because of the Robert Mayfields of the world. The concern is what it 

does for the entire workforce because it is not just getting that first 

employee up to $15 an hour, an employee that you may be training 

that will eventually be making and truly producing that value for 

the business. It also means what do you do about Joe that prior 

to the increase was making $17 an hour or $16 an hour? You are 

not just raising the labor cost, it is not just the lowest person on 

the ladder; it is going to impact everyone. When you have the small 

business owners that we represent that are really sometimes netting $100,000 a year if they are lucky, there is not a lot of money 

to play with there. The pie is just not getting any bigger. 

Mr. KNIGHT. I will use my last couple seconds here. We did a 

couple roundtables and one of them was with small restaurant 

owners, and that is the exact issue that they brought up. Look, our 

cooks do not make $15 an hour. They are making more than that. 

Now we hire somebody at $15 an hour and somebody is making 

$18 an hour. Are they going to just say, well, ‘‘that is fine by me; 

I will just continue to make $18 an hour’’? Or are they going to say, 

‘‘we would like a bump, too’’. It does have that ripple effect 

throughout the whole business that it is not just the $15 an hour 

basement, everyone is going to be bumped up. That comes off the 

bottom line of a small business. It makes it so there are less jobs. 

Not more jobs, less jobs. 

I appreciate the time and I appreciate the panel here today. 

Thank you, Mr. Chair. 

Chairman CHABOT. Thank you very much. The gentleman’s 

time is expired. The chair would just note that like California, the 

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city of Cincinnati—and I happen to be a resident of the city of Cincinnati—they are also now considering enacting a $15 minimum 

wage, and I can assure you that they did not consult with the 

chairman of the House Small Business Committee before considering such action. 

The gentleman from Nevada, Mr. Hardy, who is the chairman of 

the Subcommittee on Investigations, Oversight, and Regulations is 

recognized for 5 minutes. 

Mr. HARDY. Thank you, Mr. Chairman, for the opportunity 

throughout this meeting and bring out some of these issues that 

are out there. As a former small business owner myself, I might 

disagree with many on the impact of regulations; I have seen the 

impact of what regulations do to small businesses. We talk a lot 

about the small business, but we also have to understand that 

through the regulation process, small businesses also hurt probably 

more than anybody else when it impacts big business. I just heard 

at a hearing this morning about the impact of the steel industry, 

the regulations on the steel industry and how we cannot compete, 

or how we have governments backing up things, but the government side does not have anything to do with regulations. It has 

something to do with what our responsibility is here. 

The reason I bring this up, through regulations like ‘‘waters of 

the U.S.,’’ the Clean Water Act, the sick leave rules, all these other 

little rules that get at it, too, we, as small businesses, feed off 

many of the big businesses. When it impacts big business, it devastates our market too, and they start to collapse or they start to 

decline. Things like ‘‘waters of the U.S.’’ in Nevada. Really? Clean 

waters of the U.S. and Clean Water Act in Nevada? You literally 

could go for hundreds of miles and never find a stream. But because of mining impacts and the costs, it also costs maybe steel 

products, precious or other metals that help make good quality 

steel. When that impacts there, it drives costs up and drives the 

business out of business, so to speak, so we have problems on that 

end, too. We cannot ever leave out the big business impact. I would 

like to thank Mr. Knight for signing onto the letter with me for the 

overtime rule. 

Ms. Harned, I would like you to address maybe a little further 

on what impact this overtime rule has had on small business. You 

brought it up a little bit but can you go into manufacturing costs 

of jobs or maybe what other issues might be harmed by this overtime rule? 

Ms. HARNED. Right. I think the issue is the jobs. I think that 

Mr. Mayfield’s story really demonstrates that. The other thing that 

I think is so important to focus on with regard to this rule, we live 

in a very expensive area, and $50,000 is not what it is in rural 

Texas. That is one of our biggest complaints with this rule, and we 

really were asking that the Department look at the fact that you 

have different markets all over the country. One size definitely 

does not fit all when it comes to this, and you are, as Mr. Mayfield 

suggests, punishing people that you are trying to build as managers; making them think as an hourly employee as opposed to 

doing what is good for the business. I really think, for the small 

business owners we represent, this rule is very much one of a job 

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20 

cause as people lose jobs, they have less money to spend. Our most 

recent report that was just issued on Tuesday shows now that lack 

of sales is coming back up as a big factor as to why small businesses are not expanding and doing poorly in this economy still 

today. 

Mr. HARDY. You talk about the impact of the overtime rule, but 

we have many other impacts—the sick leave rule—that are coming 

forward. This joint employer rule, which is going to cause a major 

impact on industries because of the explanation that needs to be 

understood of where it is really going to stay with the smaller businesses that actually help build up that franchise, so to speak. 

A question I can ask of Mr. Palmieri, last year there was 82,035 

pages of regulations drafted from January 1 to December 30. Who 

has to read those pages? How many pages a day is that, by the 

way? How many employees do we have to have to take care of just 

to make sure we are not violating regulations? 

Mr. PALMIERI. Absolutely. For some of our smallest businesses, 

it is absolutely impossible. They have to rely on outside expertise, 

they will pay consultants. They will join trade associations. They 

will join other groups to help figure out what is coming at them, 

both what to expect in the future and what is hitting them right 

now. But you point to a critical piece that is so often missed and 

that no agency does a good job of, which is to say, in what environment am I adding this new regulatory cost? What is the cumulative 

burden of the regulations from this agency and all others that have 

been imposed recently on this industry, this sector, or in the past, 

that they are still following? That they are still investing in capital 

equipment to comply with? That cumulative burden, even though 

this administration has asked agencies to look at it, is never analyzed, is never reviewed, and often is what makes a relatively small 

rule still very costly at the margin and critical for whether a business remains a profitable concern or not. 

Chairman CHABOT. Thank you very much. Thank you. The gentleman’s time has expired. 

The gentleman from Mississippi, Mr. Kelly, is recognized for 5 

minutes. 

Mr. KELLY. Mr. Chairman, thank you for holding this hearing, 

and I thank all of you witnesses for being here. I thank you for 

your testimony today. 

It is frustrating to me. I am new here, and so I still have friends 

back home that do not know anything about the legislative process, 

and quite frankly do not want to know anything about the legislative process, and I may join them one day. It is frustrating when 

you have agency after agency after agency that in the name of trying to help people are continuing to hurt not only the small businesses but also the end user, the customer, the consumer whose 

prices continue to go up. Whether we are talking about the CFPB 

or EPA or OSHA or NLRB, they continue to pile on regulations, 

quite frankly, even to the point that recently there are lobbying 

groups to support their rules on the front end, which is illegal in 

some cases. Even when you tell them it is illegal, and I have actually had this in the Ag hearing where they say, ‘‘well, I think they 

misinterpreted the law’’. I think the courts are wrong. The courts 

did not really mean that. They are wrong in the ruling that they 

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have. We are going to ignore that. We have agencies that are out 

of control. We need good regulation in government. I think everyone in the panel would agree with that. We need reasonable regulation, and we need regulation that prevents cheaters, but we do 

not need burdens on our backs. Fifty thousand dollars a year is a 

lot of money in Mississippi, where I live. We cannot afford $15 an 

hour, especially when it is a graduated scale where you are punishing your hard workers, people like my wife who works, who does 

not make New York wages, it is difficult. So how do we stop them? 

Because they put up comment periods. They pay groups to go and 

comment what they want to say what a great rule it is, either legally or illegally. Groups do that. The number of comments does 

not equal the number of people it affects, and quite frankly, most 

small businesses cannot read it, do not have the time to read it, 

or are not articulate enough to organize to put those right messages on there. How do we stop it in Congress? How do we stop 

the ridiculous regulations that keep coming? I will just start with 

you, Ms. Harned, and see, what can we do? 

Ms. HARNED. That is the million-dollar question. I think one 

thing that can happen that would be helpful is, as we have seen 

with these big comprehensive bills, whether it is Obamacare or 

Dodd-Frank or whatever, there is way too much left unsaid in the 

statutory language, which means that the agencies get a clear path 

to fill in the blanks, if you will. Then you have years of jurisprudence in the courts that only give them the green light for that, 

saying we are going to defer to you, we are not going to second 

guess you. We have created, as an old professor Jonathan Turley 

said, the fourth branch of government now with these agencies. I 

really feel like starting in Congress, write clear, small, very direct 

legislation, and then aggressive oversight is also critical. 

Mr. KELLY. That is one of the things that is really frustrating 

to me, if I vote wrong and I do things that are stupid, my folks will 

send me home. I am accountable. If I make too many of the wrong 

votes or do things the wrong way, I am accountable. I go home. The 

President is accountable to the people. He is elected by the people, 

and if he makes the wrong decisions, whoever our next president 

is, he/she, it does not matter. If they make enough of the wrong decisions, the people will send them home. The same with our Senate. The problem is, these regulatory agencies, they do not even go 

to jail for breaking the law. There is no accountability whatsoever. 

They are not elected, they do not care what the people think, and 

they do not care what the voters think because they do not answer 

to the voters. They do not answer to the President. They do not answer to the Congress. They do not answer to the courts. They think 

that they are untouchable, and we have to figure out a way. I do 

not think any rule or regulation, if it was up to me, none of them, 

unless they were approved by Congress, would ever be acted into 

regulation. I do not care the cost because I think we owe a duty, 

and I think we have to get away from regulators running this country. The fourth branch of government, which I would argue right 

now until we do something, is the most powerful branch of government in spite of that is not the best thing for this nation. I think 

there are some really good people who work there. I do not think 

they are all bad people, and I think people have really good moSBREP-219A with DISTILLER

22 

tives. But at the end of the day, I think we have to rule on the 

amount of excessive regulation. I yield back. 

Chairman CHABOT. Thank you. The gentleman yields back. 

The chair was considering going into a second round and asking 

another question, but I cannot improve on what the gentleman 

from Mississippi just said. So I am going to end it there. 

We want to thank all the witnesses for being here today. Today’s 

hearing highlighted how regulations that are often created without 

assessing the real world consequences for small businesses can result in unnecessary and excessive regulatory burdens, especially on 

small businesses. At the core of this problem, I think to some degree, is the agency’s failure to comply with the Regulatory Flexibility Act. This Committee will continue to closely monitor agencies’ regulatory activities and work on solutions that will ensure 

full compliance with the law. 

I would ask unanimous consent that members have 5 legislative 

days to submit statements and supporting materials for the record. 

If there is no further business to come before the Committee, we 

are adjourned. Thank you very much. 

[Whereupon, at 11:15 a.m., the Committee was adjourned.] 

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