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SMALL BUSINESS PRIORITIES OF THE 109TH

CONGRESS

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, MARCH 8, 2005

Serial No. 109–4

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Pierce, Mr. Jerry, Owner, Restaurant Equipment Sales, Orlando, FL ............... 5

Coratolo, Mr. Giovanni, Director, Small Business Policy, U.S. Chamber of 

Commerce ............................................................................................................. 7

McCracken, Mr. Todd, President, National Small Business Associaton ............. 8

Kasoff, Ms. Barbara, Co-Founder, Women Impacting Public Policy, San Francisco, CA ................................................................................................................ 10

Kerrigan, Ms. Karen, President & CEO, Small Business and Entrepreneurship Council .......................................................................................................... 12

Brooks, Ms. Sheila, President, SRB Productions Inc. ........................................... 14

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 30

Velazquez, Hon. Nydia ..................................................................................... 31

Prepared statements: 

Pierce, Mr. Jerry, Owner, Restaurant Equipment Sales, Orlando, FL ........ 33

Coratolo, Mr. Giovanni, Director, Small Business Policy, U.S. Chamber 

of Commerce .................................................................................................. 42

McCracken, Mr. Todd, President, National Small Business Associaton ...... 51

Kasoff, Ms. Barbara, Co-Founder, Women Impacting Public Policy, San 

Francisco, CA ................................................................................................ 63

Kerrigan, Ms. Karen, President & CEO, Small Business and Entrepreneurship Council ........................................................................................... 67

Brooks, Ms. Sheila, President, SRB Productions Inc. ................................... 77

Attachments: 

WIPP Letters .................................................................................................... 82

(III) 

(1)

SMALL BUSINESS PRIORITIES OF THE 109TH 

CONGRESS 

TUESDAY, MARCH 8, 2005

HOUSE OF REPRESENTATIVES

COMMITTEE ON SMALL BUSINESS

Washington, D.C. 

The Committee met, pursuant to call, at 3:15 p.m. in Room 311, 

Rayburn House Office Building, Hon. Donald A. Manzullo [Chairman of the Committee] presiding. 

Present: Representatives Manzullo, Keller, Sodrel, Gohmert, 

Velazquez, Lipinski, Case, Bordallo, Grijalva.

Chairman MANZULLO. The Committee will be in order. Today the 

Committee examines the small business priorities for this Congress. 

Representative Ric Keller has authored a commendable resolution based on input he has received from his small business constituents, which expresses the sense of the House of Representatives the top challenges facing small businesses are staggering 

health care costs, high tax, regulatory and paperwork burden and 

frivolous lawsuits. 

Surveys of small businesses continually show similar priorities. 

These priorities should be the focus of Congressional action to improve the climate for small businesses. 

I am pleased that one of Mr. Keller’s constituents has taken the 

time out of his busy schedule to be with us today. 

On many fronts, Congress is making progress addressing these 

issues. Last month we were finally able to break the log jam in the 

Senate on class action litigation reform and it is now the law of the 

land. 

This Committee held two hearings on health care in recent 

weeks and I am optimistic that we can build on the success in the 

previous Congress that established health savings accounts to 

break the impasse in the Senate on association health plans and 

medical liability reform. 

I am pleased the President’s fiscal year 2006 budget request includes making the tax cuts we already passed into law permanent, 

including the important estate or death tax repeal so that small 

businesses can be passed on to the next generation. 

Next week we will most likely see a budget resolution adopted 

by the House to make the tax cuts permanent. Finally, I am going 

to work hard this Congress to see meaningful reform of Regulatory 

Flexibility Act and Equal Access to Justice Act to ensure that no 

2

federal agency bypasses the concerns of small business in the regulatory process. 

As a first step, the Committee plans a hearing on legislation to 

approve the Regulatory Flexibility Act next week. 

I look forward to learning of the priorities of the small business 

groups here before us today, based on input from their membership. 

I now yield for an opening statement from distinguished Ranking 

Democrat Member from the State of New York, Representative 

Velazquez.

Ms. VELAZQUEZ. Thank you, Mr. Chairman. As the economic engines of this country, small businesses play a vital role in job creation and economic growth. 

As the main job creators, creating three out of every four new 

jobs, small businesses make up nearly 99 percent of all employers. 

This sector is responsible for making up over half of the gross domestic product. Despite their overwhelming impact on our economy, small businesses unfortunately continue to face a myriad of 

challenges. 

The number one challenge facing small businesses today is their 

ability to access affordable health care. These costs have only continued to skyrocket over the past few years, increasing by double 

digits. 

Every one out of six uninsured Americans are in families headed 

by the self-employed or a small business employee. This is simply 

unacceptable. 

However, it is important to recognize that there is no one size 

fits all solution to this health care crisis facing our nation’s entrepreneurs. 

In addition, this nation’s small businesses continue to be overburdened by regulations and paperwork. In fact, the Bush Administration holds the record for the largest increase in paperwork burdens in a single year in history. 

According to OMB, Americans spend 720 million more hours a 

year on federal paperwork than they did before President Bush 

took office. 

Also, a serious concern for many aspiring entrepreneurs is their 

ability to access affordable capital. Whether it is bank lending, seed 

capital or venture capital, small businesses rely on this capital to 

start and grow their enterprises. 

However, they are oftentimes unavailable to qualify for traditional bank loans and depend on help from the federal government 

to access affordable capital. 

Another way for small businesses to increase their capital is by 

doing business with the federal government. Unfortunately, the 

$285 billion federal marketplace has not been open to small firms. 

For the fourth year in a row, the federal government missed their 

small business contracting goal, costing small businesses $45 billion in lost contracting opportunities over the past four years. 

In addition, we need to ensure that SBA and its programs will 

be modernized and adequately funded so small businesses have a 

vibrant and strong agency at their disposal. 

3

Over 50 vital small business programs has been slated for cuts 

and elimination in the President’s latest budget request. We must 

ensure that small businesses have access to all of the tools they 

need in order to succeed. 

Small businesses also face obstacles, in regard to their pension 

plans. Right now, they simply do not have the same types of options as their larger counterparts. 

Only a quarter of workers at firms with fewer than 25 employees 

participated in an employer sponsored retirement plan in 2003. 

This is compared to nearly 70 percent of works at firms with 100 

or more employees. 

The priorities of our nation’s small businesses have been pushed 

aside for far too long in favor of measures like the dividend tax cut, 

which cost nearly $200 billion, but did nothing to help small firms. 

Entrepreneurs are in need of permanent targeted tax relief. 

In order for small businesses to drive our economy, these challenges need to be overcome. Today we will be examining House 

Resolution 22 that intends to put this Congress on the record as 

to what the real priorities should be for this vital sector. 

A few of these challenges are addressed in the resolution, but 

many are not. There are also some questionable priorities listed, 

such as frivolous lawsuits, where it is not clear if it is truly a tough 

concern for small firms. 

I look forward to hearing the testimony of all the witnesses today 

and to hearing what truly are the top priorities for small businesses. This Committee and Congress needs to truly champion all 

of the top priorities for small businesses, if we want to see them 

continue to do what they do best: Create jobs and spur economic 

growth. 

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you. I am going to recognize the 

author of this legislation, Mr. Keller, for five minutes to explain 

this resolution and the hearing we are having on it today. Mr. Keller?

Mr. KELLER. Thank you, Mr. Chairman and I want to especially 

thank all of the witnesses for being here today. 

The goal of the Small Business Bill of Rights is to provide a blueprint for Congress to help small business employers create more 

jobs. 

A job is the best social program in the world. It provides income, 

health insurance and dignity. Significantly, 70 percent of all new 

jobs in the U.S. are created by small businesses. 

In light of the fact that small business employers are the engine 

that drive this economy, I decided to meet with 20 very successful 

small business people in Orlando, Florida to learn firsthand what 

Congress could do to help small businesses to create even more 

jobs. 

One of the individuals I met with was Mr. Jerry Pierce, the 

owner and CEO of Restaurant Equipment World, a family-owned 

small business in Orlando, Florida. In Orlando, there are three famous worlds. We have Disney World, Sea World and Restaurant 

Equipment World. 

4

It may not be the most entertaining, but it has the shortest lines 

I assure you. 

I am very pleased that Mr. Jerry Pierce is here today as one of 

our witnesses and I especially, having flown up with you this morning, thank you for giving up the Florida sunshine to come here to 

this D.C. snowstorm. 

I learned a lot by sitting down and listening to these small business people. First, I learned that the number one issue facing small 

business people today is the skyrocketing cost of health insurance. 

In fact, a growing number of small business people today are not 

able to provide health insurance to their employees, primarily because of the surging cost. Of the 45 million Americans without 

health insurance, 60 percent are small business employees and 

their families. 

Right now, small businesses are unable to achieve the bargaining 

power of large corporations and unions, when negotiating with insurance companies to obtain affordable health insurance. 

The premiums that small businesses pay for health insurance 

are typically 20 to 30 percent higher than those of large companies 

or unions. 

According to the Congressional Budget Office, small businesses 

that obtained insurance from association health plans can save up 

to 25 percent. 

These small business people told me that they needed the right 

to be able to join together to purchase affordable health insurance 

for their employees so that their workers would have the same opportunity to get the same health care benefits now reserved to employees of Fortune 500 companies. 

The second thing I learned is that many of these small businesses are family-owned. Unfortunately, the death tax causes onethird of all family-owned small businesses to liquidate, after the 

death of the owner. 

If Congress does not undertake any meaningful reforms of the 

death tax laws, then small business people will go back to paying 

up to 55 percent in tax rates in the year 2011. 

Understandably, these small businesses want the right to tax 

laws that allow family-owned small business people to survive over 

several generations and offer them incentives to grow. 

The third thing I learned is that frivolous lawsuits and the rising 

cost of liability insurance represent a very serious threat to small 

business owners. Unlike large multinational corporations, small 

business owners do not have the resources to defend themselves 

against frivolous litigation and are often forced, for business reasons, to settle a claim for five to $10,000, rather than pay a defense 

lawyer $100,000 to successfully defend the claim in court. 

Finally, I learned that burdensome regulations and paperwork 

costs small businesses more than $5,500 per employee and these 

small business owners, understandably, want the right to be free 

of unnecessary restrictive regulations and paperwork, which end up 

wasting their time and energy and prevent them from creating additional jobs. 

After listening to the challenges and solutions proposed by various small business people, I worked with some of my Democratic 

colleagues to craft a Small Business Bill of Rights. 

5

I want to particularly thank Congressman Bud Cramer of Alabama, as well as Congressman Ed Case of Hawaii for their cosponsorship of this legislation. 

I want to again thank the witnesses for taking time out of their 

busy lives to come testify before Congress and I look forward to listening and learning from your testimony today. 

Mr. Chairman, I yield back the balance of my time.

Chairman MANZULLO. Thank you. 

We have a five-minute rule. There is no trap door that if you exceed that you fall into the story below us, but if you could, when 

you see the yellow light on there, try to begin to sum up. 

I would encourage you to explore as many personal anecdotal stories as possible. The testimony of many of you is going to be almost 

the same. That is okay. It reinforces what we are trying to do 

today, but if you have a small business, personalize this. 

Tell us how this impacts you directly. That makes your testimony even more powerful. 

Our first witness is Jerry Pierce. You don’t even want to say 

Wally World you know, but from Orlando, Florida testifying on behalf of himself and the National Federation of Independent Businesses. 

The testimony of all the witnesses will be made part and the 

written testimony will be made part of the permanent record and 

we look forward to your testimony. 

Mr. Pierce? 

STATEMENT OF JERRY PIERCE, RESTAURANT EQUIPMENT 

SALES

Mr. PIERCE. Thank you. Good afternoon, Mr. Chairman and 

members of the Committee. 

Thank you for inviting me here to speak today on House Resolution 22, the Small Business Bill of Rights, sponsored by Congressman Ric Keller and Bud Cramer. 

I am pleased to be here on behalf of the National Federation of 

Independent Businesses to represent their 600,000 members. 

My name is Jerry Pierce and I own and operate Restaurant 

Equipment World, headquartered in Orlando, Florida. 

I founded the company in 1976 in Cleveland, Ohio selling restaurant equipment to small delicatessens and restaurants. We 

eventually began furnishing equipment and services to theme 

parks, such as Sea World and Cypress Gardens and later to chain 

restaurants, such as Applebee’s and Denny’s and many others. 

We offer a full range of employee benefits, including health insurance. Concerning small business health plans, the small business community is struggling each year to afford the cost of increasing health insurance premiums. 

One way to solve the cost problem is through the use of small 

business health plans. These plans would allow small businesses to 

band together across the state lines to purchase health insurance 

as part of large groups, thus ensuring greater bargaining power, 

lowered administration cost and the freedom from costs of complying with 50 different sets of state insurance mandates. 

6

When compared with large corporations, small businesses face 

dramatic disparities in the health care marketplace. For instance, 

my own daughter, who works in our company, does not participate 

in company health care plan, because she can be added to her husband’s plan. He works for a large corporation and she can be added 

to his plan for only $40 a month. 

If, however, her husband quit his job and wanted to join under 

our company plan with her being insured, the cost to add him onto 

our plan would be $428.51 per month, a very dramatic difference. 

Concerning the death tax repeal, the death tax threatens the 

livelihood of small businesses and their employees. 

Annually small businesses pay income taxes, pay personal property taxes, employment taxes, social security, excise taxes, just to 

name a few. 

After small businesses pay all those taxes with their after tax 

dollars, they then have the choice of investing in people, equipment, plant and inventory in order to make their businesses more 

efficient. 

If these businesses do not have the cash available, they will be 

forced to sell critical parts of their businesses or the entire business 

outright in order to cover the tax liability. 

I remember when my father-in-law was in his 70’s and stated it 

was time to cash in his chips and to close his businesses and liquidate assets so that his family would have money to pay the death 

tax. 

This certainly hurt the family, but it also destroyed a life’s worth 

of work, where he created a company that built the machines that 

made machinery. He had highly paid craftsmen and built a reputation in the tool and dye industry. 

The employees of that company lost their jobs and so did our society lose, because that company is gone and I can assure you that 

the employees who lost their jobs, none of them were named Warren Buffet or Bill Gates. 

In my personal case, I wasted money on setting up a trust and 

by encouraging my children to purchase second-to-die insurance on 

my wife and myself in addition to other strategies. I urge Congress 

to permanently repeal the death tax. 

In terms of legal reform, another issue, the escalating numbers 

of lawsuits threatened or filed are having a strong impact on small 

business owners. For a small business owner with five employees 

for us, the problem is not the multi-million dollar settlement, it is 

the five to $10,000 settlement or the threat of one. 

When you consider that many of these small businesses only 

maybe make 40 to $60,000 a year, a $5,000 settlement on a case 

would be ten percent of a business’ annual profit. 

Small business owners are troubled by the fact that they are 

often forced to settle a case at the urging of the insurance company 

and then what happens is the insurance company raises the premium next year. So many owners of businesses simply settle, pay 

the $5,000 or ten and don’t bother filing the claim with their insurance company. 

Regulatory reform, another issue. Simple government regulations, particularly when it comes to paperwork they generate, can 

create a burden on small businesses. 

7

Regulatory costs per employees are debilitating for small firms. 

A report commissioned by the Small Business Administration’s Office of Advocacy estimates that the regulatory compliance costs for 

firms with fewer than 20 employees is nearly $7,000 per employee 

per year. 

According to the NFIB research foundation, the best thing for 

small businesses—

Chairman MANZULLO. How are you doing on time, Jerry? You are 

over.

Mr. PIERCE. I am sorry. I didn’t notice that. I apologize. I am just 

about done on that and all I do at this point is like to thank you 

for the opportunity to testify and in closing to thank the members 

who have been supporters of small business health plans, particularly Chairman Manzullo, Ranking Member Velazquez and Congressman Case. Thank you very much. 

[Mr. Pierce’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you. 

Our next witness is Giovanni Coratolo with the Small Business 

Division as part of the U.S. Chamber of Commerce. We look forward to your testimony. 

STATEMENT OF GIOVANNI CORATOLO, SMALL BUSINESS 

POLICY, U.S. CHAMBER OF COMMERCE

Mr. CORATOLO. Thank you, Chairman. Chairman Manzullo, 

Ranking Member Velazquez, members of the Committee, I thank 

you very much for inviting me here to give testimony on small 

business priorities. 

My name is Giovanni Coratolo and I am Director of Small Business Policy for the U.S. Chamber of Commerce. 

Quite frankly, I have written testimony and I am not going to sit 

there and read it. What I would like to do is give you a few remarks off the cuff about H.Res.22, which we find very important 

to small business. 

I have seen the Chairman and this Committee and Ranking 

Member do a lot for small business through this Committee. Unfortunately, this Committee doesn’t have jurisdiction over those issues 

that most affect small business and those are the issues that are 

encompassed in H.Res.22. 

Health care is number one. We just got back from a small business council meeting. I am constantly bombarded. This is no secret. 

Health care for small business is important. Solutions for that are 

important. 

If you look, obviously in the eyes of small businesses, they don’t 

understand why they can’t pool and provide or obtain health care 

for them and their employees, as large businesses do. 

It is just unbelievable to them that Congress has not enacted 

some measures to help them belong in health care policy issues. 

Health care is currently 15 percent of our GDP. It will be, in the 

year 2013, 18 percent. It is absorbing our ability to compete. 

8

Internationally if you look at any of the industrialized nations, 

other industrialized nations, it is eight or nine percent. So we are 

at a competitive disadvantage to those we are trying to compete 

against. 

Going on to tax relief. The small businesses that are members of 

the Chamber, when they get extra money, it is not so they can 

have a better house. They reinvest it. They reinvest it in jobs and 

the growth of their businesses. 

They need some permanency to these tax cuts that were made 

in 2001 and 2003. Section 179 is very important to them. They use 

that for reinvestment. So this is a very important feature to our 

small businesses. 

Reduction of red tape. All these issues are the four most prominent issues. All the polls we have done, these are the four most 

prominent issues that come up in all the polls, whether it is our 

members or outside our membership. 

Red tape reduction, frivolous lawsuits, tax relief and health care, 

those are the four top issues that perennially poll for small business. 

Congressman Keller is correct. It is a mirror of what we have 

seen in our membership. 

Red tape. We have had four bills pass in the last decade that 

have mandated for agencies to reduce the paperwork burdens. That 

has not taken place. It has only grown. 

If you talk to the agencies and I have been in many roundtables 

and panels, you see that the agencies say we can’t provide compliance assistance. We cannot provide the help and they talk about 

lack of resources, yet they expect small businesses to use their limited resources to understand these regulations. 

We need to have further regulatory controls to hold the agencies 

feet to the fire when it comes to adhering to the regulations that 

Congress imposes to them. It is very important. 

Lastly, frivolous lawsuits or tort reform. Prior to me going with 

the Chamber, for 25 years I owned and operated businesses. I 

know what it is like to be sued and I know what it is like to have 

a frivolous lawsuit, one that is baseless. 

It is not only a financial drain, it is an emotional drain. It makes 

you want to take a defensive posture. It makes you not want to expand and grow like you should. 

This is something that is important. We have to reign in this. We 

have to do something. There is a tort tax of $845 per person that 

is also eroding our ability to compete. 

I thank you very much for inviting me to this. We hope that you 

will be able to pass this and send a clear message to the House 

that this is important for small business. Thank you. 

[Mr. Coratolo’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you. 

Our next witness is Todd McCracken, President of National 

Small Business Association. I look forward to your testimony. 

STATEMENT OF TODD MCCRACKEN, NATIONAL SMALL 

BUSINESS ASSOCIATION

9

Mr. MCCRACKEN. Thank you, Mr. Chairman. I appreciate the opportunity to be here. The National Small Business Association is 

the nation’s oldest small business advocacy organization and we 

have only come back from a conference last month where we biannually develop our priorities for the Congress. This hearing is particularly timely. 

As the two witnesses before me have indicated, you can look at 

any survey of a small business community and you will see that 

absolutely the top issue concern is health care, health insurance 

and the affordability of health insurance and the ability to get 

health insurance to their employees. 

Certainly everything we have seen supports that notion of something absolutely must be done to fix the health insurance situation. 

Also as you probably know and the panel probably know, I am 

probably alone up here in saying that we don’t think that association health plans is the way to go to accomplish that. 

Health care does take 15 percent of our GDP. It is going to take 

18 percent of our GDP and AHP’s aren’t going to change that. They 

will rearrange who pays how much of that 15 percent and 18 percent, but at the end of the day we have got to tackle head on those 

enormous costs that are really driving a health care crisis we have 

now. 

We hope we can get started in this Congress, who really needs 

to begin to address that. Really look at the overall health care picture. We have got to inject new market forces into the health care 

system. 

We have to hold providers and insurers’ feet to the fire. Make 

sure they are insuring everyone. I mean we have got to take a 

much bigger look at this than just nibbling around the edges. 

I don’t have time to get into all of that today, but there is a lot 

more detail in my testimony and a lot more detail that we can get 

to you as well. 

The other really huge issue that faces a small business every 

year, of course, is taxes. All forms of taxes and we are encouraged 

that the President has a commission on tax reform. We hope that 

the Congress and the President will be able to step up and be very 

bold and propose that this year as well. 

We think that we need to fundamentally get rid of the tax system that we have and replace it with something new. We favor a 

consumption tax, called the fair tax, that we think is, after years 

of study, we think is absolutely the best system for the small business community. We hope you will move in that direction. 

That said, those are two very big ideas and while we are trying 

to promote them, we are also realists in knowing that what needs 

to get done really maybe what can get done. 

You look at what can get done realistically in this Congress in 

the tax field. Absolutely we need to take the opportunity again in 

this Congress to repeal the death tax once and for all and again 

not nibble around the edges. It is a tax the American people don’t 

support. 

It is very difficult to find ways to reform it or change it that really solve the underlying problems. We need to get rid of the death 

tax. 

10

Then I would also point you to a series of changes that really discriminate against small businesses. I put them under the rubric of 

tax equity for small companies. One is the self-employment tax on 

health care. I mean for a self-employed individual, they can’t deduct against self-employment taxes, their FICA taxes, the cost of 

the health insurance. 

For a family policy, that is maybe $2,000 a year in health insurance. No other worker in the economy pays today. That needs to 

change. 

I want to thank Chairman Manzullo and Congresswoman Velazquez for sponsoring a bill in the last Congress that would fix that, 

but that is not the only way that small businesses are discriminated against in the tax system. 

They also can’t save as much in their 401-K’s, so-called simple 

plans, that larger employers can. Small businesses just don’t have 

the wherewithal to put together a full 401-K plan, if they are very, 

very small and if they only have a simple plan, they can’t save as 

much and their employees can’t save as much. We think that is 

wrong and it ought to change. 

Also, small business owners, just because they are small business 

owners, can’t put any money into a 125 plan. I mean they can have 

a 125 plan for their employees. These are so-called cafeteria plans, 

but they can’t put any money in them. That ought to change. That 

is a fundamental unfairness in the system I believe and that would 

change the scenario for the small business community. 

Then on health care, we ought to reform the medical malpractice 

system now. We ought to pass the tax equity provision I mentioned 

before. Both those two things would give some, not substantial, but 

very real cost relief to the small business community on what they 

are really paying for health care costs. 

Finally, as I begin to wrap up, many small businesses still have 

real problems with access to capital. We think that the 7A program 

in particular ought to be funded at a higher level than what the 

Administration has proposed, because we think ultimately it does 

return money, both to the federal coffers and it really helps the 

small business community get real capital into their businesses 

and create jobs. 

Finally, I had mentioned continuing great need for reg reform 

and there is a lot of detail in my written testimony about what 

needs to happen there and tort reform, but I am out of time. 

[Mr. McCracken’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you. 

Our next witness is Barbara Kasoff, co-founder with Terry Neese 

of Women Impacting Public Policy. 

How many members do you have now, Barbara?

Ms. KASOFF. 505,000 members and 29 affiliate organizations that 

belong to our organization.

Chairman MANZULLO. I look forward to your testimony. 

STATEMENT OF BARBARA KASOFF, WOMEN IMPACTING 

PUBLIC POLICY

11

Ms. KASOFF. Thank you so much, Mr. Chairman and Ranking 

Member Velazquez for inviting me to testify. 

The subject of this hearing is very near and dear to my heart, 

small business priorities for the 109th Congress. This hearing coincides with the upcoming release of WIPP’s annual poll. 

We poll our members annually to gain insight and information 

from WIPP’s business owners on a number of economic issues. 

It also gives our members the opportunity for them to gauge the 

importance of several policy issues to their business. 

We sought information on a number of issues, such as health 

care, tax reform, tort reform, social security, estate tax and federal 

contracting, but let me take a few minutes, if I can right now, to 

share with you some of the results and the highlights of the poll. 

It is not going to come to any surprise to any member of this 

Committee that 71 percent of our members identified health care 

as their top issues. Our members overwhelmingly agree that AHP’s 

would be very helpful to them, but here is an important statistic 

for you. 

42 percent said that if Congress took away their deduction for 

health care coverage, they would be forced to cancel the employer’s 

sponsored health care and an equal percentage said that they 

would be forced to decrease the employer paid portion of the health 

care coverage they now offer to their employees. 

An overwhelming 84 percent of our members believe that a total 

overhaul of the health care system is necessary and what that is 

saying to quote Todd [McCracken] is ‘‘we need to address this issue 

head on.’’ 

The second highest priority identified by our membership was 

having an energy policy. Seventy-eight percent are in favor of the 

development of alternative energy sources to providing tax and 

monetary incentives to manufacturers and users. 

We haven’t heard this issue before as a priority in previous polls 

so we have to think that the price of energy is inhibiting small 

business growth. 

The third highest priority was social security reform. 71 percent 

of our members believed that we need to address this issue now. 

46 percent were not in favor of private retirement accounts. 19 percent need more information and 37 percent said that market fluctuations are a serious concern in this. 

The fourth highest priority identified by our members was in reform of the tax code. 57 percent believed that simplification is the 

route to tax reform. 48 percent favored flat tax. 71 percent of our 

members believed that any changes to the tax code must be revenue neutral and 56 percent of our members said that the federal 

tax deficit is an issue of major concern to them. 

Lastly, tort reform was identified by 40 percent of our members 

as a priority. Although most respondents had not been sued and 50 

percent weren’t too concerned about being subjected to a frivolous 

lawsuit, our members believe that the legal system should be structured to discourage frivolous lawsuits. 

Our members also listed fairness in procurement and repeal of 

the estate tax as important issues. 

12

Our members are very optimistic about the economy. In fact, 72 

percent expect their revenues to increase in 2005 and this is good 

news for this Committee and for our economy. 

As you set your priorities, we urge you to take a look at what 

our members have said. Without a doubt, we are going to have to 

work together to make rising health care costs a priority. 

We are pleased that this Committee is working in a bipartisan 

way to enact AHP’s and to look at this issue in a full and comprehensive way. 

In last week’s hearing on health care, everyone agreed that affordable and accessible health care for small business is in dire 

need of fixing and we urge you to continue to pressure your colleagues for action. Also, please take a second look at energy costs 

and their impact on small businesses. 

With regard to social security reform and tax reform, no solution 

is complete unless small business has a seat at the table. We will 

continue our efforts to educate our members on the various proposals before Congress, as it deliberates on these important policy 

changes. 

We believe it is critically important that a woman business 

owner be at the table when any of these issues are discussed. 

With H.Res.22, we thank you and commend Representative Keller for identifying the issues, which are so important for small business. We spoke of three or four of the issues that were mentioned 

and with regard to reduced paperwork, our members know firsthand the overwhelming amount of paperwork that is required.

Chairman MANZULLO. We are overwhelmed by time.

Ms. KASOFF. Thank you very much for the opportunity in allowing me to testify. 

[Ms. Kasoff’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you. 

Our next witness is Karen Kerrigan, President and CEO of the 

Small Business and Entrepreneurship Council. I look forward to 

your testimony. 

STATEMENT OF KAREN KERRIGAN, SMALL BUSINESS AND 

ENTREPRENEURSHIP COUNCIL

Ms. KERRIGAN. Thank you, Chairman Manzullo, Congresswoman 

Velazquez, members of the Committee for inviting the SBE Council 

to have input into this important hearing today. 

For the most part, our organization will continue to focus on 

what we call the bread and butter issues of the small business community. That is issues that continue to present cost, competitive 

and certainty challenges to our members. 

With respect to H.R.22, the Small Business Bill of Rights, we believe that piece of legislation, that sense of the House legislation, 

does capture the key issues that our members are concerned about, 

namely taxes, affordable health coverage, regulation and frivolous 

lawsuits. 

13

Advancing H.R.22 will serve to underscore the need for Congress 

to continue to focus on the small business sector, so that we can 

continue to grow, to innovate and to create jobs. 

On taxes, we will be pushing for tax cut permanence, when it 

comes to 2001 and 2003 tax relief packages. The measures within 

those packages made a significant difference for our members, both 

in terms of having additional resources to keep and hire employees, 

to provide or to maintain coverage for their employees, to purchase 

and upgrade equipment and technology and the things that a small 

business needs to stay competitive in the domestic and the competitive marketplace. 

Certainly making those packages permanent adds to certainty, 

allowing small businesses to plan for both their short-term and 

their long-term capital and business development needs. 

Tax system overhaul is something that we hear over and over 

and over again and we are very pleased to see that the President 

did put together the advisory panel on federal tax reform. 

The principles that he outlined in terms of making it fair, simpler and more growth oriented, is something that certainly our organization has supported since our founding. Congressman Keller, 

one of your constituents, I know one is here today, but also an SBE 

Council member, was at Tampa for the advisory panel’s hearing 

today where he talked about the tax system impact on business 

and entrepreneurship. That was Todd Fleming of Infosafe. 

You have star witnesses today, represented both in the south and 

certainly inside the beltway. 

On the issue of affordable health coverage, certainly some 

progress has been made with respect to HSA’s. Enhancing HSA’s 

through tax credits and incentives certainly will give small business owners and individuals more access to this new features. 

Our comprehensive approach really is enacting what we talked 

about in the hearing last week, Chairman Manzullo, which is to 

bring more equity to the system and make it more competitive, the 

adoption of AHP’s, giving tax credits to individuals, the FICA deduction for the self-employed and creating a nationwide marketplace and certainly enhancing HSA’s. 

All these things will give greater access to the system, make it 

more competitive and in the end, more accountable to health care 

consumers. 

On the issue of regulation, really a bane for small business, certainly, we will be pushing for broad reforms that make the regulatory system more flexible, more modern, more accountable for 

small businesses and certainly we will be focusing on very specific 

items as well, in terms of OSHA reform, flexibility in the workplace, independent contractor reform. 

One of the issues that we are hearing more and more about from 

our members is the issue of Sarbanes-Oxley, particularly small 

public companies and their ability to comply with that. 

We are very happy to see that the SEC extended the filing for 

accelerated filers, mostly small businesses, for another year. That 

is something that we proposed and that they recently adopted. 

But even if you aren’t a small public company, the downstream 

impact is being felt by small firms, particularly those who do audits every year where they are absorbing and they are adopting 

14

some of these Sarbanes-Oxley elements in their auditing procedures, which obviously raises the cost for small businesses. 

What that all—

Chairman MANZULLO. You got a red light.

Ms. KERRIGAN. I am going to wrap up right now and there are 

plenty of other things in my testimony I echo on the energy front 

that Barbara [Kasoff] brought up, that is also included and I look 

forward to our dialogue. Thank you. 

[Ms. Kerrigan’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you. 

Our last witness is Sheila Brooks, who is the President and 

Founder of SRB Productions. I bet that stands for Sheila R. Brooks 

Productions and we look forward to your testimony. 

STATEMENT OF SHEILA BROOKS, SRB PRODUCTIONS, INC.

Ms. BROOKS. Thank you, Mr. Chairman, as well as thank you, 

Ranking Member Congresswoman Nydia Velazquez and other 

Committee members for the opportunity to testify before the U.S. 

House of Representatives’ Committee on Small Business. 

Mr. Chairman already told you who I am, Sheila Brooks and 

SRB Productions is a full-service communications firm here in 

Washington, D.C.. 

We provide original programming for the networks, as well as 

streaming interactive media services, advertising, marketing, PR 

and an in-house production facility. 

I am here today to address H.R.22 and offer my testimony in 

some respect for legislation towards the efforts of revitalizing the 

8(a) program. 

I am really proud to be one of the 10.6 million women-owned 

firms in this country, doing business in our nation’s Capitol and 

today I am sincerely humble to share with you my successes, a minority business leader and a graduate of the 8(a) program. 

My vision for my business was instilled and my mission for myself I found many years ago that the media, specifically television 

and broadcasting, was an environment of which I could survive in. 

After working for 13 years as a television newscaster, I decided to 

start my own business, because I had a vision that creating a firm, 

creating a business opportunity for myself would be one that I 

could be self-satisfied with. 

I am grateful for the leadership skills that I developed in the corporate world, because it provided me the framework to create a 

professional small business. 

As you know, nearly half of the privately held U.S. firms are 

women-owned, according to the Center for Women’s Business Research and they are growing faster than the nation’s average. 

Let me share with you a little of my success. SRB Productions 

has experienced significant growth in the last few years, since 

graduating from the 8(a) program. 

This year we will celebrate 15 years of communications excellence and we also are sincerely proud of our accomplishments, not 

15

only to move into a half million dollar facility that we constructed 

a year ago, but last year we also expanded our services in the area 

of advertising, marketing and public relations, not only to one of 

the largest utilities, Pepco Holdings in this area, but as well as to 

a couple of federal government agencies. 

We are proud to be a federal government contractor, particularly 

in these last 14 years. But we know that with each accomplishment 

come continuing challenges and we realize that in order to achieve 

our goal, it is important to continue to break down the barriers 

that continue to face minority and women-owned businesses. We 

still face intolerable obstacles to access to capital, credit worthiness, increased procurement opportunities in the federal government and for far too long, as you all know, women-owned businesses haven’t received their fair share of federal contracts. Most 

women entrepreneurs, especially women entrepreneurs of color, 

have trouble maintaining business profitability, managing cash 

flow, maintaining growth and attracting and retaining qualified 

employees. 

What I know is that determination, perseverance and faith ultimately prevail and I also know that it was programs like the 8(a) 

program that contributed to my company’s success. 

It was the first loan from the U.S. Small Business Administration that we received five years after we were in business, allowed 

us to make our first equipment purchase. 

So I believe it is critical that women business owners are a part 

of this dialogue. I will continue to be a staunch advocate of women 

business ownership and will continue to work tirelessly to champion minority and women business owners on how they can procure 

more contracting opportunities in the federal government. My work 

won’t stop here. 

I will continue to be a strong voice in organizations that support 

minority and women business issues. Doing business with women 

and particularly doing business with women of color, is the right 

thing to do. 

Let us just not pay lip service to small business issues. Let us 

be part of putting a full, realistic plan of action into place and I 

know together we can succeed. 

Thank you very much. 

[Ms. Brooks’ statement may be found in the appendix.]

Chairman MANZULLO. Thank you very much. I have got to leave 

for some meetings that are conflicting. What I am going to do is 

have Mr. Keller take over the chairmanship and then start with 

Mrs. Velazquez five minutes and then Mr. Keller, you would have 

the five minutes after that. 

Ms. Velazquez, you are recognized for five minutes.

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Ms. Brooks, thank you for coming before our Committee today. 

Regarding the resolution that we have, it talks about four areas: 

Health care, regulations, estate tax and frivolous lawsuits. 

Do you think that these issues reflect small businesses’ priorities?

16

Ms. BROOKS. Let me address, Congresswoman, each of those 

areas, particularly and briefly. Health care and regulatory relief 

are certainly very, very important issues for small business owners. 

Income taxes are more the problem than a real estate tax or I 

should say the estate tax for business owners. So I am not really 

sure why the estate tax is singled out in that legislation. 

You know when you look at reducing frivolous lawsuits, that is 

not really on the radar for small business owners right now, because they are many, many more important issues that we face. 

As I mentioned in my testimony, access to capital and access to 

the federal government marketplace.

Ms. VELAZQUEZ. Mr. McCracken, you talk about, in your written 

testimony, about SBA and its programs. Many people often minimize the impact of this agency and its initiatives. 

Can you talk to the Committee about the important role that the 

SBA programs play for your members?

Mr. MCCRACKEN. Sure. I do think it plays an important role and 

often the SBA I think has criticism, because in any given year, 

whether it is a 7(a) program or the small business development 

center program or whichever one it is, it only reaches a fraction of 

the small business community and that is true. 

I would argue that is as it should be, frankly, because the Small 

Business Administration ought to be targeted at places where businesses need the help, rather than a full service, one-stop-shop for 

any business problem. 

But that creates a situation of where if you survey the small 

business community and asked them, did you use an SBA program 

this year, most of them are going to say no, they didn’t. 

But if you look at the life cycle of the business, if you look at the 

impact of a small business community overall, you see something 

very different. I mean because banks, for instance, we are looking 

at the 7(a) program, have a limited portfolio of the amount of loans 

they are going to make. Having a guarantee available, greatly increased the amount of loans they can make to a lot of other companies. So the impact is bigger than just the direct loans that are 

made.

Ms. VELAZQUEZ. Regarding the 7(a) program, you talked in your 

testimony about re-engaging an appropriation for this program, 

which will reduce the increased costs associated with the program 

to basically the borrowers and the lenders. 

Many individuals maintain that the $3,000 additional costs that 

doesn’t represent a lot of money for a small business person who 

wants to start up their business or expand their business. 

Can you please comment? Is $3,000 a lot of money for an entrepreneur to come up with?

Mr. MCCRACKEN. It is a great deal of money. Also, you look at 

what the bank has to pay as well. I mean, you are also creating 

disincentives for banks to participate in the program everywhere. 

Some banks obviously will continue to participate, but not all of 

them. 

17

So loans could become less available and the small business owners themselves, what we are going to see are particularly the higher end loans going away and our concern is the default rate on the 

program overall will begin to go up also over time.

Ms. VELAZQUEZ. As you note in your testimony, the SBA continues to make smaller loans, declining from $211,000 in 2001 to 

only $153,000 in the first quarter of fiscal year 2005. 

That represents a decline of 30 percent. So this decline has occurred while the cost of operating a business has increased and we 

talk about energy costs. 

Are these shrinking loan sizes a good thing?

Mr. MCCRACKEN. No, I don’t think it is. I mean obviously there 

is a market for loans in the smaller end, but sometimes the most 

difficult loan for businesses to get is those midrange loans. They 

are not really a big company yet, but it is still a substantial risk 

for the bank. There is a lot of paperwork involved in the bank’s end 

of things. 

So sometimes the most difficult loan are the ones that are sort 

of getting carved out of the program.

Ms. VELAZQUEZ. Thank you. 

Ms. Brooks, while the average size for the 7(a) loan in 2004 was 

nearly $170,000 across the entire program, the average loan for the 

loan to an African American firm is only $86,000. 

The average for a loan for a Hispanic firm is $128,000 and the 

average loan to a women-owned firm is $123,000. What is your perspective on why minorities and women received substantially 

smaller loans than non-minorities?

Ms. BROOKS. Congresswoman, minority firms as well as womenowned firms need just as much capital as any non-minority firm. 

In fact, I believe that there is too little capital could really actually 

hurt us even more, both minority and women entrepreneurs and 

leave us undercapitalized.

Ms. VELAZQUEZ. Mr. Chairman, I have just one more question 

and then I will be done.

Mr. KELLER. Yes, ma’am.

Ms. VELAZQUEZ. Based on your testimony, Mr. McCracken and 

Ms. Brooks and our discussion here today, would you all agree that 

funding for the 7(a) program and cutting the costs associated with 

this program really represents priorities for small businesses in 

this country?

Mr. MCCRACKEN. My view is that clearly access to capital is an 

important issue to the small business community. I don’t know if 

the typical small business owner however realizes the important 

role of the 7(a) program plays in that. 

18

So yes, I think it should be an important priority representing 

small business. I think if you poll the small business community, 

it wouldn’t show up, because they don’t know that 7(a) program.

Ms. VELAZQUEZ. Would you want to see this as part of this resolution?

Mr. MCCRACKEN. I think probably it would be a good idea, but 

there are other things I would add too. I don’t know that I would 

add just—

Ms. VELAZQUEZ. In any survey that we see conducted by any organization, access to capital and health care costs and energy costs, 

those are priorities and especially if we look at the face of small 

businesses in this country, in terms of women and minorities. Access to capital is important. 

Ms. Brooks, would you like to see this as part of the priorities 

that should be included in this Congress?

Ms. BROOKS. Absolutely, Congresswoman.

Ms. VELAZQUEZ. Thank you.

Mr. KELLER. I want to thank the Ranking Member for excellent 

questions. 

Mr. Pierce, let me start with you. To get an idea for the health 

care costs paid by small business people, when I was a lawyer practicing in a law firm, which some would consider a small business 

here in D.C. I guess, back in Orlando, we paid about $800 a month 

for health insurance for a family of four. 

Give me an idea of about what employees would have to pay at 

your company for a family of four, in terms of monthly health care 

costs.

Mr. PIERCE. Currently right now our company would be paying the base part for the employee of $204 and month and the current 

quote that we have right now for a family would be in addition to 

that of $797.12 per month, in addition to the $204 paid for by the 

company.

Mr. KELLER. So about $900 a month?

Mr. PIERCE. Almost a thousand.

Mr. KELLER. Okay. Have you ever had a situation, because of the 

surging cost of health care, where it has been necessary for you to 

have to change insurance plans, just to be able to keep affording 

health insurance for your employees?

Mr. PIERCE. We have had to do that regularly and as we have 

changed from different staffing companies, which are very popular 

in Florida. 

When one coverage we get dropped with one company to have to 

switch onto another one. Yes. That has happened several times.

19

Mr. KELLER. I want to direct this question to a couple of our ladies, because our small business had to do that and it is more than 

just about money, because as a partner in a law firm to sit down 

and tell one of my paralegals or secretaries, I know you are happy 

with your ob/gyn and I know you love your kids’ pediatrician, but 

we are switching plans and by the way, they aren’t on the new 

plan. 

Is that a concern, let me start with Ms. Kerrigan, to women in 

the workforce?

Ms. KERRIGAN. Absolutely. You know just the whole issue of 

health security and health insurance security is a huge issue for 

women and any type of uncertainty or instability in coverage plans 

is a major issue. 

The short answer is yes. I mean having good coverage, at affordable prices and having the type of coverage that women need is 

very important.

Mr. KELLER. Ms. Kasoff, would you agree with that?

Ms. KASOFF. Totally. I am a small business owner as well as the 

co-founder of Women Impacting Public Policy. Our premiums rise 

yearly and it becomes more and more difficult for us to provide our 

employees the same quality and the same portion of paid insurance 

coverage for them. 

The quotes that we have and that we pay are significantly more 

than you said for a family. It depends where you live and if God 

forbid one of your employees has a serious health care issue, it increases the cost significantly.

Mr. KELLER. It seems like there is a general consensus that the 

health care issues are a number one priority. A lot of small business people are concerned about red tape. 

Ms. Velazquez questioned what about frivolous lawsuits? Do they 

belong here? What about the death tax repeal? Do they belong 

here? 

Mr. Coratolo, let me direct a question to you on the death tax 

to start with. In 2010, the death tax will be zero. In 2011, back to 

55 percent. 

I am no expert on predicting the future, but as far as I can tell, 

the only family-owned small business that knows for sure which 

family members are going to die in 2010 is the Sopranos at this 

point. 

From your polling at the Chamber and talking with members, is 

the death tax issue a real issue for them and is frivolous lawsuits 

a real issue that comes up as a top tier issue for small business 

people?

Mr. CORATOLO. Sir, it is. We find at the Chamber that the numbers that we poll, legal reform is number two for small business, 

number one for big business. 

Health care is always number one for small business. Also tax 

reform, some permanency. The overhead cost to maintain and try 

20

to forestall the death tax in a sense of paying for the insurance 

costs so that they can pass this on to their heirs is just horrendous. 

It eats up valuable assets so they cannot expand their businesses 

and grow jobs.

Mr. KELLER. Thank you, sir. 

Just to address the frivolous lawsuit issue, I wrote this specifically in a bipartisan way. One of the things obviously John Kerry, 

John Edwards on the one hand and President Bush and Dick Cheney on the other hand, didn’t agree with every legal reform issue. 

Some supported caps and others didn’t, but the one thing they were 

in complete agreement was cracking down on frivolous lawsuits. 

John Edwards wrote a great piece in the Newsweek that said, 

three strikes and you are out for frivolous suits, because it is not 

the superstar attorneys like John Edwards who file the frivolous 

suits, but it is the others who repeatedly do it. 

I think there is some bipartisan consensus there. Without me 

taking up any more time, let me yield now to Ms. Bordallo for five 

minutes.

Ms. BORDALLO. Thank you very much. 

First, I want to thank Congressman Keller for his strong support 

of small business and of course the co-sponsor, Mr. Ed Case and 

I also want to thank the members for their testimonies today. 

On H.Res.22, I agree that we do need to look at innovative solutions, such as the AHP’s and the state high risk pools to improve 

the availability of health care to our small businesses. 

As a member of the Subcommittee on Regulatory Reform and 

Oversight, I am also very sympathetic to appeals for paperwork reduction and regulatory flexibility for our small businesses. 

I have no doubt that this resolution represents the priorities of 

small businesses. However, we have heard a few different versions 

of it here, but I am concerned that it is not necessarily representative of the small business priorities nationwide. 

Now, for example, in my district I come from the territory of 

Guam, way out in the Pacific. Small businesses indicate to me that 

their highest priorities, in addition to health care and regulatory 

burdens, would be access to federal contracting. 

I think Sheila Brooks mentioned this very emphatically. We have 

large military bases and now they are outsourcing and I want to 

make sure that the small business gets a part of this piece of pie. 

Since there is consensus on the need for small business to have 

access to health care and for reducing regulations, there are opportunities to make a strong unified statement on small business policy of some of the other issues that I just mentioned, important to 

small businesses in districts such as mine are included. 

My question to you, Mr. McCracken, is in your testimony, you 

cite access to capital as a priority of National Small Business Association members. You also mentioned the need to allow for parity 

between simple 401-K plans and traditional defined contributions 

for large businesses. 

Would this Congress, in your opinion, be remiss if we passed a 

resolution defining the priorities of small businesses without recognizing some of these other issues?

21

Mr. MCCRACKEN. Well, obviously that depends on how broad the 

Congress wants to be in drafting a resolution. I think it is pretty 

clear Mr. Keller was trying to capture the very top tier that affect 

a broad cross section of the small business community. 

As crucial as issues of contract bundling and other access to procurement opportunities are for many of the small business community, the reality is it is still a fraction of the small business community that does or would do any government contracting. 

In some places, like Guam, that is obviously quite acute. You 

would see a very different scenario. 

I suppose if you wanted to be more expansive in the nature of 

the resolution, it would make sense to include those. If you want 

to talk about those things that only affect a very broad cross section of all businesses, no matter what kind of business they have, 

probably not.

Ms. BORDALLO. I would like to ask Ms. Brooks, because she really went into this federal contracting. How do you feel about this?

Ms. BROOKS. I just don’t believe the bill addresses the critical 

issues that are facing small businesses. Health care, yes. Mr. Keller, as well as other Committee members, it does. 

Prior to 9/11, I offered all of my employees 100 percent medical 

care. After that, after 9/11 the business climate changed and we 

had to change things. 

But when I take a look at around the issues that are listed here 

in H.R.22, it just is clear to me that there are more things that we 

need to be talking about. We need to be talking about access to federal government procurement opportunities. 

We know that these federal agencies aren’t meeting their goals 

and yes, I can sit here as an entrepreneur who does 40 percent 

business with federal government agencies, but it is still not 

enough and I am only one of the few.

Ms. BORDALLO. Thank you very much. 

Thank you, Mr. Chairman.

Mr. KELLER. Thank you. The gentlelady yields back. 

We will now recognize Mr. Gohmert for five minutes.

Mr. GOHMERT. Thank you and the witnesses for being here and 

participating in this process. A couple of quick comments. 

I want to address a comment earlier that tax cuts cost the economy 200 billion. I hate for that to go unchallenged, but actually the 

tax cuts added all that money to the economy and by all rights 9/

11 should have sent us in a depression, but fortunately it was a 

mild recession, from which we continue to recover. 

With regard to the Chairman’s comment that only the Soprano’s 

know what family members may be expiring, anecdotally I was 

talking to a constituent in Jefferson last year and he mentioned 

that he was scared to death. We had to do something about the 

death tax. 

He had a lot of land in agricultural use and he said his family 

members, all adults, had been to an accountant. They had been 

22

told that the death tax would be reduced each year until 2010 and 

in 2010 it would go away and he said. They are kind of hinting 

that if I don’t have the decency to expire by December, 2010, they 

may have to help me along, you have got to do something and I 

agree with him. I think we do need to make that permanent. 

Mr. McCracken, you made an interesting comment that we must 

introduce new market forces in health care. I agree. The associated 

health plans, Mr. Pierce, I think those are a great thing. Those will 

help it. 

They seem to me to just be a bandaid. They are not going to help 

for the long-term. They will help short-term. That is my impression. 

Health savings accounts seem to be a way that we could introduce market forces, because there aren’t any right now in health 

care, very little and that is what is allowing the price to continue 

to go up. 

I am wondering about your impression. I don’t know how we get past that first year where we are talking about $12,000 a year or 

$10,000 a year going for somebody’s health insurance, but if five 

or 6,000 of that could go into a health savings account in the next 

year the deductible is 5,000, the next year 10,000 and before you 

know it we may have $20,000 deductible and only need catastrophic care, puts all the power back in the individual hands of 

the patient so they talk directly to the doctor. New market forces. 

You charge too much, I go to a different health care provider. 

It seems that is a solution. I don’t know how we get past that 

first year without costing 1,500 a month or something like that, but 

it seems to me that may be a way to introduce free market forces, 

if we can get there. What are your thoughts?

Mr. MCCRACKEN. I agree. I think we move to a system something 

like HSA’s, rather than having a special program. 

I mean the tax incentives we have in our current system are totally messed up. I mean if you work for a large company and the 

employer pays someone else to pay your medical bills, all of that 

is totally tax free. 

If you are in a small business that can only afford to pay half 

of that or has a much, much more scaled back plan, then you have 

got to pick up more on your own. If you don’t have an HSA, then 

it is totally after tax dollars and if your employer can’t pay for anything, then what you pay either for your health insurance or for 

your care is totally after tax dollars. 

It doesn’t make any sense. It is a system that really discriminates against small businesses and their employees. I mean we 

have already established roughly half of small businesses aren’t 

able to provide health benefits for their employees. 

So all those people have no tax incentives whatsoever to have insurance and they get no subsidy through the tax system for what 

they actually provide, but we can’t stop there, because that only 

talks about utilization of the system at the front end. 

We also have to look at what happens to people when they are 

in the hospital. They have had a heart attack. They have had a big 

health issue. I mean the way we pay providers through our third 

party reimbursement systems is insane. 

23

If they don’t make people healthier, if they are still in the hospital, they get an infection, guess what? They still get paid and 

they get paid again to do more care. I mean we need to move to 

a system for pay for performance where we pay providers, we pay 

physicians to keep people healthy and keep them out of the hospital, rather than the opposite, which is what we do today.

Mr. GOHMERT. I appreciate that observation. Thank you. I would 

challenge each of you, I am out of time nearly, but to think about 

what specifically could we do in a concrete way to help get you to 

where you are paying less for health care and yet you empower 

your workers with more power, more money in their hands, their 

control and then ultimately cost you less. 

I would really be interested. That would seem to be a great help. 

Thank you, Mr. Chairman.

Mr. KELLER. Gentleman yields back. 

At this time, we yield five minutes to Mr. Lipinski for questions.

Mr. LIPINSKI. Thank you. 

Last week Ms. Kerrigan was here talking about health care and 

one thing I just wanted to add, I had asked you a question, but I 

want to thank you for your testimony supporting the fair care for 

the uninsured bill that I have introduced with Mark Kennedy that 

would give the refundable tax credit for those people who are not 

offered insurance through their employer to purchase that. 

I know that is something also that others of you have mentioned 

in your testimony is supporting something like that. 

What I wanted to ask a couple of questions about today is the 

consumption tax and I know Mr. McCracken, in your testimony you 

talk about this. 

I am intrigued by the idea of the consumption tax. There are certainly some things that I find appealing about it, but some things 

that I think are very problematic. 

I just want to ask some questions on that and get your response, 

Mr. McCracken and anyone else, any of the other witnesses on this. 

If we eliminated the income tax or however we did it, let us just 

say put in a consumption tax, would this put an increased administrative burden on small businesses if we had this? Would that 

make a difference?

Mr. MCCRACKEN. Well, I think actually it would be dramatically 

less administrative burden on the small business community, because even though small retailers and large retailers, but retailers 

have had to collect the taxes, essentially collecting all tax at that 

point, but they wouldn’t be doing anything that they don’t do today 

and they would be doing it at a bigger level, but they would have 

exactly the same responsibilities, in terms of tax collection that 

they have right now under state sales tax systems. 

The only exception would be those states and there are only a 

handful that don’t have state sales taxes and not only that, but 

they and every other small business would get from under the oppressive nature of the income tax system that we have right now. 

24

You could also establish a system where you would actually give 

a very small rebate, essentially compensate the businesses that collect the tax for their trouble and time. 

It could be a very small fraction, but essentially enable them to 

be made whole from their collection efforts.

Mr. LIPINSKI. The other more general question I have, let us talk 

about the consumption tax, is to increase savings. Do you think 

there would be any negative impact on consumption when you start 

taxing consumption? Obviously you would think, believe that consumption would go down. Do you think that it could possibly hurt 

the economy? 

A lot of people promote the consumption tax as helping savings. 

Well if you are helping savings, you are decreasing consumption. 

Could this possibly hurt small businesses?

Mr. MCCRACKEN. Well, the economic models that I have seen, I 

mean there is the old saying that you know whatever you tax you 

are going to get less of, so if you tax consumption you are going 

to get less consumption. This is the logic. 

However, the studies that I have seen and I would point you to 

one that was done by Dale Jorgensen who is the chairman of or 

was the chairman of the Economics Department at Hartford, that 

basically looked at the long-term impact of the consumption tax on 

consumption and what you did see, you did see a small decrease 

in consumption in the initial years, first two to three years as I recall, of the imposition of the tax, but after that you saw that there 

was either no change in consumption or there began to be increases, because of the economic stimulation effects of changing to 

that tax system and getting out from under the income tax. 

So what you actually saw was a net gain of economic growth that 

actually wound up increasing consumption. Now if you assume that 

economic growth is static and that the move to a consumption tax 

would do absolutely nothing to stimulate additional economic 

growth or opportunity in the country, then you are right. It would 

decrease, but that is not what is going to happen.

Mr. LIPINSKI. Does anyone not favor a consumption tax? Universal approval here of moving in that direction then.

Ms. KERRIGAN. As to not upsetting the flat tax people, the position of our organization is the flat tax or the consumption tax, either beats the current system. I agree with everything Todd said 

with respect to the consumption tax, but certainly the flat tax has 

its attributes as well.

Mr. CORATOLO. We looked at it and we saw that there would be 

$7 trillion worth of legacy costs and the transition between one system to another could be very devastating. So that is our concerns 

and this is from the U.S. Chamber of Commerce.

Mr. LIPINSKI. Could you explain what you mean by legacy costs?

25

Mr. CORATOLO. Currently there is $7 trillion worth of assets on 

the books of businesses right now that would have to be written 

off immediately. These are investments. Actually, tax investments 

in businesses that need to be addressed and you can’t go from one 

day of having one tax regime to another day of having another, 

without addressing those legacy costs.

Ms. KERRIGAN. But I think in moving towards any system, the 

whole issue of the transition rules is very important and that is 

something that scholars and researchers and folks like that have 

developed these certain transition rule or transition costs scenarios. 

You are not moving from one system to the next the next day. 

There would be a transition period. How long that is, I don’t know, 

but you know certainly that needs to be taken into account.

Mr. LIPINSKI. Thank you.

Mr. KELLER. Thank you. 

Now we will recognize Mr. Poe for five minutes.

Mr. POE. Thank you, Mr. Chairman. I have two questions. One 

for Mr. Pierce and then one for Mr. McCracken. 

Mr. Pierce, you listed four issues that were of concern to you and 

the NFIB: Red tape, lawsuit reform, tax structure and health care. 

Is that the order you list them in is that the concern or is that just 

the four topics?

Mr. PIERCE. No. That would be the order of concern from anybody that I have talked to in small businesses. Clearly, health care 

issue is number one, death tax and tort reform and then the burden. 

Now for me personally, the regulatory burden is far greater, but 

that is just for me, not for everybody that I know.

Mr. POE. You listed red tape first. So would you give me the 

order again?

Mr. PIERCE. Okay. I am sorry.

Mr. POE. The other witnesses listed other things first. What is 

the number one priority and the number two and three and four?

Mr. PIERCE. Health care is absolutely number one. Number two 

would be the death tax. Three, tort reform. Four, the regulatory aspect.

Mr. POE. It is puzzling to me, as you mentioned why we have 

more and more rules about the government bureaucracies getting 

rid of red tape and paperwork and they just ignore the law for 

some reason. Now we have to pass another law ordering them to 

follow the law that has already been imposed. Hopefully we can 

deal with that. 

26

Mr. McCracken, I noticed you mentioned that you were opposed 

to AHP’s. What are your solutions then, since you are opposed to 

those in the area of health care?

Mr. MCCRACKEN. Well, I went into this in some length. We had 

moved more of a market based system for health care to address 

the real underlying costs of health insurance and we have come to 

the conclusion organizationally that that is going to require to do 

that meaningfully, to really make a difference, both for small businesses and for consumers across the nation, to address the system 

in its totality and there are a host of reforms that have to happen 

to bring equity on a tax basis to the provision of health insurance, 

try to get consumers more into the game than they are now, to hold 

providers and health insurers feet to the fire. 

In the short-term, while we are waiting for all that to happen 

down the road, obviously malpractice reform has to happen, not 

just to reduce the cost of the insurance, but to reduce the amount 

of care that is going on that is going on that is unnecessary in defense of medicine and all of that. We think it will have a real impact on health care costs. 

We would also strongly advocate that the self-employment tax on 

health insurance costs needs to be changed so that small business 

owners are not taxed on what they pay for health insurance. 

That could easily save a small business owner $2,000 a year or 

more on his or her own health insurance. I mean real relief.

Mr. POE. Have you followed the tort reform and medical malpractice in Texas? The laws have changed there any?

Mr. MCCRACKEN. A little bit and I couldn’t say I have any expertise in it.

Mr. POE. Finally the results are starting to come in and insurance companies are dropping their insurance rates 12 to 25 percent. Shock. Anyway, thank all of you for being here.

Mr. KELLER. Thank the gentleman. 

Now we are going to have a second round of questions. You have 

five minutes, Ms. Velazquez.

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Ms. Kasoff, I was very pleased to see that you mentioned fairness 

in procurement in your testimony as an important issue for your 

members and this is another item that is omitted from H.R.22. 

As you know, last year for the fourth year in a row, none of the 

small business goals were achieved, costing small firms $45 billion 

in lost opportunities. 

Why do you think that the federal government has such a difficult time accomplishing its small business procurement goals?

Ms. KASOFF. Well, it is a difficult question to ask. There doesn’t 

appear to be enough accountability in terms of the agencies to be 

able to reach out. 

27

There is no question that women business owners and minority 

business owners are prepared. They have the expertise. They have 

the size of the business and the capabilities to enter into federal 

contracts and they are not there. 

The interesting statistic that I find is that many will not even 

attempt to enter into the federal contracting arena. They are concerned that they are not going to be able to make the connection 

with the buyers. They are concerned about the complexity. They 

are concerned about the financial resources required.

Ms. VELAZQUEZ. We all know that people are discouraged from 

trying to even get into investment with the federal government. 

What I am most concerned is the fact that those who are trying 

that there is no intention, at least from the federal government, to 

achieve the goals that have been set by the United States Congress. 

In fact, that what they are doing is counting large firms as small 

firms so that they could claim that they achieved the small business goal. We know that this is not true and it is particularly for 

women. 

Women lost $22 billion in contracting opportunities over the past 

five years. So my question to you is: What about the women’s procurement program that we passed into law?

Ms. KASOFF. That goal has not been reached, as you all know. 

It is an issue that we work on tirelessly and every single day on 

behalf of our constituency. 

We ask for accountability from the agencies so that we make 

sure that we have a seat at the table and we have an equal opportunity for those federal contracts. 

You are correct. Size standards are not correct. Women business 

owners are not being given their opportunity. Large companies are 

getting the contracts and it is a huge problem.

Ms. VELAZQUEZ. Why is it then that I don’t see your organization 

taking the lead to put the pressure on the Small Business Administration to have the women’s procurement program up and running?

Ms. KASOFF. I think I beg to differ with that. I think we are 

there virtually everyday in the SBA, working this issue and working in Congress on this issue. That is an issue that has been on 

our top priority for a number of years. We have been there for a 

long time.

Ms. VELAZQUEZ. Apparently SBA is not feeling the pressure or 

the organization is not having effectiveness, because we look at the 

fact that the federal marketplace increased by $100 billion last 

year, 35 percent and yet the women’s share of that has increased 

by less than half of one percent, from 2.47 percent to 2.89 percent. 

This represents $22 billion in lost contracting opportunities for 

women. I would like to see your organization taking a more aggressive role and asking the Small Business Administrator to implement a program that was passed into law by this Congress.

28

Ms. KASOFF. We have done so. We have letters on record and 

statements on record to that effect and we will continue to work 

to have this goal implemented.

Ms. VELAZQUEZ. Thank you, Mr. Chairman.

Mr. KELLER. Gentlelady yields back. 

I will just recognize myself and not take the full five minutes, 

but there seems to be a consensus by a lot of folks here that these 

are four major issues that come up with small business people and 

then there are a few folks who say, hey what about this issue or 

that issue? Why wasn’t that included? 

Let me just close by addressing that head-on. I don’t pretend to 

know everything about small business. I probably know a lot less 

than everybody testifying. Probably a lot less than people like Ms. 

Velazquez, who has been on this Committee a long time. 

I am a lawyer by training and so when I sit down with 20 small 

business people, I didn’t tell them, isn’t this the answer? I said, you 

tell me what your top issues are and not having any preconceived 

ideas and those were the four issues that came up over and over 

again. Skyrocketing health insurance, death tax, concern about 

frivolous lawsuits and red tape relief. 

In fairness, other issues came up, some that I didn’t include. For 

example, I had a guy named Bruce O’Donahue, who has a small 

business that installs traffic control lights and he said the biggest 

problem for me is when I contract with the government. They jerk 

me around and don’t pay me for five or six months. That is a big 

deal for me. I have got 40 or $50,000 of work and I don’t get paid. 

I think it is probably the biggest deal in the world to him. Probably more than AHP’s. Probably more than death tax. I don’t discount that. I don’t discount the fact that some groups believe they 

need access to capital and they are not getting it. 

What I am saying is, I didn’t include it because it didn’t come 

up across the board. There are some people that feel way, but these 

are the four issues that across the board came up and there is pretty much a bipartisan consensus that something needed to be done 

to deal with those issues.

Ms. VELAZQUEZ. Mr. Chairman?

Mr. KELLER. Yes?

Ms. VELAZQUEZ. If I may?

Mr. KELLER. Yes.

Ms. VELAZQUEZ. I guess one vehicle that we have to perfect the 

bill is having the mark up so that other issues that have clearly 

been exposed here, such as energy and access to capital, as well as 

procurement practices, are included in this bill. We look forward to 

having mark up in the Committee.

Mr. KELLER. We certainly will, after this hearing, have a mark 

up and discuss those further, but those are the four issues that 

29

came up directly over and over with small business people and it 

is interesting as I hear from both representatives from the NFIB 

and the Chamber of Commerce today the same four issues come 

across to them, almost in that order. 

I appreciate and I know Congresswoman Velazquez does and 

other Members here today, thanks so much you all taking time out 

of your busy lives to come here today and let us listen and learn 

from you. 

The hearing is adjourned. 

[Whereupon, at 4:39 p.m., the Committee was adjourned.]

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